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India's finance minister says economic reforms will be "long journey"
[NEW DELHI] India's Finance Minister Arun Jaitley said on Wednesday structural reforms to Asia's third largest economy could only progress slowly, adding that he backed relaxing labour and land laws hated by business, along with more privatisations.
Speaking to an audience of foreign investors, Jaitley said people still needed to be convinced that making it easier to hire and fire workers would create jobs.
He did not set deadlines - possibly disappointing some in the audience at the Indian edition of the World Economic Forum hoping for a quick reform burst. "There is a lot that has to be done ... I am quite satisfied with the beginning we have made but it's a long journey,"Jaitley said.
He cautioned against rushing into big bang reforms that could trigger a political backlash and derail the government's agenda. "Reform is the art of the possible," he said, while promising not to take decisions that would send negative signals to investors.
Prime Minister Narendra Modi came to office in May with a mandate to create jobs and kickstart Asia's third largest economy after a long period of low growth. Expectations are mounting that the government will take steps between now and the budget in February to stimulate investment.
India recorded better-than-expected growth of 5.7 per cent in the quarter ending in June, but industrial output and investment has not yet picked up in a sustained way.
The government has already taken some steps to make doing business easier and reduce red tape and subsidies. However, Modi has not moved ahead as fast on privatisations or welfare and tax reform as some of his supporter had hoped.
Anand Mahindra, managing director of tractors to tech conglomerate Mahindra Group, said that investment in the economy would pick up once companies saw big infrastructure projects restart. "It takes a little while to gather momentum, and the momentum I sense is very positive," he told reporters. "When you get backhoe loaders out there digging up earth again visibly, you will see a rush of investment," said Mahindra, whose company also makes backhoe loaders.
A land acquisition law passed by the last government and supported by Modi's party while in opposition dramatically increased compensation to farmers for land. Stringent rules requiring consensus among sellers have made it difficult for industry to buy land.
Jaitley said he supported the higher compensation but wanted to loosen other barriers to land purchases.
In addition to an ongoing process of selling off government shares in state-run companies, Jaitely said he was open to privatising so-called "zombie" companies, many of which have hundreds of employees paid by the government but produce nothing. "There are still a large number of companies which are almost on the verge of closure where people are going to lose employment," Jaitley said. "Given a choice between them continuing in the present state and getting them privatised, the second would be a preferable option." He did not give more details and it was unclear how much private sector interest there would be in companies that include a British-era uniform factory and a government watch-maker.
Jaitley said he hoped a long-delayed bill to allow up to 49 per cent foreign investment in the insurance sector would be passed by parliament within weeks, and said he would consider allowing more foreign investment in railways.
Unveiling first steps to reform labour last month, India simplified employment rules and eased the way for people changing jobs to move social security funds.
The government also announced a series of coal field auctions last month, replacing a policy of discretional allocation. Jaitley said the government planned to introduce a similar mechanism for other minerals, without giving details.