Demonetization was morally, ethically correct step: Arun Jaitley

On the first anniversary of demonetization, finance minister Arun Jaitley spoke to Mihir Bhatt on why note ban was an important step needed for the betterment of the country. Excerpts from the interview.

As we celebrate the anniversary, there are some who are trying to observe it as a black day while some others are still figuring out what mistakes were made in its implementation or execution...

Every structural reform has side effects but it also boosts the economy. Undoubtedly, people will take some time to understand this transformation. If you recall even Dr Manmohan Singh was criticised initially by few members of his own party when he initiated reforms to open up the economy in 1991. The move of inviting FDI in India was also criticised initially. Similarly, demonetization is also a game-changer and will bring a big change in the economy of India. demonetization was a morally and ethically correct step. It led to an increase in digital transactions and increase in taxation across the nation. It helped us to change the cash-dominated economy, black money dominated economy and corruption dominated economy. Our government is trying to create transparency in the economy of India and I can see that there has been a directional change. You may discourage or appreciate the move, but the move has created a central stage that is calling for such changes in the economy of India.

Manmohan Singh, who is an economist and former governor of the RBI, has termed the move as an organized loot.

For me, loot means theft of something. Theft in Common Wealth Games, 2G (spectrum sale) and coal block (auctions) can be an example of the word loot. But I don't feel that asking people to deposit their taxes can be termed as a loot. Terming demonetization as a loot is an insult to the word 'loot.'

Demonetization is being milked as a bad move ahead of the Gujarat elections by the opposition in the state that has a huge concentration of traders and SMEs.

I feel that Gujarat is a progressive state, and being a progressive state it has been accepting all economic reforms without any hesitation. Gujarat has never opposed any economic reform and temperamentally is part of a liberalised economy. GST is a progressive reform and I see not the reason why Gujarat will not see the importance of demonetization.

No other government can boast of two such tectonic reforms like demonetization and GST within six months of each other. Despite this, the economy has shown remarkable progress and growth is returning. What is your assessment of the same?

It is very clear that GST did impact growth in the first quarter as manufacturing went down to 1.3%, production was at a standstill and old stocks were being sold at pre-GST rate. But with the earnings improvement in the second quarter, we have seen a positive growth in PMI, IIP, core sector and auto sales.

There have been some question marks raised over the World Bank rankings as well. People have questioned the authenticity of India's rise...

I think that is a meaningless argument. The government has made all taxation online now and that is why we have got a jump of 53 points. We have expanded the provisions of insolvency resolutions in the country and that is why we have jumped 33 points. There are a few criteria where our rankings have not improved that we will endeavour to improve in.

Is it safe to assume that after another year we will see the Indian economy perform at its peak? Job growth and credit off taking remain two big challenges for the economy.

There are two aspects to this- credit growth and global growth. I believe that we are yet to come to an optimum growth level because private investment is yet to pick up. We already have a robust banking system, public spending and good inflows of FDI to support private investment.

The Indian stock market has been one of the best-performing globally. We are at the top when it comes to the emerging markets. But all eyes are on the verdict of the Gujarat elections.

The two are not connected. Banks were flushed with money deposited after demonetization which then, in turn, was lent to people. People also started investing in the market through mutual funds and that's why we see markets at a high.

Regarding reforms in the banking sector, investment banks like Morgan Stanley have stated that government should swiftly reduce its stake in banks to 26%.

The government is currently focusing on reducing its stake to 52%. This is the roadmap that the government has indicated and will be sticking to.