Arun Jaitley: Asia's second-best finance minister

India's finance minister faces a tough choice between cutting to meet deficit targets or spending to boost growth.

For the second year running, FinanceAsia has ranked the finance ministers of the Asia-Pacific region’s 12 largest economies.

We're releasing the results day by day, from lowest to best. For the results so far, click here. For last year's results, click here.

FinanceAsia considers several factors when thinking about how to compare the performance of these men over the past 12 months. The role’s responsibilities and powers vary between countries but each minister contributes to fiscal policy and the budget, accesses capital markets, regulates financial institutions, and drives reform. Investor perceptions are one way to view how good a job they are doing, particularly when times are tough.

But the hardest criterion is independence. Most finance ministers serve at the pleasure of their prime ministers, presidents, or military dictators. Their ability to get things done requires political deftness, mastery of policy, sway over the bureaucracy, and the will to fight for the public interest.

Today's finance minister has managed to retain the faith of investors even as he attempts to strike a difficult balance between cutting deficits and bolstering growth.

Ranked No2: Arun Jaitley, India

India is at a tipping point. Finance minister Arun Jaitley faces a dilemma as to whether the Narendra Modi government should curb spending to meet its fiscal deficit target or boost government spending to inspire investor confidence.

Doubts about India’s economic growth surfaced in December when Arvind Subramanian, chief economic adviser in the finance ministry, lowered expectations for headline GDP growth because of a weakening export environment, anticipating also that support from falling oil import costs would no longer be available.

The review suggested growth in the current fiscal year (April 2015 to March 2016) would be in the 7% to 7.5% range, lower than the previous 8.1% to 8.5% forecast. The IMF has projected India’s GDP will expand by 7.3% in 2015/16 and by 7.5% in 2016/17.

The government is also confronted by rising bureaucracy costs and needs to improve its tax-raising.

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Unlike with the previous administration, investors believe Jaitley has the credentials to overcome these problems. That belief will be tested when he presents his budget on February 29.

The finance ministry has signalled that fiscal targets might be relaxed due to recommended increases in the salaries and pensions of 10 million former and present civil servants. That annual $15 billion cost will make it harder for New Delhi to meet its budget deficit target of 3.5% of GDP in the next fiscal year. The target for the current fiscal year is 3.9%.

Rating agency Moody’s has said this should not materially impact India’s credit rating.

Also pending is the long-awaited introduction of a goods and services tax. It has been billed as the biggest tax policy change since India became independent in 1947. The government estimates simplifying the knotty web of federal and state taxes, it could help to boost Indian growth by 2%. 

The Modi government had set an April deadline to implement the new tax but it failed to secure the numbers needed to pass the bill in the upper house of parliament. Can Jaitley introduce the sales tax, contain the fiscal deficit, and streamline industrial regulation, while still winning the backing of other parties in the parliament? No one doubts Modi’s determination to reduce red tape and reform India, but strong opposition from various parties remains a roadblock.

FinanceAsia will name Asia's best finance minister on Monday. Check the website or subscribe to the newsletter to find out.

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