The Tribune...50 years of Indian Independence.....State of Economy

India needs credible reforms in public, trade sectors

A fractured mandate always a potential danger
HOPING that the present BJP government would do nothing to slow down the tempo of reforms, Dr Manmohan Singh, however, is not satisfied with the currentpace of reforms. "I am sorry, I am not satisfied", he says, adding that it needs to be pursued much more rigorously "if it is to realise the full potential of a dynamic economy". Admitting that there is "danger" whenever there is a fractured mandate, Dr Singh, in an interview with Gaurav Choudhury, feels that beyond a point "it can give rise to pressures which may lead to fragmentation of the national economy."

Excerpts:

What has gone wrong with the economy?

Well, I do not think that we should say that everything has gone wrong. India has made substantial achievements in terms of diversification of our economic structure. Substantial progress has been made in increasing food production, progress has been made in the diversification of India’s industrial structure, and also, India has taken giant strides in science and technology. These are all very positive developments. In terms of overall growth rate also, India’s growth rate after Independence, in the 50-year period would probably be above 3.5 to 4 per cent which is not good enough but has to be compared with the growth rate of less than 1 per cent which prevailed in the preceding 50 years. At the same time what has to be recognised is that the progress that we have made has fallen far short of the aspirations of our people, the objective potential of our economy and our plan targets. In my view, the basic problems have arisen because we have not laid as much emphasis on efficient use of resources as we should have. Partly it is the result of over- regulation of the economy, over-bureaucratisation, excessive importance given to public sector without ensuring that the public sector undertakings have the necessary autonomy to function as profit making centres. We have also, I think, not paid adequate attention to the task of increasing our exports. Our biggest failure probably has been inadequate emphasis on social sector development. Education, health care etc are the sectors which have not received the attention they ought to have deserved.

The need for economic reforms is acknowledged virtually by all political parties. Still, there seems to be no composite approach on the nature of such reforms and priorities which have to be adopted to get the desired results. Why?

reforms need to be pursued more vigorously Well, I think that there is a broad consensus. The programme was launched by the Congress Government. We had a United Front Government which was a combination of many Opposition parties. You look at their record. By and large, they pursued the same path of reforms which was laid down by the Congress Government. As far as the BJP Government is concerned, I think, they are fast disowning their manifesto. They have disowned their manifesto on Ayodhya, on uniform civil code, and the first statement the Union Finance Minister made on foreign investment was that multi-national corporations have nothing to fear about from the BJP Government. My own feeling is that under the surface there is consensus, but we need stronger political will to implement the more difficult part of economic reforms.

The plight of the poor seems to be attracting the least attention. It is one thing to pay the poor and have-nots lip service and another thing to have a concrete plan of action to improve their lot. What are your views?

There is no magic way in which one can improve the lot of the poor except by ensuring that employment opportunities increase fast enough. Employment opportunities cannot increase unless our economy agriculture, industry and services grow. That is the only way one can create productive jobs. At the same time, we have to ensure that while our economy develops, the poorer sections of our society are also enabled and empowered to take full benefits of the opportunities of growth. This means greater emphasis on health, education, vocationalisation and technical training. These are things which have to be done to ensure that the poor do participate effectively in the development process. In agriculture, it is essential to ensure that the tiller of the land gets his due return. Wherever there are problems with regard to implementation of land reforms they have to be sorted out.

One tendency visible, specially in the case of the present government, is the promise of specific packages for allies or parties that have promised to support them in Parliament. The problem here is equitable distribution of resources. If certain states corner or manipulate resources from the Centre due to political considerations, don’t you think that we will only be consolidating the ongoing tendency of putting politics before economics?

I think there is a danger there when you have a fractured polity. Small parties have acquired a degree of power which was unthinkable till some time ago, and if they dictate terms beyond a point it can give rise to pressures which may lead to fragmentation of our national economy. We may in the process lose sight of wider national concerns of Indian people as a whole. Our’s is a large country. It has to be administered with due care, and maximum possible decentralisation should be the key word of our development administration. But whatever decentralisation we need, should be coordinated decentralisation mindful of India’s interest as a common national market, mindful of the fact that as a country we have wide regional disparities. If the federation is to be kept going, the poorer people and the poorer states should have the assurance that their needs will be properly attended. Now, if resource allocation is to be determined solely by political powers of regional parties, that in due course of time could lead to new destabilising tendencies in our economy.

What steps would you suggest to meet the urgent requirements of core and infrastructure sectors, especially power, roads etc?

First of all, all these sectors would need massive economic reforms to ensure that these sectors run on economic considerations, as commercial entities, that they have the freedom to run as commercial enterprises, that they pursue tariff policies which will provide a reasonable assurance to potential investors. For investors to get a reasonable rate of return they must be run on economic terms. Therefore, I think, in all these sectors, there is tremendous need for pushing ahead with structural reforms of the type that our government launched. But we were not able to do all that was necessary. These reforms, I think, were designed to improve the management structure, to improve the profit-generating capacity. Without these reforms barely putting resources from the public sector will not solve the problems of power.

We all talk of entrepreneurship. Apart from a few big players, real Indian entrepreneurship lies in the small sector. They have lots of problems. Don’t you think they require special response from authorities?

I think there are market imperfections which justify promotion efforts for the owing to market imperfections,promotional efforts for the small sector are justified small-scale sector. These in my mind relate to dealings with the imperfections in the capital market, special mechanism to promote credit flows to the small-scale sector, enabling small enterprises to raise equity in the capital market on more favourable terms then they are able to do now. Therefore, I agree there is a need to promote small industries. To disburse regional balanced industrialisation of our country, small industry has an important role to play. Therefore, the problems are there in the area of credit, in the area of technology upgradation and in the area of marketing.

Are you satisfied with the process of reforms you set in? How do you spell out the complexities of economic management?

I am sorry I am not satisfied. I do believe that reforms need to be pursued much more rigorously then has been the case. The process of reforms had slowed down even in the last years of the Congress Government. I hope the present government would do nothing to slow down the tempo. India needs strong credible reforms in the public sector, financial sector and trade sector plus reforms to improve the functioning of the land and labour market if it is to realise the full potential of a dynamic economy in which employment opportunities grow fast enough.

Seven years after the reform process started, the swadeshi thinking has again resurfaced. How do you incorporate the relevance of swadeshi in the present context?

Well, I don’t understand what swadeshi is. The BJP is using swadeshi, I think, as a political slogan to divert our people’s attention. They have no clear conception of what swadeshi is. In the so-called national agenda they say India can and shall be made by Indians. Who disagrees to that? We have never believed that foreigners are going to develop India. The bulk of resources for India’s development has always come from within our own resources. Therefore, we need to increase our savings rate. I think these are false slogans which the BJP has raised to divert our people’s attention from the real issue. The real issue is how do we build a strong and competitive economy. How to ensure that our people have the access to the same level of education and health care that is available in the countries of South East Asia. The real problem is to have a strong financial and infrastructural structure so that Indian industries can compete with foreigners both in India and abroad.

While India has by and large avoided famine in the last 50 years, endemic hunger resulting from undernutrition persists on a large scale. How do you think we will realise Gandhiji’s vision of a hunger-free India?

To tackle this we need maximum possible decentralisation. We have to decentralise the development administration. We have to strengthen Panchayati Raj institutions. Get them more administration powers, financial powers. That will also promote a style and pattern of development which is more responsive to the felt needs of the people.

I think there are market imperfections which justify promotional efforts for the small-scale sector. These, in my mind, relate to dealings with the imperfections in the capital market, special mechanism to promote credit flows to the small-scale sector, enabling small enterprises to raise equity in the capital market on more favourable terms than they are able to do now. Therefore, I agree there is need to promote small industries.To ensure regional, balanced industrialisation of our country, small industries have an important role to play.