When set against the aspirations of the August 15, 1947 how would you assess theperformance of the economy during the last 50 years? What went wrong?

When we started off in the early 50s we adopted an import substitution model to run the economy. We also started practising a socialistic regime. Both these things were understandable because it was very fashionable in those days. Socialism was a very popular concept. Also the fact that we had won Independence from the British meant that we were afraid of imperialism of any kind. This includes economic imperialism. So this, kind of, justifies the adoption of the import substitution model and the Socialistic regime. But both these arguments over a period of time lost their relevance. World over things started changing. If one looks at the mid-sixties and early seventies, clearly, the public sector policy had failed India. Instead of remedying that, what we started doing was compounding our mistakes by more nationalisation. And we continued with the import substitution model. As a result of this, I think, India got isolated from the mainstream world economy.And then compare it with a country like South Korea, which practised a export-led model and a non-socialistic regime, and, therefore, enormous wealth was created in the private sector. As opposed to that in India, the private sector was a very small part of the total economy. We neither had the technology nor the wealth base.And hence the crisis of 1991.By this time our fiscal deficit had mounted because we were spending recklessly on public sector and populist programmes and so forth. And so by 1991 Indian economy was in a total mess.Granted that from 1985 onwards we started initiating some partial liberalisation. But the government even at that time was still a very major player in the economy. So this was what landed us in the crisis of 1991.

I think any public sector by nature is bound to get stuck. People have different arguments about talents in the public sector and so forth. I have a different reason. By its very structure the public sector cannot function because there is no accountability. I think in the private sector, although this is not to say that the private sector in India has been performing superbly, there are a lot of inefficiencies. The management is made accountable to the share holders. That, I believe, brings about pressure on the management to perform. Whereas in the public sector, there is absolutely no accountability. If nobody cares, how can it function?

Well, we have a democracy that functions, although it comes under pressure from time to time. But still it functions. There is a private sector. So given the right policy initiatives we have the potential to take off soon. We have got institutions, which a country like China does not have. Although the institutions do not work very efficiently always, still, there is again a potential there. But if these can activated these institutions can start performing. So, I think,we have created an environment here where we have potential but we have not kind of leveraged them for the country’s good. One of the other areas, where we have failed is the social sector. We have not improved our literacy adequately, we have not come through with sufficient population control measures, we have not come through with sufficient health care measures. Today leading economists of the world sees a healthy correlation between healthy educated people and economic success.

I absolutely agree with this. I think, it was an ancient Chinese philosopher who said that if you give a man a fish you have fed him for one week. If you teach him to fish you have fed him for life. I think in that regard we have just not done enough in this country towards poverty alleviation. All this business of subsidies and giveaways are kind of short-term solutions. Whereas, to come through with a really effective poverty-alleviation programme we need to make people employable and create jobs.

Frankly, I personally believe that there are a lot of opportunities in this country. Let me put it the other way. The way we are carrying on today, we could have two Indias. A reasonably successful urban India, bustling with economic activity, which has 30 per cent of India’s population, and a poor India with 70 per cent population. That is the most dangerous thing that can ever happen to this country. I believe that today there has to be a complete change of emphasis. I think the rural sector of the economy, the agricultural sector of our economy need greater focus. We need to bring in technology, we need to bring in private enterprise to the agriculture sector, we need to increase investment in education and we need to increase our investment in infrastructure. Look at the intermediation between rural and urban India today. The middle man makes a huge fortune.If the infrastructure is built up we could improve the quality of intermediation. This would improve the terms of trade for the farmer. I think these must be the kind of policies we must come up with. Now every government talks of increase in expenditure in agriculture. I think we need a national strategy for this. There is no point in hit and miss and haphazard initiatives.

I do not know. I do not know what is lacking .The political will should not be the issue. Because it is there where the votes are. I think it is a question of wrong priorities. They should get their economic priorities right. The emphasis is less than what it should be on the primary sector and on the rural parts of India.

You spoke about bringing it latest technology in the rural sector. But the cost of displacement is always there...

There is going to be a time lag. But let’s face it. Today the poverty levels in rural India cannot get any worse.So the problem of displacement is not going to be a major issue because things cannot get any worse.

How would you incorporate the swadeshi thinking in the present scheme of things?

The swadeshi thinking that had resurfaced seems to be dead again. I think that it was just a minor aberration.

Not just only in the core sectors, but for the economy as a whole some urgent steps are required to move the economy forward. Three things come to my mind. First is government expenditure in infrastructure. Well-thought spending in infrastructure could improve the demand for basic goods in core sectors like cement and steel. Of course, one could ask the question, where would the government go for funds? I say that the government should go for the funds from the disinvestment proceeds. This may take about 12 months. But temporarily, the government may seek accommodation from the RBI or other sources with the commitment that this debt would be settled within 12 months time. The disinvestment route also has the advantage of activating the dead capital markets. The second option is to look at the fiscal policy. Look at the very high level of indirect taxes on many of our consumer durable products. We know that most consumer durable products are price elastic. So, I think a revisit there could stimulate demand. The third, I think, is to relook our monetary policy. Real rates of interest are very high. This is something which has to be looked at by RBI authorities.

There are three things. One is that in the post Independence period the longevity of people has increased,the infant mortality rate has decreased and the birth rate itself,which was very very high at the time of Independence has started coming down. Again if we had invested in human capital, a big chunk of this problem could have been solved. Even today female literacy is averaging around 35 per cent compared to male literacy of 55 per cent. Here today the Planning Commission could help us by giving us strategic choices.