Montek Singh Ahluwalia

For five years, Finance Secretary Montek Singh Ahluwalia's reverse-tied turbans—the top fold goes left to right instead of the usual right to left—have been an icon of the Indian reforms. Only Dr Manmohan Singh is associated more strongly in the public mind with liberalisation. When Padma Rao-Sundarji caught up with Ahluwalia at the Indian Consulate-General in New York a few hours before the Secretary returned home after a whirlwind US trip, he looked tired but as dapper as ever. Sipping the finest Darjeeling tea, he was willing to, for the first time, talk about the full first stage of the reforms: getting the Indian economy back from the brink, the achievements and failures, and the unfinished agenda. 

There's an impression that the reforms slowed down in the last two years, especially after the Congress fared poorly in some state assembly polls. What is your view?

I think much depends on what people's expectations are from the pace of reforms. In the last two years, we managed to get done quite a lot of what was actually on the agenda. For instance, the 1994 and 1995 budgets definitely pushed forward the reform agenda in many spheres like, say, tax reforms. It's not true that nothing was done. In 1995, very important reforms were introduced and continued in key areas like capital markets.

The same year, the whole initiative of inviting the private sector into, for instance, the power sector and telecom came about too. Agreed, there were some hiccups—Dabhol, for instance—but at the end of that period, the problems and controversies that cropped up in the power sector were sorted out. And we are now moving ahead with important projects which only a year ago looked as though they were stuck. The Government also completed the process of tendering for private operators of both cellular and basic telephone services. All this happened roughly over the last 18 months. Obviously, there are people who would have wanted even more to be done, but I don't think it's correct to say there was a slowing down. Speaking of the last half-year, nobody can go around making announcements of new policy six months before an election—during that time, the focus is on completing a job already outlined. And that's what the Government has been doing.

What about the demand for a level playing field? Do Indian companies still have a cause for complaint?

Frankly, I don't think Indian industry, in any organised context, has said there is favouritism towards foreign investors. Earlier there was a negative attitude towards foreign investors. The policy intended to get rid of that attitude and invite foreign investment. In many cases, this led to joint ventures. So it wasn't as if Indian industry wasn't involved. I sometimes feel the demand is being played up by the press. On the contrary, industry spokesmen have welcomed the opening and have said we should encourage foreign investment.

Of course, they're also saying there are many things we should do to strengthen Indian industry. The Government is aware of that and aims to execute it. Sometimes, a demand made by the domestic industry takes time to get executed. That doesn't mean discrimination. Far from it. Our objective is that the policy should lead to a strong and resurgent Indian industry. And if you asked the domestic industry, it wouldn't say there are specific areas where foreigners are being preferred. It is likelier to say the world is opening up and if it is to compete efficiently in that world, world class services are called for. We need world class banking and insurance systems and transportation of that calibre too. We're trying our best to improve the infrastructure of all these services. It is not as if we're giving foreign investors better infrastructure than we're giving Indian industry.

If you were to list the three most major successes of the reforms process, what would they be?

Number one: we've managed to bring about stabilisation of the economy from a very severe crisis in an exceptionally short time. By 1993 the economy had stabilised and there was no crisis. This is a major achievement. People tend to forget the importance of these things because the crisis is over, but not many countries have had that much success in such a short time. Number two: we brought the economy back to a growth rate faster than that prior to the crisis. In the 1980s, the average growth rate of the Indian economy was about 5.6 or 5.5 per cent. Right now the economy is growing at 6.3 per cent. In fact, it is actually accelerating, so we're transiting from something like a 6-plus per cent to a 7 per cent growth rate over another two-year period. Number three: the benefits of this growth process are spreading to a larger percentage of the population. According to the latest Planning Commission data, there has been a dramatic reduction in the percentage of people below the poverty line. Though you asked for three successes, I would like to add one more. It is very important that all this has happened while India is opening up and integrating with the world. In the kind of world we are moving into, closed economies cannot be successful. And even if we had achieved stabilisation and pushed a growth in a closed environment, it would not have been a sustainable process. You might be able to do it for a year or two but it would not hold out the basis for sustained expansion in the future. For the first time, the economy has opened up. It is much more integrated and people have tremendous confidence. Indian businesses today are raring to go. They're keen to compete and have very high confidence.

What do you think are the most important points of the unfinished agenda of the reforms: the areas that should be tackled on an urgent basis by the next Government?

We clearly have to continue to make progress on reducing the fiscal deficit, because this is the only sustained way of lowering real interest rates and encouraging domestic investment. Second, there's a lot of completion of a job already started. Tax reforms have made progress but there are a few things that need to be done to complete the transition. That is high on the agenda.

In trade policy, clear directions are being laid out by the commerce minister. We want to get rid of all quantitative restrictions. Today, the import of consumer goods is still subject to quantitative restrictions whereas it would be much better to regulate this sector through tariffs. That process should be completed. Of the financial sector, the Government has said that the insurance sector needs to be looked at after the elections. Also, we need to give priority to what the infrastructure sectors need to support rapid growth. We need to make our state electricity boards viable, financially strong organisations. This requires restructuring of power tariffs and this is a political decision, where all states have to act together. If we could make these boards financially viable we would be able to attract a lot of investment, not only from the boards themselves, but also from private investors, who would be keen to supply power to a financially viable board.

We ought to ensure that the telecom initiative comes to its logical conclusion. We've already had good results in the four metros. A lot of business people are using cellular telephones. But, we need to put in place functioning alternative suppliers of both cellular and basic services all over the country. That's a major job. We also need similar initiatives to improve the quality of roads and railways. These are the key constraints to taking the growth rate up from the 6.3 per cent that has already been achieved to 7 to 8 per cent.

How do you feel after five very exciting years: tired, happy, what?

I feel very gratified that the policies the Government has been following have delivered as much success as we had a right to hope. Had we, five years ago, outlined the very major changes that are going to be made and prognosed that at the end of the five-year period, we would see an economic growth of 6.5 per cent, export growth of 20 per cent, the percentage of people below the poverty line sharply reduced, the employment growth rate sharply increased and an inflation rate below 5 per cent, anyone would have agreed those were terrific goals to aim at. And the economy has done precisely all those things so one can only feel gratified and happy at the outcome.

As for dismantling the License Raj, how many marks out of 10 would you give these five years of reforms?

I am on the students' side, so you will have to award those marks. And as a student, all I can say is that we've made an honest effort—but it's for you to do the grading. We can only hope for the best.