On a scale of 1 to 10, how would you rate the economic reforms during the past five years?
I would give the reforms a rating of five. What one needs to keep in mind is that reforms take time. The biggest credit that goes to the present Government is that today the entire country has started talking about liberalisation, not just paying lip service to it. Once this thought process starts, there is no going back and the process of economic reforms becomes irreversible. We still haven't started suffering the pains of the process. Unlike the common belief that Manmohan Singh is the architect of the reforms process, it was the political will of the present Prime Minister which brought in the reforms. I know for a fact that during the initial years, it was Narasimha Rao who had to urge his ministers to carry out bolder reforms than the watered-down proposals that they presented to him. He saw the collapse of the former USSR and knew that the country had to integrate with the global economy.
Why then are you giving the reforms a rating of only five?
Because several vital reforms have failed to take off. Financial deregulation has not taken place. Provisions of the outdated Company Law are crying to be amended. Why have they constantly failed to deregulate a lot of financial sectors? What prevents the Government today from going in for a massive disinvestment of public sector units (PSUs) and using the funds to reduce its debt? Sell 40 per cent of the PSUs instead of divesting only 5 per cent. Unfortunately, the feeling in the country is that by selling the PSUs, you are selling the birthright of the country.
There has been no change in labour legislation. One appreciates these are tough things to do for a government, especially in a democracy where political consensus becomes the Big Compromise, but you've got to face reality.
You've been closely involved with management-employees' organisations. How has liberalisation affected trade unionism in the country today?
I am indeed in very close contact with trade unions. It's amazing how their views on matters like productivity, absenteeism, multi-line workings, etc., have changed. They are also aware of industry's demands for globalisation and their role in it. At the same time, you can't blame them for being apprehensive about massive retrenchment. In the absence of any kind of social security, they are naturally concerned about their jobs. I personally feel that Indian industry is very conscious of the fact that it has a responsibility to the workers. It is a myth that industrialists want to fire people. However, what does an industry do when it finds itself loaded with 30 per cent surplus labour in its bid to modernise and automate? They are not allowed to retrench without government permission and most of the labour laws are loaded in the workers' favour.
So what's the way out?
Well, there has to be a period of pain. The Government as well as the country have to recognise the fact that exit policy will lead to temporary unemployment. And redeploying and retraining in reality does not work as well as it is professed to be. But the Government has been very successful with voluntary retirement schemes in getting rid of workers from the PSUs.
What about macro-economic issues ?
One of the major defects of the present reforms system is that the Government has failed to cut down its own costs and expenditure. You can't live with the deficit budget that exists today. Because of a revenue deficit, we are eating into the capital account. As a result, investments into priority sectors like housing, education, healthcare are being neglected by the Government. In order to reduce poverty, the country needs an economic growth of 7.5 per cent. The moment we achieve this, we'll have funds to invest in these critical sectors.
Market reform system also dictates that subsidies should go. If you have brought inflation down to 5 per cent, your interest rates should not be more than 9 per cent. But while we have an inflation of 4.7 per cent, the interest rates are ruling at over 18 per cent. There is a contradiction here. You need an industrial growth rate of over 12 per cent and agriculture growth rate of 4.5 per cent. The whole system of government is running foul.
What about infrastructure?
It's a bit of a chicken-and-egg situation. The Government does not have money to put in infrastructure, and unless infrastructure develops, foreign investment won't come in. Particularly in the automobile industry, you would need a massive road-building exercise. There is a saying that automobiles get built first and then the road follows. While the private sector can certainly help develop infrastructure like ports, communication and power, I am afraid, as the law stands today, the responsibility of road-building lies with the Government. Industry has been pressing for decades for some action on improving infrastructure. The development of efficient ports, telecommunication network, building of bridges and roads have to be a part of a composite exercise. It cannot be piecemeal. We should take a lesson from Bangkok. The infrastructure there was impossible. They invited a Hong Kong company to build their rapid transport systems. This is what I have been advocating. Get some expert companies, let Indian companies join hands with them.
But then your own industry starts talking about fair play vis-a-vis transnationals.
First, I must state that I am not one of those who subscribes totally to market economy. There are certain areas like food, defence, etc., that you have to protect. Only when you start creating massive employment and the income of the populace starts moving up, can you afford to remove all subsidies. I also believe we can't ape the West in any economic model and have to devise and develop our own economic models. The total freedom in foreign investment is not what it is perceived to be. To start with, the Government has to be transparent in all its approvals. All CII has asked for is transparency in rules for foreign approvals. For a few sectors, I would follow the example of the Indonesian government. Allow 100 per cent foreign ownership with a fi rm commitment that in five years' time, they have to reduce their commitment to 40 or 50 per cent. If Coke can borrow huge amounts of money from abroad at 5 per cent interest and bring it here, you create the same freedom out here as well. Where we have needed foreign investment and technology desperately, we have opened up. Our telecom policy is the most open in the whole world.
What should the role of states be in the reforms process?
What eventually will happen is that with reforms gaining momentum, Central control will gradually ease off in favour of states. The states will become more autonomous and powerful, though I strongly believe in a politically-strong Centre. States will compete within themselves to attract investment which will lead to simplification of several antiquated rules and regulations. Competition among the states will take care of most of the minor problems. States will start thinking about infrastructure so that rapid movement of goods and grains can only add to their revenues.
With election fever building up, there is a debate on about the private sector funding elections...
I don't think so. My view is that elections should be funded by the State. I don't see why a special election tax cannot be levied on everybody—corporates, individuals, farmers—and let the State fund elections. The rates of this tax may vary, but in five years the Government can gather enough funds to fund the entire election. Under the laws today, companies are permitted to donate to political parties but only a certain percentage of their earnings with due approvals from shareholders and the board. But as far as the future of economic reforms is concerned, they can only gather momentum after the elections. If the Congress comes to power, the liberalisation process will accelerate. If any other party forms the government, there might be a slight hiccup, but it can only move forward.
