The suave 45-year-old chairman and managing director of Hindustan Construction Company (HCC), one of the oldest construction companies in India, has finally come into his own after a long-drawn-out family squabble. As president of the western region of the Confederation of Indian Industries (CII), he was behind the three-day CII centenary jamboree in Bombay. While he has been vociferous about liberalisation for more than five years, the reforms appear to have totally passed by the areas that Ajit Gulabchand and his company operate in. He lets out steam on the Government's unfinished agenda to Shekhar Ghosh:
On a scale of one to 10, how would you rate the Government's economic reforms during the past five years?
Well, you can't give an overall rating like that. If you compare this Government's reforms against the work done by all the previous ones, I would rate the liberalisation process a high 8-9. However, if you compare our efforts with other developing countries, we would come across as a poor 3-4. Having said that, I must admit that this Prime Minister has done his best by taking the country on a path of economic reforms, though we still need to do many, many things.
Could you name a few areas where the reforms have been a success?
The delicensing of industries has helped the manufacturing areas. Allowing 51 per cent foreign investment has also helped the corporate sector. The financial sector has been opened up. The Government has allowed private banks and private mutual funds. The rupee has been made convertible on current account. As a percentage of GDP,fiscal deficit has come down. By putting restrictions on the capital adequacy ratio, the Reserve Bank of India (RBI) has improved the health of all banks. It has tried to contain infla-tion. International trade has also prospered. The Government has brought down customs tariff, rationalised procedures. There has been growth in exports in real terms.
Since you mentioned fiscal deficit, how have the reforms affected the macro issues of the economy?
For any country's economy to grow healthily, you need to have a 7 per cent-plus growth in GDP. To achieve that, you need to have a savings rate of 30-35 per cent. The country's total savings rate today is being pegged at 23 per cent. This includes domestic savings, corporate savings, everything. If consumerism has reduced domestic savings, as is being mentioned, it has added to the corporate savings. However, the Government—state and Central put together—has a dissaving rate of 1 per cent. It is actually a negative savings rate of 1 per cent. And this dissaving by the Government can be changed into a substantial amount by privatising the public sector enterprises. By privatising, I just don't mean disinvesting. The management of PSUs has to be made accountable to investors. Along with this, Government expenditure, too, has to come down. Unless contribution from these two factors comes into the country's exchequer, it will never have sufficient money to invest in infrastructure.
How much can the PSUs or the curtailment of Government expenditure really contribute to the GDP?
It's not how much they can. They will have to contribute at least 6 per cent to the GDP. Even with this, the country's savings will only go up to 29 per cent. The gap of 4-5 per cent can be gradually fulfilled by foreign investment. If you want to reach 1.5 per cent of international trade from the present less than 1 per cent, the country has to trade $150 billion every year by 2005. That means almost $75 billion worth of exports a year. To generate such trade, you need infrastructure of a magnitude that has never before been seen in this country. That is the only way the Government can generate enough surplus to plough back into education, health care, law and order and still maintain a GDP growth rate of over 7 per cent.
What is the ambit of this infrastructure you are talking about?
By infrastructure, I mean both social and physical. While physical infrastructure comprises transportation, telecom and power, social infrastructure would include education, health, law and order and employment. Why, even with limited liberalisation, the country has been generating employment. But do we have an educated, skilled population needed to support the growth in manufacturing and service industries? I remember once Charan Singh observed that hypothetically if all the factories in the US had to be brought into this country, the whole economy would crumble. Where is the population to man them? The famous economist Lester Thurow said that for a country to be rich, it needs a sustained GDP growth rate of over 3 per cent and a population growth rate of not more than 1 per cent for 100 years. Getting rich is a long process. And there is a strong nexus between social and physical infrastructure.
How much have the current spate of reforms achieved in terms of what you call the "long process to getting rich"?
Pretty little, I am afraid. In fact, the Government has done virtually nothing. Not a single kilowatt of power has been generated on account of the liberalisation policy. Whatever extra power has been generated would have happened anyway as per the earlier plans. Similarly, not a single kilometre of road has been built on modern requirements due to policies related to economic reform. Except for cellular phones in some cities, not a single additional phone line has been installed for which reforms can take credit. Liberalisation has not been responsible for one new dock or a single new airport. As far as infrastructure is concerned, Government is guilty of the sin of commission and not
What remains to be done?
Our per capita annual consumption of electricity is 340-360 watt-hour (KW-H). In the US, it's 10,000 KW-H, in Singapore KW-H and in Thailand 2,000 KW-H. Now, even if we assume per capita need goes up to 500 KW-H, we would need 1,42,000 in generation. That will cost about Rs 5 lakh crore on power
The country has a potential to accommodate 10 million every year. Do we have adequate passenger seats to them? Do we have enough hotel rooms and beds to accommodate them? There is no way we can achieve the projected growth rate of 8-10 per cent unless we build up infrastructure rail, roads, docks, airports, telecom and power. Unfortunately, are yet to see a positive political will to develop infrastructure Unlike other services and goods, you can't import infrastructure Worse, it takes longest to develop. The logical outcome should that what takes longest should start earliest. It's a crying that infrastructure has taken a backseat in the reforms process
How exactly do you think the next regime should prioritise infrastructure development?
What the country needs is a powerful political will with drive for infrastructure development. We also need a authority for infrastructural development. Why is the Government not letting local authorities in towns and villages start infrastructure projects? Instead of state governments, let mayor of a city decide what infrastructural projects the city res. In Bombay, to decide over a project, you need approvals five different authorities. Where is the autonomy of the Municipal Corporation if all the people are appointed by the government? Birmingham is a case in point. To integrate with the bal economy, the town planners built a network of highways. built hotels inside the city, started a clean city drive, got rights international flights to land at Birmingham airport; and today one of the major international cities in UK. The Government has to change several laws like acquisition of land, rights to limiting access in order to develop infrastructure in a serious manner
So why has the Government failed to do so?
Unless the Government cuts down its expenditure, where is money to implement these basic requirements? It has to its PSUs. Malaysia is a classic example where without losing employment, they successfully privatised the state enterprises, much so that workers of those PSUs which are not yet are asking for privatisation. The Government has to streamline performance, and more importantly, its election processes. are so busy electioneering or working at political equations elections that they do not have any time to govern. The has to devise ways and means for funding of elections and lining the entire process, so that once they are in power, they concentrate on governing for the next five years. For, there is little doubt that the nature of international events is such that globalisation of the Indian economy is inevitable.
