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'We never finish a project that we start'

In the second of our three-part series which looks at the future of reforms under the United Front, National Stock Exchange Managing Director Dr R H Patil tells Syed Firdaus Ashraf what needs to be done. Excerpts from the conversation:

After the insurance bill withdrawal, where do you think reforms are headed?

Frankly speaking, I am still hopeful that the bill will be reintroduced in Parliament and passed. The Opposition parties always find a way to embarrass the government and that is what happened in Parliament on that day. I sincerely believe that all parties want reforms, irrespective of their ideologies.

What have we achieved in the last six years since liberalisation began?

I will say we have achieved a lot. Reforms have literally opened up the economy and ended license raj, an achievement in itself. The airline sector has been opened up to the private sector. In 1990, I would never have imagined the infrastructure sector being opened up to foreign companies. These are major achievements. We should not belittle them and only look at the failures.

Where have we failed?

Our failure is that once we decide to finish a particular project, we never complete it. And the reason is that the authorities in charge are not well trained. They do not understand the full implications the major changes happening in the world and how a particular project will benefit our country. In short, the administrative machinery is not attuned to the changes that have taken place after reforms.

Let us take the case of guarantees. The purpose of guaranteeing a project is that it will speed up implementation. If the central government is to give a guarantee, then the process is done quickly. But when it comes to the state level, the process stops. So I think reforms are needed at the state level.

Is the bureaucracy a hurdle?

Yes, but not intentionally. Every bureaucrat wants projects to follow particular guidelines. Unless a policy is clear, he will not sign because he will be blamed if something goes wrong. Rules and regulations have not changed much and therefore, there is a lot of confusion, which leads to hurdles in the bureaucracy.

Many environmentalists have filed litigations in courts against various projects. Do you think there is a need to keep a check on them?

Unfortunately, little clarity exists in our environment policy. We need a clear-cut environment policy. For example, the coastal zone regulation even affects a city like Bombay. I don't see why environmentalists should object if a structure is coming up on vacant spot in a developed coastline.

The courts too are not helped by the authorities concerned in reaching proper conclusions. Regarding the case of coastline fishing, the National Environment Engineering Institute first said that it will not damage the coastal environment. So the government allowed it. Then NEERI gave a report contradicting its earlier stance. How can a body like NEERI act so irresponsibly? By doing so, these authorities are letting down the courts, because the courts cannot go and check the environment.

There are perceptions that reforms have slowed down because a 14-party coalition is governing the country. Do you agree?

I completely disagree. If you see the history of reforms, you will realise that reforms have sped up only when governments were in a minority. For example, when the Narasimha Rao government was in a minority, reforms were at its peak and major decisions were taken. The day Rao's government secured a majority in Parliament, the process slowed down. Rajiv Gandhi had an 80 per cent mandate, but still reforms did not take place at the same pace as it did under Rao.

Will you agree that reforms have slowed down?

No, I think the rate of reforms is still the same. Instead of saying that they have slowed down, I would say that reforms occur in a halting fashion. A classic example is the Insurance Regulatory Authority. Everybody agreed to opening up the insurance sector, but suddenly nothing happened.

How different is the situation for Palaniappan Chidambaram as compared to Manmohan Singh?

Very different. Dr Singh was around at a time when every Indian believed in socialism. In that era, to start the reform process was in itself a great feat. He was the leader who took the lead and changed the mental frame of every Indian. He has to be given credit for that.

Chidambaram has encashed on that background. And today, despite all the odds, he is pushing the reforms ahead despite the stiff opposition from various segments. However, no finance minister alone can push the reforms, it depends on the entire Cabinet.

Do you believe we will achieve a seven per cent growth rate next year?

I feel we will achieve a growth rate higher than seven per cent! Our growth rate never went over 4 to 4.5 per cent because of restrictions and regulations. Now that the hurdles have been removed, I am sure the momentum will pick up. If we go in for greater convertibility, the supply of capital will increase, leading to higher growth.

If Indonesia, which is less than one-fourth the size of our country, can attract $150 billion, why can't we attract $300 billion to $ 400 billion? Also, the entrepreneurial talent in our country is far more than any of our neighbouring country. We need not worry about this temporary slowdown, which happens in every economy. All economies do not explode.

What should be done about petroleum subsidies, which costs the government Rs 300 million every day?

I have been writing that the prices should be raised. Nothing should be sold at a subsidised rate. Diesel should not be subsidised; after all, it does not go to the poor man. One may argue that by removing subsidies, prices of goods will go up. But the government cannot go on subsidising various items. Goods are subsidised from the taxes paid by the people.

What about kerosene?

Kerosene too. The major portion of kerosene is sold in the black market, it does not go to the poor. However, if your are still worried about kerosene, let it stay. But raise the price of diesel. There is no other alternative.

If subsidies benefit the rich, what must be done?

I think we need to bring out a white paper on subsidies as Chidambaram has been saying. We must have a national debate on whom the subsidies are meant for. I firmly believe that most of the subsidies are not going to the poor man. Subsidies for fertilisers and electricity benefit the rich farmers. The poor were misled into believing that the subsidies are for them, but now they realise that it actually benefits the rich.

Why have the small investors lost confidence in the stock markets?

After the reforms of 1991, many changes took place in the stock markets. Small investors then mistakenly believed that any share purchased would appreciate. Between 1992-95, all sorts of shady companies registered, resulting in many investors burning their fingers. Till today, they are shy of the markets.

The same is the case with real estate. By constraining supply, rates went up to absurd levels. Such falsely high prices are bound to fall. When the construction cost per square foot is Rs 500, why should builders charge Rs 5,000? Is land so scarce in this country? Here too, the government must act and scrap the Urban Land Ceiling Act to bring prices down to a realistic level. Changes should also be made in the Tenancy Act.

Where do you see India in the next five years?

I am very optimistic. The next five years will be much better than what we have seen so far. And in the next ten years, India will be also one of the throbbing economies of Asia. Poverty will automatically disappear.

I come from Belgaum in Karnataka, and have seen poverty there in the olden days. Today, I find that the old problems of poverty and unemployment no longer exist. In fact, it will be very difficult to find household labour in the coming five years.

EARLIER INTERVIEW:
Kesri factor hurt reforms, says Tata economist S S Bhandare