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Hotchpotch coalition's CMP still a dream: Manmohan - The Economic Times

Saswati Chakravarty ()
10 February 1997

Title : Hotchpotch coalition's CMP still a dream: Manmohan
Author : Saswati Chakravarty
Publication : The Economic Times
Date : February 10, 1997

Between 1992, when he took over the reins of an economy in
shambles, and today, when he plays an active role in the CWC, Mr
Manmohan Singh has come to learn the art of mixing sound economics
with clever politics. The architect of liberalisation, who shaped
the contours of globalising the Indian economy as finance minister,
is known for being usually diplomatic. It's only rarely that he
chooses strong words. In a free-wheeling interview to The Economic
Times, he let his hair down for a change and spoke his mind. "We
have a hotch-potch coalition which has not even been able to
implement its own Common Minimum Programme". Swinging between
political broadsides and economic beliefs, the soft-spoken but
sharp, and often ascerbic, Mr Singh says the budget documents will
show that "all this talk that they have done earth shaking things"
can not be sustained. Excerpts from an exclusive interview with
Saswati Chakravarty:

Are the reforms on track?

Who says they are on track? Even the finance minister says they
are not on track. He said at Davos that we have to reform at our
own pace. That is the political reality. And the political
reality is that we have a hotch-potch coalition which has not even
been able to implement what it agreed in its common minimum
Is that what has caused the economic slowdown?

Well, first of all, what is a slowdown? The economy is still
growing at a respectable rate. The fact that agriculture is still
growing at the rate of 4 or 4.5 per cent, I think this largely an
act of God. Industrial growth rate has certainly slowed down.
Even then the economy will grow at 6-plus per cent. Investments
have certainly slowed down if you look at the sanctions of the
financial institutions. All India financial institution sanctions
have greatly declined compared to last year. That tells you about
the state of confidence.

Had you continued as finance minister, how different would your
policies be from that of the UF government?

What policies have they made? What have they added, I don't know.

Has there been any continuity with what you did?

Well they have broadly continued it, but in a manner which does not
generate enough confidence. The industry minister announces a
certain policy and the civil aviation minister says no, we will not
allow a particular formulation. There are problems about Maruti.
Suzuki is the most successful Japanese investment here. Now, if
you want to attract investments from Japan, and you don't handle
that case well, it will send wrong signals. The economy is growing
largely on the basis of the momentum built up in the last three to
four years. The task of this government is to take credible
measures to deliver on its promise of working towards a seven per
cent growth rate and if you look at investment intentions, derived
from the sanctions of the all India financial institutions, things
are not normal.

Under the present circumstances, is a seven per cent growth rate

Let me say, it will not be possible if investments are weak,
'exports are weak, infrastructure is not improved. I understand
that they have issued an Ordinance on land being acquired for road
building. But, there are a lot of people who are asking 'who has
the right to acquire the land?' State governments, central
government, who will acquire?

Is there any merit in what Mr Ibrahim is saying, that foreign
airlines should alone be kept out?

All I'm saying is that all these years we have believed that we
want foreign investment because it will bring in technology. Now
he is reversing it He is propounding a new doctrine - we want
foreign money but we don't want new technology, we don't want new
management skills.

At Davos Mr Deve Gowda has requested MNCs not to 'destroy Indian
companies. Do you think MNCs are a real threat to Indian business?

They need not be a threat if Indian companies restructure
themselves. Indian companies have great advantages. They know the
market, they have operated here, they have marketing outlets. MNCs
will take years before they can set up any comparable marketing
set-up. Indian companies, by and large, pay much lower wages and
salaries. Even though we are liberalising, they know how to get
around the ropes of the government much better than any foreign
investor. I don't think this is a real threat.

Why is it that the momentum of liberalization cold not be
sustained? Is it because of the nature of the political

Government matters a great deal in our country. First of all, even
after liberalisation, the government's role is to set clear goals
for our country's future - the vision. After all, infrastructure
is still very largely in the public sector.

How would you have tackled the oil pool deficit had you been
finance minister?

I am not the finance minister.

If you were, would you hike petrogoods prices?

I don't know. But I believe that if you have an unsustainable
deficit in any major commodity, whether it is power or energy, you
cannot finance current consumption by borrowing. I think, we are
following a disastrous policy. Our public enterprises in the state
sector are losing, our power sector is losing 7,000 to 8,000 crore.
These are being financed by borrowing. Similarly, irrigation
projects don't even cover their current costs, state transport
corporations continue to lose.

What is the alternative?

The inevitable answer is that prices will have to be adjusted
sooner or later.

Do you think India is ready for free pricing of petrogoods?

We have to move towards it. It cannot be done at one go. But we
have to move towards deregulation of energy prices in a systematic
way, at a measured pace which will take care of both the equity
argument and the efficiency argument.

What is the approximate time frame you think this will take?

I think we should complete this phase in two three years time. But
nobody will believe us if we say we will do it three years from
now, if we don't do anything now.

Is government borrowing causing the liquidity crunch, if at all you
believe there is a liquidity crunch?

I don't know what is this liquidity crunch. Today the banks are
flush with money. People tell me there are no borrowers. Part of
the reason is that the corresponding portion of the equity cannot
be raised by corporate entities in the stock market. You cannot
therefore say that there is a shortage of liquidity. One other
argument I hear is that with the CBI and related activities,
bankers are reluctant to take decisions now. I don't know how far
that is true.

Is it, then, just a bad investment climate arising out of political

Political uncertainty and conflicting statements made by the
various members of this coalition. For example on insurance the
Left has said that it will block the Bill on the creation a
regulatory authority. It does create confusion.

Should the insurance sector be opened up?

I believe they should do what they have said in their common
minimum programme, a document launched with great fanfare. We
don't agree with everything that is said there. But on insurance
they should implement what they said. I have said this in
Parliament also.

Are you saying that this government is not facing an election?

Our people have said that it does not have anything to worry from
us. If it continues to pursue policies that are pro-people, the
Congress party has said that it will not destabilise.

When you left charge, inflation was pegged at 4 per cent. The UF
government has set a target of 7 to 8 per cent. Do you think this
is a more realistic target?

No. I think the interests of India's poor are badly served if you
are working towards an inflation target of 8 per cent. When the
government says 8 per cent, in practice people add two or three per
cent more. I think it is necessary for India to work towards an
inflation target of less than 5 per cent. If you have an inflation
rate in India which is above the world's average inflation rate,
you have to perpetually depreciate your currency. Which means any
gain on productivity in the domestic economy, you will have to
share with the foreigners. Why should we do that? We should have
a macroeconomic policy which creates expectation that inflation in
India would be kept under reasonable control and I think in one or
two years business expectations will be adjusted accordingly.

One criticism in the early years of liberalisation was that it was
pro-urban India. Mr Deve Gowda has been repeatedly talking about
taking liberalisation to the poor. Have you seen any signs of the
sectoral imbalance being corrected?

First of all, it is not true to say that our liberalisation drive
was anti-poor. If you look at the amount of money that we poured
into the rural areas, in anti-poverty programmes, there is no data
to sustain the view that the people below the poverty line have

Look at the growth record. I think growth record of our period is
going to be much better than the Eighth Plan target. People said
there would be deindustrialisation, unemployment. Exactly the
opposite has happened. They said then savings has suffered,
investment has suffered. 1995-96 data now shows a savings record in
Indian history. It is 26.5 per cent.

The only figures which this government has which they have misused
in this Ninth Plan document is their statement on unemployment and
poverty which is totally unsustainable on the database. The data
that they have is the 1993-94 National Sample Survey. That data
compared with the benchmark year of 1987-88 shows an improvement,
whatever definition of poverty you use. So on what basis can they
say that the plight of the poor has worsened.

I am confident if the economy continues to grow at 7 per cent, the
benefits would accrue to all segments. Our policy has been to work
on growth and also to strengthen the pro-poor, anti-poverty
programmes, health, education, two track approach. They have not
found any other alternative. My own feeling is that when the
actual budget document comes they will show a shortfall in capital
spending, in anti-poverty spending. So all this talk that they
have done earthshaking things will not be sustained.

The new government has also reinstituted subsidies, for example on
fertilisers. You should see the actual numbers of the subsidies.
Afterall they talked a great deal. They said they would spend Rs
2,000 crore on the revamped PDS. But now they have postponed that
to next year. I think, they are talking big. But the numbers they
will produce will tell a different story, We should watch the

What about the fiscal deficit?

Well, I can't believe that this year the fiscal deficit will be out
of control. The pay commission's impact is not there. Even I had
budgeted Rs 5,000 crore for it So there will be savings on that

Ever since this government came into office most of its ministers
have been busy electioneering, fighting their internal battles. So
very few people have had the time to pay attention to implementing
their investment programmes.

Which are the areas which Mr Chidambaram may need to prioritise?
Should he replace MAT?

Who am I to advise him. He is a very intelligent, clever competent
person. He has had plenty of advice on that.

Do you think an expenditure tax would do the needful?

Expenditure tax has been tried in this country many times before. I
don't think it can work.

If you could choose one economic parameter on the basis of which
your party would withdraw support to the UF government, what would
it be?

I think in economics and social phenomenon, all short sentences are
bad. We'll have to check their performance in totality. The
Congress Working Committee has passed a resolution and that stands.
As long as the government continues to implement sensible policies,
it has nothing to worry. I think people exaggerate a lot on the
Congress party's lack of preparedness. Once the party knows it has
to face elections, it will galvanise itself.

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