Twenty-five years after reforms and his first stint as finance minister in the short-lived Chandrasekhar government, and after a spate of books on the liberalisation era, Yashwant Sinha has edited a new collection of essays by a range of policymakers, from C Rangarajan to Mani Shankar Aiyar, examining key reforms and future challenges. In this interview, he expands on the broader themes. Excerpts:
You have written about the political acceptance of economic reforms in The Future of Indian Economy. Having been a long-serving finance minister and a politician for well over three decades, what’s your assessment now? Is there greater acceptance now? Or, do you agree with Montek Singh Ahluwalia, that there is a consensus for weak reforms?
There is no consensus for reforms in India. That applies to both the BJP and the Congress. Commitment to reforms depends on whether you are in the government or not. Parties have changed their positions rapidly on issues. The politics of reforms has become baffling, as with the GST. Besides, there is a strange identity of the left and the right in India. Both the Swadeshi Jagran Manch and the Left talk of the East India Company, and the Manch resists reform as much as the Left. Over 25 years after we opened up the economy, there is no progress on reforms in labour, the farm sector, privatisation or sell-offs, the administration, the reduction of government equity to 33 per cent in state-owned banks or deregulation of coal sector. Where is the consensus?
Don’t parties or politicians want to invest in change?
I put it down to the fact that the common man and a common politician far from the big metros have nothing to do with these reforms. They fail to appreciate their validity and necessity, especially as they have no short-term impact. And so, it is easy to misguide people. Secondly, along with economic reforms, we must simultaneously tackle the issues of livelihood and quality of life. Seventy years after independence, we still can’t provide basic needs like education, housing, health, roads, power. So, they are easy targets for politicians like me.
But incumbent governments are being voted back ostensibly because of their work. Even after the severe economic disruption of demonetisation, the BJP has swept many polls.
Poll results depend on larger issues. Criminality cannot be subsumed by winning elections. Eight months after demonetisation, we still don’t have a figure for the amount of cash which has come back. It is yet to be made public. That’s the starting point to test the success or failure of this move. The most important aim was to curb black money. But this measure will not have an impact on black money abroad. Independent experts have raised doubts about the efficacy of this step. It is the duty of the government to show whether it has achieved the intended objectives. It appears to me that demonetisation has not served its purpose.
Are you implying that we haven’t made much progress over the last three decades?
No, we have travelled a long distance. We have clearly achieved a great deal. Post-reform, we have grown at an annual pace of 7 per cent or more — 18 or 19 times faster than the flash-in-the-pan performance in the past. Growth has been more sustained after reforms. But we haven’t been able to create a consensus for reforms which would have enabled India to move faster. Where you have to work with states and on parliamentary legislation, the process is particularly slow.
We speak of ‘change with continuity’, perhaps to sugar-coat reforms. That governments of varied political formations have continued with policies launched by rival parties — isn’t that positive?
Governments have implemented policies or programmes initiated by previous regimes not out of volition, but because of external experts and individuals in government. We have sustained it only because of the basic work done by experts, like Vijay Kelkar in GST and M Narasimham in banking. They have contributed enormously, but our system only gives credit to politicians.
So what are the challenges to the future of India and its institutions, which the book explores?
Livelihood, jobs and quality of life top the list. Human resources are next — equipping future generations and bridging the gap between the top and the bottom half of society in education and other fields. Seventy years of democracy have taught our people to be impatient. If the government does not provide some of these, they will be thrown out. Impatience is reflected increasingly in the high turnover of candidates in local and national politics. It’s a great leveller. The other challenge — and disappointment — lies in reviving stalled projects and bad loans which this government inherited in 2014. It is the primary responsibility of bank boards to handle this. The latest move, an ordinance empowering the RBI, deals with the symptoms and not the disease. Reforms are not dependent on numbers. We didn’t have the numbers when we got the insurance law approved. The ministry of finance should originate reforms, but it hasn’t in a large number of sectors. My biggest disappointment is the differences between the RBI and the finance ministry. I am at a loss to understand the tensions between the two.
The formal agreement on inflation isn’t going to help, since monetary policy cannot contain inflation when demand is inelastic. This was (former RBI governor) Duvvuri Subbarao’s mistake, raising interest rates 13 times to contain food inflation at the expense of economic growth. We shouldn’t blindly adopt the Basel norms on capital adequacy for banks. We are a developing country and should decide our own targets.