"Only this afternoon I had lunch with an ambassador who comes from an industrialised country. I asked him if businessmen find it easier to do businesses in India, to which he said that it is still very complicated"
Jasleen Kaur | July 29, 2016
It was the former prime minister, Rajiv Gandhi, who first wanted to introduce economic reforms. In the pursuit of that, I saw Rajiv as someone who got himself into what I may call a political muddle. And, in fact, I remember him telling me once that he knew he wasn’t good at politics.
Apart from Morarji Desai, I was closest to Rajiv Gandhi [among the politicians]. Rajiv had got some economists who were working on economic reforms, because he clearly saw that they were essential. Rajiv wanted to revolutionise the bureaucracy and make things more efficient. And for this, he brought in some people from outside the bureaucracy. The other thing [he did] was introduce the training schemes. I think the system has to be changed. An honest officer cannot remain honest and efficient if he is working in a system which is corrupt. And Rajiv knew this. He was not able to do much though; it was politics which defeated him.
Then we saw the period of ‘no governments’ with the VP Singh and the Chandra Shekhar governments, and then of the coalition crisis build-up.
There was a huge amount of uncertainty. We had two governments which did not last long. We had a mounting external debt. And everyone knew that some sort of a crisis was ahead. We also knew that Narasimha Rao was in a weak position because the Congress for so long had been under the Gandhis and people thought that he would not be able to handle the party and the government. So it was surprising in a way when economic reforms were brought in.
People are talking about Manmohan Singh and his work behind bringing in reforms. But he himself has told me that they took advantage of the crisis. Of course, he was the economic brain behind it but he could not have done anything without the political backing of the prime minister and without Rao handling the political consequences. I do not want to in any way deny the fact that Manmohan Singh should be given the credit for this. But he should not be given all the credit by any means. There were economists who had drawn up the plan before him and without the political will of Narasimha Rao, nothing could have happened. Manmohan Singh was able to take advantage of the crisis; as an economist, he was able to convince Narasimha Rao.
Rao was a very clever man – everyone admits that. He immediately saw that there was an opportunity. Some parts of the party did strongly oppose the reforms. So in reality, it was the partnership between Narasimha Rao and Manmohan Singh that helped in bringing in reforms.
I do not remember much about what was being written about India and what was expected from this country. But I remember that other countries were used to India’s socialist pattern. I think they did not know what India was going to do. India was a very proud country; it would not have welcomed the advice given by the IMF or the World Bank. But they knew India was up against a big war. As far as I can recollect, no one knew what was really going to happen.
But we were surprised when the reforms were brought in, and we welcomed it. There was a huge devaluation of rupee. But we knew about the crisis and that India would have to do something about it. I clearly remember that we knew this old system, wherein you had the licence-permit raj and the industry licences, was corrupt and that it had put a break on development of the Indian economy.
I do believe that India has travelled a long way in the sense that it is a more liberal country now, for people to invest in and with the economy opening up. Some people feel that the economy should be totally opened up. But I think for a country like India, the government has to keep some control over the economy to be able to distribute resources and to protect it. We should not forget that Japan and Korea both developed very rapidly by restricting their markets. The problem with India was that they restricted their markets for the growth of their own industries. I remember writing about, during that time, how India should be more open but not too open. And I think that India [today] has got that balance reasonably right.
But, at the same time, India has failed in bringing administrative reforms to improve government performance and to improve our own economy. For instance, I would argue that we need to have some form of safety precautions to ensure that people build factories which are reasonably fireproof. But it is not right that while trying to do so, they appoint corrupt inspectors who just take money. So while one thing has been reformed, there are others that need attention.
Only this afternoon I had lunch with an ambassador who comes from an industrialised country. I asked him if businessmen find it easier to do businesses in India, to which he said that it is still very complicated. Although I would argue that we still need to have some control to protect Indian industries, I believe that such controls should be effectively, efficiently and honestly managed. There is no real improvement in that.
The other thing, of course, is that unfortunately the reforms have not dealt with the fundamental problems like poverty and income distribution. And, in some measures, that again is due to inefficient and ineffective government systems.
You have ‘sushasan’ and ‘dushasan’ systems. Definitely ours is the ‘dushasan’ one. If we take, for instance, schemes like the Mahatma Gandhi rural employment scheme, some good work has come out of it. But a lot more could have been achieved had it been honestly and efficiently administered.
I also feel that India is a too lowly-taxed country. One of the great weaknesses of the country so far has been its failure to create efficient tax gathering machinery. Very few people pay taxes and those who pay are harassed. In my own personal experience, I can tell you that the whole energy [of the government] is going towards people who pay taxes, instead of taking on those who do not pay taxes. India needs more taxation revenue. Other thing that needs focus is improving the administrative machinery rather than just the economic decisions. There is no point in raising income tax really when a large number of people are not paying taxes.
The main achievement of the economic reforms has been that industries have come up. Just look at the way the car industry has grown. Today, every car in the world is made here. But much more could have been made of this. Many more industries should have come up. There is no doubt that Indian industries have expanded. The whole reputation of India has improved. People now talk about India’s potential to become one of the economic superpowers. There has been a burgeoning middle class, but unfortunately there are far too many people outside the middle class. So, in all the ways, economic reforms have made a big difference.
But we still need major steps to improve the way business is done here. Despite the reforms which have been brought in by this [Modi] government, it is still too complicated. Not much is happening on ground as far as doing business in India is concerned.
A lot more work needs to be done, particularly in administrative areas. But we need to be very careful that in the process we do not go too far. Environment protection, for instance, is very important. We cannot simply ignore environment just because we want to make things simple for people to do business here. The Modi government has taken some steps but again a lot more needs to be done. Also, there are some fundamental problems in the country. Many institutions are functioning in the colonial way and so bureaucrats think they are governing the country.
Not very long ago, a senior retired officer told me that we can have two types of the police force. It can either be a force which works to achieve the targets of the government or one that is there to serve the public. And India still has a police force which is serving the government.
When one visits rural areas, one can see a BDO [block development officer] and other officers behaving badly with the public. It is mostly a domineering type of administration. There is a huge potential in the electronic use of administration like through Aadhaar, and having the bank accounts.
In today’s time, the government also needs to bring in administrative reforms, police reforms, and judicial reforms.
As told to Jasleen Kaur
(The article appears in the August 1-15, 2016 issue)
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