Book Review 'The Future of Indian Economy: Past Reforms and Challenges Ahead'

Former Union finance minister Yashwant Sinha and academic Vinay K. Srivastava, in a new book that they have edited The Future of Indian Economy: Past Reforms and Challenges Ahead, write that even after 26 years of reforms, its constituency within India remains small, largely limited to the government of the day, business commentators and some English newspapers.

Mr Sinha spoke to Pawan Bali about the book, which has contributors like former RBI governor C. Rangarajan, former PM Manmohan Singh’s media adviser Sanjaya Baru, former Sebi chief U.K. Sinha and Congress leader Mani Shankar Aiyar, among other eminent economists and thinkers.

Excerpts from the interview:
In one of the articles in the book you have written that even after so many years the constituency of reforms is still small. What do you think is the reason for that?

For the simple reason that the contradiction is larger than life. In 1991 we had undertaken reforms under duress because we were under a crisis. After that, it has been stop-go. Some governments have pushed reforms more energetically and others have not because there have been opposition. There are instances where the government has had to withdraw bills because their own coalition partners have opposed it. GST has taken so many years because a consensus could not be established. There is one kind of opposition to economic reforms based on ideology by some parties, like the Left parties are genuinely opposed to reforms, and even right-wing organisations like the Swadeshi Jagaran Manch or BMS. Then you have some political parties which are opportunistic in their opposition to reforms depending upon whether they are in government or in Opposition; the GST is a prime example of that. Then another reason is that as far as the masses are concerned, for them reforms are of no consequence because it doesn’t directly touch their lives. Even after 26 years of reforms, even the basic needs of the people in urban and rural areas have not been met. So they will say — what is the good of such reforms. So indifference among the masses towards reforms, ideological and opportunistic opposition to reforms by the political parties to reforms are, I would say, the main reasons for opposition to reforms. Even at present, can we have a majority foreign stake in the retail sector? No. The government had to withdraw the amendment bill for the land acquisition act because there was opposition. A whole lot of reforms like labour market reforms and agricultural reforms have not taken place, and even beyond economic reforms, there is a big area of administrative and judiciary reforms which have not taken place.

You have also indicated in the book that an East India Company syndrome is responsible for opposition to reforms in India?

As far as foreign investment is concerned or foreign companies are concerned, some people show that. It is offered as an excuse — look at what the East India Company company did to India. So exploitation by foreigners is something which is very easy to raise as an issue, and make it acceptable to the people at large.

You have written that not too much focus should be on FDI reforms, and if some FDI reforms like retail are not allowed, there should not be too much focus on that or criticism of that?

My take on this is that the pace and sequence of reforms is something we should determine — that means Indians should determine... We often come under great pressure from foreigners. Do this reform or if you don’t do this reform, then you are not reformists. At various points of time, a single issue of FDI has appeared as a test case of reforms, and there is pressure from foreigners.

There has been a criticism that while we opened markets we didn’t build the institutional capacity, which led to crony capitalism — as we saw under the previous government.

After the reforms were introduced in 1991, in 1992 we had the Harshad Mehta scam because we had opened up the markets and things were not settled. Even when I was finance minister, we had the Ketan Parekh scam... again, markets were not settled. Then we took a whole series of steps to discipline the capital markets and bring them under control. The point I am making is that if you leave the market players unbridled, then such things will take place and crony capitalism will also happen. Therefore what we did when we were in power between 1998 to 2004... we established a large number of regulatory bodies. So if we opened up insurance, we had insurance regulator IRDA, we opened up petroleum, and we had a petroleum regulator, and we reformed the regulator in the telecom sector. So in every area we opened up, we created a regulator. Why did we create a regulator? Because you can’t give a free run to market forces. So these regulators are in place. They are between the government, Parliament and the market, and it is their duty to discharge their responsibility in such a way that they don’t take advantage of any situation in the market. It is not the duty of the government to regulate, it should be sectoral regulator who should do it. This is what we did and this trend has continued. The 2G scam happened because the advice of the regulator, Trai, was disregarded. The regulator in the case of electricity at the Central and state level is a weak one, that is why we have this confusion in the electricity sector. So a regulator has to be empowered, he has to perform his duty properly, and if that does not happen, then then crony capitalism will take place and we will have corruption and people will take advantage of whatever discretion is there in government.

In the book, you have written that reforms like increasing kerosene prices and bringing down interest rates cost you the 2004 election. So is there pressure on the government not to go in for bold reforms?

Reforms and electoral politics go ill together. This is because there are areas of reforms which are not popular — like I faced tremendous opposition when I wanted to open up the dairy sector. Then there are some holy cows like subsidies — you can’t touch them. It took us so many years that we could largely deregulate the petroleum sector, but domestic LPG and kerosene is still regulated. So there are areas which meet with tremendous political opposition, even popular opposition.

In the book, you have quoted economist Arjun Sengupta that you prepared the blueprint of the reforms as finance minister in 1991 but could not present the Budget because the Chandra Shekhar government fell... Do you feel the credit was later stolen by the next finance minister, Dr Manmohan Singh, who presented the Budget later on that year?

It is a law of nature that credit goes to the person who is on the spot, and blame goes to the person who is on the spot. So while all the blame came to me for the crisis of 1991 as I was finance minister for six months, no credit came to me as the Congress party prevented me from presenting the Budget in February 1991. It was for all purposes ready to be presented. Take the example of GST — who is taking the credit? The government of the day.