MONTEK SINGH AHLUWALIA PODCAST: Top Economist Explains India’s High Growth Years On The Neon Show

[Music] today I have with me a person who have idolized since my childhood Mr mon sing alalia ex Deputy chairman of Planning Commission nice to be interviewed by another alalia yes in 2004 when the UPA government came in and Dr manmon Singh was made the Prime Minister he said to me why don't you come back and help me so I said what would you like me to do so he says well what about the deputy chairmanship for the Planning Commission uh and I said uh that sounds very attractive so you let me know and if

you want you know I'll come one of the key things you know that has been in discussion always is the changes that happened in 1991 but none of the governments since then has implemented changes with that trigger ever again the Congress party's first industrial resolution it went very strongly towards the notion that the state must occupy commanding height of the economy that gave the dominant position to the state and over time a system of Licensing Etc was introduced which did a lot of damage when I came back in 1979 it was very clear to me

that India is falling behind and what is worse the people in power don't realize I think Rajiv Gandhi was very clear that we need reforms in fact in his very first speech more or less in Parliament he said how can we compete with other countries if we are running systems which are 20 years out the DAT but of course he wasn't able to do it he was overtaken by the B for Scandal within 2 years look everybody else is liberalized even the East Europeans are liberalizing China is liberalizing what the hell are we doing what

did liberalization mean during that time I thought the highest probability was that the import control regime where every single application is looked at by the dgtd was ridiculous where do you think practically India will be in the next 10 years we're in a soft spot at the moment it won't be very difficult for India to grow at about 6 or 6 Plus per. but you know we need to aim over the next 10 years at something like 7 and 1 12% which I don't think is currently the underlying Trend growth rate so we need to

decide how are we going to handle this problem what could we have done in the past to have made India 10 trillion economy faster there are two or three things that we could have done number one hi this is Sadat alalia welcome to the neon show I'm your host and today I have with me a person who have idolized since my childhood I have with me Mr mon sing alalia ex Deputy chairman of Planning Commission sir welcome to the podcast so glad to have you today thank you thank you for having me nice to be

interviewed by another alalia yes alalia versus alalia on the show today well I hope it won't be versus but you are free to do that no no my my intent is not to do that but just saying for ALU Alia in total handshakes within ALU Alia okay good so you got a Padma vibhushan inia second highest civilian honor for contribution to Indian economy I'm so glad to be discussing you know about Indian economy today with you your contributions and what has happened since 1991 in the last 34 years to Indian economy but just I want

to start today with your childhood uh growing up in raal pendy moving to Delhi uh then St stens college and then the events that led up you know to you joining government and becoming you know the deputy uh uh for chairman for the Planning Commission of India I I mention in the book that you know I was born uh uh three or four years too early to be called Midnight child 1943 and we became independent 47 but you know uh I'm a good example of someone whose entire upbringing and thinking life uh was in the

immediate post-independence period and onwards now I had no uh no family uh disruption because of partition my father was a low to Middle uh level government employee in the Indian defense account service and he was already posted in this side of the border so as a family we didn't have to move although you know my mother's brothers did move from ralindi uh to India and but fortunately they were they came in a military Convoy so we had no personal experience of what was otherwise an incredibly traumatic uh partition uh and you know very I mean

we we were in sikandrabad uh for a long time I me originally when I was very young we were posted in saharanpur and Amala but um after uh uh Hyderabad got incorporated into the Union uh the Army was posted went into Hyderabad and along with the Army the accountants went in so the defense account Service uh moved in there and I moved to sikandrabad with my parents okay and for the next seven years until 1957 or so uh we stayed in sikandra so I was brought up there I have a sense of the flavor of

the South much more than uh any other North Indian kid would have had and in 57 moved back to Delhi uh you know my father was uh pretty uh pretty good official and his parents his uh bosses said look uh we'd like to promote you into the Indian defense account service from the clerical system okay uh that was a big deal in those days because the defense account service was what they call a grade one service but they said to him that you know you'll be the junior most person in the defense account service and

normally uh for a junior people it's for people just joining and they're made in charge of very small offices so you'll move from the sikandrabad office which was quite large to be ahead of a very small office and that may not be very nice and so what we giving you as a choice you can either get promoted then you can write idas on your visiting card or we post you to Delhi which is the center of the whole thing and it might be good for your kids' education because they have to finish their and you

know my father thought about it and uh he decided to go to Delhi primarily because of the kids' education so I think he made a very very crucial contribution to my future because quite honestly I mean I was doing quite well in the school in sikandrabad but even the school did not think that I had as much potential as subsequently I was able to display uh so uh that was a big contribution that my parents made or my father made I then came to Delhi had a very regular kind of experience in the Delhi public

school did well got into St Stevens College thought I would sit for the Indian administrative service examination which is what everybody of my age in those days wanted to do at least in St Steven's College we used to have 15 16 people every year joining uh the administrative service and the Foreign Service taken together uh but then you know I applied for the road scholarship uh which I got I didn't think I would get it but I got it and that also changed my life because all of a sudden I was getting into the stream

of getting a foreign degree went to Oxford wonderful time you know people often ask me what did how much did you like Oxford of course I liked Oxford a lot but you know most people like University wherever they are because that's the age you know between 18 21 Etc which is a great age whatever you're doing well I had a good time because Delhi University was very nice Oxford University was very nice and I thought initially that I'll come back and you met your wife there in Oxford no no no my wife I met later

she had a very similar background she sort of um did well in education and got a scholarship to go to MIT and I uh instead of coming back after Oxford I was recruited into the World Bank which had just started expanding because you know in the early 60s I mean development and how to help developing countries became a big issue and the World Bank was a major instrument for flow of development funds so they were expanding the office and they recruited a lot of young people I thought I'd do that for three years gain some

experience come back but it was a lot of fun then I met my wife there she was working for the IMF we got married then we had decided to have children so my eldest son was about to be born and she also wanted to finish her PhD because she left her PhD before completing it to join the IMF thinking she would go back so that delayed our return but you know by the time my eldest son was actually born and was one year old uh we decided Ed that it's time to come back there was

a vacancy in the Ministry of Finance Dr Manan Singh who used to come to Washington quite often you know in connection with the World Bank annual meetings I had got to know him uh and uh we we would always ask him what are the possibilities of coming back and he said look we are advertising this position for an economic advisor in those days these positions were meant for anyone internal in the Indian economic service or anyone laterally qualified wanting to get in so he said why don't you apply and I did and the upsc appointed

me and so in 1979 I went back and started working in the finance ministry and I was in the government when practically continuously in 2001 uh the IMF uh created uh the independent evaluation office and they had a system of identifying people so I was asked that look your name is recommended would you like to apply and I said no I don't want to apply because I'm quite happy to do I I had then done all kinds of secretary positions I was in this is during the BJP government I was in the uh Planning Commission

then as member with Jan Singh as Deputy chairman and I said look I'm quite happy I don't particularly want to reply then after a little while uh they called me up and they said look the head hunting firm that we have hired is getting a lot of feedback that you should go for this guy and uh you didn't want to apply but we now have narrowed down the selection to five people whom we are going to actually interview and you're being invited to be one of those by making it six and they were very senior

people including some Finance ministers from small countries so naturally I was a bit flattered but I said look I mean I'm working in the government so I have to ask the government ask Brides Mishra who was then the principal secretary to prime minister vajpai that listen these guys have contacted me uh what is your advice and he said look I think it would be good if the first uh person to head this new office is an Indian because it was not uh not an office under the management of the IMF it was an office office

created by the board to report on the management to the board so our reports didn't go through the management we interviewed the management and gave our assessment to the board he said look I'll talk to the Prime Minister and we'll give you leave to go so I I said okay I had my interview they chose me so in 2001 I left to go to Washington DC and then you know uh actually my retirement age happened around at that time 2003 so technically in the year 2003 while on leave I ceased to be a government employee

in 2004 when the the UPA government came in and Dr manmon Singh was made the Prime Minister he said to me I called on him when I was visiting Delhi I knew him very well he said look why don't you come back and help me so I said what would you like me to do so he says well what about the deputy chairmanship of the Planning Commission uh and I said uh that sounds very attractive so you let me know and if you want you know I'll come uh I had to go off to China

for some other meeting uh not a government to government there was a private meeting and while I was in China I got a phone call from the PM's office saying the Prime Minister has consulted his uh senior colleagues and uh they want you to be Deputy chairman so I said when do they want me to join so they said in a week so I interrupted my visit to China went back to the US resigned from the IMF and came back and I've been in India since then since 2004 but for 10 years I was Deputy

chairman of the Planning Commission under the UPA government then of course when that government changed I like everybody else uh handed in my papers and I've been a private citizen since then it's it's been I would say such a interesting Journey from a person we seeing it from outside right you are one of the key paper who key person who opened up the economy in 1991 right we are the M paper which is uh you know known widely uh right and and then you played an active role in Indian economy till 2014 so you have

literally seen the Indian economy opening up in 1991 in the next 25 years what has happened what are the impacts uh you know uh one of the key things you know that has been in discussion always is and which we have you know shared through our podcast with you know with sangar Rajan s or D soar the xbi governor is the changes that happened in 1991 right we still carry the benefits of them today but none of the governments since then has uh implemented changes with that rigor ever again well I think there are that's

very good point you make because the two things about 1991 one is there was a crisis and you know it was a crisis that happened under a previous government so when Mr narim came in it wasn't that he had to say listen we've got it all wrong we have a crisis now he said look it's crisis has happened the previous government wasn't able to handle it I now have to do something different but I don't think the reforms were due only to the crisis I think during the 1980s there was a gradual buildup of realization

that our Economic Policy was not delivering you know if you take the long sweep of India's economic record I mean in the major post Independence period panu was prime minister there was a period of political consensus I everybody voters kind of kept voting the Congress back so there's no political differences really and the Congress had a sort of left of center ideology which again globally was not out of line I mean after all in Europe and all these guys labor Party public sector the Soviet Union had just done quite well after the second world war

and so on so I think there was a a feeling that one that the government has to do a lot not much much faith in the private sector uh and not much realization about how the world was going to move and frankly uh up to I would say up to about 1955 uh the country did reasonably well you know we had a growth Target of about 5% and we actually achieved around 4.5 so if you were looking at that period you would have to compare it with the pre-colonial period now in the precolonial period the

GDP grew at about 1% and population grew at a little less than 1% so basically per capita income for 50 years didn't change at all in the first six seven years after Independence uh the growth rate was 4.5% and per population growth was a little over over 2% but per capita income was still Rising so there was a sense that you know things are getting better we didn't have long-term vision and so on uh but you know there was a process of planning and things were not seen to be going terribly wrong um I think

things began to go wrong around during the 60s and uh mainly I think in the 70s I mean the the Congress part's first industrial uh resolution 19656 or something it went very very strongly towards the notion that the state must occupy the commanding Heights of the economy that gave the dominant position to the state and over time a system of Licensing Etc was introduced which when we look back on it did a lot of damage okay also after the balance of payments crisis in 1957 uh we adopted an approach of tightening Imports uh and rather

than managing the balance of payments in a more liberal environment you know in a liberal environment you don't impose restrictions I mean if people want too many Imports you let the exchange rate take the uh take the hit so you depreciate the currency of course politically this is always very difficult but that's what other countries also did and they managed okay we didn't so we kept an exchange rate that was completely out of line with the extent of reduction of imports that we wanted and by during the 1970s this became very obvious because somewhere in

the mid-60s the East Asian countries began to do very well so then you had Korea then you had Taiwan Japan started to do very well Japan but Japan was a developed country that had collapsed and then Rose very sharply uh but the real message is not Japan it's really East Asia Japan of course had this notion of the flying geese model that is we are the successes Japan took off first Korea then Taiwan and then you had they also used to include Hong Kong which was not in part of China and Singapore now we tended

to disregard this because we viewed the success of both Korea and Taiwan as due to their closeness to the Western Powers now those were days of non-alignment and we are eles uh politically uh were not in favor of what the Americans were doing in Vietnam okay so there was tension between our government and the Vietnamese and the and Americans on the Vietnam on the American presence in Vietnam so you know the politics and those were days of non-alignment and what have you so we regarded these countries as appendages of the west but the fact is

they did incredibly well and you know sometime around the 70s uh their EXP experience was emulated if you like by countries like Thailand Indonesia Malaysia and they also seem to be doing quite well now you couldn't call these countries uh stoes of the West in quite the same way and also our own attitudes had begun to change and I think that when I came back in 1979 it was very clear to me that India is falling behind and what is worse the Indian regime and people in power don't realize it I mean the official laot

just carried on more planning more this more the other more committees more committees nothing wrong with committees commit when committees are just uh designed to repeat the official view then they're very bad but in 91 uh Dr manm Singh set up two very important committees outside the government set up I mean one was the Chala committee where he brought in Raja Chala said look at our tax system now that had former government officials uh and experts including economists and accountants similarly he set up the narum committee now Nur was a former governor of The Reserve

Bank not the current governor or Deputy Governor so you know that was committees which brought in expertise from outside committees which are set up within the government almost never recommend radical change because they're set up they're run by the same people who running the system so understandably their mental images we can improve the system a little bit let's make a list of a little bit of improvement they don't have the they don't have the mindset of saying look this whole system is wrong and you know I realized that in the course of the 1980s I

was part of a few of these even internally run committees uh um the first external committee that I was part of was really run by prakash Dundon in the in 1980 and he was making it was meant to look at exports but most of the staff were all internal government people and uh exporters also didn't have an understanding of the total economy I mean for example most exporters would say we are not competitive there is an export subsidy it isn't enough you should raise the subsidy since the subsidy was uh administered by the ministry of

Commerce Ministry of Commerce very happy to say yes we must have more subsidy I made the point in that committee which was completely ignored I don't even think it was understood by almost anyone except by Vijay kelka who was a secretary of the committee and I said look the reason exports are not competitive is because you're running the wrong kind of import protection system if you protect Imports through whatever means that's equivalent to taxing exports because if you wanted to generate the same reduction in Imports which your protection is doing and you did it through

an exchange rate change exporters would have a boom instead you want to keep the exchange rate what it is so those people to whom you give the permission to import can import at a lower at a dep at an appreciated exchange rate but exporters get a much lower return so you're biasing the system I mean fortunately they allowed me to write a chapter saying so and then was completely ignored I mean nobody took the slightest interest so I think this is one of those problems in India that you know every problem can be traced to

a go a Ministry because everything is assigned to different Ministries Ministries invariably want to do reforms which enable them to improve the way they handled the instruments under their control I mean the Commerce Ministry used us to handle the export subsidy they used to handle subsidies for whatever uh marketing and their whole approach was this is what you should change they would not be willing to say the real problem is that your import controls and import tariffs are too high you should actually change the exchange rate which was the job of the economic Affairs and

Reserve Bank of India and also your transport Logistics are terrible which is the job of other ministri so they would just say exports are not productive exports are not competitive we need a higher subsidy and Ministry of Finance would shoot that down saying look here we don't have that much money so you know I was trying very hard to make these changes and the way it happened you mentioned the M document yes that in a way was the first I think it was the first time that an analytically comprehensive account was taken looking at the

effect of different types of of interventions okay how did it happen very interesting uh VP Singh who was then the Prime Minister visited Malaysia some Commonwealth heads of government meeting or something and he said that I mean I was in his uh staff you know I was on the staff of Rajiv Gandhi's pmo and during that period we did initiate a few reforms I think Rajiv Gandhi was very clear that we need reforms system reforms in fact in his very first speech more or less in Parliament I joined him in 1985 in January shortly thereafter

he made a speech and in that speech he said how can we compete with other countries if we running systems which are 20 years out of date so that gave us a realization that here is a prime minister who's not just saying I must improve the system he's actually saying these systems are out of date and we had been I had been briefing him others also that you need a system change but of course he wasn't able to do it I mean in sense that he was overtaken by the B for Scandal within two years

I mean he was just uh bowed down under these problems which also emphas illustrates the fact that you know you got to initiate system reform early uh in your Prime min ministership when you have Goodwill if you lose that momentum sooner or later you'll get stuck and you call that period honeymoon period that every government has yes and that can vary between 6 months and certainly two years but if you don't lay out an agenda and take the flak okay we're going to do this then you're not going to do it okay and we did

manage to do a few things subsequently I mean some of the introduction of let's say uh svast which was a system of giving credit for earlier excise duties was introduced in the second year of uh the Rajiv Gandhi government uh but it was a little bit of change in liberalization of controls but not really a wholesale change so you know BG deshmuk who was the uh principal secretary to the Prime Minister I was secretary to the Prime Minister he was principal secretary when the election was taking place and Rajiv Gandhi was busy campaigning he said

to me you know Monte we have not been able to do he was a remarkable person you know he was probably the first cabinet Secretary of India who came from Bombay where he had a very close and nonantagonistic view of the business sector because he knew businessman from Bombay and he was therefore in that sense unbiased between the public he wasn't necessarily Pro private sector but but he knew that there are many things the private sector could do very well which government couldn't and he was therefore in favor and he helped I mean he gave

me support in pushing a couple of things like you know deregulation of aluminium done at one stroke in 1987 uh would never have happened if deshmuk hadn't backed and it worked very well but you know he said to me you know there many other things we need to do and we haven't been able to do it and I said the reason we're not doing it is you are counting on each Ministry to make proposals whereas every sensible change requires changes in other Ministries and therefore we should have a a comprehensive view now ideally the Planning

Commission should have been doing it but the Planning Commission was not in a reform mode at all uh he said to me why don't you write a paper and we will if Rajiv Gandhi comes back will persuade him well of course I started writing the paper and Rajiv Gandhi lost the election and at that time I mean he had 194 seats but he decided that the people's mandate is not for me I'm going to sit in the opposition very good and iname a coalition government headed by VP Singh I knew VP Singh I had worked

with him when he was Finance Minister under Mr Gandhi and I always felt that the break between Rajiv Gandhi and VPC sing was very unfortunate because they worked very well together and he retained both BJ deshmuk and me and you know at one point we were all expecting after he came in that we would be thanked and sent off somewhere and generally given a good job but not stay in the same pmo when you have a change of government for to my surprise mping said no no you guys continue so I said this and I

mentioned this in backstage I said this to PG deshmuk sitting outside the PM's office just after we learned he I said isn't this unusual he said I thought it was a wonderful way of hearing from the senior most civil servant a fairly self-critical description of the permanent civil service right anyway uh BP Singh went to uh Malaysia and BP Singh said to me I mean one of those uh I was part of the team so we had informal moments he said yeah Malaysia I've been here in early' 70s as Deputy Minister for Commerce minister of

State for Commerce and they've made remarkable progress I said yes I used to visit here in the early' 70s from the World Bank and you're right they've made remarkable progress so he said why is that so I said sir the reason is that they have done reforms and we have not so he said you write me a paper so I immediately dragged out whatever I was working on before we had more or less come back finished it and sent him 34 page paper on structural changes we need and you know VP Singh could have ignored

it uh because was too difficult after all he didn't have much of a majority uh and he was a very shaky kind of situation but you know he consciously decided to send this paper to the cabinet secretary venod Pand and have it discussed now you know in the system once something comes and they know it has come from the pmo I mean my name wasn't on the paper but they knew it came from the pmo and since I was the main Economist there everybody assumed I wrote it which was correct and uh secretaries all turned

up and took it very seriously and I was very pleasantly surprised that many secretaries were supportive I mean I should mention in particular amanath Varma who was then industry secretary he was supportive he said ah we should do these things couple of others also finance ministry was not at all supportive because it would mean handling the balance of payments crisis without relying on import controls and they didn't like it because I had recommended we moved to some exm script you know we we create a tradable item which can given to exporters to import whatever they

want uh and no import licenses for these capital goods and intermediates finance ministry was not supportive interestingly the Planning Commission was not supportive either because the Planning Commission said what is this prime minister's office is circulating these are the things we should look at in the approach to the plan which we are working on they didn't tell us what they would recommend but they made a procedural objection that paper leaked I'm not I mean I didn't leak it but it leaked and it got published in newspaper it was published in newspapers and you know it

was fascinating It produced a terrific discussion but some people criticizing some people saying No this is very good and you know uh Ashok Desai who was then a journalist he wrote a very nice piece he said this is a paper has been leaked he said it's quite a good paper I didn't know that the government writes good papers maybe they should leak them more often he said it doesn't have a name but everybody knows it was written by Monk so I'm going to call it the M document and then he wrote a piece saying what

he agreed Etc I think the discussion showed that we need a comprehensive account of policy which then can go to the public and you can have a bit of a discussion on it Etc now you know VP Singh never said that he agreed with it and of course his government fell uh within a few months so there was no question of acting on it and I have a submission to make in my previous interviews Economist of that time has said that it was very difficult to get anything through the government so starting with your document

government started leaking those papers to get a public view well no I I don't think that's entirely Fair uh let's be clear the the paper would have been killed if VP Singh had not circulated not instructed that it'd be circulated now when you circulate what it means is the cabinet Secretariat makes 60 copies and of course they put secret on the copies but you know if it's interesting unless it's a defense type top secret I mean defense matters go to only four Ministries and they have a big red cross on it and they hand carried

secret I mean is a lower level of classification and if it's interesting and newsy somebody will leak it you know it's interesting that the paper was leaked by tearing off the first page because the first page carries the cabinet secretary serial number so you can trace to whom number 35 went okay and so what was published it begins very abruptly because the introductory paragraph is not there uh so uh I don't think it was consciously leaked by anyone in order to make changes in any case that government was so politically weak that it would not

have been in a position to make those changes I think this was a case of what Julian Assange nowadays calls journalism in the sense that somebody said hey this is interesting let's talk about it and they all talked about it and VP Singh never uh minded that they're talking about it or any of those things but the interesting thing is that because it was circulated talked about etc those ideas and by the way I should say it's not as if I invented these things I mean I was only summarizing what you would call an objective

view of what the rest of the world thinks of our the paper said look everybody else is liberalized even the East Europeans are liberalizing China is liberalizing what the hell are we doing what did liberalization mean during that time yes now here I think uh there were a few broad things that I talked about I thought the highest probability was that the import control regime where every single application is looked at by the dgtd was ridiculous you know I again I mentioned this in backstage I keep going back to Backstage and I hope you don't

mind absolutely I want people to be aware of how stupid this system was I used to be a member of uh Committee chaired in the Commerce Ministry by the chief controller of imports and exports we should look at each import application and you know half the time the guys around it were deciding whether to allow the import of a or b and they didn't know whether a was a solid a liquid or a gas because these all very technical things but one very simple example I can give you actually I'll give you two one was

a a a guy in some Northern India who is producing electric irons and he said that look our electric ions are far too heavy around the world I mean irons are used Now by Housewives and even young girls and hopefully young boys and they need something light and we are making irons out of heavy steel sheets this is ridiculous so I want to import I want make an electric iron which is light and I want to import this gauge of sheet which is not made at home and therefore allow me to import and you know

when this was discussed uh people said that look if this was for 100% export this would be justifiable he's going to sell it only domestically domestically Sal says that they make these sheets they're about three times thicker but how does that matter okay well and therefore it was rejected what this guy said is look how can I get export orders if my current line of production is so out ofd because if people come to uh to me for an export order they will say what are the ions you producing and if I'm producing things that

look ridiculous they're not going to give me any orders it's no good my telling them that if you give me an export order I will get lighter material and I will make a lighter iron which I'm not sure able to show you you don't get no order at all that was one example another example which was very interesting was um maruti you know in the 1980s uh the emergence of maruti was a big achievement uh krisham Muti who led that thing I mean produced a car that most Indians thought and was it was a completely

contemporary car but it was heavily based on imported material and there was an understanding that he would indigenize progressively you know the phase manufacturing program now when the time came to do a phase Manu he said fine I'll do a phase manufacturing program but I can't uh uh I can't produce domestically the engine block of the maruti and I'm therefore I'm I'm going indigenize X Y and Z but engine block I'll have to import application went to the dgtd to the Commerce Ministry and the dgtd said we have consulted the domestic producers and HMT Hindustan

machine tools they say we can produce this engine block because we are producing engine blocks for Bajaj scooters so if you deny him the import we'll produce it now what these guys said was that look they have never produced an engine block for a car yeah I want to roll it out maintaining quality I don't think they can produce it and they're not able to produce one for export anyway if you force me to get something from them there'll be endless delays I can't guarantee quality etc etc because the maruti engine block is very different

from the engine block of a two-wheeler yeah you know this matter went all the way up to Nar diwari and let me say the only reason it went up there was that krisham morti was a very powerfully connected fellow and he had only agreed to become the managing director of suzu maruti limited he was he had been he had retired he had been offered a job by the World Bank in Washington DC Mrs Gandhi spoke to him and I want this people's car to really work and be a model and you take this over and

forget your world Bank job so he agreed to give up his world Bank Job took a job that paid him much less money and she he had said ma'am the real problem is you know you may make me managing director but there'll be so much government interference I won't be able to do so she said to him look you keep in touch with Rajiv Gandhi and if there's ever a problem just go to him and he'll fix it for you uh in other words he had Superior access even then in spite of everybody knowing this

it was very difficult to overrule dgtd which said that no you don't have to report place an order in HMT which was a public sector company had they said place an order on private sector company it would have been easy public sector company so maruti public sector HMT public sector went all the way up to the minister you know bav who was who had then taken over MD he told me and I repeated this that there was a meeting in ND tiwari's office where barava brought an engine block of the maruti 800 and was put

on the conference table and next to it he put the engine block of the baj scooter and that was put on the table and said look sir I know they produced this very well they have no proof of producing this I don't want to take the risk NY tiari looked at his okay now I don't know by the way whether NY tiari did this because he knew that Mrs Gandhi was interested in not interrupting the work of maruti but it tells you the level of interference that this licensing system it gives power to bureaucrats who

don't have a stake in the system I mean if the bureaucrats view had been taken the bureaucrat would have said but HMT said they would do it so the fault lies with them not with me yeah and you can't run a business if you do that so these are two examples I could give you 100 more okay I thought this was just terrible we must allow free import of capital goods and intermediates and leave the decision in the hand of the producer now the ideal way of doing this is to free the exchange rate so

what we did was said no what we'll do is instead of this uh system of export licensing where we used to calculate what are the Imports that an exporter really needs and then give him an import license for those Imports which only he can use okay we said look let's just give them give all exporters 30% effective import permission that means even if you're if you're exporting basmati rice you would get a a fungible tradable import license for 30% of the value which you could sell and over time you could increase this value and that

was a radical change which really meant that the power of the Commerce Ministry to give licensing was abolished and I mean I was Commerce Secretary when we managed to get it done so I mean it was a little bit easier but I would give a lot of credit also to chamam who was the Commerce Minister because you know it was his ministry's power that was being got rid of I may have thought it was a good idea economically but ministers enjoy power because people come to them and he was quite willing to do that and

it got done and it's interesting it got done again because decision making was is restricted to a small number of people normally an import license change would have required sending the file to the finance ministry and then to the pmo on file and I told chadam that look on file they'll write a 10 page note it'll be very difficult for anybody to read it the PS to the Finance Minister would have to explain it and the point would get lost and they would also dilute it so I suggest that you seek a meeting with Dr

manm Singh and explain the thing yourself he said fine you come along so chamam and I went manmon gave us time his uh officials Shukla and Deepak naaya were also there and jam explained this uh to manmon Singh who clearly saw the point the officials they didn't actually oppose it as such what they said was this is a change in import cour policy send it on file and I said no sir we don't have time because the big problem was the second devaluation had happened and part of the second devaluation package was to get rid

of export subsidies I had persuaded uh chadam that if you're devaluing the rupee you don't need a subsidy but use this opportunity to get a clearance on the abolition of import license exporters will be delighted he agreed manmon saw the point he overruled his officials and he said now the next step is to get nuren brows approval again that had to be done on file if I sent the file to pmo saying manmon Singh Is agreed somebody in pmo would have examined it they would have consulted finance ministry finance ministry would have said oh Finance

Minister and agree there but actually we have lot of reservation then they would have put up a note to the PF avoid all that let's go directly so what we did was we said to the pmo Finance Minister and commerce Minister want to see you and they took me along and chadam as the minister concerned explained to NRA that look we're making a big change you're announcing a devaluation this is part of the structure uh explain why we're doing it you know narim didn't ask Let It Be examined in pmo he just turned to manmon

and said manmon have you seen all this he said yes sir it's completely right I've signed the file so Nar said give me the file took it and signed gave it to us back and then called in Jam rames who was in his office and he said put out a press note so this is properly understood so you know I was really struck that A system that had been built up over several decades effectively got abolished within eight hours starting with when chamam first called on manm Singh to when narim signed off on the file

uh and it indicates that you know when you want to do things don't send the file floating all over but in order to do that you have to have trust you have to believe that you're getting the best advice and you know narim Ra's view was that look chamam and manmon both agreed what has any other cabinet minister got to add to this they have consulted their staff and I don't need to worry about this any further and I thought it was a fantastic achievement okay so one issue was the trade policy equally important in

my view was the Industrial policy in which I was not directly involved myself but you know that had been in the M document I had also said we must liberalize Etc but I had not recommended as bold liberalization as they actually did and the reason is that when I send my M document paper they had just announc a little bit of liberalization so I didn't want to as it were knock the ministry at that time I said they've done something you must do more over time and so on the industrial policy resolution got rid of

a lot of the didn't get rid of everything by the way I mean for example on FDI it said automatic up to 51% for certain industries now that's not what I would call a big liberalization but by Indian standards it was big however many of our chaps were not actually did not realize that just because you say 51% is automatic doesn't mean investment will come many people don't want 51% particularly if they control technology they maybe want uh 75% 100 or at least 75 because you know if you got if you have 24% you can

call for special resolutions and things like that so the those changes got made a little bit over time that was very important I did say by the way that public sector reform is very important and you know I had been trying to persuade Mr Gandhi uh Rajiv Gandhi that we need to reform the public sector we stuck in an old mode uh and this whole kind of Hangover from British socialism uh giving importance to the public sector doesn't actually work he was not persuaded so we weren't able to do that we had also suggested on

the financial side that you know we need a financial system which is capable of supporting a liberalized industrial environment that automatically points to modernizing the capital market and the first step was taken in 1987 when Rajiv Gandhi announced we're going to get rid of finance ministry controlling Capital issues and shift that to an independent regulator sebi which was first set up as a non-statutory body you know I moved from Commerce Ministry to the finance ministry in October of 91 and I was able to persuade uh the Finance Minister that before the next budget we should

Implement uh this change which was done by ordinance so sebbi was made a statutory body in 1992 before the budget so he was able to announce the so you know we built up a kind of a momentum of reforms but over time in the we were able to do a lot up to about 1993 and in 1993 we ended the IMF program you know at that time it was thought that we may need a second program okay we were able to say no we don't need the second program the thing is working fine we've reduced

the fiscal deficit we've made these changes and you know one of the biggest uh fallacies is that these changes were made because of the IMF this is totally false it is true that the IMF would have said reduce the fiscal deficit but everybody was saying reduce the fiscal deficit the IMF would have insisted on a devaluation we were also in favor of it anyway but the IMF did not prescribe the extent of comprehensive change in either trade policy or industrial policy of course in their earlier reports the world bank and the IMF kept on saying

we should be more liberal and I mean a lot of this push towards liberalism came from the Indian academics themselves I mean you know in the mid-60s uh Jagdish bhagwati and Padma Desai wrote this classic piece saying that Indian industrialization being mucked up by all these controls but unfortunately the atmosphere was such that they were not listen to so regrettably they all both immigrated and went off to Harvard or MIT so it's not as if we were pushing ideas that didn't have uh that were not rooted in our own economic uh uh discussions at home

they they were very much rooted in those uh and I think it just took too long I mean we should have done all by 1980 we should have done all this had we done so I think our performance would have been much better but even so I think the 1991 reforms kind of unleashed the potential and economic growth since then has been much better of course there are ups and downs depending on odd events here and there but the interesting thing is that the reforms were initiated by a coalition government headed by narim ra with

manmon Singh as prime minister they were continued by united front government for 3 years which included the Comm IST party of India not the Communist Party Marxist the Communist Party of India uh it included chamam but representing the Tamil Manila Congress Breakaway faction they were continued by the Vay government the BJP NDA government with prime minister you feared which could have been an RSS government yes there was there was a lot of I I think when the Vay government came in there was a perception that while they would be in favor of priv privatization of

the public sector they would not be in favor of liberalizing Licensing because if you liberalize licensing then the larger and better quality Indian producers which would very often be the large private sector may be able to squeeze out the small okay but the Wai government did continue the liberalization which was very good then you've got the UPA uh which was another Coalition they also continued in the the same broad Direction bringing in a few other things education and that kind rural employment guarantee those kinds of things so I think we've had a continu of course

you know uh in uh when the when there was a change of government in 2014 uh the present government rather Modi 1.0 came in and you know their initial initial uh uh outline also sort of talked about you know minimum government maximum governance Etc so there's a sense that if you if you get away from the uh political confrontations which by the way are essential in any democracy it would be fair to say that the government that Economic Policy since 1991 or I would say in a hesitant way in the 80s in a much firmer

way in the 1991 have seen gradualist reform I think too gradualist in my view and I've said this in backstage there is a case for gradualism because you cannot subject a system to extreme shocks but I feel what we did in 30 years we should have been able to do in 15 and that is where democracy comes in either you persuade people and take them on board in which case you must have a very articulate political discussion not just uh uh uh articulating a slogan but recognizing that when you convert a slogan into reality some

people are going to get hurt and some people are going to benefit uh but net net the benefits will be worth making the change you know I I'm talking too much so forgive me but you wanted to get a background of the flavor absolutely I think it's very interesting one of the big things that we wanted to do in the 199 90 s and you've already interviewed rangarajan who was very much involved in the whole business of computerizing the banks you know there was phenomenal opposition from the banks and he had to make a promise

to the banks at one time that we're going to computerize the banks but don't worry we'll fix it so that the computer can only handle so many transactions per day so that it won't be the case that you won't need tellers okay um we told we would keep telling people that nobody will be fired but the unions were not convinced because the union said you know banking is going to expand so not being fired is not good enough what it means is you won't increase employment at the rate that you have been doing and this

became a big problem and in the early 90s when manmon Singh was a prim Finance Minister not prime minister finance minister we needed to get the banks on board and not go on a strike and so so he is a very consultative sort of person and so he called all the top unions when I say top unions the BJP unions the Congress unions communist Union all the parties have unions which have the same view call him to his office long discussion and of course none of these fellows was in favor of computerizing the banks Manon

told them that look what you're doing is since the private sector and the foreign banks are going to computerize and they're doing it business will just go to them so how is your uh policy consistent with helping public sector Banks it actually will destroy them and you know they kind of knew that but they wouldn't agree there's no uh no computerization so at the end of the whole thing uh manmon Singh sort of they were all leaving so it's just instead of just saying thank you all very much and going back to his room in

that big his desk at the end of that big room he went to the door and shook hands with each one of them so they kind of like that and by the time it came to the last third or fourth person he felt you know they have been very negative with the Prime Minister Finance Minister but they should give him some slightly positive feedback so this guy I forget his name now he shook his hands and he said said Finance Minister thank you for calling us for the meeting I must tell you I completely disagree

with you but I will also admit that my son agrees with you okay I think a realization on the part of many people that very often even if the work that you are doing is going to be affected adversely your son will have better opportunities and your family will have better and that's really what you're interested you know if if if the Tonga walas in Delhi had launched a protest saying no taxis think of what would have happened basically economic growth would not have taken place and I think these guys did not think that when

more and more taxis and scooters come their kids instead of driving a tonga will be driving a taxi which is a lot better and I think that sense that you have to judge economic reform forms uh by the effect that it'll have over time by the totality of the effect that's very important folks uh whatever we discuss today that's just a trailer of what moning alalia has captured in his book backstage I loved his book that I read I would urge you to grab your physical copies from your nearest bookstore or Amazon or any other

place but you know this is such a elaborate movie of what happened in 1991 that but you will enjoy it as much as enjoy reading it and recording it with sir today so one thing which I want to you know dive into this part of you know the podcast is why was the exchange rate so sacren to the previous government that the policies were based on that well that's actually a very good question uh in the sense that all around the world um there's some politicians like to to think that the exchange rate is a

signal of strength and therefore the exchange rate should be strong okay but if you look at the traditional trade economics okay uh the exchange rate is just another price now when you're looking at exports and imports and you feel that there's too much being imported and we should produce uh some of these Imports domestically uh and that means shifting resources to producing Imports but you know resources are also limited if you shift resources to producing Imports it means you'll produce less of exports so the changing the balance between imports and exports is not something that

leaves you can act on one and leave the other unaffected this is the first point second point is that you know uh a lot of people think that uh if we can only uh reduce Imports why don't we just impose an import Duty or impose introduce a license in other words you can't import unless we give you a license to import now anyone who's done trade Theory knows that import licensing is just an implicit tax on Imports except that you don't actually the government gains nothing you just prevent the import from happening but for every

import license there's an equivalent import tax which would restrict the volum volum of imports the only difference is that you may restrict the volume of imports but you won't be ensuring that it's the people you want who will get the import whereas if you impose a license basically what you've got is a a low price for the import at which the equilibrium would involve a larger import volume you don't want that import volume so you give the license to Those whom you want to favor okay that's the difference if you you would always if you

impose a license that reduces the import of a item a from X to Y you could achieve the same thing by having an equivalent import tax which reduces the volume of imports from X to Y but in the case of the import tax you won't be deciding who actually gets the Imports in the case of a license you will that's why bureaucrats love licensing because it gets everybody to come to their office and so I'm not saying they do this for uh corruption people very often like feel good that they helping someone sense of power

yes you can call it a sense of power a sense of discretion all of that now our problem was that we had acquired an incredible collection of import controls which was initially introduced all over the world during the war rest of the world within a few years after the war ended gave up all this nonsense we continued it and why did we continue it well you know a lot of of the thinking in those days was that Economic Development must be undertaken on a war footing so you know if the if the name of the

game in economic development is that it will be done by the private sector and you must give the private sector the freedom to act you wouldn't do it if on the other hand you think the development will be done by the government government must occupy the Strategic Heights of the economy that means public sector that means you must favor the public sector that means that if tataa Tata steel want to import something to expand their capacity you don't agree with that but you give it to sale because you want more public sector steel plant now

if you just did all this through import duties that wouldn't necessarily happen but I think what most people didn't realiz is that whatever you do on Imports if you try to control just Imports is equivalent to a tax on exports because resources are moving from the both the non-traded sector to to the import substitution sector but also from the export sector because you're making Imports more profitable this can be the same result can be achieved by an exchange rate change okay but again with an exchange rate change if you depreciate the exchange rate resources import

substitution will become more profitable because Imports will be more expensive resources will flow to whichever companies are able to do a better job uh but on the other hand if the exchange rate is kept low uh exporters will get hurt uh whereas if you did it through the exchange rate you would depreciate the exchange rate there'd be more import substitution but exports would also benefit so the resources would go from what is called the non-traded sector to both import substitution and exports this simple point I don't think is understood but by 95% of politicians and

I regret to say also by 85% of businessmen if you ask any in those days as far as the politicians were concerned they regarded a devaluation as a national insult now you know they didn't realize at the same time that the Americans were criticizing China for making for keeping the exchange rate unduly low and thus giving an advantage to their own exports so on the one hand China is seen as using the exchange rate to increase their exports increase their world position etc etc but if India did the same thing people say devaluation you know

I remember some of the politician at one time saying now I think I have tried to explain this and completely failed it's one of my biggest failures in my view I've tried to explain to many politicians and even journalists by the way that it is true that a strong exchange rate is a sign of a strong economy in the sense that if the economy is strong it's able to produce imported items competitively and also to produce exportable items competitively then basically what will happen is it'll generate a balance of payment Surplus that get reflected in

a stronger rupee so when the rupee reflects the strength of the economy you can judge that yes the fact that the rupee a market determined exchange rate is strengthening it means the economy is getting stronger but when a weak economy tries to pretend that it is strong by keeping the exchange rate uh strong in other words overvalued it actually weakens the economy so while people may think the if you want a strong exchange rate don't muck up the exchange rate work on the economy to make it strong and then see if that's reflected in the

exchange rate it's my great regret that I've not been able to convince anybody of this maybe the odd economists will understand even they I think don't they don't translate this into a belief in what should be done in Practical terms you know I remember I was in Britain when uh uh Harold Wilson uh did the devaluation of the pound 1967 I think you know even Wilson who after all did PPE in economics at Oxford so he would understood the basic stuff even Wilson had to tell the public in a broadcast a pound in your pocket

is not worth less okay that was a bit dishonest because uh a devaluation changes the relative price of tradeables versus non-tradables it raises the relative price of tradeables to that extent the pound in your pocket earns you buys you less tradeable Goods but even Wilson had to convince the British public that this was actually a good thing and look at it the other way around when uh the Americans were in a conflict economic conflict with Japan uh I think this was around the 80s or so okay the feeling was that the Japanese are exporting too

much and the Americans were using this was the plaza Accord I forget the exact date it was a convoluted way of getting the Japanese getting all the central banks to ensure that the Japanese exchange rate appreciates and that means you know since the dollar was the currency for everybody it was difficult to actually depreciate the dollar but the thing to do they picked the one economy that was strong and made sure that they all collaborated in the G7 to raise the exchange rate of the Yen and this is exactly what they tried to do Visa

V China during the '90s when Chinese exports were booming the Americans would say well you know the Chinese are not running a market exchange rate they having all this success because the yen is UN unduly low and they should appreciate the end now that tells you that keeping an undervalued exchange rate is very often good for the economy this is a very important East Asian lesson but again as I said it's a Pity that is not well understood and it's it's so sad that now uh you know if you see the GDP per capita of

Japan is much much higher than that of India but their currencies valued like 2x lower as compared to dollar from from Indian currency yes yes but that that's a sign of the rup the yen is reflecting the strength of the Japanese economy which is steadily going down y yeah and is surprising to know that nobody in 80s or 90s focused on rather than putting more import taxes or tariff how can we you know increase the quality of our exports and how can we encourage our businessmen to do more exports I think I think now looking

back it's not just the exchange rate I think our exports I mean India logically would have had a comparative advantage in labor intensive manufactured exports the following things in our policy completely wrong in my view number one competitive Advantage is not just a matter of the productivity at the factory level it's also a question of productivity in transport and Logistics so Indian industry suffered from the fact that we had very very high transport costs and those High transport costs were also a function for the fact that we were not open into trade I mean I

mean the the tragedy in the Indian case is that if you go back to pre BC to be the Years BC before chist before Christ Roman era plyy was one of famous Romans made many speeches in the Roman senate saying that our country is being ruined because goods are coming from India by which he meant cotton and silk and they and of course pepper and all these things and they're coming from India and we have to pay back in gold and Roman gold is going to India and this is by the way true I mean

even today if you go to a place like uh kungur in Kerala which is the old cranor which is the old muiris which was the original uh Port where all the kind of ships that went out to Arabia and Europe Etc uh used to dock they're still finding Roman gold coins in excavations same thing is true on the other side the ports on the East Coast which were parts of the trade so we were a trading country and we were not just a trading country we were a trading country that had an export Surplus stuff

came in we also believe that we were in those days a relatively strong economy that's true but you know the reason why these things were happening in those days of course it was all the gold standard so there's no question of your currency going up or down people were trading based on gold and we were getting a lot of gold coming in but Indian trade was free and open at least in the South and you know it it looked outward and we happily exported what we could okay many many many years later I think really

in the during the European Colonial period starting 1600s I would no I think the the restrictions really came once the Europeans became uh colon power politically powerful because basically they were able once they started producing cloth uh through Mills they were able they had a potential advantage on Indian productivity and they basically used trade policy to essentially make sure that their cloth got exported here and our cloth didn't get exported there so a discriminatory trade policy that was followed and I think for some reason because we we bought into the idea that uh uh uh

Colonial structures exploited trade we somehow got the wrong idea that trade is bad I mean Colonial structures created an unfair trading arrangement we should have said now that we're independent we're ending all that but we wrongly concluded the treat if people are trading with you on a Level Playing Field that's not bad but we didn't come to that conclusion and it was because of biases against the East India Trading Company that for 50 years yeah I think but you know there's also there's also a political angle and the political angle was the sort of uh

burn foreign cloth protests during Independence uh and it it kind of created a feeling that foreign clothes and foreign items are bad yeah well the correct thing is that they were bad because the British didn't allow us to modernize our Mills until much more recently had we competed with them on equal terms we would not have been importing British cloth we would have been exporting cloth much more than China is doing and and I think that that was a trag mistake on trade policy which to some extent is the result of a control oriented regime

and a regime that inherited wartime British controls uh and was a little bit too much influenced by the kind of uh uh burn your burn your foreign clothes uh which was part of our Pol Independence Movement you know I don't think you should blame this to the on the politicians alone I mean the primary blame has to be on the economist and bureaucrats who manage the system after all there many things that Gandhi g did during Independence that we are not doing and we didn't do later on I mean he would have been against the

railways but we were happily expanding the railways I think that's one second we underestimated the extent to which import licensing rather than tariffs is especially damaging because you know when you have a tariff it's very simple I mean whatever the tariff is you pay the Tariff and you get out when you have if you have a common tariff if you start having a tariff that you know if this is the item you pay this and if this is then you have to have a bureaucratic chap has to check what is the import in order to

determine the right tariff when you have import licensing exactly the same thing happens you know in my book backstage I tell a lovely story about what the damage that import licensing does in a world of rapidly changing technology I tell the story of which Naran Muti told me about infosis in the days when they were still a young company okay and they wanted to bring in a computer I forget now whether it was hulet Packard or something and they needed that computer and in the Indian system we had we had a system where you didn't

weren't allowed to import computers dutyfree but if you were doing it as an exporter we realiz realiz that no export Market can be serviced if the computers are subject to high import tariffs so you were allowed to bring a duty fee provided you exported three times the value of the import within a certain period so these guys applied to the Commerce Ministry that we want to import this item and we promised to export three times the value took a bit of time and I think he had to go several times to get the license he

got the license and in the meantime I guess this is four five months elapsed in the meantime the same company produced a better version of the same computer which had a different model number it had more Li more memory more capacity more everything so they said well okay let's get this model rather than the older model and got it when the thing arrived in Bangalore they went there to collect they had the exemption du free for this kind of model and the Customs officials said no I'm afraid this doesn't work because your dutyfree exemption is

for this model and this is a different model so the chef said look here it's in computers every model gets updated every 6 months and you know this is exactly the same computer it has more power uh more memory more everything he said no I'm say he then he subtly kind of hinted that he could let it go if they PID paid him a bribe uh but otherwise he wasn't going to let it go so n Muti of course being a very kind of discipline honest morally correct kind of guy he said look I'm not

going to pay any bribe what do I do he said it's very simple you go back and get another license which will actually correct have the correct license number but that would also take another three or four months and meanwhile this computer would be sitting unused okay and Nai I think he was told by his people that listen the bribe this fellow is asking is very low but what you're what you're going to do is you're going to lose three months more in this process but he was absolutely insistent he went through it took more

time finally got the computer cleared but he wasted six to seven months and he said you know in a in a world of exports I mean even every day counts and it's not a system that is geared to taking quick decisions and responding to the way the market changes if somebody else can do it and you can't you're not going to get the business I think these are these are examples it's not just the exchange rate the exchange rate is a substitute for much cleaner methods of managing the balance of pay for sorry is a

clean method of managing the balance of payments the alternatives are all kinds of import restrictions unfortunately historically we have always favored the latter I think the bureaucracy loves it because you have to go to them uh if they are not corrupt they still enjoy the fact that you have to come to them and there's always this application of mind and in the old days somebody had to decide is this really necessary that was called the essentiality condition and the other one was is it is it domestic ically available that's a that becomes a kind of

qualitative judgment I mean the guy concerned decides whether it's necessary he also decides whether what is available domestically is the right quality and this can be absolutely disastrous because let me give you a simple example if you're trying to get an instrument which measures I don't know the accuracy of something or the other you know there are all kinds of Alternatives which are either more accurate or more convenient or in practice more easy you cannot leave the you have to leave this choice to the guy who's going to make the decision and in three different

companies in requiring the same instrument one instrument may be judged more suited by one person another may be judged more suited by another person and a third may be judged more suited by third person the difference is they become responsible for delivering because they chose if on the other hand you make this a government Choice he has a perfect excuse and it's a it's a it's a awful Arrangement one thing that I want to ask you which always wanted to ask what are the things that we could have done in the past like 91 was

one incident right and possibly my dream is to make a movie one day on what happened during the 91 yeah you should make a movie I mean I've written a book so make a movie out of that yeah but the thing is what could we have done in the past and which we can do also in the future to have made india10 trillion economy faster right we are studying at 3.7 I I mean first this is all hypothetical but I think there are two or three things that we could have done number one more politicians

must come clean that something is a good policy and persuade people that their opposition to it is misconceived take a simple thing like public sector I'm of the view that with the exception of very very small areas we should actually privatize the public sector okay and I say this whenever I get a chance but politicians resist saying that for a while they did I mean yashan sinna who was the Finance Minister of the BJP he actually said that that you know except for a very few uh Enterprises in certain sectors we really don't need public

sector okay but within the BJP although the BJP traditionally viewed the public sector as a narian fixation within the BJP once they realize that if they're in government the public sector will report to them they lost that conviction I think it's still relevant today you will find all kinds of people telling you from all parties why you need the public sector for example many people think that we need the public sector in order to produce either medicines or vaccines it's completely untrue because on vaccines the best job has been done by the serum Institute of

India it's not a public sector company public sector pharmaceutical companies have been a disaster now people are trying to resuscitate them I don't know why uh so you and my favorite example on this is hotels there is absolutely no reason on Earth why you should have hotels in the public sector I mean if you really press people they'll tell you that the reason hotels in the public sector very often survive and they have survived through several governments is that those in power if they have their wedding receptions in these hotels will basically be charged for

fewer guests than they actually invite now you know that seems to me no kind of reason for having hotels in the public sector and it's irrelevant to say that a particular hotel has done a good job because today if I mean we've had when I was in government there was a kind of tendency to say that if we have a state guest we put them up in the Asoka hotel which was public sector hotel but you know in Du course we found that many people didn't want to stay in the in the Ashoka Hotel they

preferred to stay in the private sector Hotel so why do we have why do we have and you know uh Arun shuri who uh who was with me in college and and also later on in the world Bank he had the uh gumption to say we must privatize these hotels and he's the one who did it but then there were cases against him bogus cases in my view which none of them have come to anything but as it result the privatization of hotels is more or less stopped and and what are the other things you

know privatization of public sector entities is one well one was privatize I think more generally you know uh we need to have a broader uh way of uh discussing what is needed and not rely on just internal committees I mean take for example uh the dream of vixit bhat which is a good in my view it is giving us a 25y year Horizon okay and you should have these Horizons and I think it's not unreasonable to say okay by 25 years from now we should be what is now called a developed country now what I

what I would do is not just to have one committee not a bad idea to have three or four Committees of different types of people making alternative recommendations the idea that this you will get good ideas by just getting it done internally is I think mistaken because you know the staff that you have internally is has been doing a certain kind of work no government official is trained to do to anticipate what will be needed 25 years from now I don't think it's good enough to do it internally and also get consultant firms to advise

because those firms their advice when it comes hired by a particular ministry will be filtered by the prejudices of the ministry because they get paid by that yeah I don't blame them look Consultants are trained to tell the management what it wants to hear yeah very rarely does a consultant make a recommendation to a top management which actually would make the top management realize that you know what its prejudice is were wrong so they're trained they'll put the best face on it sometimes you get a consultant who actually is just brought in from the outside

and does it spontaneously I remember when vay G was prime minister uh McKenzie uh produced some plan for they said by India must grow at 14% per year or something this 78 which you're talking about is neither here or there so the the prime my friend enk Singh was then special secretary to the Prime Minister and I was member Planning Commission so there was a presentation made by m McKenzie and the usual McKenzie kind of stuff okay if you do this this this this this then you'll get 14% And you know the prim Minister didn't

say very much but I distinctly I was sitting kind of a little bit behind him on one side so I could hear what he said looked at it he said he said the right thing he said but you know now I think what you need is com first of all commission maybe two or three different groups some which focus on the R&D side some which focus on infrastructure some which focus on manufacturing modern manufacturing traditional manufactur uring with experts who worked in these areas and people in the in the in the industry who are working

on those area most of all in finance for example I mean look we have we our financial Market has evolved which is good but you know it is by no means today regarded as the if you like a model Financial market for a middle-income country we're only just putting in all the instruments that are needed I think on the whole financial markets in order to write a good report for the 27 for 1940 2047 you need to know what the world financial system is going to be like in 2047 I am not aware of anybody

in the country who's an expert on that so yet we have Indians dominating the financial system in the US in the UK in Europe let's set up a committee with some of these top people so I personally think think that we need rather than set a Target and believe that the moment you set a Target you know how to get it it's much better to set a Target and Trigger off a lot of independent thinking and then get your Ministries to criticize that see remember people are very impressed by Kennedy uh when he set the

target we must have a after Sputnik went up uh the Americans suddenly felt that they are being left behind and Ken Kennedy said we must have a man on the moon in 10 years and to their credit they did it but you know they did it it was an area where there was no wide experience and he just told NASA that look you got to do it but I think that if he had said we want to have the best financial system in the world and then told the Federal Reserve it would have been a

disaster so you know you in certain areas uh you are in charge of the most uh forward-looking most uh competent organization so you have to trust them but I mean look at the way the atom bomb was produced it was not produced by one guy I mean they collected a team and they were not all government people from different universities put them together I think we need to do much more of that as we move into the modern agent by the way with artificial intelligence this whole issue of how do you regulate artificial intelligence how

do you regulate a digital economy I think we need much more lateral input and certainly the government must take the final View and government traps should be advising the prime minister or the other ministers that this is what the experts say and this is what we think now you decide but the view that we know and we will do it internally I think we need to do less of that there are a lot of good people in the government let me be clear after all a lot of this but you know while we say a

lot of this was done internally we drew from a huge amount of research from outside I said many occasions that what I said in backstage what I said in the M document draws upon research on trade policy in which other Indians have contributed hugely Jagdish bhagwati Padma Desai Tian Wasson and of course distinguished Outsiders you know like uh IMD little Morris Scott uh an Krueger who worked in India also so we were constantly watching what's going on in the world on these areas and trying to do the best we can to put it across so

my last part that I want to touch upon is where do you think practically India will be in the next 10 years you know I let me put it this way I think uh we are in a soft uh we in a soft spot at the moment because I think uh over the 30-year period the the country has got used to the idea that things must change there must be reforms there must be progress Etc um I personally think that it won't be very difficult for India to grow at about six or six plus perc

but you know the the if you like the explosion of expectations is such that 6 plus% will not satisfy the expectations that have been raised remember we have widely expanded education now it's all very well to say that a lot of the people who have ba degrees are not employable and you blame the universities but people also say that all these chaps are very easily given the last mile training you know and therefore you have to do something there's no question that on the human capital side we are much better place than we were 20

years ago but it's not as if we are bursting at the seams with people who can be brought in straight away into Global capability centers so I think we need to aim over the next 10 years at something like 7 and a half% which I don't think is currently uh the underlying Trend growth rate so we need to decide how are we going to handle this problem one of the things absolutely have to do is be clear about is that do we believe that this will require a dynamic private sector or do we believe that

we can do all this through public investment I sometimes hear people nowadays saying private sector this would be an unbelievable mistake but you know if you want a dynamic private sector you need to encourage things like startups you need to do a huge amount on ease of doing business you need to do a huge amount on minimum governance sorry minimum government maximum governance which I think is a good slogan but it hasn't actually been implemented you know uh what's his name uh Manish sabarwal was telling me because he done some work and he said that

you know uh even in the central government there are I don't know 15,000 Provisions in various laws which attract a criminal uh penalty and they had recommended that we should drastically cut them down but finally they did recommend to the central government that at least 5,000 need not be a criminal penalty and so a lot of work was done but in the end only 100 were removed so you know this is typically what happens that you give a signal at the top but the bureaucracy doesn't necessarily I'd give the same recommendation to aminda Singh in

uh Punjab that you have your state government has far too many penalties that are criminal and these just become a source of harassment for the private sector I mean he said to me that look I know some of the recommendations you're going to make you know like free Power for farmers and all politically I can't do it I said okay I recognize that you handle that problem separately but there's no political problem in this and he I said if you manage to do 80% of what we are recommending in this area I think you'll make

a big difference well of course he was moved out so he didn't stay for that long but subsequent governments haven't uh uh implemented that and I I personally feel that too much Focus today is on what the central government should do the truth of the matter is that on all these things e ease of doing business harassment dealing with people they're all in the realm of state governments and I think we I would hope that 10 years from now we are able to show conclusively that out of 30 States or whatever it is that we

have now at least 15 have made a dramatic change in these areas if you do that you will also find that these are the states that have grown because these are the states that will attract investment and the solution should not be to give money to the states that have not grown the solution should be to Benchmark their policies against the policies of the successful States and tell them why don't you do this I think we need that but it can only happen if it becomes part of state level politics local understanding on the part

of Voters and the big tension will be between that and trying to get local support through freebies which is actually very popular uh now if you go down that route I don't think we we should not expect even 6 and a half% growth but if we don't go down that route and a lot of that depends on what happens in state government not just the center then I think you know we should be able to do seven whatever it is that may not get us to develop country status by 2047 I mean you know that

requires about 8 and a half% real growth but you know whether we do it in 2047 or 2053 the important thing is are we making the structural changes needed between now and then uh so that people will say you know it's working and we can then speed it up because India has an advantage which is uh in narrative right now uh it's not happening in real that you know China is almost shunned by the global uh uh investment fraternity right now uh because of various reasons I'll not go into this podcast uh but the next

alternative that people are thinking about is India and India is a promising land and has been a promising land for the last 20 years but people people have to see it in action no you know I don't think we should I have no idea how uh the global geopolitical tension will evolve uh it's not difficult to imagine that if there's a certain there are certain changes in Chinese policy they may be they may lead to to certain changes in Western policy that will create a little bit of a closure on this point you're right in

my right now the Chinese do not seem to be indicating any change and therefore we have an opportunity maybe for the next five maybe 10 years if we respond in the right direction uh people will respond towards India very positively but sometimes I hear that people will come to India because there's nowhere else to go this is wrong because you know after all all of East Asia is a highly integrated economy with zero tariffs and that's a very large potentially quite a large market so actually we are competing with southeast Asia they have their own

problems but all told people judge that they're doing a better job than we are although people also realize that if we can get our act together then there are things that we can offer which they can't out but will we get our act together that's what you have to advise all your colleagues because this is what younger people have to do yeah like India could can at least aim to towards becoming free market like Singapore with you know the ease of going coming in of money and going out of money and Singapore has been able

to do it let me let me I I want to slightly differ with you on that I Singapore has done a fantastic job for the circumstances they have had if you were that small and you were you were living in a continent where everybody was closed it's a no-brainer that you should be open and simply being an anthropo would give you a fantastic advantage and I mean uh in order to continue that you also need to invest hugely in human capital which leanu did you also have to invest hugely in improving the quality of cities

which nanu did you know the the notion that Singapore is an example of free market this is actually a mistake the Singaporean government is far more intrusive than other governments they can do it because it's a small it's a city state and they can actually they know more about what every individual is doing or saying than any other government can they're not an example of a free market they are an example of a free financial system that's absolutely true I'm not sure that we need to emulate them in that respect I think the approach of

having a gift City maybe we can have a couple more because it shouldn't just be concentrated in one area having a couple more gift cities so that that part of the economy that needs to interact more freely is able to do so see remember India is still I mean half of India is at a level of development which is not very different from what the country was let's say on average in 1991 the the other half has moved forward when I say half you might say 40% whatever that's the point so I I think that

uh the Indian state has to has to define the role for itself and it's not a zero role in certain areas we need to expand the state for example we don't have enough judges we don't have enough policemen we don't have enough nurses we don't have enough doctors in rural areas the and we don't have enough sanitary workers etc etc we have too many Clarks so really government has to manage its resources so that it creates the right kind of jobs and either restricts or closes uh some of the not so necessary jobs it also

needs to create a system where the incentive to work is there if a teacher is hired I mean in many parts of the country today uh when a teacher is hired the teacher is being paid five times the market rate so all that the teacher does it hirees somebody else to do his work and sit at home because basically the local community doesn't have control over the teacher to the extent that it should massive decentralization is needed this is not a central government issue this is a state government government issue all our states complain that

they're not getting enough decentralization between the center and the states which is true but none of them pay pay any attention to the fact that as far as the rest of the thing is concerned they have to decentralize locally I mean within the state so these are the things now you know and of course underneath all this there's climate change which raises all these problems where the resources going to come from who's going to manage them blah blah blah I personally think that long-term problems are best condensed into workable tenure Pro problems okay so yes

we'll aim somewhere many things are not disputable uh yes so we endorse all that in the next 10 years what are we going to do and I think if the government were to make up its mind that look it has been doing all these things and in the next 10 years is going to shrink its focus to half of these things that would be a huge problem these half while shrunk in numbers will involve a widening of the role of the state and that's correct we should do that so I think we need the debate

needs to shift on the to to this this cannot in my view be done purely within the government this needs to bring in business think tanks NOS Civil Society political party yeah so what I understand from you is what government did in 1991 to open up the central economy uh each state needs to build up their own committees or their own B to literally liberalize the state absolutely I think there's no question in my mind that we need to do that in fact by focusing too much on the center uh we and and this happened

during the UPA all the NGO Types on the one hand they were very much in favor of decentralizing but on the other hand they wanted the central government to give directions none of them were willing to say leave it to the states they said this is what the states should do and you should have guidelines which tell the states to do it and the states would say look this is not right we are responsible we are going back to our own uh population to get voted so you let us decide all this and you have

a much more limited role I think if we can get a better understanding a political understanding that one the state has to do more but the state must shrink the area in which it interven means that it must make life a lot easier for the private sector and that very often requires getting rid of inumerable useless uh regulations I think we make a lot of progress thank you so much sir I think this debate that we have UG and draws inspiration from what you did and what you know the entire team did in 1991 is

very valuable to make the path for the next 10 years of what India could be well thank you uh I think it's important and thank you for inviting me to speak on your Forum thank you so much sir I'm so glad that we could make it happen and thank you so much you know uh that this debate Could Happen thanks