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HOME | BUSINESS | INTERVIEW |
May 7, 1996 |
'MAT, I think, is a move in the right direction'Dr R H Patil, managing director of the National Stock Exchange of India Limited, is a zealot when it comes to arguing for transparency and competition. After a two-year stint on the faculty of the Postgraduate Department of Economics of the University of Bombay, he joined the Reserve Bank of India in 1968 in the erstwhile Economic Department.In 1975 he joined the Industrial Development Bank of India which is one of the largest development banks in the world. He was the senior-most Executive Director in Charge of its loan operations and treasury functions when he left IDBI to take up the post of the first managing director of the NSEIL on November 17, 1993. In an interview with Syed Firdaus Ashraf, he talks about the impact of the Budget on the Indian economy.
How has the Budget affected the economy's macros?
Before economic liberalisation began, India's budgets lacked focus. An attempt to give them a direction was made in the mid-Eighties by the V P Singh government. But Singh too deviated and the government lost sight of a long-term policy of change. Now the situation is such that despite a change in government, the Deve Gowda regime is continuing the trend of the last few budgets, which ushered in liberalisation by adopting policies like rationalising and reducing duty structure. Yet I would have liked the Budget to introduce more rationalisation. Recent budgets have been making quantum jumps every year. But this Budget has not done any such thing. Partly, because the finance minister had just 35 days to put his Budget together and partly because the new government is a coalition of several parties. He must have had to please many people. Then there was the coalition's Common Minimum Programme to be kept in mind. In this context whatever he has done is permissible, I think.
Which are the issues that the Budget has failed to address?
Dr Manmohan Singh (former finance minister, regarded as the architect of the economic reforms of the past few years) was trying to cut down the complication. Ultimately, the administration must implement the will of the Parliament. But the moment you start drafting regulations in a complex way there could be several interpretations. I think tremendous modification is required in this area. In fact, I would be happy if the entire duty structure can all be reduced to about 20 pages. Import bills, import taxes, all must be brought to about 10 pages. The best thing would be to have three to four duty levels across the board instead of a proliferation of duty levels. That should take away some power from the customs department and reduce the number of litigation which result from it. The nation is wasting a lot of energy due to such problems. And that is why the industry, the government, everybody is wasting time. The main focus of development is missed.
Which industries do you think will benefit from the Budget?
We were hoping that the gap between the lowest and the highest levels of duty would be reduced further as it is still quite wide. But as you see, except in the case of electronics, computers and telecom, there has been no significant change.
Which sectors will be hurt?
Ultimately, why does the government need money. It needs to run the economy, the administration and the whole system, defense, police, law and order... These companies have to bear the burden. They need incentives but some thought has to be given to the level of incentives offered. Can they continuously go on avoiding taxes. They are not evading taxes. They are avoiding taxes. MAT, I think, is a move in the right direction.
At what rates do you expect the GDP, industries and exports
to grow?
In the last couple of years not much investment has taken place in infrastructure, particularly power. But we still haven't faced major power constraints. Something very interesting happened in the power sector. The plant load factor has gone up quite a lot in the last couple of years. From this point of view power is going to be a major constraint in growth. This year we may not face much trouble but unless we do not move massively into power investment, I think we will face a problem. This year we may have a good growth rate but to sustain it would be difficult.
The Budget has dwelt on infrastructure development. What do
you think about it?
The report is said to have suggested the setting up of a new finance corporation and giving tax saving incentives to companies investing in infrastructure. Yet the most important recommendation of the committee is on bringing about transparency in procedures. If you have to grow fast, decisions will have to be taken fast. If you have an excessively complicated administration, decisions are going to be delayed. The best proof of this is the fate of the fast-track projects. They were supposed to be fast-track but since the last three years are stuck in their tracks. Fast-track projects are possible only when you have a clearly defined objective and a policy parameters also are defined. And since it will be a transparent system, allegations and litigation of corruption and all that will not be there. Unfortunately people are attributing motives to the fast-track system. Because in this country a new constituency has developed whose main object is to go to court and stop things. I think one must adopt a transparent policy. Once things are known, the game of these people, the bluff of these people, will be called off. They are known to rush to the courts for every petty thing. So many environment lobbies have come up and there is not one among them which is genuine.
What should the government be doing? Do we need a another independence,
this time from the bureaucracy?
When policies are not clear anybody can change them in any direction. And even an honest man is in trouble. For example, why don't you have such disputes in the US. You don't have lobbies which are dragging cases in courts because their approach to the problem is transparent. Take the matter of fixing the telephone tariff. They'll have a public hearing of all those who want to make a presentation to the commission. It can be televised too. If you feel that the telephone company is exploiting you, you put forward your reason to justify it.
How can the situation in the country be remedied?
Will the finance minister be able to achieve prognostications
on fiscal and revenue deficits? If not, what factors will impede
it?
Many of the subsidies are concealed. Let all this come out in the white paper. Let the people find out who is benefiting from them. The most tragic thing is that many of the subsidies do not benefit the poor. That is why I say let us have a debate on them. For example, take the Asian region. The savings rate here is very high. Most countries have a savings rate of 35 per cent. Then why is India's savings rate not high? Well, if you only take household savings, the country is as good as others in the region. Yet the overall savings rate is low because the government has become a drag on the system. And why has it become a drag on the system? Because there are so many public sector enterprises which are making huge losses and they are all being defended by pressure groups. In Bombay, for example, I consider the BEST to be a white elephant. You can say that it runs very efficiently because it is running smoothly and all that. But the price of a BEST bus ticket is expensive for an average person in the city. The tariff is high simply because the service is not managed properly. These problems will not disappear unless you bring about proper administration and an efficient administration is not possible unless you bring in competition. I would not like any monopolies running in any area. From that point of view if you go to many sectors like road construction, irrigation, power, transport; everywhere there are concealed subsidies and a lot of waste. Unless we stop this the government will continue to waste money. And the country's savings will be low. If this waste is stopped our saving rate will reach 35 per cent. And then we will grow faster.
Do you think we need an exit policy at this juncture?
There are PSUs which have had to close down. They had very funny labour agreements. In one case labourers were given a quota of work. They would come in at 10 am and finish by 11.30 am. The rest of the day they would while away playing cards. Such units were bound to go bankrupt. Yet the losing propositions were being maintained. No production was being done but labourers were being paid. No doubt they would come to work regularly. If you ask me why, I would presume because they were getting subsidised lunch and had to spend their time. It would have been appropriate to find out how much they were producing and what they were doing. Late a white paper on the case should have been brought out. Once everyone would know about the reality all labour pressures would automatically stop. The more you conceal, the more complicated you make things.
Do you think the finance minister had anything significant
on the revenue raising or expenditure control fronts? What should
he have done?
There is an attempt to manage the budgetary gap. And there is also an attempt to see that the interest rate burden of the government does not rise. For example, two years ago, the interest expenditure as a part of revenue income was about 47 or 48 per cent. This year it has slightly come down. So in that sense I think it's not that the absolute amount will come down. In this Budget the deficit itself has gone down, absolute amount can't come down.
Do you see a debt crisis looming? Will it be exacerbated by
the Budget provisions?
And especially, I think, attempts have to be made to bring down the interest rates for the government debt. But the very fact that the marginal cost of the Budget is what is close to 14 per cent means over a period of time it is going to rise very stiffly. So we have to make an attempt to bring down the interest rates also and that is possible only when government expenditure can be contained.
But how does one contain government spending. Is it possible
to curb it?
Take for example the 1991 situation when several major policies were introduced. Everybody then knew that there was a crisis. They did not protest against the policies because if they did they would be in deeper trouble. That is why public education is so important. That is why I believe in transparency.
Has the finance minister done enough on the direct and indirect
taxation front? What do you feel would be necessary to bridge
the revenue gap?
Do we really need foreign money in infrastructure development?
Has the Budget done anything to increase or debottleneck the inflow
of foreign investment?
Do you believe the Budget is truly pro-poor? Or has the finance
minister merely made a gesture and left the real work and financing
to the banking sector?
Subsidy is not likely to increase and if more of it goes towards the poor, the Budget can definitely be called pro-poor. Today even a person like me has a ration card. I don't use it. The point is that many rich people have ration cards and so the bulk of the foodgrain distribution goes to the rich. The government has hinted about correcting this anomaly. In that sense too it is pro-poor Budget.
Will the benefits actually percolate to the poor, given the
existing way things work?
What according to you is the one prominent issue the Budget
should have addressed but didn't?
Perhaps that is why the finance minister did not take a risk. There are many things about the Budget which you can't talk about publicly. Because the Budget is supposed to be a sensitive issue and nothing must leak out. Yet the finance minister must have a lot of discussions, you see.
Given P Chidambaram's political and economic constraints, what
kind of Budget would you have presented had you been the finance
minister?
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