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The Rediff Business Interview/R C Bhargava

'The govt says it has no money to provide drinking water, but continues to pay for salaries in loss-making PSUs'

Do you think Indian industry will be further affected by the sanctions imposed against the country by the developed world?

I don't think that sanctions by themselves are going to impact terribly on the industrial growth. The Indian economic situation is not heavily dependent on external factors at all. We are much more affected by what happens internally than what happens externally. So if we internally do what needs to be done by creating a new work culture in the whole industry, there is nothing to worry.

Look at India's holiday culture, look at the working hours culture we have. If we respond to these sanctions by resolving to work hard, honestly and sincerely, I don't think the sanctions can do a thing to us. Our economy is so slack: spare or unutilised capacities, unutilised people's capacities. Use these effectively and which we can make up the sanctions loss many times over.

Even the private sector says the major reason for the economic slowdown is the lack of government spending to cut the fiscal deficit, particularly in the infrastructure sector in the last few years. Do you go by this theory?

To an extent, I agree. Part of the reason for the present slump is the lack of government spending. But to be fair to the government, it cannot indulge in substantially larger public spending unless there is a means of raising resources. The private sector has also been telling the government in the past to cut down on the budgetary deficit, bring down the deficit to GDP ratio, otherwise we'll have inflation.

If you have run big deficits, you'll have inflation, and if you have inflation, everyone will criticise the government for it. So it is not quite appropriate to criticise the government without looking at the total picture. Where are the government resources? We told the government to reduce taxes. The area that can generate resources is better tax compliance. Everybody knows about the enormous leakage which takes place in the tax system. And a lot of this leakage is due to plain, simple corruption involving both the guy who gives the tax and the guy who collects the tax. The government can do something about it.

The government can raise more resources by taking some politically hard decisions in the area of various subsidies and also by tackling losses in public sector units both state and central. Large losses are taking place and the taxpayer is meeting these losses. The taxpayer is told the government has no money to create electricity, to repair roads, to give drinking water. But the government has money to put into public sector units to pay salaries for a handful of guys. What is the justification for this?

Paying the losses of the PSUs only keeps the salaries of few thousand guys going. But the millions and millions that go down are adversely affecting the huge population who don't even get basic services from the government. A small group of people are holding the rest of the country to ransom.

Reduce subsidies. Transport, electricity, water, and fuel are subsidised. Nobody says the poorest of the poor shouldn't get subsidies. Unfortunately, the wrong people get it. Those who should not, get it, while those who should get it, don't. Now there is suspense is the air as to what kind of a budget is presented. Will the swadeshi gang hijack it or will the government try to woo the MNCs to lobby against the western sanctions?

The Budget can announce government policies relating to the external sector. For example, the insurance sector. I hope the government will open the insurance sector to foreign investment. We have been reading that the government is willing to allow up to 20 per cent.

Fine, I think the foreign investor is willing to come in with 20 per cent. This would be positive action if the government does it. What the government has done in terms of counter-guarantees for the power sector is confusing. Will we give counter-guarantees or not? Have a clear policy.

The decision on the insurance sector as well as the banking sector has been pending for some time. I am certain opening them would generate a lot of support for India abroad, as the insurance sector is a very powerful one in the Western world. Once they come to India, we will have a big lobby for us abroad.

I would also expect a policy on public sector privatisation. The government policy now is not to dilute more than 51 per cent. I would expect a much more positive policy on privatisation because funds for infrastructure and kickstarting the economy would come from the privatisation of the public sector. And it is hard to find too many public sector companies which are serving a public purpose, which benefit the public at large in today's context, except for the oil companies. Other companies like BHEL, IPCL, SAIL are also doing well.

R C Bhargava interview, continues

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