20 Years of Liberalization: The Road Ahead for Reforms
with Mr. Arun Shourie, Former Minister of Disinvestment, Government of India
From the early 1990s, India has liberalized economy and implemented multiple reforms in education. While these reforms have enabled the economic growth, there are several lessons to be learnt in the areas such as disinvestment before the next set of reforms begin.
In this interview with Mr. Arun Shourie, we attempt to analyze how the reforms have evolved and what steps should be taken to increase the effectiveness.
Mr. Arun Shourie on Economic Reforms in India
tejas@iimb:
The economic reforms have brought great change in the country in terms of opportunities available to the people. But, still there is a long road to travel, what are the future areas of improvement?
Arun Shourie:
Mr N A Palkiwala, a great Jurist and Lawyer used to say that it requires a great deal of genius to keep India down, but apparently our governments have it. The economic reforms unleashed the strength and resilience of the society and the Indian private sector flourished subsequently. A continuous trend of deterioration of the quality of the institutions of the state started in 1960s and has continued unabated even after the economic reforms. The quality of governance, functioning and the quality of personnel in the government institutions has been declining.
tejas@iimb:
It is said that state should refrain from subsidies and populist schemes. Then what should be appropriate route through which government can ensure development and eradication of poverty?
Arun Shourie: The focus of the government should be to make the existing delivery mechanisms more efficient. The resources should be invested to develop skills, infrastructure and permanent capital assets which can drive the future growth of the economy.
tejas@iimb:Being an economist please throw some light on the most important sectors and problems pertaining to the economy that the government should focus on?
Arun Shourie: Labor law reform is the most important issue that should be addressed by the government. This is necessary for the creation of large number of jobs in the manufacturing sector. The emphasis of the policies should be on developing a large number of SMEs. And it is time to develop policies and infrastructure for second green revolution along with the development of vibrant agricultural supply chain. The Indian farmers are very quick to adopt best practices and new techniques, provided we demonstrate it to them and provide right infrastructure and facilities.
Mr. Arun Shourie on Disinvestment
tejas@iimb:The government has planned disinvestment in PSUs like Coal India, Power Grid and IOL. But this disinvestment is being used for financing the fiscal deficit. Is this the right way to go about this?
Arun Shourie:The disinvestments are being done to finance the budget deficit and Finance ministry is aware of the fact that the fiscal deficit over the last 3-4 years has reached unsustainable levels. This is the principal cause of high inflation and the high inflation over the past years is not a supply side phenomena. More importantly, the disinvestment does not change the character of PSUs, they still remain government entities and the efficiencies envisaged do not materialize.
Therefore, the approach should be to do “Strategic Disinvestment”. Ideally the government should be the minority shareholder in these entities to give them more autonomy and increase their competitiveness. The current disinvestment does not assure that the character of the company will change. Whereas, strategic disinvestment assures that the company will become more efficient and nimble.
tejas@iimb:There was wholesale disinvestment in UK and other European countries in 2000s. Should India also go the same way or is there some other approach which the Government should take?
Arun Shourie:Indian government should go in for a step by step Strategic disinvestment. The emphasis of the government should be to become lean and efficient. The government should do fewer things but should do them better. Atleast government should go in for strategic disinvestment in loss making PSUs. Currently the retail investors are not subscribing the PSU IPOs in large numbers and as a result government owned financial institutions have to subscribe these IPOs. This dries out the capital available for the private sector.
India should go for strategic disinvestment, as this not only increases the productive capacity of the unit, but also provides sustainable cash flows to the government in the form of increased taxes and externalities. For example Balco and Paradip Phospates have turned around and have completed implementation of expansion plans worth thousands of crores resulting in creation of jobs.
Mr. Arun Shourie on Education in India
tejas@iimb: You have written a book on the reforms in education system in India. What is your take on the premier institutes like IIMs? Do you feel the media is focusing too much on premier institutes?
Arun Shourie:In my view these institutes are islands of excellence and their autonomy has to be preserved and there is a need to multiply the number of these institutes. For this private sector needs to be encouraged to setup institutes of excellence. There used to be a tradition to set up institutes of excellence by the private sector for example Tatas and Birlas started their educational institutes, but that trend has phased out. And today teaching shops are being set up across the country. The role of media should be to critically evaluate the educational institutes through the help of experts.
The government sector has been ineffective at spreading education therefore incentives should be given to Private sectors and charitable trusts to set up educational institutes. But, the private sector should also not interfere with the functioning of the institutes and their autonomy should be preserved.
tejas@iimb:There are some institutes of international reputation in India like the IITs and IIMs, but the alumni of these institutes have not contributed much to the growth of the nation due to brain drain. What are your views on this and how can be this reduced?
Arun Shourie:One of the criticism has been the alumni should contribute more to the institute itself, for example graduates of IITs should contribute more to their institutes. Another aspect is that jobs in other sectors of the economy are more lucrative than jobs in government sector organizations like ISRO and this cannot be prevented. The incentive structure is not properly aligned in the government sector which restricts its ability to attract the best talent. Today the youth of the country feels more for the country than the state machinery. The common man is more nationalist than the politicians and bureaucrats.
Mr. Arun Shourie on Active Journalism
tejas@iimb:You are the pioneer of active journalism in India and you started with Maharashtra. How do you see the active journalism evolving in India in the current scenario?
Arun Shourie: If there is some bit of accountability in the system, it is because of a few judges and newspapers. But unfortunately all this is an exception, not a norm. The media today has become a part of the system and has lost its effectiveness in pursuing issues pertaining to corruption. The media should pursue every issue till the end and should not lose track of critical issues after initial campaign.
Conclusion
India has steadily progressed on the path of economic reforms over the past 20 years. But today there is a need of structural reforms to make the Government Delivery systems more efficient and transparent. Strategic disinvestment was a good step in this direction. India needs more such steps to make long term investments in increasing the productive capacity of the economy which would subsequently lead to increased revenues for the Government.
Profile
Mr. Arun Shourie is a noted figure in India's political landscape. He is also a journalist and an author. In the course of his illustrious career, he has held a variety of roles including being the editor of Times of India and the Indian Express. He also served as a consultant to the Planning Commission of India and held the office of the Minister of Disinvestment, Communication and Information Technology.
