Devil's Advocate: Montek Singh

Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission, hair-splits the basics of his approach paper to the 11th Five Year Plan and explains the roadmap as to how he plans to put India on a high-growth trajectory in an exclusive interview to Karan Thapar on Devil’s Advocate.

Karan Thapar: Hello and welcome to Devil’s Advocate. The approach paper to the 11th Five Year Plan will be presented to the Prime Minister sometime later this month. Here to talk about its goal and the obstacles that must be overcome to achieve them is the Deputy Chairman of the Planning Commission, Montek Singh Ahluwalia.

Dr Ahluwalia, let me start with a simple question. Your approach paper is entitled Towards Faster and More Inclusive Growth. Is growth, therefore, the core target that has to be achieved and are all other objectives and goals only achievable once the growth has been attained?

Montek Singh Ahluwalia: Well, growth is a key target, but it’s not the only target. I mean we don’t plan to distinguish between the importance of growth and making it more inclusive.

Karan Thapar: Absolutely. But the other targets follow from the attainment of the particular target of growth.

Montek Singh Ahluwalia: They are helped by the higher growth rate, but I don’t think they follow automatically.

Karan Thapar: Now, the growth rate that you have targeted yourself could be said to be exceptionally high. You set a target of 8.5 per cent as an average over five years of the 11th Five Year Plan. Given the target that you have achieved over the last five years is roughly 7 per cent, it means that you have to achieve 9.5 per cent perhaps in your last year. Is that something that you can actually achieve or is it just a wishful thinking?

Montek Singh Ahluwalia: I have absolutely no doubt that you can achieve 9.5 per cent if you do what is necessary. You know the Indian economy has reached there. The question is will we be able to take the supportive measures.

Karan Thapar: Well, you have said something which is very interesting: If you do what is necessary. Shankar N Acharya, India’s longest-serving chief economic advisor, says sustained growth rates above 8 per cent are possible provided India tackles major economic reforms. Do you accept that?

Montek Singh Ahluwalia: He is right. I mean that is what we exactly say. It’s not going to happen automatically. We are on a very good wicket. I mean the average growth rate, as you said, is over 7 per cent now. But to get from that to 8.5 per cent is not just a matter of coasting along.

Karan Thapar: So, you do accept that the economic reforms, in fact tackling and grappling with major economic reforms, is absolutely essential to achieve the growth rate?

Montek Singh Ahluwalia: Yes, absolutely.

Karan Thapar: Let’s talk about your determination to achieve those particular economic reforms that most people believe are essential for your growth rate. Now, your growth rate of 8.5 per cent assumes that India’s overall economic rate will jump from 29.1 per cent to 35.1 per cent, 50-70 per cent of which will be catered for by the private sector and as your approach paper says, “our policy should create an environment in which entrepreneurship can flourish.” And yet you don’t establish a clear and definite position on the vital need of labour law reform. Why?

Montek Singh Ahluwalia: I do think we say clearly by the way that that’s an important issue. But what we say prolifically, we need to develop a consensus.

Karan Thapar: Well, in fact, you don’t even say it is such an important issue. Let me quote to you exactly what did you say on the subject. “This is a sensitive issue. The Central Government should initiate a dialogue with labour leaders to evolve a consensus. There is scope for improvement without resorting to extreme measures.” To many people, that sounds not like an advocacy of determined labour reform, but an attempt to duck the issue by speaking euphemistically.

Montek Singh Ahluwalia: I don’t think that is entirely fair. The government has made it very plain that this is not an issue on which it is going to do top-down decision-making. It needs to discuss with trade unions, it also clearly ruled out hire and fie. The main point we are making is short of hire and fire a lot of things can be done.

Karan Thapar: But you are talking of the government; the position the government has taken on the issue. I am talking to the Deputy Chairman of the Planning Commission, who supposedly has created an economic vision with a roadmap to get there. Why are you allowing yourself to be hobbled and constrained by political issues that the government should worry about? You should set out a clear economic vision; you are not doing that.

Montek Singh Ahluwalia: I am not sure that’s a fair statement, actually. Because, I think the economic policy to some extent is art of what is politically feasible. I don’t think there is much interest in defining the positions, which have no relation whatsoever.

Karan Thapar: Political feasibilities - often determined by economic necessity - and the fact that you don’t have a choice but have to act in that way. Now let me quote to you what you said in your mid-term appraisal of the 10th Five Year Plan, which was issued only last year. There you said: “Labour flexibility is one of the serous problems.” That seriousness has certainly disappeared from your consideration in your approach paper.

Montek Singh Ahluwalia: No, no. I think it may be the particular sentence you are quoting that doesn’t contain that sense.

Karan Thapar: The whole document does not contain that sense of urgency and seriousness. The document is riddled with euphemistic sensitive language. You are behaving like a politician rather than an economist.

Montek Singh Ahluwalia: No, no, we want to get political change. Let me be clear. This is a sensitive issue. We are running a coalition government. The name of the game is making labour realise that labour reform is in their interest. We say quite clearly that if you want to emulate what the Chinese have done, if you want to expand employment in the organised sector, labour reform is something you should tackle.

Karan Thapar: I wish you would have said it half as clearly as you said it to me because in the document, you sound more like a politician. Are you suggesting to me that you have to deliberately use language that makes labour reform palatable to politicians, to make it possible for them to accept it and that’s why, you toned down your language from your appraisal of the 10th Five-Year Plan to your approach paper, which you are going to be issuing later this month?

Montek Singh Ahluwalia: Language is a matter of trying to persuade people.

Karan Thapar: It also reflection of your determination and seriousness.

Montek Singh Ahluwalia: Yes, indeed. But our objective here is to develop consensus.

Karan Thapar: People talk euphemistically and are for consensus at the lowest possible level, but you want it at the highest possible level.

Montek Singh Ahluwalia: Absolutely. There is no question about that. But I think the document says it and it’s only a draft - maybe we should clarify…

Karan Thapar: Do you accept the need to clarify?

Montek Singh Ahluwalia: We are going through a major revision, taking into account the comments received.

Karan Thapar: So, there is a good possibility that the euphemistic language that I am suggesting could be misleading will be toughened up? Will you put spine and steel to your language?

Montek Singh Ahluwalia: I am sure you will find the new document, when it comes out, will reflect a lot of inputs we have received.

Karan Thapar: Will your colleagues let you get tougher or will your colleagues push you to become even more mild?

Montek Singh Ahluwalia: When you say colleagues, what do you mean?

Karan Thapar: Other members of the Planning Commission.

Montek Singh Ahluwalia: No. These are the issues where there are differences and I am glad there are differences. The point is that this is not an issue - unlike say for example infrastructure development - on which virtually everybody agrees.

Karan Thapar: That’s why toughness and clarity of language are essential. Now will you be able as Deputy Chairman to ensure the clarity that you want actually reflected in the final document?

Montek Singh Ahluwalia: I think you have to wait and see what the final document says. But let me say the object is where there are differences, the differences reflect the fact to the public at large that there is no unanimous opinion. The name of the game, therefore, is to persuade.

Karan Thapar: You sound to be a politician. You ought to be in the Cabinet rather than in the Planning Commission.

Montek Singh Ahluwalia: Well, I sit in the Cabinet. so I am not viewing…

Karan Thapar: You have been influenced by the politicians. Instead of a vision, you have got a political document. Let me bring up the second issue that many believe, in fact, is equally important test of the sort of reforms you have to grapple with if you are going to achieve 8.5 per cent overall growth. It is to do with making access to FDIs easier in India.

Now, on the critical issue of FDI in retail - you ended up once again ducking the challenge. This is what your approach paper says. “This is an area of policy where there are different views. We need to evolve a consensus keeping in mind the balance of advantages and disadvantages.” Why don’t you clearly say that India has to open the retail door to FDI as China has done?

Montek Singh Ahluwalia: Individuals again differ on this. My own view on this is there is merit in opening the economy. Let me explain. Most important thing isn’t whether there is FDI, we are very clear about it. Modern retailing must be allowed to expand.

Karan Thapar: It will be giving a huge fillip if FDI comes in and it will be done much faster if FDI comes in than if you have to rely on domestic retailers taking up that responsibility for you.

Montek Singh Ahluwalia: I think, that is probably true.

Karan Thapar: Let me quote you once again. What the appraisal of the 10th Five Year Plan issued last year said on this. “There is a strong case for allowing FDI in modern retailing. The fear of large adverse effects on domestic retailing appears to be grossly exhilarated.” Where is that strong case in your approach paper? Instead the fears are what have dominated your thinking.

Montek Singh Ahluwalia: Not at all. I think, it’s true that the approach paper reflects a somewhat weaker tone on the issue of FDI.

Karan Thapar: You concede that?

Montek Singh Ahluwalia: Oh, absolutely. It is a reflection of the fact that we don’t perceive that there is sufficient consensus on the issue.

Karan Thapar: But the problem is that if you are determined by what you think is the existent political consensus, you will never be strong in your language. However, were you strong and tough in your language, you might help create a tougher consensus. Push, rather than allow yourself to be pushed.

Montek Singh Ahluwalia: Ultimately, there is a difference between a mid-term appraisal, which doesn’t have to be a basis for approval for the policies of next five years, and an approach document which actually has to be approved.

Karan Thapar: So, the Montek, the politician, has again won over the Montek, the economist.

Montek Singh Ahluwalia: No, no, no. I think, the issue is very loud and clear. I do believe, by the way, given the stage of the development of retail, the introduction of modern retailing is very crucial and overdue.

Karan Thapar: And that will happen most effectively and most swiftly if you permit FDI to come in. It will happen much more slowly and perhaps much more inefficiently if you rely on Indian domestic companies to take up that responsibility.

Montek Singh Ahluwalia: Yes, the argument for letting FDI in retail is the same as any other sector. In other sectors too, we are doing this. We have done this in the past in a graduated fashion.

Karan Thapar: Let me put it like this: When the final version of your approach paper comes out at the end of this month, just as you have suggested, you might toughen up your language on the whole question of the labour law reform. Will you similarly toughen up your language on FDI in retail?

Montek Singh Ahluwalia: Well, the intention is to clarify, wherever people think there is a lack of clarity.

Karan Thapar: All right. I take clarity for toughness, because I am saying that your lack of clarity is weakness.

Montek Singh Ahluwalia: But, I want to emphasise one thing. FDI in retail is not in my view as critical in next few years to achieve 8.5 per cent growth. Many other things are much more critical.

Karan Thapar: Sure, but I want to point out other economists, who share your desire of 8 or 9 per cent growth, would disagree. They will say that FDI in retail will be a clear symbol of the government’s determination to do everything it can to overcome obstacles.

Montek Singh Ahluwalia: There is no doubt that people will view it as a symbol, but there are other symbols which are much more important. In my view, doing something on infrastructure over anything else is the single-most important thing to do.

Karan Thapar: All right. To be able to do something on infrastructure… in fact, the government actually has to raise the resources to do so. You say clearly that the third major challenge that the government faces in tackling the issue of 8.5 per cent reform is this whole question of fiscal discipline. Let me quote to you what in fact the paper says - “In practice, this means control of subsidies and also levy of rational user charges.” Now, why don’t you say boldly in upfront that India has to cut subsidies and it has to stop all free power?

Montek Singh Ahluwalia: Well, it certainly has to cut or at least control subsidies, which is the same thing. I don’t think by the way it has to stop all free power. If you have a government giving free power to some particular segment that was small enough and deserves subsidy, I would not have any objections.

Karan Thapar: A particular segment that is small enough and deserves subsidy. Why don’t you stipulate those three conditions, which would tell people that you are serious about rational user charges? Rational user charges, otherwise, is a euphemism for sliding over the problem, not addressing it.

Montek Singh Ahluwalia: No. I thing if you look at the section on power and generally on electricity, which is an area where we have received a lot of feedback and I agree with you we should be much clearer.

Karan Thapar: Do you agree that you need to be clearer?

Montek Singh Ahluwalia: Wherever there is lack of clarity, we need to be clearer. I believe that this is an issue where people are willing to look at it and maybe take a decision in the next couple of years.

Karan Thapar: In that very frame of mind, let me turn you to another issue. Your approach paper says that government savings have to increase by 3.5 per cent from a present position of roughly minus 1.1 to plus 2.4 and yet nowhere in your approach paper do you talk about disinvestment or privatisation. Does that make sense?

Montek Singh Ahluwalia: Disinvestment is not the same thing as government savings. The two are quite different.

Karan Thapar: If you are not going to be able to increase government savings by cutting substantially on subsidies and cutting all free powers, then you have to use privatisation as a way of raising those resources.

Montek Singh Ahluwalia: But the major subsidies are not the ones that go supporting sick units.

Karan Thapar:When it comes to symbols of economic reforms, the world over from Mrs Thatcher’s time in the ’80s onwards, the government’s ability to tackle privatisation is a symbol of its determination to tackle reform. It is a symbol of its determination to concentrate on issues that it does best and it is an invitation to foreign investment to come in. That is why privatisation is important.

Montek Singh Ahluwalia: I agree with you that these things are regarded as symbols, but we have passed a stage where we have to rely on symbols. There are some real issues that we have to address. In my view, people are not looking for symbols as far as foreign direct investment is concerned. They are looking for real progress on infrastructure.

Karan Thapar: What people are looking for when they look at your approach paper is a coherent approach that actually delivers the growth theory. Let me give you an example as to why they are disappointed. Your paper says that there is a strong case for de-nationalising coal. Admittedly, I agree with you that probably is. There is also a strong case for de-nationilising Air-India and an equally strong case for privatising Indian Airlines and the Ashoka Hotel. But you don’t address those. Why is that?

Montek Singh Ahluwalia: De-nationilising coal is very different from privatising an individual unit…

Karan Thapar: But it is equivalent to de-nationalising Air-India.

Montek Singh Ahluwalia: No, because the whole of the coal sector is nationalised. What we are really saying is…

Karan Thapar: Air-India is making losses except for the last few years pretty pathetically. It is a company that was considered as star airline when it was run by the Tatas and in early years of government ownership. Today, it is almost an apology for an international airline. Surely, that is the case for tackling it.

Montek Singh Ahluwalia: That’s true. But my point is that we are concerned about the sectors. The Indian civil aviation sector is doing exceptionally well. Yes, you can look at Air-India’s problems. In the coal area, since we have nationalised the whole sector, our concern is let private sector coal mining come in.

Karan Thapar: But it was not exactly the coal sector I was talking about so much, making an example of coal to say that, what we need is a coherent rational policy that approaches the need for reforms in a fundamental way rather than ad-hoc piecemeal responses. That’s why people feel you set a high target, but you haven’t overcome the obstacles.

Montek Singh Ahluwalia: Let me challenge you. You are over-impressed by the thing that people regard the symbols. It is true if you disinvest or privatise a particular PSU, a hotel here, a hotel there - but that’s not important.

Karan Thapar: I am impressed by symbols because they are the only indications of your determination to achieve reform, to secure the target you want. Otherwise, the target of 8.5 per cent looks like wishful thinking.

Montek Singh Ahluwalia: No, no. But you see the fact that Mumbai and Delhi airports are being mordernised with a substantial…

Karan Thapar: What about the fact that Kolkata and Chennai won’t be modernised in the same way?

Montek Singh Ahluwalia: Well, that’s not yet a decision, it has to be done in next phase. In the civil aviation sector, you have got real progress.

Karan Thapar: Mr Ahluwalia, let’s turn to what many consider to be the single biggest hurdle to achieving 8.5 per cent growth in agriculture. Your approach paper sets a target of 4 per cent agriculture growth. It was the same target that was set in the 10th Plan and it wasn’t achieved then. How can you be so sure that you can achieve it this time?

Montek Singh Ahluwalia: It is because we are arguing that we shouldn’t go for business as usual. We need to rework the whole agricultural strategy.

Karan Thapar: I need to know what do you mean by not going for business as usual. But first let me point out that this time round achieving four per cent (growth) is even more difficult than it was earlier because now you are doing it from an average of 1.5 per cent over the last five years, which means that agriculture has to improve by over a 100 per cent and you haven’t sketched out a detailed or even a coherent strategy for achieving this growth.

Montek Singh Ahluwalia: The approach document isn’t meant to spell out the details; that will come in the plan.

Karan Thapar: Then how do you say that you are not going for business as usual? Because to everyone that reads your approach document, it sounds just like business as usual.

Montek Singh Ahluwalia: Let me mention two-three things. First: irrigation. We are recognising it because not enough has been done, so we have to do more in terms of putting money into it. Second: About 60 per cent of the land area is not in the irrigation setup. It is a rainfed irrigation. So you need a completely different approach to moisture conservation. And third: You have to recognise that we are moving away from one- or two-crop area to diversified agriculture.

Karan Thapar: Are these the three principal thrusts in agriculture that you believe can deliver four per cent growth?

Montek Singh Ahluwalia: If you force me to say three! I would actually give you seven or eight and a lot of them.

Karan Thapar: But let me tell you why I sound skeptical in putting up that question. The Chairman of the National Commission of Farmers, Dr Swaminathan, has actually spoken to me and has said that he doesn’t believe that your approach paper has anything like a coherent or even a fledging strategy for achieving four per cent growth.

He says that in the absence of that strategy, this is just wishful thinking. And I can add that even eminent wives of members of your own Planning Commission --- including Jayati Ghosh --- have written to say that the planned projections blithely assume that GDP in agriculture will grow much faster yet suggests no way to improve it.

Montek Singh Ahluwalia: I think that it is simply a desire to see the plan itself when you are reading the approach. A 90-page document is not going to have details.

Karan Thapar: But should it not have enough to convince people like Dr Swaminathan?

Montek Singh Ahluwalia:That was not what Dr Swaminathan said to us and we certainly have been in touch with him. He himself has produced a huge strategy in the national farmers’ commission.

Karan Thapar: Quite right. In fact he has highlighted five particular points, but he also says that none of the five points that he has highlighted for tackling the crisis in agriculture have found adequate reflection in your approach paper. He is disappointed.

Montek Singh Ahluwalia: The agriculture area of the approach is the one that we have had the maximum amount of discussion with people and I think that in the revised version, you will see a lot of changes. It still won’t achieve the objective of having a whole strategy, but hopefully some of the empty spots might get filled.

Karan Thapar: If your critics turn out to be right in agriculture fields to grow by anything like four per cent, will you then accept that in those circumstances your target of an average of 8.5 per cent growth over the next five years is unachievable?

Montek Singh Ahluwalia:Actually the role of agriculture is less. Its impact is less on the growth rate than its impact on inclusiveness.

Karan Thapar: So are you confident that even if agriculture stays in the doldrums on 1.5 to two per cent, you might still achieve 8.5 per cent average growth over the five years?

Montek Singh Ahluwalia: No. My guess is that the direct contribution of failing to do four per cent in terms of loss of growth would be something over a half percentage point. The indirect contribution would be because of the lack of dynamism that will affect others which could be about one percentage point.

Karan Thapar: So is it quite important to achieve your targets if agriculture doesn’t achieve its target?

Montek Singh Ahluwalia:Yes, unless something else goes and offsets it. But that is not good enough because then you won’t have equity.

Karan Thapar: The last question that in a sense tries to take an overview for the entire discussion and people listening to this discussion who are aware of the very high ambitious target that you have set will say that “Montek Singh Ahluwalia thinks big, plan small and, therefore, when it comes to action, he can only take minute steps that won’t really take him very far at all.”

Montek Singh Ahluwalia: I am hoping that when a) the approach and b) but more importantly the planned document comes out, people will be reassured that we are not taking small steps but we are actually taking big steps.

Karan Thapar: So will the clarity that I am saying is absent be there?

Montek Singh Ahluwalia: I am not conceding that clarity is absent, but I think you will find a better document when you read it next time.

Karan Thapar: Dr Ahluwalia, it was a pleasure talking to you.

Montek Singh Ahluwalia: Thank you.

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