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‘India Is Becoming More Influential’

In an interview, Rakesh Mohan, former deputy governor of the Reserve Bank of India, reassures the country that, ‘when we make up our mind, we can do things. If it was done once, it can be done again’

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Twenty six years ago, the fate of the Indian economy changed with the most critical reforms of 1991. Rakesh Mohan, former deputy governor of the Reserve Bank of India, who has been deeply involved in the various aspects of the reforms has helmed a collection of essays by a range of industry practitioners, top industrialists, and academicians in his book India Transformed: 25 Years of Economic Reforms, to keep the memory of 1991 reforms alive. In an interview with Naina Sood, he reassures the country that, ‘when we make up our mind, we can do things. If it was done once, it can be done again’. 

To begin with, tell us what propelled you to write this book?
It dawned on me that reforms had started 25 years ago. Which means that anyone under the age of 42 has no idea what the country was like before the reforms took place. People ought to become familiar with what happened and how the reforms took place. If you understand the significant changes the country has gone through in the last 25 years, you could have more confidence in going forward.

You mentioned in your book that the country’s focus on agriculture was not good enough and still isn’t. Why have we failed in a sector on which the majority of population depends?   
We, across governments in the last 25 years, have just not paid enough attention to the sector. Starting in the late 1960s and 1970s post-Green Revolution, we paid a very high level of attention to agriculture. We invested a great deal of public resources on R&D in India. Agricultural universities were set up in almost every state. The point is that there was organised thinking in the 1970s to propel the green revolution. This means, when needed, we have given concentrated policy attention to agriculture.

After that, we have not done anything in the last 25 years for agriculture. We have failed to understand the changes taking place in agriculture. As income increases, diets change and become more diversified. Wheat or rice is a very small portion of what we eat today. There is much more production and consumption of fruits, vegetables, eggs, fish, etc. These are more complicated products, and we just haven’t done much R&D around these activities. They require a more complex supply chain and higher involvement of the private sector.

Besides agriculture, which other sectors didn’t get enough policy concentration in the past decade or since the reforms? 
The three biggest weaknesses are health, education and agriculture. If we compare our achievements in terms of indices like average years of schooling, literacy and dropout rates, we are behind almost all our peers. That is a key failing. It is very difficult to understand that something of basic concern and interest to all in the country is not responded to in a democratic country. Our low public expenditure reflects on the poor quality of our public delivery system. No country, whether it is the US, Europe, China, Japan or Korea, has done well without high quality public delivery of services such as education and health. So I think that’s really something we have failed at.

We are talking about taking the economy to 10 per cent growth rates. Do you think it is possible for India to touch that level?   
Taking cue from what we were able to achieve in the last 25 years, it is clear that ‘when we make up our mind, we can do things’. Therefore, it is quite feasible for us to now accelerate our growth rates from 7 per cent to 10 per cent. But to do that, we need to be clear in terms of public investment in infrastructure. We must understand that the public sector requires investment with respect to capacity.

In order to get to a higher growth rate, we have to take the public investment level up to nearly 40 per cent of gross domestic product (GDP) to get to a 10 per cent growth rate. It is at 32 per cent at present. It had gone up to 37 per cent  in 2008-09. You can’t increase public investment, unless public resources are increased. Our tax-GDP ratio has remained roughly constant for 25 years. Given the huge increase in incomes, this doesn’t make sense. However, with the goods and services tax coming in, many more people are expected to come under the tax net. We must increase the tax-GDP ratio by two or three per cent of GDP, and we need to take up the infrastructure investment ratio to atleast 8 per cent for the next four to five years.

What do we need to focus on to accelerate this growth rate? Is there anything we are not  paying much attention to in the current scenario?    
I think we need to solve the NPA (non-performing assets) issue, to begin with. Of course, it will take time to restructure the NPAs, but banks should be relieved of this burden soon, so they can start functioning again and lend for productive activities.

One thing that has not happened much is the financial resources savings. Most of the savings in the country is still in bank deposits. What we need to do is to incentivise much more savings into contractual savings, say like, insurance and pension. This will have a triple effect.

Do you think it is possible for India to attain a global leadership position in the next 10 years?    
If you succeed in growing by 8-10 per cent for the next 20 years, you would become a global leader automatically.  In my mind, however, the aspiration to become a global leader, is highly premature. You have a per-capita income of $1,600  right now. You cannot be a global leader with $1,600 and the poverty and illiteracy we have.  

Having said that, there is certainly the case of we becoming more recognised and more influential. Despite low income, we are becoming more important globally and we need to respond to that. We first need to improve the capacity of almost all our institutions. Our foreign ministry today is smaller than the Singapore ministry. To attain global leadership, we need to have much more depth in our institutions of all kinds.  

Whether it’s the transport ministry, commerce ministry, or the RBI, all need to be strengthened. We need to move away from the old continuing civil services system, where people enter as the IAS, IPS and get promoted moving from one job to another. That is not good enough for the future.