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G. Srinivasan

`All our problems by and large are still our problems, which have to be resolved by our own domestic means. If India has not performed as well as China or South Korea has done, the reason is inside us and it is not the fault of the world. We have failed to work out a coherent policy framework.'

Dr Manmohan Singh

NEW DELHI, Jan. 25

A CONSISTENT policy framework which raises the morale and spirit of business people with some relaxation in regard to fiscal deficit, coupled with the Government's ability to deal with structural bottlenecks, would help revive the economy, according to the former Union Finance Minister, Dr Manmohan Singh.

In a wide-ranging interview to Business Line on the state of the economy and the options before the Finance Minister in framing the Budget for 2002-03, Dr Singh said, ``If you look at this year's Budget document, a large number of promises were made. If you could not fulfil promises, it is better not to make them.''

He added that during the "difficult and uncertain times in the early 1990s," the Government took some initiatives and implemented them. ``The Indian economy seems to be not doing well when the world economy seems to be depressed. But even when the world economy was doing quite all right, our growth rate was no more than five per cent.''

From 1995 till 2000, the world economy saw a boom. But India failed to take advantage of the boom largely because of ``our own failure to work out a coherent policy design and policy framework'', according to Dr Singh. ``All our problems by and large are still our problems, which have to be resolved by our own domestic means.''

He added that by and large, the international system has treated India well. ``If India has not performed as well as China or South Korea has done, the reason is inside us and it is not the fault of the world.''

Underlining the need for the equity market to supply adequate quantity of capital, Dr Singh said that after 1995-96, the risk market was nearly debt and whatever money was raised, it was through private placement and not through initial issues in the open market.

``What is needed now is to restore investor confidence in the good intentions of the promoters and put in place mechanisms which would inspire it." He added that SEBI's processing phase takes too much time.

On whether the eight per cent GDP target set out in the Approach Paper of the 10th Plan was achievable, Dr Singh said that the reckoning was linked to the savings rate.

The savings and investment rates have fallen after 1995. It is now in the range of 22-23 per cent and capital-output ratio happens to be 4:1. "I don't believe you can reduce capital-output ratio very much in the next five years.''

Dr Singh also voiced serious concern over the pace and pattern of growth of the Indian economy. "We have laid down the foundation. Maybe, we don't pursue the path as optimally as possible but certainly when we left, the GDP growth rate was over seven per cent, industrial growth rate was 13 per cent and export growth was over 20 per cent in dollar terms. And investment and saving rates were at the peak.''

Stating that these were ``good foundations to build upon,'' he rued that successive Governments had not been able to raise the growth rate of the economy.

According to him, the Government has ample food stocks, foreign exchange reserves. ``You have much greater fiscal manoeuvrability than ever before. The question is what to do with that. We must use this to put more resources in physical infrastructure. But resources by themselves are not sufficient. You must deal with structural adjustment which must be made to make the infrastructure sector much more productive and purposeful.''

He cautioned the Government stating that one cannot raise taxes one year and lower it the next. "You say you want much transparency but you keep tinkering with each sector's problem separately.''

Dr Singh also recalled that the Finance Minister, Mr Yashwant Sinha, had said last year that he would persuade all State Finance Ministers and Chief Ministers to switch over to the value-added tax system by April 1, 2002.

"Now we are told that this will have to wait for another one year. These are uncertainties which are not created by foreigners but our own system.''

Dr Singh pointed out that power sector reforms have been talked about, "but the situation is much worse than ever before".

So, dealing with domestic structural bottlenecks in a consistent policy framework is necessary to carry conviction with the potential investors.

Dr Singh also said that the public sector must not be decried. ``If the private sector is coming in a big way, I don't mind. But we are faced with a situation where the public sector is demoralised. The private sector is not investing. In this situation, we must make use of the resources of the public sector, revitalise those enterprises which have the potential of being revitalised."

He added that enterprises that are making profits in the oil and telecom public sector should be given all opportunities to grow rather than be handled with the attitude that there is no scope or hope in being competitive in the public sector.

Stating that growth-oriented and reform-oriented budgets are no contradiction in terms, Dr Singh said: "Reforms are not an end in themselves. They are a means to ensure that our economy grows at a faster pace. Reforms are a means to ensure that the pattern of growth is such which helps the poor and downtrodden in our country to be able to lead a life of dignity and self-respect and their ability to participate in national mainstream of economic activity is enhanced.''

On whether the focus could be on social sector spending in the next year's Budget, he said that the emphasis could be so ``because the macro situation is such that you will be able to do a lot more and take some risk with fiscal deficit.''

However, he warned: "Year after year, you can't solve the problem of investment or social sector of this country by printing more money. You can spend on the social sector and manage the fiscal front, without ending up being impoverished economically."

`All our problems by and large are still our problems, which have to be resolved by our own domestic means. If India has not performed as well as China or South Korea did, the reason is inside us and it is not the fault of the world.'

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