As a technocrat, I wish we moved faster, says Ashok Lahiri

As a technocrat, I wish we moved faster, says Ashok Lahiri
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First Published: Fri, Jul 13 2007. 12 27 PM IST
Updated: Fri, Jul 13 2007. 12 27 PM IST
New Delhi: India’s economy is barrelling along at a growth rate of more than 9%, savings rates are up, investments are up, more jobs are being created, and inflation appears to be under control.
So has India chanced upon the right development model?
It would be wrong to decide that little more needs to be done, says Ashok Lahiri, who steps down today as the chief economic adviser to the finance ministry, after five years that straddled two coalition governments.
“We choose a path and decide how far and fast we are going to move and, here, as a technocrat, I may wish we could have moved faster, but any change hurts,” he said in an exclusive interview with Hindustan Times. “There will be some collateral damage. In a caring democracy, you have to find ways of compensating the losers.”
Lahiri spoke from his North Block office even as aides packed books. He is on his way to Manila, where he will take over as India’s executive director on the board of the Asian Development Bank.
“I am saying, perhaps with a little bit of modification here and there, this growth can be sustained with more or less these policies. But, with a twist here, a turn there and so on,” Lahiri said. “Please do not misunderstand that I am saying that this is the very best and nothing needs to be done. What I am saying is how much the status quo can be stabilized, that is a political judgement and that political judgement has been made. And, as a technocrat, I need to have due respect for that.”
Lahiri said India’s economy is by no means on autopilot. “The macroeconomic stability that has been maintained in the last decade and a half, post reform, should not lull us into complacence that we can go back to our merry days of high fiscal deficit and spending more,” he said.
Meeting the challenges of infrastructure, education and health will mean instilling the discipline of re-prioritizing public expenditure away from items such as subsidies and insisting on outcomes and value formation, he said.
Second-generation reform will consist, in large part, of better public-service delivery, said Lahiri. “I am hopeful on that for three reasons: increasing literacy so people will want to know what is happening with their money; the IT revolution, whereby you can track a rupee fairly easily; and the media will be asking questions.”
Lahiri said the different figures being cited as necessary for urgent infrastructure investment—$320 billion to $380 billion—really did not amount to too much. “In a trillion-dollar economy, it is 6% of GDP, which is not too much, particularly since the investment rate is somewhere around 35% of GDP.” So, what will it take to entice the private sector and for the public sector to pump in more money?
“There has to be a way by which we can have regulatory reforms and pricing reforms so that it becomes profitable,” he says. “We are already paying for it. If you do not have enough water, you have to call a tanker and, when you call a tanker, you pay through your nose. Similarly electricity. It has made a lot of progress but unless we can cut down transmission and distribution losses… there is difficulty in attracting enough investment.”
And what about congested airports and power cuts?
“When you talk about blackouts and brownouts, airport congestion or so on, yes, they are regrettable no doubt about that,” Lahiri said. “But in blackouts, the question is, is the shortage at peak time going down relatively? Any shortage is regrettable but I think a feasible plan of ameliorating this problem is not a one-step removal of all shortages but a gradual reduction… Otherwise, if you set such a target you will get demoralized, because you will think you did not reach the peak but have covered only 2,000 metres. But climbing a mountain of 2,000 metres is good enough. Keep at it and you will reach there.”
Lahiri said it was no accident that the economy was doing so well. He agreed that although India’s huge population of young people meant more productivity—manufacturing grew by double digits over the past year and a half—and greater output, employment was rising but not fast enough for the unemployment to come down. “That is happening because of greater labour-force participation. Employment is increasing, but employment in the organized sector is not increasing fast enough.”
He said it was also heartening that direct tax revenue was rising rapidly, and faster than indirect taxes. “If you look at the direct tax to indirect tax comparison, had it not been for the service tax, which is a growing source, if you look at 2001-02 direct taxes for the Union government were around Rs70,000 crore and the indirect taxes were around Rs118,000 crore. By 2007-08, direct taxes will be around Rs267,000 crore and indirect taxes will be Rs281,000 crore. So, direct taxes are increasing faster than indirect taxes.”
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First Published: Fri, Jul 13 2007. 12 27 PM IST
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