Search the Internet          Tips  Sites: Finance, Investment

'Working with the FM was good. He was very receptive'

Union Finance Minister Yashwant Sinha is now on the hunt for a new economic adviser before the commencement of the 2002-03 Budget preparatory process to replace Rakesh Mohan who resigned recently, citing personal reasons.

Mohan has categorically denied that he quit because he felt sidelined on policy decisions in the ministry.

He came in place of chief economic adviser, Shankar Acharya, who is on a 22-month sabbatical.

In an interview with Ramesh Menon, he says that he enjoyed his work at the finance ministry and it was good to be around when a lot of policy changes were being initiated.

When did you actually put in your papers?

There is no point in going through these details.

Why did you resign?

It is essentially for personal reasons. I want to do something different in the next few years rather than continue to work with the government. I did not quit because I felt sidelined on policy decisions in the ministry.

That sounds exciting...

Absolutely. I have worked in detail on infrastructure financing and infrastructure development for a number of years. I would like to go back to that and work full time. I thought I should go back to my 'strengths'.

Will it give you a chance to dream again?

One dreams all the time. Time for it is not restricted.

Till when will you be here as adviser to the finance minister?

As long as the finance minister wants.

Will you be around for the next Budget?

Well, I doubt that. I have asked the finance minister to relieve me as soon as possible.

Is this not a crucial period?

I do not want to talk about it.

Last year, the Budget team was changed a few weeks before it was presented. This year also, it seems imminent that there will be a change. Is it a healthy sign? Is it not crucial for the same team to be around?

It has not yet happened this year. I do not want to comment on this.

What about your new assignment?

I will join the Infrastructure Development Finance Corporation as its vice-chairman.

What do you plan to do there?

Well, work more on the infrastructure areas, in terms of policy and financing, and push the infrastructure agenda forward. Also, bring in as much innovation as possible in the area.

How was the experience of working in the finance ministry?

It has been very exciting. We produced a Budget that was appreciated all around for the fiscal issues it addressed. The excise duty structure was rationalised. It cut out all surcharges that existed. It introduced average tariff again.

A lot of rationalisation was done in the direct taxes regime, particularly in the area of plugging perks which were untaxed earlier. Also, surcharge on corporate income tax was removed.

It was designed to produce a fiscal stimulus. The idea was that as corporate profitability improved, India Inc would have greater investment capacity and that would turn the investment scenario around.

It was exciting as I went through various Budget initiatives that were announced. There was also a downturn in the capital markets, but at the same time long-standing reforms -- like the banning of badla -- were all introduced this year.

So you had a good time?

I had a great time.

And the finance minister?

He was very open and wanted to get ahead with reforms much faster. We talked frankly and clearly. He also was very receptive.

How would you list your achievements in the ministry?

That is a personal question. I cannot answer that. Achievements in the ministry can never be personal achievements except at the ministerial level. The finance minister or the prime minister can talk of what they have done, but a bureaucrat should not.

The last Budget was highly applauded but six months down the line all the euphoria died down…..

The Budget outlined a strategy for reforms.

Quite clearly, the changes were not meant to happen overnight. If you go into the many measures announced, you would find that a good deal is in process.

For example?

The abolition of Sick Industrial (Special Provisions) Act, which was mentioned in the Budget, has been introduced in the Parliament.

Also, the bill for abolition of the Sick Industries Act and Board for Industrial & Financial Reconstruction has been approved by the Cabinet and Parliament. Now, it has to go through normal parliamentary procedure (like discussions) and the government has no control on this.

Legal reforms were another area mentioned in the Budget. The government has appointed a group of ministers who met a few days ago. Discussions are on.

The prime minister committed at the National Development Council meeting that he intends to push it through. He also said it at the meetings of the Trade Union Council and Economic Advisory Council.

Consequent to that, he has appointed the Group of Ministers to come to an agreement within the Cabinet on exactly what amendment needs to be done for the relevant Acts.

The Electricity Bill mentioned in the Budget has been introduced in Parliament. The key issue here was the losses made by the electricity boards. The prime minister met the chief ministers immediately after the Budget.

Then a committee under Montek Singh Ahluwalia was appointed, which put forward a road map for electricity board reforms. Ahluwalia gave his report before he left to take up his new assignment at the International Monetary Fund. It is under discussion now between a group of ministers at the Centre and state ministers.

It will take some time as it is a difficult issue.

So it is not red tape which is delaying all this?

No. The point is that the report has been submitted and the sub-committee on power appointed by the chief ministers is looking at the report. The chief ministers, the finance minister, the power minister and the Planning Commission will arrive at a decision. It is a difficult issue.

What about the other areas?

The Budget announced cuts in interest rates and the appointment of a committee on small saving interest rates. Headed by Y V Reddy of the Reserve Bank of India, the committee just submitted its report to the finance ministry.

One future strategy was for making administrative interest rates more market-related. For this, the finance ministry will now take a decision based on the recommendations.

Similarly, the Budget announced certain movements on pensions. As far as public sector government pensions are concerned, there would be a committee to provide recommendations to the central government. That committee is currently meeting and we should be getting their recommendations within a month.

Similarly, the Insurance Regulatory and Development Authority has been asked to look at the report on the informal sector pensions. This was a group under S A Dave which gave a report last year to the government. We had asked the IRDA about its implementation. They have now finished working on it.

On the management of food economy, there were many suggestions in the Budget. The prime minister has met chief ministers to discuss this and has got sub-committees appointed. It is also under discussion.

As far as the petroleum sector is concerned, the Budget said that we would complete the dismantling of the administrative price mechanism by the end of the fiscal year. Discussion is on about it between the finance minister and the petroleum minister.

Within the next few days, there will be progress on this. Then, it will go to the Cabinet for approval.

The point is that each and every announcement made in the Budget is being acted upon.

It will take time.

The general feeling among the people is that nothing is happening.

Well, there is an objective reality of an economic slowdown. And it is not only evident here, but throughout the world.

Of course, after September 11, things have become worse internationally and domestically. It is a fact that the first quarter estimates is only 4.2 per cent of growth. The latest figure of industrial growth is still only 2.8 per cent.

What should it ideally have been?

For the last four to five years, we have had a GDP growth of an excess of six per cent. So anything less than six per cent is not satisfactory.

With a 5.2 per cent growth last year and with only a 4.2 per cent growth in the first quarter and industrial growth of only 3 per cent, it is not surprising that people feel that nothing is happening.

It should however be mentioned that the first quarter growth of 4.2 per cent is higher than the growth in the same period last year.

What will it be like in the next few months?

The good monsoon we have had this year is a healthy sign. Only a few areas in Rajasthan, Karnataka and Andhra had bad rains. So, it is expected that agricultural production will be substantially better than last year.

In the last two years, we had zero or one per cent growth in agriculture. But with good rains this year, we are expecting much better agricultural production. That will boost the economy as a whole in the second half of the year.

You had suggested some bold reforms to restructure the railways. What happened to that?

The report was submitted two months ago to the railway minister. The minister had then appointed some railway officials to look into the report in detail and I think they are supposed to recommend to him a course of action -- maybe by the end of October.

So, it is not shelved.

I presume they are working on it.

In the meantime, there have been two meetings with the officers and railway unions to get their reactions to the report. One meeting was in Delhi, the other was in Vadodara.

The central minister and the minister of state were at the meetings along with the Railway Board, senior officers, trade union representatives and some retired chairmen and members of the Railway Board.

Can you just encapsulate your report on the railway restructuring?

The basic point of the report is to note that the Railways are in a serious fiscal situation. For the first time in seventeen years, last year the Railways were not able to pay the usual dividend that they pay to the government. Nor could they pay it this year. That makes it two years running.

Our analysis was that if the Indian Railways continue this way, they would not be able to pay any dividend in the near future.

The basic issue is that the Railways are in a serious fiscal condition and have to take action to increase, both, their freight and passenger revenues. To do that, they have to carry out very significant organisational reforms to make the Railways more customer-oriented than they are currently.

To increase the distance between commercial decision-making and the Railways, we have recommended that the Railways be corporatised.

There ought to be a Railway Regulatory Authority that decides on the tariffs while the government will make the policies. We have said very clearly that different functions should be separated.

The Railways will run as a commercial entity. The government wants that the Railways should pay for it. We have also suggested major structural reforms. It is not easy for large organisations like the Railways to be corporatised. Our report suggests that it will take anything between three to five years, if one begins soon.

In the first instance, you need to change the accounting procedures from the current departmental accounting to corporate accounting. The reason for that is that if you want commercial operations, then you need the kind of information that corporate accounting yields. This way you can visualise which operations need changing.

You also need to shift to a corporate kind of framework in terms of long-term planning.

Money
Interviews

Tell us what you think of this interview