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Days of free electricity are over: Prasad

Our Correspondent in New Delhi

The days of free electricity are over as chief ministers have realised it is no longer possible to give away power to achieve political ends.

This was stated by Ravi Shanker Prasad, Minister of State for Law, Justice, Company Affairs and Coal. He was speaking at the plenary session on 'A road map to success: 8% growth for 20 years' at the India Economic Summit, organized by the Confederation of Indian Industry and the World Economic Forum.

Opinion leaders including economists and representatives of the government and the opposition were present at the discussion.

Prasad presented a report card for the last few years, highlighting India's strengths. He said that the areas that have a promising future include services, biotechnology, housing and tourism.

Areas where the government has taken action are agricultural reform and the Prime Minister's programme for road connectivity.

Several initiatives have been taken for reform of the power sector. He emphasised that power politics is no longer relevant as chief ministers had realised it is no longer possible to give away free electricity.

Prasad ended by saying that there needs to be a debate on how to make reforms relevant in a democratic context.

While Prasad presented an upbeat picture, the other participants did not share his optimism. P Chidambaram, former minister of finance said that the government cannot point to a single initiative taken in the last 12 months that has taken the reform process forward.

There have only been intentions and announcements but no concrete action. Economic bills have been languishing in Parliament over three years without being passed. Reaching the magic number of 8 per cent would require massive investment in agriculture and manufacturing, which is currently not forthcoming, he said.

Chidambaram said that the three things required for increasing India's growth rate are an increase in savings, increase in investment and a cut in wasteful expenditure.

Jairam Ramesh, secretary, economics review committee, Indian National Congress, argued that India needed another external crisis to spur economic reforms. Reform happens in India 'out of compulsion and not conviction,' he said.

India currently lacks the governance capability to implement reforms and move on to a higher growth path.

He attributed this deficit to the following factors: the nature of financing political parties, the first past the post electoral system, the adversarial nature of institutions that harm consensus building, the dysfunctional nature of incentives in the administrative system and fiscal bankruptcy.

Omkar Goswami, chief economist, CII, made a presentation outlining three possible macroeconomic scenarios.

One, in which there would be no significant economic reforms and GDP would grow at 5.5 per cent over the next 20 years; the second, in which some reforms take place and GDP growth improves to 6.5 per cent and finally, a third, in which there is sustained reform and GDP growth jumps up to the desired level of 8 per cent.

He labelled the first case the 'lumbering pachyderm,' the second the 'purposeful pachyderm' while in the third, 'the pachyderm becomes a jaguar.'

For a comparison with China, he presented some hypothetical numbers. China's GDP is currently about double that of India. If China continues to grow at 8%, then at the end of 20 years, China's GDP would be 3 times the size of India's in the first case, about 2.5 times in the second case and 2 times in the third case.

For the last scenario to be achieved, some of the reforms required in India include the removal of product market barriers, labour reforms, power sector reform, dereservation of the small scale sector, privatisation and control of fiscal deficits.

Goswami finally handed out a questionnaire to all participants to gather their views on whether they expected these reforms to be implemented over the next three years.

Y T Lee, Co-Chair of the India Economic Summit 2002 and Chairman, Trigem Computer, Republic of Korea, introduced the plenary session, saying that the dream is not impossible to achieve, going by his experience in Korea and later in China.

Robert E Kennedy, Associate Professor of Business Administration, Harvard Graduate School of Business Administration, USA, said that there are three ways to increase a country's standard of living: to mobilise resources, shift resources across sectors and increase efficiency within individual sectors.

India had all the elements that make it possible to attain a higher growth rate but it has to work on raising their allocative efficiency.

He emphasised that the political decision to implement economic reforms does not come from being able to build consensus but from the ability to take some painful decisions.

Jagdish Shettigar, member, Prime Minister's Economic Advisory Council, felt that political consensus is the most crucial aspect of economic reforms. Otherwise, measures such as agricultural reforms and labour reforms will be projected as anti-farmer or anti-labourer when in reality the reverse is true.

Commenting on the recent reports on direct and indirect tax reform, Shettigar felt that the removal of tax exemptions on infrastructure would harm private investment in infrastructure. The government should have an integrated approach to economic reforms to avoid such pitfalls.

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