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Top officials highlight reform process triumphs

A Correspondent in New Delhi

Good macroeconomic management had enabled a sharp decline in interest rates while successful divestment of public sector companies had helped develop anecdotal data in support of future privatisation.

These views, among others, were expressed by senior government officials, while outlining the successes of India's economic reforms, at the session on 'Dialogue on the economic reforms scenarios' and 'Dialogue on financial sector scenarios' at the India Economic Summit organised by the Confederation of Indian Industry and the World Economic Forum, in New Delhi.

S. Narayan, secretary, ministry of finance, highlighted India's economic strengths, especially in the financial sector. With good macroeconomic management, domestic borrowing costs had declined despite the problem with high fiscal deficits.

The debt market is expected to deepen considerably, with trading in government securities, interest rate derivatives and commodities likely to go online soon.

In response to a question from the audience, Narayan said that there was a consensus in the G-20 meeting that the move to capital account convertibility needs to be gradual.

Pradip Baijal, secretary, department of divestment, said that the intense debate on privatisation would help the country move towards a more credible and coherent policy, as has been the experience of countries all over the world.

His government had shown how strategic divestment is clearly superior in terms of generating better valuations for public sector companies.

Earlier experience has shown that selling shares in the stock market may not be practical, as the Indian capital markets are not deep enough.

Baijal also stressed that the government was clear in its position on monopoly issues: while it needs to be addressed in services sectors such as telecom and aviation, it need not be an issue in manufacturing, where falling tariffs have made international competition a reality.

Prodipto Ghosh, additional secretary to the prime minister, argued that it is difficult to draw a one-to-one correspondence between a menu of reforms and a specific GDP growth rate.

He presented data showing how GDP growth had been extremely volatile over the last fifty years but the trend rate of growth had increased since the 1990s.

Ghosh concluded that while policies do matter, changing endowments and capabilities are also important. For example, the so-called 'lost decades' of the 1960s and 1970s was a period of expanding capabilities and the subsequent decades built on the increasing skill-base built up during this time.

One important point that needs to be recognised is that the demographic numbers are changing in India's favour. A sharp reduction in the dependency ratio will lead to an increase in savings and hence growth in the coming decades, as had earlier happened in China.

Vinod Dhall, secretary, Department of Company Affairs, talked about reforms in the areas of company law, accounting and auditing credibility and corporate governance.

A slew of changes in the Companies Act and the Chartered Accountants Act took place in 2000 to focus on corporate governance. Companies were required to set up of an audit committee and issue a director's responsibility statement, steps that are now being implemented in the US.

Dhall pointed out that his department had a two-fold objective: to make corporate law friendly and to tighten the regulatory provisions of law.

Deepak Dasgupta, chairman, National Highway Authority, India, highlighted the success of India's road development programme and addressed concerns on its sustainability.

The programme of building 14,000 km of roads at a cost of Rs 60,000 crores ($12 billion) was being financed by the cess of Rupee 1 on petrol and diesel.

Dasgupta said that such a credible funding arrangement must continue and that a further increase in the cess could be considered. Another policy that ensures sustainability is the provision of autonomy to institutions such as the NHAI.

Currently, approval is granted to programmes rather than to individual projects. As a result, NHAI has been able to outsource engineering and other skills enabling it to handle an increasing proportion of projects on a build-own-operate basis.

John Rutherfurd Jr, Co-Chair of the India Economic Summit 2002; President and Chief Executive Officer, Moody's Corporation, USA introduced the dialogue session on economic reforms and financial sector scenarios.

This was preceded by workshops on these scenarios and the recommendations made by the participants in these workshops were first reported.

Omkar Goswami, chief economist, CII, reporting on the economic reforms scenarios, said that the consensus among participants was that the business-as-usual approach would fail to generate even 5.5 per cent growth.

Second, if reforms were to succeed, the coherence, communication and credibility of economic policy would be extremely important.

Finally, three areas were reforms are urgently needed are taxes and tariffs, infrastructure and labour.

Collating the results of the questionnaire that had earlier been handed out to participants, Goswami showed that 52 per cent of respondents felt that significant reform is not possible over the next three years; 47 per cent felt it may be possible and only 1 per cent felt it is definitely possible.

Subhashish Gangopadhya, director, India Development Foundation, reported on the issues discussed in the workshop on financial sector reforms.

The two broad areas where change was recommended are increasing the level of foreign direct investment and creating an enabling environment for the introduction of innovative products.

The fiscal deficit needs to be reduced so that money can flow into the private sector and the banking system needs to be restructured to best serve a growing economy. Specific recommendations also include speeding up the judicial system for economic cases, better stock market administration, removal of sectoral caps on FDI and privatisation of banks.

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