The Hindu : National : ``Halting approach to reform due to pressure to protect incumbent interests''

Online edition of India's National Newspaper
Friday, Jan 14, 2005

National

National

``Halting approach to reform due to pressure to protect incumbent interests''

By Our Special Correspondent

Raghuram G. Rajan, IMF Chief Economist (centre), discussing a point with N. Murali, Joint Managing Director, The Hindu, at the Eighth Palkhivala Memorial Lecture in Chennai on Thursday. Arvind Datar, Trustee, Palkhivala Foundation, is at left. — Photo: Vino John

CHENNAI, Jan. 13. India should give priority to education, rural infrastructure and the social safety net to enable its people to face global competition with confidence and derive the immense benefits that a liberal economic regime can give, according to Raghuram G. Rajan, Chief Economist of the International Monetary Fund (IMF).

The halting approach to economic reform was the result of pressures to protect the ``incumbent interests'' rather than of the larger interests of the economy, Dr. Rajan said. Young people approaching the voting age and the increasing population of the educated represented a mindset that looked at competition as an opportunity. This ``constituency'' should be nurtured to make progress.

Delivering the Eighth Palkhivala Memorial Lecture on the ``Mindset to Succeed in a Globally Competitive Economy'' under the auspices of the Palkhivala Foundation, Dr. Rajan cited the Centre's aviation policy, whereby in one segment, companies with no experience in airline operation were alone qualified and in another, a minimum experience of airline operation had been prescribed. This apparently irrational policy — which would result in greater concern for safety of the foreign travellers than of Indian travellers — was actually the result of pressures to protect the ``incumbent players'' in the field.

Fiscal deficit

The large fiscal deficit was the ``soft underbelly of the Indian state'' and was the number one issue for the IMF in respect of India. The deficit posed a constraint to finding resources for investment in education, healthcare, unemployment relief and pensions. It also undermined the nation's capacity to have a reserve of funds for emergencies such as natural disasters, besides posing a threat of rise in interest rates as a result of the competition between the government and the private sector for financial resources.

He denied that India's economic reform measures were ``calibrated'' to avoid serious crises that South-East Asia witnessed. India's reforms, he said in reply to a question, were the result of a ``sclerosis'' (the acute foreign exchange crisis of 1990-91).

If the reforms had been adopted as a well-thought-out economic strategy, there would have been a ``tremendous experimentation'' in policy-making, at both the Central and State levels.

Dr. Rajan said there was still a tendency to look at foreign investment with suspicion more appropriate to the colonial era. Openness to global investment brought in resources and skills, which could be used to the nation's advantage. Multinationals were not paragons of virtue, but they were no worse than Indian companies.

The operations of MNCs in India would, in fact, help raise the environmental and labour standards as a result of the pressures exerted by the public in the country of origin of the corporations.

Citing the success of Indian companies such as Tatas and Infosys, and the successful use of the Internet by a start-up firm for rendering academic services to clients abroad, Dr. Rajan said the opening up of the economy had strengthened the confidence and efficiency of Indian companies even in the manufacturing sector and helped them overcome the ``laziness'' induced by decades of protection.

India would be ``shooting its own foot'' if it responded to U.S. or Japanese subsidies for farmers by erecting its own tariff and non-tariff barriers. While continuing to fight for the reduction of farm subsidies in other countries, India should ``support'' the country's own farm sector to achieve competitiveness.

Dr. Rajan, who recalled Palkhivala's lament that India was ``poor by policy,'' hoped that the nation would overcome constraints imposed by its past policies. On behalf of the IMF, he offered the fund's ``deepest sympathy'' and support to the tsunami victims.

Arvind Datar, Trustee of the Palkhivala Foundation, said the foundation had taken up a new initiative to support post-graduate and post-doctoral students of Madras University by setting up a centre with books and digital resources on the Constitution and public law.

N. Murali, member of the governing council of the foundation and Joint Managing Director of The Hindu , referred to the academic achievements of Dr. Rajan and the success of the book, `Saving Capitalism from Capitalists,' co-authored by him.

The IMF Chief Economist represented a middle path between laissez faire and over-regulation, he added.

Printer friendly page
Send this article to Friends by E-Mail

National