Political will important for big economic reforms: Maira

The weak GDP figures revealed yesterday have suddenly attracted the attention of people towards the sorry state of the Indian economy. The economy grew just 5.3% in Q4, the lowest in nine years due to poor performance of the manufacturing and farm sectors.

In an interview with CNBC-TV18, Arun Maira, Member of the Planning Commission tries to churn out a recipe for fixing this dismal condition. Although, he says that the commission has figured out what has to be done, implementation is an issue. According to Maira, institutional fixes and governance improvements are solutions to the problems. However, political will is important for big economic reforms, believes Maira.

Below is the edited transcript of the interview on CNBC-TV18. Also watch the accompanying videos.

Q: What would you do now, this is the lowest reading in nine years, it is lower than what we got post Lehman, what action is warranted?

A: In 2005, several of us with some experts from World Economic Forum at Davos had presented a projection of India's growth in the next 20 years. It was a time when people were still celebrating BRICs and India's growth rates for India to inevitably become the third largest economy in the world. At least, that is what the report might have suggested.

We forecast that there was a very good chance that India's growth would reach levels of above 9% for just a few years. Soon after, it would start drifting down to 8% and would even touch 6% as they have done now. One doesn't like to say that I predicted things would go wrong. The more important thing was that we had figured out then what would be required to make sure that our growth would be sustainable and sustainably high. 

We had then looked at the whole system, not merely the economic numbers and extrapolations, which is what fundamentally the BRICs projections seem to be about. We had gone down into the social and political situations within the country and seen how the pattern of economic growth would begin to interact with and influence the political system in the country and social reactions.

We predicted that we would come to a time soon, where the country would be in a logjam. There will be different contentions, different views, maybe different ideologies and we would not be able to take the decision that we need to take to move the economy further.

What we have to do is to get those systems that were mentioned fixed. The planning commission in the last year and more has been working with a diverse set of people across the country, not merely economists but people in the social sectors, people who represent a tribal ribbon and children and young people and so on to get a fix for this elephant, to take the views of many who believe they know the whole elephant. To put it together and say well, what would make this elephant move, let us understand this beast, where the leverage points are.

We have figured out what we need and we've discussed what those reforms are in the plan, the twelfth plan which we would be seeing very shortly. The drafts are ready with us to talk about the systems and institutional improvements that need to be done and how they might be done. We could once again have some quick economic fixes, some big ticket economic announcements but, they would not address the condition of governance in the country and you get a reaction again.

We will go up in spurts and fall back and we don't want that. We want a continuous, sustained growth in the country and the solutions are institutional fixes and governance improvements which we need to get on with.

Q: The solutions haven't been lacking, there have been various committee reports and various panels that have addressed many issues of the economy and how to fix it but the problem has been implementation and that none of these solutions have gone anywhere. What is your sense of the downside risk that is present to the economy now after having hit that 5.3% mark, if indeed many of these solutions don't go through, what kind of an FY13 growth fear do you think we could be looking at?

A: There are three scenarios before us. One of them seems to be a recent news. All of it started to go negative, including this latest one about the GDP growth rate falling so far down. We seem to think that we could sort of muddle around, leaving it to the circumstances, the market and the beauty of democracy, somehow things will turnout alright. Somehow we tend to feel so in India.

But we said no, there is a risk in this muddling along. We could be getting into something like falling apart from the system - a falling apart of the economy, a further falling apart of political parties vis-à-vis each other, between civil society and government. This further falling apart will make it much more difficult to get things done.

On the other hand, as I said, there are some governance reforms and reforms in processes that will enable collaborative decisions to be taken. We know what those reforms are like but, then why don’t we get on and do those things rather than once again asking what is the consequence of not doing them.

We know the consequence of not doing them is not going to be very good. So let us not talk gloom and doom, there will be gloom and doom, further gloom and doom if we don't start improving these processes of decision making and governance that are known. The solutions are known to us but let us concentrate to focus the country on what we need to do collectively to fix the way we are working.

Q: To go back to the point of implementation, do you think we have got the political will to walk down the path that you are prescribing and what kind of timeframe are we looking at for implementation?

A: Two things I would say. A political will - the big ticket economic reforms whether it is a pension reform or the FDI in retail, there is political contention around those reforms. When we address the reforms like administration improvement reforms or local governance reforms, there is no political dissonance on these.

There is no need to have a political will, it is a management will to get it done and to do it effectively, efficiently. It is a management issue, I would say. This is not a political issue. So that is one part.

The second is how long will it take. It will take that much longer if we start that much later. We know we need to do this. That is why I mentioned that if in 2005, we had made this the agenda, by now – it is 2012 - we would have been in a much better position. Our ship would be in a better shape.

Our ship is sailing through turbulent times in international markets and we know when the sea is rough outside, what does the captain do? He says, let us kept the ship tight, batten down things inside the ship so we are more secure and keep the ship moving because the ship which is not battened down and is stranded in an open stormy sea is much more vulnerable. Those were the solutions, keep moving but also fix the ship, tighten it up.

If we don't focus on doing it now, I assure you that we will be in a worst position and of course, it will take longer if we start later. Let us start doing it now. We should have done it earlier, but this is what the overdue reform is. I believe these reforms are even more overdue and more necessary than reforms in the big ticket FDI attraction reforms, which will be, if we do what I am saying, be more acceptable in the political system of the country.

This is so because we will be addressing the main thing that affects the aam admi, their lives and their governance immediately. They would have confidence that as the new things come in, they would be able to absorb it without fearing detrimental effects on their lives.

Also read: Q4 GDP: Derailed economy has economists worried about FY13

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Q: While a lot of the infrastructure side problems are known, well documented and perhaps being even being addressed in some part. The concern with yesterday's GDP performance was that there was a crunch happening on the services side, consumption road, something that India has been very proud about seems to be slipping. How exactly might that end of the problem be addressed you think?

A: Same thing. Every problem that we look at, we come down to the root causes. Let us look at manufacturing which has not grown and the same sort of dilemmas, problems are arising in services.

It comes down to people saying two things. One is, our physical infrastructure is not improving fast enough. Why is the physical infrastructure not improving fast enough because there are contentions about land, contention about environmental issues and so on.

What do we do about contention? How do we convert it to collaboration? What are the processes and institutional reforms required there? Then we come down to the other set of issues which are talking about regulatory reforms. Regulations which affect services have been affecting manufacturing very badly now. They are in a tangle. What do we need to do? In some systematic collaborative fashion, improve. For example, improve labour management and labour regulation, improve in the case of services trade regulations, GST.

There is a whole set of issues which affect the economy. But, the root causes seem to be, we can’t collaborate. We are not able to, at the moment, collaborate and quickly resolve the issues to come up with solutions.

The stakeholders will say, I may not like the solution completely but I can live with it. The other one may say, I like that one very much and you will live with it together we are working and moving forward.
We have addressed what the process requirements are as well as the institutional requirements are. They will help the services to grow, they will have infrastructure to grow and they will help manufacturing to grow.

Q: Contrary to your expectation of fixing the regulatory framework as an institutional mechanism, most economic participants today see that as a key risk. Whether you look at sectors like energy, telecom, taxation, environment, you think regulation is coming in the way rather than being a facilitator, how do you change that around?

A: Absolutely. There are two parts to this. Everyone is comparing India’s regulatory environment for doing business with the other countries in the world. They would keep ranking India very low saying there is something to be fixed about the way regulation works in India and whether it is business friendly or not. As a result, you rank very low in attractiveness for investments or competitiveness.

Did that mean that we have to change something? As you start changing something, one is told that business doesn't like change. If you have to improve, it has to be about change. The process of improvement has to be a much more open, transparent and collaborative process so that one looks at the effect of various things with the stakeholders engaged and says, if you are going to tune up the system, what is the best way to do it?

In other words, there is going to be change, but we are feeling comfortable about the way we are changing it. I am not feeling that it is done behind some closed door and it is favouring somebody and who is going to gain out of this and so on. That is the process and the tool for it that we have prescribed now called the business regulatory impact analysis and a policy evaluation unit to set up something like this at the center and in the states. A lot of work could have to be done in the states in these matters.

Q: Do you get the sense at all that there is that kind of political will because most people investing into this country and this market don't feel that. In fact, they think policy has worked adversely, it has been one step forward, two steps back. Yesterday the finance minister made a comment saying FII inflow situation will solve the GDP problem, there wasn't any commentary about leading to fix many of these policy issues?

A: You are describing reality. I am a practical person, I absolutely agree with you. Those are the people's perception and they happen to be mine too. The question now is, what do we do about it? I am not denying the reality, it is a reality and to pretend it is not the reality would be like an ostrich with the head in the sand.

There is no confidence in the system and the way it is not resolving the problems or trying to resolve the problems. Investment is not coming, whether domestic or international, so what do we do about it is what I am describing.