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'Inclusiveness is not just poverty reduction'

Q&A/ Montek Singh Ahluwalia

Siddharth Zarabi & Asit Ranjan Mishra  |  New Delhi 

The first thing Planning Commission Deputy Chairman Montek Singh Ahluwalia, 64, told Siddharth Zarabi and Asit Ranjan Mishra as they walked into his office was to live up to Business Standard's reputation and ask some rude questions.

They made an attempt, perhaps not very successfully, in trying to pin down a man who has been there and done it all when it comes to managing the country's finances and economy. Excerpts from the interview:

This government is full of economic policy pundits like you. How would you rate the past three years' performance?

If you look at the growth momentum and macroeconomic balance, I think the government has done very well. The current year has just started, but it is clear that growth will be at 8.5 per cent or better this year.

This means the average GDP growth rate for the four consecutive years starting from 2004-05 will be 8.6 per cent. We have never had such a good growth performance in the past. The external constraints on growth, which were such a problem in the past, have disappeared. Inflation did edge up last year, and was a matter of concern, but it is being brought under control.

On all these aspects, the performance in the last four years has been very good. We are also focusing on how to make growth much more inclusive than in the past and I believe we have done better here than people give credit for.

Agricultural growth has picked up in the last two years, though this is an area where we must and will do more. Employment creation has also been better than in the past, though most of the growth has been in the unorganised sector.

Do you think economic reforms have slowed down under this government?

There is no simple metric to judge the pace of reform. If you go by end-results, then the government's performance should be called outstanding on the counts I have already mentioned. Even if we ignore performance and measure reform only by policy initiatives taken, I believe there are many positive developments.

We have restructured policies to induct public-private partnership (PPP) into infrastructure, to re-energise agriculture and also to improve health and education. Tax reform has continued and yielded excellent results. The near universal adoption of VAT by states and the spread of the service tax net are particularly important.

I recognise that the financial press often complains that reforms have slowed down. I think this it is partly because they focus on one or two areas like labour reforms, where we have not made progress, because we simply do not have the political consensus to move forward.

The reform process has also become much more complex. It is not just a question of changing a regulation here or a tax rate there. We need to build new institutions that will deliver better regulation and better public services. I have no doubt that we have a long way to go in this area if we want to achieve faster and more inclusive growth. But that is because the reform process has entered a new phase and will take more time.

But has the government been as successful in ensuring inclusiveness?

Inclusiveness is both a more complex and more difficult objective. I am glad that it has risen to the forefront of public debate. Inclusiveness is not just about poverty reduction, it is much more than that.

It refers to achieving a growth process in which people in different walks of life, including many who are not poor as conventionally defined but can be categorised as the aam aadmi, feel that they too benefit significantly from the process. We have very large gaps in health and education and filling these gaps is crucial for inclusiveness.

This is not just a matter of announcing a scheme, and putting some money into it.

Money is certainly necessary, but it is not enough. We need to ensure that the scheme is well designed and that it is effectively implemented. We do not always know what is going to work best. But we know from the experience of numerous micro-experiments what works in different circumstances. To achieve the best results we need the active involvement of states and Panchayati Raj institutions which are closest to the level where the services have to be delivered.

Critics say that under you, the Commission has not only become energetic but also overactive.

I am not sure how to react. I am glad to hear we are thought to be energetic. There is not much use in having a Planning Commission that is not energetic in the sense of pushing new ideas and questioning traditional ways of doing things.

For everything we do, there is also a ministry already doing it and our job must be to provide a solid, constructive critique of what is currently being done, and also to suggest alternatives. To try to change things you have to be more than just energetic "" you run the risk of being viewed as overactive. There is no harm in being overactive, and even a little intrusive, but I agree we should not be over-intrusive.

Are there enough resources available for infrastructure and social development?

The investment requirements of these sectors are indeed very large. We estimate that investment in infrastructure needs to increase from under 5 per cent of GDP at present to over 8 per cent by the end of the 11th Plan. This yields a total of something over $400 billion against a base line projection of over $250 billion. The additional $150 billion will have to come largely from incentivising private investment to flow into relevant areas of infrastructure development.

Areas like rural roads, rural electrification, irrigation works and even roads in more remote areas will have to rely entirely on public investment. But we can attract private investors to electricity generation and even in distribution, provided state governments are willing to privatise a part of the system. We can certainly attract private investment in national highways, ports, airports and even railways. We have worked closely with other ministries to evolve a policy framework that will make this possible. I am happy to say investments have begun to flow, but this stream needs to build up into a flood.

Is the agriculture package of Rs 25,000 crore, recently unveiled by the Prime Minister, enough to revive the sector?

The Prime Minister's announcement of Rs 25,000 crore refers to the new central assistance for supporting state-specific agriculture plans. This is only one of the new initiatives emerging from the National Development Council (which met here recently).

There are several other components, including especially the Food Security Mission and enhanced investment in irrigation and rain-fed area development which are being finalised. We will see a significant turnaround in the investment directed to agriculture and agriculture-related sectors in the 11th Plan. The details will be available over the next few months.

Do five-year plans and the Commission have a future in a fast-growing economy like ours?

Many people say that a market-based development strategy does not need planning. I feel that even in a market-based economy we need to undertake medium-term and long-term planning of public investment and we need a system for policy planning which involves review and critiquing of public policies.

This is very different from old-fashioned planning in a controlled economy, where the government interferes in individual investment decisions, but it is a role that has to be performed.

Incidentally, China has renamed its Planning Commission as the National Development and Reform Commission and this institution plays a very important role in policymaking. It also produces five year plans. The Chinese haven't abolished planning "" they have re-invented it.

First Published: Fri, June 29 2007. 00:00 IST
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