Christine Lagarde of the International Monetary Fund is one of many who believes that under the leadership of Prime Minister Narendra Modi, India has improved rapidly and is on the right track. International recognition is one aspect but what are the challenges in India becoming a powerhouse while China sees a recession. Ratnesh Dwivedi spoke to four experts. First in the series is his interaction with Dr Jaimini Bhagwati.
Jaimini Bhagwati is a member of the 1976 batch of the Indian Foreign Service (IFS). Dr. Bhagwati has rich experience, having served inter alia as the Indian Ambassador to Belgium, Luxembourg and the EU, in the Ministry of External Affairs in various senior positions, in the Ministry of Finance and also the World Bank, besides being India’s envoy to the UK during his 33 years of diplomatic career.
Immediately prior to being appointed India’s Ambassador to Belgium, Luxembourg and the EU, Dr. Bhagwati served as Additional Secretary in the Ministry of External Affairs, GoI and earlier as Chief, Corporate Finance in the World Bank. He is a noted economist and veteran diplomat. He has also served as Joint Secretary (Capital Markets, External Commercial Borrowings and Pension Reforms) in the Department of Economic Affairs in the GoI. During his career, Dr. Bhagwati has developed wide experience in financial and economic matters with specialisation in capital markets. He has considerable experience of working on foreign policy issues related to Central Asia, Europe, Russia, Bangladesh, Sri Lanka and Cuba. He is a Member of Advisory Council of IDFC Limited and holds a Doctorate in Finance and Masters in Physics.
Ratnesh Dwivedi: For the readers of this report who are in China and Hong Kong, please tell us briefly about the current economic scenario of India under Prime Minister Modi’s reign when we compare it with China.
Dr Jaimini Bhagwati: I think it does not make any sense comparing India with China. Both because of the size of economy of both nations. The Indian economy is considerably different. We are on completely different path. We have a different political system. That will be a red herring comparing both institutions in terms of how the economies have developed and will develop. I am sorry to say that it makes no sense comparing China with India.
RD: My next question when we compare present economy under Prime Minister Modi’s reign and when we compare it with the previous government; how good or bad have the changes been?
JB: Your question is too general but I will try to address it. Good or bad have moral connotations that make no sense in term of country. Under Dr Manmohan Singh and the UPA Government, towards particularly the last few years, there was a decision paralysis caused by court judgement as well as by legislation, for instance land acquisition legislation and so on, which had basically brought the government decision making to a stand still, and also because of some of the policies post 2008 in terms of raising government spending. Inflation has also reached a particular level which was well above the comfort level of both for the average man, a person on the street as well as for the economy as a whole. This was the kind of difficult situation that the NDA government led by Prime Minister Narendra Modi inherited. In this difficult situation they have been lucky in some ways and proactive in others. Oil prices have come down from 140 USD per barrel to something like 30-48 USD per barrel, so that has had a hugely positive beneficial effect on the current account and also on reducing inflation. I am using one element in terms of luck.
Now to talk about the concrete action taken by this current government, the current government has acted with great speed on a number of issues, for instance the Jan Dhan Yojana, using the Aadhar Card, the number of bank accounts which have been opened and how they actually translate into action. It’s not that the previous government had not thought about it, but they could not get things done so this is a huge change in terms of how to transfer benefit in cash so that not much is lost in transmission between central government and intended beneficiaries of the subsidy. I think that it is a huge step taken by the current government. I will not talk about ‘Make in India‘ and ‘Swachh Bharat‘ because those are things which are much more difficult to implement. Let us talk about Land Acquisition that is something this government tried to change but they were taken aback as there was not enough support. They have taken a stride in moving forward on GST. I do not think they will get it done this Monsoon session but a considerable amount of work has been done.
Let us talk about Uday where power distribution companies and production companies are in bad shape. The consumers had to pay per unit but in Uday they will utilize it free of cost. Let’s talk about Highways. Some of the projects were held up for a variety of reasons. This government has been able to push ahead much faster. I would also say they have been lucky with their timing coming into power as there was a setback for the previous government due to coal block allocation without auctioning the 2G scam which the then auditor general pointed out in terms of telecom licenses. The court has lifted some of the restrictions this government imposed, so this government has moved forward with change in the legal situation.
Photo – Sonu Mehta
RD: You touched upon both sides of the country, urban as well as rural. I would like to have your opinion on one very optimistic project of the government of India under Prime Minster Modi called the concept of Digital India, since China is also a stakeholder in this concept. I guess you remember when BRICS talks happened in Ufa, Russia and thereafter the SCO in Austria, from which a 10 point agenda emerged and they decided to move ahead on Digital India. How do you think this is going to change the IT sector or living standard of people in India?
JB: Digital India is a phrase. One needs to look at specifics where mobile telephony is reaching the common people. I think most people will agree that mobile telephony has reached even the remotest areas and also to people of lower income groups. But the use of the internet has not spread with the same speed. One, because of the lack of education. The use of the internet requries better understanding of how things work, and also needs to be sufficiently literate and also have access to a PC, a laptop or some such instrument. Of course nowadays smartphones have internet on them and some of our people went straight from no telephone to mobile telephone without getting a landline, maybe some people will go from no internet to internet on smart phones which look almost like an Ipad?
What we have to do is that the way mobile telephony has spread in India, it is among the lowest cost mobile telephony in the world. Similary, the internet has to be made accessible to people in India. I do not think that as far as the internet is concerned we have reached the same level of competitiveness, so when we talk about Digital India we need to be clear that access to the internet has to be increased. It’s push and pull. When the government push to make access cheaper they also need to make people computer literate because when you use the internet you need to actually punch some numbers and letters so you must understand. It can not be “Kala Akshar Bhains Barabar“(a vernacular proverb used to define illiterates). On the phone you either have to recieve a call or make a call but on a computer you need to enter some information or you need to read some information. So you need to have basic literacy which is a much wider issue. Of course we are a much more literate country today than we were 10 or 20 years ago. The average rate of literacy is 60-75 % today in India. But how good is that literacy and what is its level? So these are linked issues. I would say that Digital India is very worthwhile and I think the government has taken some very procative action trying to involve whether it is google or microsoft or facebook to try to get their support and provide internet free of charge, free access to a service provider at a railway platform or bus stop. More people will be encouraged on how to use it and that is how Digital India will spread.
I am abstracting upon what large service providers like Airtel or large software companies like TCS and Infosys are doing. They are all part of this effort in making India more conscious as to how you can use technology at a personal and professional level. I will give you one example about Kerla Fishermen. They used to go fishing early in the morning and when they returned they got the price on their mobile phone and can select the price they want. Digital India is much more than just the internet, but these are the examples through which I will explain and here again will say that China must be realizing they are much further ahead than us, but it is a different economy, different political system, different everything, so I think a comparison may not be appropriate.
Photo – John Stillwell
RD: One other thing, when we talk about Digital Economy we have to keep certain things in mind. I was talking to an Oxford Professor who told me that it largely depends on Freedom of Expression when we we talk about Digital Literacy, Digital Economy or Digital Freedom. Do you agree that we can overshadow China because Freedom of Expression is in a much better shape in India than China?
JB: Let us not get in to all these issues like Freedom of Expression. These are Political Issues. Let us focus on technical issues and how they will improve. I gave one example of the market and similarly, in a more open economy and democracies, the progress will be faster. But China has shown that they are a more closed economy with a non democratic political set up. They have done quite well. This formula from somebody sitting in Oxford or Cambridge does not help. We have to figure out our own local solution to our own local problem. In addition to problems we have division based on religion and caste, who is poor, who is rich, who is rural, who is urban. So we have to focus on our own issues rather than worry about what an Oxford professor had said.
RD: A layman like me talks about GDP. My question is will India ever be able to touch two digit marks as far as GDP is concerned and what are the obstacles in that?
JB: You are talking about 10 point GDP rate. Again one should do the basics. Many of our people are literate but their primary education is very basic. They can just about read and write but they know a bit about India’s history and know little about the Indian economy. Being literate is different than being educated. I am not saying someone should do a Ph.D. I am saying when you finish your primary education, can you read and write and can you add and subtract, divide and multiply. We know that there are huge weaknesses in our primary education that we need to focus on. What is being taught in our schools? Is it being standardized? What is happening in regard to our infrastructure? Are their enough access to roads ,even in remote areas? What is happening to the bridges? Can schoolchildren walk 10 kms to school? They cannot. So what help are you giving them in terms of transportation? What are you giving to women in rural and other poorer areas in terms of maternal clinics? For many states including my home state of Assam maternal mortality is a major issue. I would say these are issues. Pick up all these things. The rate of growth of the GDP will be taken care of automatically if these issues are addressed.
RD: What can or will government’s stand be on FDI?
JB: The government has already made it clear. You must have seen they have again liberalized. I think the government is moving rapidly and very positively and actively on freeing up FDI to more and more sectors. Even for defence they have become far more liberal than before. I think we should move positively to make it easier. The percentage of FDI is not important. Now if you really ask someone who wants to set up a factory, the number of clearances you require, first let us say you need a land, you will be required to register here and there, then get the form signed and attested by a gazzeted officer, then you have a site inspection. I think Prime Minsiter Modi has spoken about it. You need to make our economy more pro-business. Everybody has talked about it for a long time. When someone wants to engage in economic activity which will generate some employment, people should not be overwhelmed by the number of preparatory steps and other steps and licenses.
RD: What are the similarities and differences of the Indian and Chinese markets, such as product manufacturing, IT, Agriculture and some other sectors where we stand together?
JB: There are similarities and differences as I have been trying to point out. They have different kinds of markets where a government can decide everything at a moment’s notice. We can not do the same in India. Let us talk about agriculture. We have these price setting committees which are there in China where the government also brings in legislation. We should dismantle those because they stand inbetween the farmer and ultimate consumer making and alternate profit. Of course you need a middle man because a farmer can not sell directly to the person who will consume his product. But at the moment there are too many middle men with too many products. That is the thing which we should try to address in terms of inefficiency and pricing distortion which is caused by too many intermediaries.
Jaimini Bhagwati is an Indian Civil servant and was the Indian ambassador to the United Kingdom. Currently he is the RBI Chair Professor at the Indian Council for Research on International Economic Relations, New Delhi.