Reforms to be communicated in a democracy: Shettigar

You were economic adviser in the Atal Bihari Vajpayee Government between 1999-2004 and member of the National Security Council Board. How was the experience?

It was an interesting experience. I was engaged in policy formulation. The major work for us was the reforms agenda.

Who were the people then entrusted with the implementation of reforms?

I G Patel, Montek Singh Ahluwalia, Rakesh Mohan, Kirit Parikh, ISS Gulati and Bimal Jalan. There were seven-eight of us. There was NK Singh, member secretary of the committee. Unlike today, the Prime Minister himself chaired the meeting.

How did Vajpayee respond to the reform agenda?

When the reforms agenda was prepared and presented to him, I G Patel told him this is what the economists feel for the good of the economy and country and corrective steps are required. You have to take decisions keeping in mind their political repercussions. Some of the economic reforms may be a bitter pill. It is up to you to take decision on the entire package or implement in bits and pieces. Vajpayee responded and told Yashwant Sinha, then Finance Minister, to go ahead with reforms. I am prepared to face the consequences or pay the price.

Could you elaborate on the key reforms that got government clearance?

Financial sector reforms was one. We recommended petroleum sector reforms. It was not completed. A decision was taken in 1997 to phase out administered price mechanism which the NDA government implemented in April, 2000. If you remember, the price of petroleum products were revised once a fortnight depending on the price trend of crude in the global market. It was in force till January 2004 and nobody felt the pinch as the price used to fluctuate, up or down by 50 paise. But when the UPA came to power they went for administered price mechanism. They deregulated petrol in principle. Since it involves public sector undertakings, the government could pressurise them not to revise prices. See the result — you are suddenly revising the price by Rs 7 — even people who support reforms will oppose you.

Did the then Finance Minister carry out all the reforms?

He did what was suggested to him. Probably he could have implemented them in phases. In the 2001-02 budget, he made announcements and some of it had to be rolled back.

What was the compulsion to roll back?

As a party man, I drafted the economic resolution at the National Executive at Goa in 2001. Since I was interacting with different stakeholders, party cadre and people across the country, I felt some decisions may be in the interest of the economy. But in a democracy you cannot blindly force things on people unless they are able to communicate to people directly and effectively. That is why I came up with a statement that there has to be healthy balance between economic rationality and political compulsion. Our is a free society. If stakeholders are not able to appreciate logic, we will not be able to go ahead. We are not China. Everybody wants power and development. People in Odisha or Maharashtra want power, so we have to take the local peoples’ concerns into account. In a democracy, there has to be effective dialogue and people have to communicate.

So reforms are intricately linked to democracy?

During the last 20 years, there have been three attempts to reform the fertiliser sector. It started with Manmohan Singh in 1991, then it was Yashwant Sinha and later Jaswant Singh. None of the three can be seen or identified as pro-agriculture. But if one genuinely analyses the steps taken, they helped farmers through reforms to minimise the consumption of fertiliser. Because of high subsidy provided to a nutrient, farmers started using it in large quantities and that affected soil fertility which has affected productivity. All three times it was rolled and dubbed as anti-farmer. None of the farmer leaders criticised the move. Who criticised it? Those claiming to be leaders of farmers like Ajit Singh and Chautala. But they are working for the lobby. Fertiliser subsidy is largely benefiting fertiliser companies. There is a consideration that subsidy should be given, taking into account technology. For those who use obsolete technology, the cost of production per tonne is around Rs 16,000. Fertiliser companies using modern technology are doing it at the cost of Rs 6,000. If you are giving the subsidy on the basis of cost incurred to bring down the prices, you are encouraging the companies.

Do you think NDA or UPA governments were able to communicate effectively and build popular support to sell economic reforms?

Today it is a Congress-led UPA government and they may return to power tomorrow. But how can we run away from the effect of developments in the international market? When the prices in international markets go up, we have to take steps. It is a national crisis. We cannot break the OPEC cartel. I also have a problem when I have to pay extra. It is an unfortunate development. Even though prices have come down, there is depreciation in the Rupee. We cannot rule it out. Why am I giving this example? Look at LPG cooking gas. Who are the users and who are getting subsidies against it? There is a thinking that income tax payers should pay cost effective price. Even if prices go up by Rs 20, people raise their voices. Families spend Rs 1,000 on movie tickets for watching two to three hour-long movies. Why not spend at least once a month on cooking gas? The one factor people must understand is this: prices are not increased but subsidies are reduced. Subsidy is tax payers money, be it sales tax, corporate tax, income tax or taxes paid on match boxes by the poorest of poor. We don’t understand. The moment things become costly, we think the government is increasing prices. It is difficult to blame either the Congress or the BJP. Some burden can be reduced if they reform tax on petroleum products. There is a suggestion we should go for a specific tax as in the case of United States. Some years ago when I met Manmohan Singh, I asked why he did not implement fertiliser reforms as Prime Minister. He told me ‘Shettigar you should know the political situation. It is a coalition government.’

But BJP too had a coalition government?

BJP had a towering personality. Initially in the BJP government, Ram Vilas Paswan held telecom and Sharad Yadav civil aviation, both coalition partners. But they were shunted out when they came in the way of reforms. Today it is not happening.

Do you think UPA has mismanaged coalition and economy?

Both foreign and domestic investment is declining. Domestic investors, according to one estimate, have Rs 50,000 crore sitting as idle cash. They are not investing it. Kumar Mangalam Birla, leading industrialist, has said thrice that he is looking for an opportunity outside the country. They are equal patriots like us. What made them say like that? The government is not able to take decisions. They are not serious. Bureaucracy is also not willing to cooperate, playing it safe.