Decisions taken in good faith have and will be protected

KM Chandrasekhar, Cabinet secretary, will have completed four years as the country?s seniormost bureaucrat as he leaves office next week. During this tenure, Chandrasekhar handled many crisis-like situations ? the nerve-wracking last-minute resuscitation of the Commonwealth Games 2010 in Delhi and the battle against a sticky and unprecedented rise in food inflation, to name just two. In an exclusive interview with KG Narendranath, the Kerala cadre IAS officer, known for his straightforwardness and trademark composure, speaks about the changing role of the Indian bureaucracy, need for improved transparency in transactions involving government assets and the pace of economic reforms.

With the scourge of corruption perceived to afflict the nation and the economy at a scale not previously seen, there is this concern that decision-makers might have become over-cautious to avoid being blamed for genuine mistakes. This situation could lead to deferment of vital policy action and take a toll on economic growth and people?s well-being.

I don?t see any visible evidence of (policy and administrative) action being delayed because of fear among the bureaucracy (that they could be blamed for genuine mistakes that are unavoidable in the decision-making process). Even if you take the case of the Commonwealth Games Organising Committee, it is clear that its actions which were taken in good faith have been protected. The Prime Minister too has been categorical in saying that good-faith decisions will be protected.

Maybe there is greater consciousness (among decision-makers) that one has to put things down on paper. There is a greater sense of responsibility in that you have to be correct in whatever you are saying. But, of course, I haven?t seen an overall decline in performance on account of this enhanced circumspection. This is, after all, a transient phase.

Recent incidents have led one to suspect that causing a loss to the exchequer could become a culpable action, whether or not the relevant action was mala fide.

I don?t think that is the case. If it were so, one won?t be performing at all (which anyway is not true). There are issues (that need to be looked at from various angles) where a decision is not taken as a matter of deliberate choice. In any decision-making process, some outcomes are bound to go wrong. Practical experiences have shown that you have an outstanding rating if seven out of your 10 decisions turn out to be right. I haven?t come across any case where an official was pulled up or acted against for genuine mistakes made. In fact, there is an elaborate process to scrutinise actions for their veracity.

Of course, one has to be a bit extra careful in the government. This is because sometimes mistakes can be construed as deliberate malpractice. The onus (of saving oneself from easy blame) has become higher with the active media scrutiny. Some mistakes can be converted into mala fide action at least for a brief period. So you have to be doubly sure of what you put down.

Even the CAG is oblivious to the possibility of genuine mistakes. What it says is that you should do things as a prudent person would do. So the element of prudence is there. Even the auditor won?t actually find fault with a mistake if circumstances are cogently explained. The main factor is what relevant facts were available when a particular decision was taken.

Many a times you are acting in a zone of uncertainty because you don?t have all the relevant facts with you. When it is taken up (for scrutiny) later, you have the advantage of more facts being available. In such cases, those circumstances which prevailed at the time of taking the decision would be taken into account. That is why there is an elaborate process for assessing the veracity of decisions. Where the AG asks you something or raises a query, you can file a reply and then there is an exit conference, where again things are explained. Finally, the matter goes to the (Parliament?s) Public Accounts Committee, where there is again a chance to explain. So there are many in-built filters to correct genuine mistakes within the system.

For the corrupt and the corruptible, government procurement of goods and services is a goldmine. India?s central and state government purchases are officially estimated at over $80 billion per annum, while independent estimates are that the country?s total public procurement bill would be a quarter of its GDP. Isn?t there a need to make the public procurement process more transparent and auditable?

It is important to ensure that anti-competitive practices like bid rigging don?t take place in the public procurement process. A committee headed by Vinod Dhall is reviewing the public procurement policy.

Any public procurement policy will have to be confined to certain broad principles rather than being specific to departments or commodities. This is because actual procurement norms would need to be compatible with the department/commodity. The defence department, for example, would have a set of purchase rules which would be very different from the norms for foodgrain procurement. You can?t have a uniform set of rules across the board (for all government purchases). The Dhall committee would confine itself to the central government?s purchases, but if it works out a model that can be used by states too, then states can emulate it. There are general financial rules for government procurement. It needs to be seen if some of them can be transposed into a law.

The Finance Act, 2011, and the Direct Taxes Code (DTC) Bill seem to override the SEZ Act which provides for tax incentives for SEZ developers and units. Why is there a dichotomy in government policy in this regard?

Over a period of a time, policy might get a re-look.

It is not uncommon to review tax policies ? the I-T Act and Finance Acts are often vehicles for such policy shifts.

The SEZ Act came into force more than five years ago. That law, of course, was the product of extensive deliberations at the ministerial and official levels. Since more facts have come in, one is having a re-look at the whole policy. When some ministries have different views on a policy, they (the views) need to be coordinated under the Rules of Business. This is being done either at the Cabinet level or at the level of group of ministers.

As far as SEZs are concerned, I believe some of the SEZs have been successful (in providing employment and creating infrastructure), others have not been. A few developers have abandoned the ventures and sought denotification.

The Ashok Chawla committee on allocation of natural resources is reported to have pitched for a departure from the extant policy where the fertiliser sector gets priority in gas allocation. It also prefers coal to gas as fuel for power generation.

Let the final report of the committee come to us. As far as coal for power generation is concerned, its availability, imports and price would all be factors while taking a call on its relative role for power generation, in addition to environmental considerations. We have been devising policies aimed at augmenting coal production.

The panel on inflation headed by chief economic advisor Kaushik Basu feels that allowing FDI in multi-commodity retail would help ease inflation.

There is a proposal that FDI in multi-commodity retail be allowed after linking it to the creation of storage and processing infrastructure. Such FDI would involve large investments of $500 million or so in one go and the suggestion (from the department of industrial policy and promotion) is that 50% of the FDI money should be used for infrastructure creation (storage facilities including coal chains, processing units, etc). That idea is under circulation (within the government) and a policy decision has not yet been taken.

When it comes to law-making and the push to economic reforms, a certain slowness is apparent.

On the contrary, several legislations have been attempted. As for the Goods and Services Tax (GST), the constitutional amendment Bill has been brought in and there is already some acceptance of that (among states). The DTC Bill is before the standing committee. On the trade front, things have been looking up (as is seen from the fact that India?s merchandise exports grew an impressive 37.5% in 2010-11 to $246 billion).

The rate of industrial production in recent past has been good too (industrial output grew 7.3% in March from a year earlier, compared with 3.65% in the previous month, thanks to a 7.9% growth in manufacturing output).

Volatile crude prices are a matter of concern.

The volatility will be there. What is important is to expand the Indian market for goods and services (a sustained increase in domestic demand), when it comes to the heath of the economy. A growing rural market would help address the oil price fluctuations.

How successfully has the set-up for regular monitoring of food inflation worked?

We (the committee on food inflation) meet frequently ? weekly or fortnightly as the situation demands ? to look at particular commodities whose prices are likely to rise. The interventions have been quite useful (in containing food inflation).

For instance, a milk crisis that looked imminent a few weeks earlier has been averted. Anticipating a shortage of milk, we acted in advance. We ensured that purchases were made well in advance ? imports and domestic procurement ? and banned exports. The whole idea of the exercise is to anticipate in advance what would happen in the open market of commodities ? edible oil, grains, etc ?and take pre-emptive actions to avoid any supply problem.

In a rapidly growing economy like ours, better incomes lead to more consumption and create supply pressures. In this scenario, isn?t it the right policy to ban exports?

Of course, domestic consumption would take away a lot (from the supply pool). But there are also other factors that are operating. Shortage syndrome (with respect to certain items like pulses) is resulting in a change in the pattern of agricultural production in the country. Punjab and Haryana used to be the granaries of India. Bihar, Jharkhand and eastern UP are now catching up (in terms of agricultural production). So far as pulses are concerned, prices have remained reasonably high owing to an ongoing shortage. As a result, the area under pulses is growing and supply is catching up.

We won?t be an exporter of food in the near to medium term. As incomes grow, demand is bound to increase. The challenge is to ensure that (domestic) production catches up with demand.

We have had a somewhat confused policy with respect to export of raw materials like iron ore and cotton.

Our policy on raw material exports is a balanced one. When onion price skyrocketed, we banned its exports for a while, but then prices fell and consequently, we had to resume exports. We did not allow cotton exports last year but this year, exports took place. The policy is that the first thrust would always be on domestic consumption. We have managed to keep domestic prices of raw materials low consistently.

Global commodity prices are liquidity-driven. If you allow those prices to transmit here, that could hurt the economy.

We will have to conserve our reserves ? particularly food items ? and ensure that people are fed and domestic consumption needs are met. That will continue to remain the policy objective. Our food grain production has grown over the past few years. The rate of growth in grain output needs to be accelerated. The challenge is to keep cost of agriculture production low.

In the case of fertilisers, our imports have become a deciding factor in global prices and consequently, the subsidy bill too is shooting up.

The policy has been such that domestic production (of fertilisers) has not really grown. There is a heavy element of subsidy which is not market-linked. This is maintained as a matter of social policy. This means a high degree of imports, especially that of potash and phosphatic fertilisers. Nutrient-based subsidy for these two fertilisers introduced last year would have reduced the subsidy bill, but for the increase in consumption. The second part of fertiliser subsidy reform is pending and a decision will have to be taken politically.

Talking about subsidies, our central issue price for foodgrains are remaining at the 2002 levels whereas the minimum support prices (MSP) have been substantially hiked over the period. The widened gap (between the CIP and MSP) has inflated the subsidy bill. That apart, the proposed food security law would necessitate an additional R20,000-25,000 crore (over the budgeted amount for food subsidy).

World Trade Organisation members are unable to reach a consensus on the conclusion of the Doha Round of talks. Don?t you think this marks the failure of multilateralism and the precedence of regional arrangements over WTO in promoting trade?

I think it is logical (for regional pacts to take precedence). Increasingly, world trade is (taking place) under regional or bilateral agreements. As you discuss trade pacts within a region, the fact that the discussants are likely to be more like-minded than those in a much larger group under a multilateral framework would invariably help. When we negotiate bilateral pacts, (trade in) services would be an essential plank of it.

The target for power capacity addition has recently been revised downwards.

If you compare with the last (Five-Year) Plan, the growth (in generation capacity) has been substantive in recent years. We will have to now focus on transmission and distribution. There exists a state monopoly on distribution and all states are not willing to cede that. Open access is what we need to move towards for a competitive power market.

On the proposed new land acquisition policy, a consensual view is yet to emerge.

The National Advisory Council?s draft on this is expected in a few days. The drafts (government?s and NAC?s) will have to undergo further changes before the Cabinet takes up a final version (of the Land Acquisition Bill) for consideration.

In recent years, many things ? tax reforms like VAT/GST, implementation of centrally sponsored schemes, etc ? have put to test Centre-state relations.

In fact, the coordination (by the Centre) with states has improved a lot in the last two to three years. The empowered committee of state finance ministers works completely autonomously as a registered society and has achieved a high degree of convergence of opinion with the Centre on GST and the remaining issues can indeed be resolved through dialogue. Once GST is implemented, its benefits would begin to show both for the industry and state revenues very quickly.

The Prime Minister and the finance minister have said of GDP growth rate this year to be a moderate 8-8.3%, as against 9% forecast earlier.

(Achieving) the balance between inflation and growth has always been a conundrum for policymakers. When the price of capital goes up, that would have an effect on growth rate. To that extent, one has to live with a moderate growth rate. Also, there are many imponderables (that can influence growth).

A good monsoon would spur demand and that would be a factor to be built in (when it comes to addressing the growth-inflation paradox).