Only Congress Can Implement Reforms Properly

Updated: Mar 29 2004, 05:30am hrs
The strains of a hectic schedule show on his face, but have not affected his phenomenal memory for facts and figures or his power to marshall them. Pranab Mukherjee, chairman of the economic reforms committee of the Congress(I), member of the Congress Working Committee and chief whip in the Rajya Sabha, was in Kolkata recently after launching his partys manifesto in the capital. Mr Mukherjee, who is contesting from Jangipur Lok Sabha constituency, spoke to Sunil Mukhopadhyay of FE on a wide range of issues. Excerpts:

Critics say the Congress, in its election manifesto, has deviated from reforms. Do you agree
Reform is not a mantra that has to be chanted, but a continuing process. As and when the economy demands certain changes in policies and action plans, they could be described as re-forms. The Congress has al-ways taken pragmatic policies and whenever the economy required changes in the policy framework it did not hesitate to do so. So, there is no need to describe policies taken by NDA or any other political party as reforms.

The decade of liberalisation and reforms is being des-cribed as one of jobless gro-wth. Congress being in po- wer the first five years of the reforms, what is your view
First of all, your proposition is not fully correct. During the 6th and 7th Plans, our average GDP growth was more than 5.7%. During the 8th Plan, we targeted 5.6%, but achieved 6.7%. During the 9th Plan, it had again come down to 5-5.5%. If we could have maintained the tempo of develop- ment which we achieved during the 8th Plan period, perhaps our growth would have been 7-7.5%. Unfortunately, it did not happen. Moreover, the employment elasticity has come down substantially from 0.52% between 1983-84 and 1993-94 to 0.16% during the remaining six years of the de-cade, which may be described as jobless growth. Whatever jobs were created were mainly due to the higher contribution of the service sector. Agricul-ture, which generated about 47% of total employment, had almost negligible contribution in employment generation during the NDA regime.

Our policy is to have a balanced economic growth, where special attention would be given to employment generation. It would be our endeavour to create one crore additi- onal jobs a year and reach full employment scenario by the end of the current decade.

If Congress comes to power will you abolish the disinvestment ministry
We dont believe in reckless disinvestment of PSUs. If PSUs can take up the challenge of competitive environment and make profits on a sustainable basis, theres no reason to disinvest them unless they require investment for their expansion, modernisation and technological upgradation. If budgetary support is not available, they can raise resources by divesting their shares and deployingthem back to im-prove their capacity or to up-grade technology. It should not be used to bridge the normal consumption expenditure.

Do you think that long-term wellbeing of society could be maximised if economic decisions are left mostly to the market place
Its true that market can play a bigger role than what was given to it in the earlier years of development. At that point, the private sector base did not have the capacity. But it would be wrong to presume that everything should be left to the market. In areas like rural and social infrastructure, agriculture and some important economic sectors like power, massive investment from the government is called for. Otherwise, it would not be possible to have the sustainable growth we have envisaged. Therefore, our position is that market should be encouraged to play its role. But there are issues that cannot be addressed by market forces, and there the effective intervention of the State is called for not through the control route but through the regulatory and facilitating route.

The government is claiming that the present uptrend in the Sensex is a reflection of its economic policies. Your comments
The Sensex is one criterion but not the criterion. The taste of the pudding is in its eating. All the macro-economic indicators are not encouraging. During the last three years of the 8th Plan, our GDP growth rate was about 7.5%. If they could have maintained that, India could have achieved a sustainable growth of 8-8.5% over a period of five years. If in one quarter you have 8% growth and you start jumping on it, it is senseless. The majority of the population does not participate in the capital market. True, capital market is expanding, but it cannot take care of everything.

How would Congress address fiscal deficit and growing non-plan expenditure
We have already spelt out in our manifesto that our efforts would be to reduce the revenue deficit to zero in five years. Immediately after coming to power we would frame a roadmap on how we can achie-ve that. In fact, we reduced the fiscal deficit to a manageable level when we were in office.

During their five-year tenure, the total outstanding liabilities of the NDA government have gone up several times compared to 1947-98. Today, unless we are in a position to reduce our revenue deficit substantially, we wont be able to remove the current distortions. Now we are paying around 46% of our revenue earnings as interest repayment. Unless we step up our re-venue base, it would be very difficult for us to reduce the re-venue deficit. So far as expenditure control is concerned, there is no substitute of stepping up your own income by expanding the revenue base. The tax-GDP ratio has gone down, and Im talking of the Central government alone. Consolidated tax-GDP ratio can be raised from the present level of 14-15% to 18%, which we have committed. And not by jacking up taxes but by increasing the horizontal base of taxation by bringing more people within the tax net.

The states are facing serious financial problems. Also, the Central governments debt-swap scheme is creating additional liquidity problems for them. How do you propose to address it
In our federal structure, there are institutional arrangements on how relations between the Centre and the states should be governed. There is Constitutional provision for setting up finance commissions to decide allocations and determine the share of Central taxes to the states. Through the Planning Comm-ission route also we devolve resources to the states. I think most of the recommendations of the finance commissions have been implemented. Today, nearly 29% of the Central taxes are given to the states. I feel that there should be a mechanism apart from the Finance Commission to monitor that Central-state fiscal relation without any friction. The Centre and states should consult before taking any decision on salary hike.

But one of the major reasons for the present plight of the states is that the NDA government failed to realise the tax revenue they promised in their budgets. From 1998 to 2003-04, there has been a substantial shortfall in tax collection. Now, the states are entitled to have Rs 29 out of every Rs 100 collected as Central tax. If there is a shortfall the states will suffer because of the inefficiency and incompetence of the Central finance ministry.

What about the introduction of uniform value added tax (VAT) system
I want that uniform VAT system should be introduced. But an atmosphere should be created so that there is no teething problems during the transition.