Dr Rangarajan, who had served the Reserve Bank as governor, has regretted the slowdown of the 1990s in the agricultural sector and said this should be compensated by adequate research that could lead to changes in cropping patterns.
The public sector will continue to dominate the economy in several important sectors. Even as attempts are being made to disinvest wherever feasible, there is no doubt that we must pay adequate attention to improving the functioning of public sector undertakings where their presence is essential, the former Reserve Bank governor said.
Dr Rangarajan was delivering the 15th Intelligence Bureau centenary endowment lecture on Lessons from economic reforms here on Tuesday. Deputy prime minister Lal Krishna Advani presided over the function.
Recalling that many committees and commissions have studied the problems faced by state-run undertakings, he said, it is high time that a policy package is put together and implemented for bringing about a significant improvement in the efficiency of public sector enterprises.
Observing that clearly the lesson of Indian development experience is that monopolies whether of state or private sector does not lead to efficiency, Dr Rangarajan said the need to create, promote and sustain a competitive environment is absolutely essential.
Elaborating on the four critical factors to enhance the level of investment, he said, first, all investment decisions are based on future prospects. Continuation of economic policy thus becomes the key to sustaining expectations in the right direction.
He also said there has to be consensus on the core elements of economic policy among decision makers, legislators and political leaders.
Secondly, Dr Rangarajan said, if the feel good factor is to be restored as a stimulant of animal spirits, good governance has an important role to play. Investors need to be assured of dynamism and efficiency in overall governance.
Thirdly, for generating a general mood of optimism, he said it will be useful for the government to bring under one head in the Budget the investment that will be made by various departments and ministries.
Fourthly, Dr Rangarajan said, a key factor contributing to the confidence of investors is stability in the rates of taxation and tariff rates. Unexpected downward revisions in tariffs make a lot of difference to profit calculations, he said, adding stability in tariff rates can have a favourable impact on investment decisions.
Replying to questions from the audience, he said the government has to be very careful while fixing minimum support price for agricultural products as it should cover the costs while allowing cropping patterns to change.
Mr Advani said the government will evolve political consensus on contentious reform issues like labour reforms and curtailing the burgeoning revenue deficit of the states, which are holding back the growth process.
Parties when in the Opposition purport an economic agenda very different from when they are in power, Mr Advani said, adding reforms cannot succeed unless due emphasis is given to spending on security, education and health. Also, the productivity of these investments is of great importance.
Areas of education and health had perhaps been neglected. Along with these greater stress has to be put on national security to enable the country to measure up to the progress made by the rest of the world, the deputy prime minister said.
Agreeing with an analysis made by Nobel laureate Amartya Sen in one of his books on Indian economic scenario, Mr Advani said the tendency to pick on one area only will not resolve the countrys problems in the age of liberalisation.