'We Need Decentralisation Of Indian Political System'
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Former Reserve Bank of India Governor Dr Bimal Jalan's in his new book 'India: Priorities for future' does formidable analysis of the last four decades of India's economic journey illuminating the nation's transition from a strictly regulated, slow-growth state enterprise to one of the fastest-growing economies in the world. Compares two distinct periods - 1980-2000 and 2000-15, Dr Jalan examines the core changes and their significance, and considers their lessons for the immediate future.
Excerpt:
How do you see the banking sector today and in future? The issue of Non Performing Assets (NPA) has been casting a shadow on the economic stability.
As a whole, the banking sector is strong enough. But we have high NPA problem which is across the board. It is now being taken care of by the government via number of initiatives. All these measures are necessary and must be carried out in timely frame. Certain amounts of NPAs are unavoidable in the banking sector but you should not allow them to increase to a level that they have reached today. Now we are taking strict measures, but they should have been taken earlier. Give yourself a timeline of about 2-3 years and the issue will be resolved and hence the credit lending scenario to propel the growth further.
Historically we have done very well in expanding our banking sector and there is no other evidence of that, than to show that during the East Asian crisis India was one of the few large developing counties which didn't get affected adversely. We must be proud of that and are strong enough to take on the crisis and carry out our development and economic goals for the next 30 years. We have already opened up private sector banking and should do that more, in terms of total share and have a little relaxed attitude towards them, given the criteria of priority sector lending, cash ratios etc.
Third, we must encourage small banks which can create branches in the rural areas. They must be monitored well so that their risk weighted liabilities are secured and structured well.
A lot of issue has been raised over the autonomy of RBI and strengthening of the institution as a whole. How do you see the role of RBI evolving in future?
It is not about future, present or past. Autonomy does not mean independence. It means that RBI should be in a position to take difficult decisions without there being political sensitivity. And there are two parts of the equation in terms of management of policy. We have a system where the RBI takes monetary action and the government takes the fiscal action, both accountable to the parliament. Most of the cases we have seen a collective consensus in getting things done. We have an Indian Reserve bank of India; the note it issues are guaranteed by the government of India. So whatever it does should be in consultation with the government but it does not necessarily imply that the government ought to do the same or should be doing.
In true sense RBI is an autonomous regulatory managing public sector institution and would continue to remain so in future. With respect to strengthening the institution, I don't think we need to do anything specific. It's a matter of consultative process.
You also advocated that specific fiscal deficit targets should be done away with, in favour of adopting a deficit range. Could you elaborate on that?
It's a personal view. All of us want Fiscal deficit which is within a reasonable bound. But what that bound can depend on the existing circumstances. Say for instance, if we have a reasonable fiscal policy with a high inflation rate, then you need legal intervention. But if our inflation, growth rates are in sync, I don't believe you should have a statutory target of percentage points.
You mentioned that 'Poverty alleviation' must given highest priority, in you book. Why has it taken us so long in getting the magnitude of poverty down in the right sense? What are we not doing right from policy point of view?
The second five year plan said that India would be relieved of poverty in 1980. Where are we in 2017? We have the highest number of poor in terms of magnitude in the largest democracy with free and fair election in the world. It is not a question of doing wrong per say. We have not been able to extend our outreach to the remotest villages and the farming community. The largest numbers of Indians are in the farm and that is where some action needs to be taken. Poverty alleviation is not just about subsidies. We have to focus on creating more jobs and make the farming sector much more productive. Instead of loan waivers, we must try to provide high compensation to the farmers on the ground and tackle the basic problems of delivery.
Another reform that you have written about a lot is the 'Decentralisation of the political system'…
The idea of decentralization is with respect to the corporate federalism, which was echoed in the Prime Minister's Independence Day speech as well. There should be decentralization with respect to the implementation and execution in deciding what is appropriate for a particular state. GST is an excellent example of this, carried out completely in consultation with the states. If there are actions being taken at the state level, then let the state take both implementation and accountability.
Also, we need less government, not in terms of democracy, political system or the parliament, but in terms of structure of governance. Policies should be less dependent on what different ministries decide. We need to decentralize the implementation of the policies that we announce. There needs to be accountability in the sense that someone takes the responsibility of a certain policies implementation.
Is India achieving a double digit growth in future, a wishful thinking ? Are we on the right track?
One is a theoretical point that; are you capable of achieving this growth rate? The answer is yes, we are. We have all the resources required to achieve this growth rate, we have the technology, capital, entrepreneurship and we have all the infrastructure policies at place, so that the demand and jobs could be increased. But on the ground, implementation is the issue. The government has started doing it recently.
Therefore, taking all the point into consideration, we need to recognize that we are capable of achieving of a double digit growth rate but it may not happen unless all the factors outside our control are handled. By and large, if we are achieving a growth rate of 7-8%, we are doing well for ourselves. I am very optimistic about the country's future. I do not believe in double digit nominal growth. It is something we should not aim at and work towards achieving a high enough growth.
