'We tend to become prisoner of mantras'

Q&A: Jairam Ramesh

Minister of State for Commerce and Power Jairam Ramesh talks to ADITI PHADNIS about the direction and pace of economic reforms.

You have now been on both sides of the fence: advising faster reform and now actually having to implement it. So which do you think is better: slow and incremental reform or fast, rushed-through change?

There are some areas where fast reform is needed "" like the reform of the legal system, an area most untouched by any form of reform. Corporate governance, especially the interface of the public sector with government, needs immediate, fast change. I refer particularly to the role of the chairmen and managing directors "" their appointment and tenure "" and the government structures for the PSUs to perform ...we need to move on this right away. This is important, especially in the infrastructure sectors like coal, power and even telecom.

There is a case for massive reform in higher education, specifically in the relationship of the government with the IITs and IIMs.

We have done other things "" primary education is changing, while urban development has been linked to reform. But in these three areas, we do need to move faster.

None of these areas sound particularly contentious politically. What is the hitch?

Leaders don't want to give up fiefdoms. In my ministry, I have tried in a small way. If I have to meet the CMD of BHEL, I don't summon him, I go to see him. This is a trivial example but it signals a change in the mindset. Government servants work for the government. They are not servants. They are highly successful entrepreneurs who run companies that are now competing in the market with the private sector. They deserve respect.

There is a feeling that there are areas where we have moved too fast, where the regulatory framework has been unable to keep up with reform...

The single biggest mistake for 15 years has been in the power sector. There are segments from which the government cannot withdraw. The phasing out of the government has to be gradual. Let me give you some figures: between 1985 and 1990, we added 4,500 Mw capacity per year. But in the Eighth, Ninth and Tenth Plan periods taken together, we have added less capacity than during the Seventh Plan.

Clearly, something is wrong. Instead of moving ahead, we have regressed at a time when China is adding 15,000 Mw a year to its capacity. The problem is, we tend to become a prisoner of mantras, whatever the mantra might be. First it was Enron, then it was privatisation of distribution. Today, we are having to deal with problems we could have handled in the 1980s. At the end of the day, what we need is a Delhi Metro Rail Corporation-type set-up.

But DMRC works without fetters, it runs because a single man dictates how it should run. That is not practical...

DMRC does not run in a vacuum. And at the end of the day, it delivers, and delivers on time. I was in BHEL Haridwar earlier this week. I was amazed to see the plants, the machinery, the people. Did we really do all this in the 1950s and 1960s? Set up huge plants, train manpower, get results? Since then, we have become more literate, more globalised and generally smarter. But power, we messed up.

We should thank our stars for another thing. Thank God the financial sector reforms were prudent, thank God we didn't listen to Business Standard and Surjit Bhalla "" who should be read but not listened to, thank God we didn't rush into it. The credit must go to Manmohan Singh. Jagadish Bhagwati's line on globalisation was: trade globalisation, yes, immediately; financial sector globalisation, slowly. Singh and Bhagwati belong to the same school of thought. Just imagine what would have happened if we had been hit by the effects of the South East Asian currency and banking crisis? We escaped because reform was incomplete. The pace in financial sector reform was just right.

Much is said about labour reform and how tardy it has been. At the same time, McKinsey says changes in labour law will contribute at best .4 per cent more to the GDP. What do you think?

I don't think labour reform or the lack of it is a big deterrent to growth. On the other hand, what we never should have done is open up the real estate sector. One reason for the rupee appreciation is the flow of dollars in the real estate sector. We should have opened up urban infrastructure for FDI, not real estate.

How could you have done that? You opened up because the sector needed capital. And because of long gestation periods, returns would have been so low that you would have got no investment at all...

We should have erred on the side of caution. In any case, I don't believe in all-or-nothing reform. Who in the world does all-or-nothing reform? Try buying an airline in the US! Real estate is different. It is inherently given to cycles. We should have been prudent on real estate, the same positive prudence we displayed in financial sector reform.

Let us talk about power, your latest baby. You have been minister for under six months...

Six months? 69 days, to the day. I am counting days because when I came in, I made a chart for myself: I would monitor the day-to-day progress of commissioning of power projects for 2008-09. My other job was to ensure reform of the interface between public sector chiefs and government.

I want to imbue this relationship with a new work culture.

But there are other problems with the power ministry. The PM had talked of incentivising states to control the transmission and distribution (T&D) losses. Has anything happened?

In May 2007, the PM called a meeting of chief ministers to discuss this. We are still trying to formulate a Cabinet note and get the finance ministry, Planning Commission and power ministry to agree on how this should be done. It is a last-mile problem and the note should be ready for Cabinet in the next few weeks. Having said that, I think a re-look at the role of the Planning Commission should be called for. It should not operate like a bureaucratic body. It is meant to be a think tank, not another department of government. It is meant to accelerate programmes, not act as a brake on them.

But the Planning Commission represents a couple of thousand years of accumulated wisdom in governance...

All that wisdom has atrophied. We are coming to the end of the first year of the Eleventh Plan and many Eleventh Plan projects have not been approved yet. There is an identity problem here.