Bimal Jalan, former Reserve Bank of India governor and current chair of the selection committee to choose the next Chief Economic Advisor to the Government of India, speaks to Nistula Hebbar and Sharad Raghavan on the economy, and his latest book, “India Ahead: 2025 and Beyond” (Rupa Books)
Your latest book, “India Ahead: 2025 and Beyond” (Rupa Books) has some interesting suggestions for overhauling the system of governance, for example of law and order (which is a State subject) moving to the Centre and economic activity (mostly Central) to be administered by the States?
Let me emphasise one point, the book, India Ahead... , was written keeping in mind that for the first time in decades, we have a government which has a single party majority. In that scenario, we have had good governments in the past which did much for economic development and those policies may have had their pluses and minuses, but it is time to change the structure of governance, distribution of power between Centre and States, legislate on reforms in electoral processes and structures through which we run our democracy. There has been a hangover for a long time. In 1991, we had initiated reforms and it was a while back, and now with a majority government we can make the basic, fundamental changes that are needed to take things further.
How do you respond to various statements that coalition governments and their fragility have often led to the boldest reforms and policies?
They were coalition governments in the past that at various points of time did take bold measures but that was at a time of crisis. You could of course take strong measures like liberalisation and Pokhran II, but now you need a basic transformation to take the country forward. For example, transferring wider governance powers from the Centre to the States, who don’t have commensurate budgetary powers. Centre can announce a policy, for example, if you announce Direct Benefit Transfer (DBT) or the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), and put forward a budget, disburse that budget to various States depending on what they have been able to achieve. Like minimum wages, that should be left to the State governments to decide. If we can launch a programme today, with a majority government in power, it can adopt measures which were difficult in the coalition era, because of multiplicity of political partners and also a hangover of before.
The term of the current government is coming to an end, do you think they have missed the bus, with that kind of numerical strength to effect these fundamental changes?
They have taken a lot of measures like Goods and Services Tax (GST), Direct Benefit Transfer, Swachh Bharat, Insolvency and Bankruptcy Code (IBC). But the basic changes, as enumerated in the four chapters in the book, is about political reform, dealing with corruption and representation. One of the suggestions I have made is to prioritise cases against candidates standing for elections to be heard first and decided within the next six months. A parliamentary majority is an opportunity that should be made use of to make basic, fundamental changes.
One of your rather dramatic suggestions is about Parliament and the character of the Rajya Sabha.
The Rajya Sabha should be a true representative of the State. What I am trying to get to you is that this is the Council of States. They should represent the interests of the States. Today, I can be in any State and be elected to the Rajya Sabha from any other State. That was not the idea behind the Council of the States. The whole point was that in a federal democracy, say I was from Assam, that you represent that State's interests in the Rajya Sabha.
You have also spoken about raising revenue and saying that the government should get out of a lot of things where it has no business being in. Could you elaborate on this?
The public sector is still the largest segment in our country. What I am talking about is that where public sector agencies are concerned, very positive steps have already been taken. For example, we are now talking about the privatisation of Air India. So you can decide what is in the public interest, and if it is in the public interest, like roads, infrastructure, water supply, etc, that can remain in the public sector. But the governance of that system can be delegated to the institution that is implementing it, and the government can monitor it.
The government appoints the UPSC chairman, the Election Commissioner, and the CAG. But once appointed, they have to abide by whatever the rules of the system is, the same should be the case in terms of certain public sector units where the appointment or regulation could be via government but it is run according to the autonomous rules of that institution.
What is the role of the Reserve Bank of India (RBI) in communicating with the markets?
I was RBI governor during the Asian Crisis in the late 1990s. The main issue at that particular point of time was that we had a balance of payments problem, the Asian Crisis was there, and everybody thought that we would go bankrupt and the rupee would depreciate, and at that time it would depreciate by a large amount. Therefore, people started speculating. This is what I learnt, that people lost $3-4 billion in one week after the Asian Crisis became big.
So, we understood that everybody expects that the RBI would intervene when the rupee was at some round number. So, the first thing was, there was a tremendous consultative collaboration with the government. We discussed that if we want to target the rupee's value, then everybody would mis-speculate and we won't be able to manage. (So we decided that) when people start selling, then you intervene. It was nothing philosophical or anything. It was that if you are in a difficult circumstance, then take a bus rather than take a car.
Is there a need for a policy like that today?
At the moment, we are in a very different situation because we have large forex reserves. So, we have the ability and capacity today to decide what we want to do in terms of exchange rates, in terms of interventions, in terms of whatever we want to do. Capital flows are also high, we can finance the trade deficit. So you can decide what is good for the country, what is good from a trade point of view, what is good from the growth point of view and then take a call.
Is there more the government needs to do to address the NPA situation in banks?
There are several steps the government has taken such as the prompt corrective action, the IBC, so it's not just about infusing money but about changing the legal framework, which is very desirable. Hopefully, if you take prompt corrective action, I hope NPAs will decline, but it will take a couple of years. By decline, you don't want to hit it hard. You want to handle it gradually so that it doesn't affect the credit flows to entrepreneurship, infrastructure, for whatever investment you want done. Credit flows are very important. You have the ability today to manage the system, and so all these measures taken so far are very good from that point of view.
You are the chairperson of the committee tasked with selecting the new Chief Economic Advisor (CEA) to the government. Is there a deadline by which you have to make your decision?
There is no specific timetable on CEA. The idea is to do it when feasible. There are enough responses, and if you look at the notification, it says you can even get people who have not applied.
There was a lot of talk from sections of the ruling party or ideological cohorts regarding the undesirability of 'foreign educated' economists being given roles in the government. What is your view on this?
What I am saying essentially is that if I am an Indian, I am an Indian. It doesn't matter which university I studied in. If I am doing well, then I am doing well. That is most important to get the best talent that we can get. I have no problem at all in saying that we need to get the best available.
