The trio (L to R): N.K. Singh, Anne Krueger, and T.N. Srinivasan

The deputy managing director of the International Monetary Fund, a Yale economist with a chair at Stanford University and a hard-nosed bureaucrat who worked through the system and is now involved with the Planning Commission. They came together for the launch of a book "Economic Policy Reforms and the Indian Economy". Meet Anne Krueger, a leading economist now heading crises management with the IMF, T N Srinivasan, an expert on fiscal systems and international trade, along with Nand Kishore Singh, or "NK", as he is better known in the corridors of power. The trio interacted with India Today Senior Editor
Shankkar Aiyar on Indian reforms programme, the slump in the US, WTO and development.

Question: What is the genesis of the book? Why and why now?
Anne Kreuger: At Stanford we have been studying India 's reforms, we have a policy research group which has been looking at India. The idea of the book in itself came out of the first seminar we had on India. It seemed natural to put together the papers presented at the seminar for a wider audience.

We have seen 10 years of the reforms programme. How would you rate it on a scale of 0 to 10.
AK: It's difficult…If you want to rate them for reaching from where they started off I would rate them 8 or 9 on 10 for motion forward. If you look at the things to be done there is a long way to go.

Q: Would you agree with that?
TN Srinivasan: The Indian reforms programme is a good news, bad news story. If you compare where India was prior to 1990 in terms of economic management there is a sea change. That's the good news. The bad news is that everybody else is also reforming and India needs to catch up. My rating would be 9 for reaching here and probably 5 for what remains to be done.

Your score as someone involved with the programme since day one?
N K Singh: We have had a quantum change from the eighties to the early nineties reflected in growth rates of GDP numbers. For the first five years it was in the region of 6.5 per cent. There has been a slowdown. The issue is how to sustain growth to keep the GDP number at 7 per cent plus to and make a deep dent on poverty.

You have been managing crises in Argentina and Turkey. How bad is India's fiscal deficit ? You refer to it in your essay.
A K: I think conventional wisdom would say without fear of challenge that fiscal deficits of ten or more percent are not sustainable. Something will have to give and trigger a crisis. Of what kind we can't say. Any outside observer would say fiscal consolidation is a primary necessity in the road ahead.

In the absence of a social security network how much can the government achieve?
TNS: The question to ask is if the government is engaged in things that it should be engaged in and if it is active in areas it should be active in. You mentioned disinvestment and there has been progress. That is a process where the government withdraws from areas it should not be. If it gathers further momentum it would raise resources these funds could be used for social sectors and social security net. What government should be doing and what it is not able to do are linked.

There is a theory that any change in India is driven by crisis. Does the unfinished agenda require a crisis?
NKS: I don't think we should be looking for an exogenous type of a crisis. Besides there is another danger: while there may not be an exogenous crisis there is a low level equilibrium trap. The political perils of growing at five per cent rather than seven per cent needs to be more widely understood. What is necessary is not invention of new ideas. A lot of what constitutes second generation or third generation reforms is in the works in sectors like infrastructure and power. Telecom is a success story so is roads and ports. But I agree reduction of expenditure and non-merit subsidies need to be addressed. The other area which I have dealt with in the book is tax reforms and the fact that ten years later the tax GDP ratio has come down requires introspection.

Going global, how bad is the slowdown in the US and elsewhere?
AK: The latest world economic outlook should be out soon. At the moment we are less optimistic on world economy picking up, less optimistic than in April but more optimistic than in January.

Normally the stock market talks the economy up, it seems the market is talking the economy down.
AK: If that were true the economy would have gone down a lot more because the stock market has really gone down. The interesting thing is over the past few years the consumers have maintained their spending. The real economy has looked good and the recession is very mild and the first one in ten years.

Some economists have raised questions about the survival of capitalism as we know? Do you subscribe to it?
NKS: You have been reading Steiglitz it seems…
TNS: I don't agree with the doubters. I certainly don't agree with much of what Prof Steiglitz has said in his boom. To agree we have to assume that this bubble is different from earlier bubbles. Bubbles are not infrequent in economic history. I don't think there is any crisis. The enterprise system, the incentive system is here to stay.

Are there any lessons for India post auditing scandal?
NKS: Yes. And we are working on it. The Finance Minister has appointed an ethics committee. The comptroller of auditor general is looking at auditing, SEBI is looking at some of the issues. But if you were to ask me if there has been no accounting mess in India in large corporates that would be too much of a certificate,

Looking at globalisation, it took GATT (now WTO) to free movement of goods, IMF persuaded free movement of capital. What would it take to free movement of labour?
That is a hard one. Yes goods movement is getting freer, so is capital and there are migratory flows. If migratory barriers were to be removed we certainly would see a lot more flow …what would it take I have no idea. There has always been a lot of resistance. What I do see is industrialised countries are all facing substantial ageing of populace. US faces it in 2010, Japan starts in next couple of years. So when that happens the need for younger workers will rise. I think there will be more migration. So: freer migration yes, free migration I think not.

Wouldn't free migration push higher global growth?
TNS: Of course if you have freer movement of resources all economies would grow faster. I think technology is helping the cause. The need for physical presence and migration is less. Even with freer movement of certain categories there is bound to be a substantial up in global growth and wider distribution of gains from technological advancement. So I am looking for a narrower agreement of movement of natural persons within WTO rather than the opening up of the barriers.

Is India looking at this opportunity?
NKS: Yes. We in the next 20 years will have a population composition rather young in comparison. I am heading a committee that is looking at the opportunities arising out of differential demographics -- both in offshore and onshore.

Vis a Vis the India China debate, does India stand a chance in the manufacturing sector?
NKS: The industry themselves realise that if there has to be any future in manufacturing they need to put their own house in order. They realise - from reports such as those of McKinsey -- that the disability on account of exogenous factors - cost of finance and so on - is only 14 per cent and as high as 86 per cent is in terms of management practices. And if restrictive laws like in labour are changed and reservations of small scale are pushed through the benefits will flow into the economy. If that happens we will not only catch up but we strong competitors.

Does the IMF agree with this view?
AK: If economy is freed of artificial barriers India could well catch up and overtake China.
TNS: If all the things that NK talked about are done and done in a short period of time India will definitely be able to surpass China in some sectors.

So the 9 per cent dream is not out of reach?
TNS: Not at all. I would like to quote Kanwal Rekhi. If you aim for the stars at least you will land on the moon.

GLOSSARY:
ANNE KRUEGER IS DEPUTY MANAGING DIRECTOR OF THE INTERNATIONAL MONETARY FUND
TN SRINIVASAN IS SAMUEL C. PARK, JR. PROFESSOR OF ECONOMICS. ECONOMIC GROWTH CENTER, YALE UNIVERSITY.
N K SINGH IS A MEMBER OF THE PLANNING COMMISSION.

INC PLOT
A Lot Of Gas?
There may be a lot more than meets the eye to the arguments being put up against the strategic sale of stakes in HPCL and BPCL.

RIL's Ambanis: The wait is on

Lne of petroleum minister ram Naik's favourite arguments against a strategic sale of stakes in HPCL and BPCL, the two state-owned oil companies that are at the centre of the current impasse in the government's disinvestment programme, is that two private sector oil companies, Reliance Petroleum and Essar Oil, have already been granted licences to set up more than 7,500 retail outlets or gas stations. Add that to HPCL's 4,500 existing stations, BPCL's 4,700 and IOC's 7,300 and it means a more than 50 per cent increase in the number of outlets. That, contends Naik, is enough to generate competition for the state-owned companies. But the fact is none of the 7,500 outlets exists. Plus, it's not easy to set up gas stations. Each gas station requires an investment ranging between Rs 1 crore and Rs 4 crore, depending on where it is being set up. That's not all. A mere licence isn't enough. Before a gas station can be set up, nearly 40 clearances from different authorities are required and these clearances cannot be obtained en masse but individually.

Naik has other arguments too. One of them involves the funding of two refinery projects for a total capacity of 15 million tonnes. These projects need Rs 16,000 crore and Naik believes IPOs from HPCL and BPCL can help fund them. Another of Naik's arguments says that oil is a strategic sector and during exigencies like war it helps if the government, rather than the private sector, has control over supplies of oil. For all of these arguments, there are suitable counter-arguments. Disinvestment through the strategic sale route can help free state-owned companies from bureaucratic control and thus make them more competitive and efficient; adding fresh refining capacity makes little sense because India already has surplus refining capacity; and, as far as exigencies are concerned, the government already enjoys the powers-the Petroleum Regulatory Bill, 2002, has the provisions-to temporarily takeover companies during national emergencies like war.

Thus, Naik's arguments are at best excuses aimed at scuttling the disinvestment process. But for a moment, let us get away from such arguments and counter-arguments. And look at what perhaps is the crux of the issue. The biggest beneficiaries of a strategic sale of stakes in either BPCL or HPCL, or both, are the private sector oil companies. More specifically, it could be Indian oil-major Reliance or foreign giant Royal/Dutch Shell. Both are the more serious contenders for a piece of the action in India's oil sector, particularly when it comes to the retail market. Let's not even consider Essar as a serious contender for the simple reason that it is still struggling to set up a refinery and the group's other businesses like steel are highly debt-laden and funds starved.

If the strategic sale of stake is put off and the government decides to go in for IPOs in the oil companies, private sector contenders can choose to buy stakes in them through market deals and may even be able to creepingly build up sizeable stakes without paying a premium. For players as deep-pocketed as Reliance, that may not be a bad route to adopt. After all, Reliance bought a 38 per cent stake in BSEs through the same route. True, it is a long drawn out route that takes time and patience, but for Reliance it could be far better than a situation where, say, the government decides on strategic sale of stakes in the two companies and Reliance bids but doesn't get either, like it happened in two past instances-VSNL and IBP. Strategic sale or IPO: could it be a 'heads you win, tails we lose' toss-up for the government?

-Sanjoy Narayan