Interview: Mohan Guruswamy, Advisor to the Union Finance Minister ["I'm Sure 1998-99 Will Be A Good Year"]

Only his track-record dwarfs his towering personality. Before Mohan Guruswamy, 50, walked into the portals of the North Block on July 31, 1998, he had proved his mettle as an academic, a defence analyst, a management consultant, and a manager. Such a diverse background will hold him in good stead in his new-and challenging-role as the Advisor to the Union Finance Minister, Yashwant Sinha. In an exclusive interview with BT's Swati Kamal, Guruswamy dwelt upon his role in the Union Finance Ministry and the problems plaguing the Atal Bihari Vajpayee Administration and the economy. Excerpts:

THE MAN

Mohan Guruswamy

Name: Mohan Guruswamy
Age: 50 years
Current Assignment: Advisor to the Union Finance Minister, Yashwant Sinha
Educational qualifications: B. Sc (Physics), Osmania University; Graduate in Economics, Harvard University, 1982; Degree in Advanced Management, Stanford University, 1992
Track-Record: Businessman; Lecturer, Administrative Staff College of India, Hyderabad, 1985; Executive Director, Shriram Industrial Enterprises, 1986-98

Mr Guruswamy, congratulations on your appointment as the Advisor to the Finance Minister. But what will be your exact role in North Block?

I have a very simple job. I have only one client, and I only talk to one person: the Finance Minister, Yashwant Sinha. Otherwise, I am like a Victorian child who has to be seen, not heard. I listen to whatever people have to say, make notes, and, then, the Finance Minister and I have very frank discussions. We have a fixed agenda: we have to achieve certain goals by September. I collect various papers, discuss issues with bureaucrats, and evaluate their views from different perspectives. I, then, place my report before the Finance Secretary for consideration. Finally, at the implementation level, I have to coordinate with various ministries.

You will be facing a challenging task, given the present state of the economy. What do you perceive to be its main problems?

Ever since Yashwant Sinha took over as Finance Minister, he has steered the economy admirably. East Asian economies collapsed; economic sanctions were imposed on India by the US post Pokhran-II; Moody's Investor Service (Moody's) downgraded India's sovereign rating... Although it was a period of multiple pressures, the economy was managed very well. Yet the media has been very uncharitable to the Finance Minister; it has given him far less credit than he actually deserves...

Of course, there are inherent problems with the economy: we have inherited the dysfunctionalities of the last 50 years. The systems are inefficient; and the infrastructure is poor. All these problems cannot be wished away. It is very difficult to convince people about the long term when they are only obsessed with the short term: the falls in the Sensex and the rupee. In fact, governments have to manage both the short and the long terms. If you manage the long term-which we have done so far-you are unlikely to suffer the consequences...

I am concerned about all these things, and they need to be attended to. But there is a limit to what the government can do. There's no point getting involved in everything. You can't micro-manage; you can only macro-manage and let the market assert itself.

Budget 98 has already been cast. The next government will have very little room for manoeuvre: Rs 75,000 crore will go for interest payouts; Rs 45,000 crore for defence; Rs 22,000 crore for subsidies; and Rs 28,000 for government salaries. You have that much money left for capital expenditure, and you have to keep slashing it to bridge the deficit. So you must cut down on the expenditure in education, health, infrastructure, and irrigation.

The amount of money lost because of loss-making Public Sector Units (PSUs) is huge. It is a serious problem, and it impacts investments in education, health, and irrigation. Hence, we must attempt to make the public sector profitable by professionalising its management. In fact, privatisation's primary objective is to make PSUs profitable. But such measures have to be taken now since they take time to yield results.

Is the Finance Minister's claim that the economy will pick up in September, 1998, justified? And, is the 10 per cent industrial growth that Budget 98 has factored in, attainable?

Corporate results during the first quarter indicate that only 5 industrial sectors are facing problems. But housing, housing finance, consumer durables, textiles, and chemicals are picking up. The steel industry has been severely hit by dumping. To help it, the government plans to set up an anti-dumping trigger mechanism. But it won't be an across-the-board measure since that would only result in a huge bureaucratic setup. Essentially, we wish to pick a few industries-such as steel and cement-and help them.

The fundamentals of the economy are strong. As it grows, pessimism is bound to turn into optimism. For, I see the government's policy initiatives fructifying by September. We are aiming at an industrial growth of 10 per cent. Right now, we are growing at 5.50 per cent. Corporate performance always picks up in the second half of the financial year. I am sure 1998-99 will be a good year for agriculture; rural demand will definitely pick up. Once the demand for consumer goods picks up, that for capital goods follows. The cycle has already begun...

Budget 98 is not going to be forgotten in a hurry. Wasn't it a case of mismanagement?

The mismanagement only related to the increase in petrol price, and the subsequent rollback. Didn't the former Finance Minister, Manmohan Singh, also roll back urea prices? Yashwant Sinha deserves credit for attempting something bold. After all, Parliament is not only divided on party lines; it is also divided horizontally on the basis of interest groups: farmers, traders, industrialists... He attempted something (bold) but the horizontal lobbies prevailed...

The government has been accused of not formulating a strategy to counter the economic sanctions...

Do sanctions matter today? The World Bank has quietly released $1.30 billion (Rs 5,460 crore) in aid. At the meetings of both the World Bank and the International Monetary Fund, nobody wants to talk about sanctions anymore.

As far as investor confidence is concerned, the impact is virtually zero. Investment by Foreign Institutional Investors has actually gone up in July after 3 months of decline. We get Foreign Direct Investment proposals every day. For instance, there is a proposal by a German bank which is keen on investing $5 billion (Rs 21,000 crore) in the housing sector. Obviously, there is a lot more confidence in our structure and systems than Moody's gives us credit for. After all, Moody's didn't predict the economic debacle in Thailand...

As a businessman, are you prepared for times when good economics may not mean good politics?

Yes, of course. But the fact is that we have to build consensus everywhere. The government does not confer any great powers on us; it is not as if you press buttons and things happen. What it (the government) provides you is a pulpit to preach and convert people. That applies to industry, too-which is just as bad. I have spent a long time there: it is notoriously corrupt, inefficient, and nepotistic. It is a big challenge everywhere, be it in business or politics. I am prepared for it.