Among the three or four things that I have been really passionate about, when I first came, was the need to ramp up public investment. The government has embraced that wholeheartedly. Broadly, the views I have been advocating are reflected in this year’s budget as well. The other thing I feel really passionate about is the GST. I did want this to be a simple low-rate GST and whether I’ve been successful, we’ll have to wait and see. The job is to always create the sort of ecosphere of ideas where all these things are debated. Robert Solow has a famous line: “Ninety per cent of the job of a good economist is to flush out bad ideas like cockroaches”. Those are the things the people will never know — the bad ideas that are flushed out.
Iyer: How has it been for you over the last three years in government? Does bureaucracy fascinate you?
This is, by far, the most exciting thing I’ve done ever. I’m on a 24/7 high all the time and my wife, who is here, can testify to that. One of the big challenges to this is how you persuade people to go along with you. Navigating the bureaucracy is very much part of that. For me, watching and being part of this process is a daily learning experience.
Iyer: There have been several reports on administrative reforms. Do you think certain things can be fixed?
Fixing the Indian state is beyond Brahma, Vishnu, Shiva and all the gods put together. But, I do think a government can improve if they make use of outside talent. The marriage of the insiders with the outsiders produces results. If you don’t get outsiders, there is too much ossification and caution, too much hierarchy in the system to actually generate ideas. Equally, if you just rely on outsiders, they don’t know what’s going on and are not familiar with our ways of decision making.
Iyer: You’ve often talked about the twin balance sheet problem. But, banks been unable to address this issue on their own. You advocated a bad bank. Why is it so politically unpalatable?
If you remember, I came in November 2014 and the first document that we wrote is the mid-year media analysis, in December 2014, which is when we coined the term ‘Twin Balance Sheet’ problem. At least, some of us recognised it early on. It’s also honest to say that there was an urgency and how serious we needed to be, even we didn’t signal it at that point. We were also a little bit behind the curve. There is probably in-built incentive in the system to not reveal the true extent of problems.
We also thought that if growth were to pick up, it would kind of be ... a rising tide can cover all the jagged rocks, and so it would do that. A combination of all these things lulled people in to a sense that the problem is not so big. The final bit of honesty is that it is a very hard problem, which should not be underestimated because nowhere in the world is it easy to say I will forgive the debts of the private sector. Because you create moral hazards, you say what kind of system is this, crony capitalism and so on. The twin balance sheet problem is finally about that, of course. There was a lot of crony capitalism, but a lot of honest mistakes were made.
Down the road, we realised that a big part of the solution has to be to write down the debts of many companies, several of which were large companies, and that is not going to be easy. Making those hard decisions to write down debt, it’s difficult for any political system to do and of course in India you have this overhang of the four Cs. Even honest bureaucrats within the public sector are kind of fearful.
Damodaran: You mean the CAG, the CVC...
I would say the Courts, CAG, CVC, CBI. I don’t mean to cast any aspersions on any of them. They’re doing their job. But there is a kind of pall of anxiety and nervousness hanging over decision making. Put that together anywhere in the world and it is difficult to write off. So, it’s a really hard thing and something we need to crack.
Iyer: In the run up to the ongoing elections, the campaign draws so much from religion-based politics. How does such politics based so much on religion impact development?
All evidence suggests that social harmony is an intrinsic precondition for economic development. We’ve been a very early democracy and a cleavaged democracy and that has obviously had an impact on our economic development. While we justly and rightly claim that we’re very proud of our political development, I think it has not been without some cost.
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If you remember, I came in November 2014 and the first document that we wrote is the mid-year media analysis, in December 2014, which is when we coined the term ‘Twin Balance Sheet’ problem. At least, some of us recognised it early on. It’s also honest to say that there was an urgency and how serious we needed to be, even we didn’t signal it at that point. We were also a little bit behind the curve. There is probably in-built incentive in the system to not reveal the true extent of problems.
We also thought that if growth were to pick up, it would kind of be ... a rising tide can cover all the jagged rocks, and so it would do that. A combination of all these things lulled people in to a sense that the problem is not so big. The final bit of honesty is that it is a very hard problem, which should not be underestimated because nowhere in the world is it easy to say I will forgive the debts of the private sector. Because you create moral hazards, you say what kind of system is this, crony capitalism and so on. The twin balance sheet problem is finally about that, of course. There was a lot of crony capitalism, but a lot of honest mistakes were made.
Down the road, we realised that a big part of the solution has to be to write down the debts of many companies, several of which were large companies, and that is not going to be easy. Making those hard decisions to write down debt, it’s difficult for any political system to do and of course in India you have this overhang of the four Cs. Even honest bureaucrats within the public sector are kind of fearful.
Damodaran: You mean the CAG, the CVC...
I would say the Courts, CAG, CVC, CBI. I don’t mean to cast any aspersions on any of them. They’re doing their job. But there is a kind of pall of anxiety and nervousness hanging over decision making. Put that together anywhere in the world and it is difficult to write off. So, it’s a really hard thing and something we need to crack.
Iyer: In the run up to the ongoing elections, the campaign draws so much from religion-based politics. How does such politics based so much on religion impact development?
All evidence suggests that social harmony is an intrinsic precondition for economic development. We’ve been a very early democracy and a cleavaged democracy and that has obviously had an impact on our economic development. While we justly and rightly claim that we’re very proud of our political development, I think it has not been without some cost.
View at the original source
