Zoo Station

Rajat Gupta, the former CEO of McKinsey, sat down with PM Manmohan Singh for an interview the day after his Independence Day speech. While reading Singh's extremely well articulated views, a couple of things stand out. Manmohan Singh does not need lessons from any of us on what needs to be done to unleash the full potential of the Indian economy. He knows what is required, except he is hamstrung by political realities (witness the number of times he talks about the CMP and pressures from the Left). A lot of us tend to forget this fact when we get frustrated with how slowly the reform process has moved in the past year. Singh also specifically addresses some of the economic bottlenecks India faces.

Infrastructure

Work is in place to ensure that our road system is modernized. But our railway system also requires massive investments. We are working with the Japanese government to draw up a program in which the freight corridors between Mumbai–Delhi, Mumbai–Chennai, and Delhi–Kolkata can be modernized. Our estimate is that that will cost about 25 thousand crore of rupees [$5.7 billion], and that's our high priority as far as the railway system is concerned. We need to modernize our airports in a big way. Already plans are under way to modernize and expand the airport facilities in Delhi, Mumbai, Hyderabad, and Bangalore. We also are now in the process of modernizing our seaports. Privatization, public-private partnerships, and new initiatives have been tried. My own estimate is that we need an investment of about $150 billion in the next seven to eight years to realize our ambition to provide our country with an infrastructure which is equal to the economic and social challenges that we face.

Privatization

We are a coalition government, and that limits our options in some ways. Privatization happens to be one such area. As somebody said, a politician before he can become a statesman has to remain in office long enough. So we have to make those compromises. As far as profitable public enterprises are concerned, especially those which are doing exceedingly well, we don't see that they have to be privatized. But these enterprises, if they want to raise resources for their own expansion, they are free to go to the market. The Common Minimum Program, which is the benchmark for us to assess where we want to go, talks about the navratnas. These navratnas are companies essentially in the oil sectors, the power sectors, which are doing really well and, other than going to the market to raise funds for their own expansion, our options are limited by what is stated in the Common Minimum Program.

Labour reforms

When we talk about labor reforms, we are essentially talking about 10 percent of our labor force, which is accounted for in the so-called organized sector. Outside this 10 percent, for the 90 percent we are a completely flexible labor market. The normal laws of the market take precedence. Even within this organized sector, the problem is most acute in the public sector. In the private sector, most people tell me that they can find ways and means of working out voluntary agreements with the trade unions, whereby necessary labor flexibility can be introduced. In the public sector, we have rigid laws, and therefore there is this problem.

Extreme rigidities in the labor market, inflexibility of the labor market, is not consistent in our achieving our goals in a world where demand conditions are changing so fast, technological conditions are changing so fast. But there are limitations for the time being. We don't have a broad-based consensus in our coalition for me to assert that I can move forward in a big way. But I do recognize that we should take credible action. Our colleagues who are in government in West Bengal . . . do appreciate the need for labor market flexibility. It is my task to carry conviction to our Left colleagues in Delhi.

Read the whole thing. It's excellent.

Cross-posted to The Indian Economy Blog