• Hello and welcome to Walk the Talk. This is Shekhar Gupta and we are at the India Gate lawns, in the very heart of the babu heartland. My guest today is Montek Singh Ahluwalia, not quite a babu, an intellectual among babus and a babu among intellectuals.
That’s a good description.
• We are doing this exactly at the halfway point of this government. So what is more interesting - the report card of the first half, or the plans for the second half?
Well, it’s a good report card. At the end of two and a half years, the government can feel pretty pleased on many dimensions. Of course, a lot remains to be done. That’s an issue we keep worrying about.
• When we had the same conversation two and a half years ago, how did the picture look to you? As you functioned in government, what surprised you?
The most positive thing is that I had felt at the time that the economy had got to a position where many years of reforms had strengthened its potential. So I was hoping that economic performance would be good. That’s clearly been the case. We’ve got a four year average of 8 per cent growth which we’ve never had. And on the macro side also, things have been good, prices have been reasonably in control although in the last several months there’s a bit of an uptake. The external sector which used to be a huge bugbear, has been completely outside the area of concern even though oil prices shot up. I think that’s an incredible success story of reforms.
• You’ve said the external sector has done well. What else?
We’ve made a start in infrastructure. When we spoke a couple of years ago the one big gap I worried about was the gap between what we need and what we’ve got. I don’t think we closed the gap but we now have an operational plan and in each of the infrastructure areas there’s a lot of action compared to two years ago. Infrastructure takes time but whether you look at ports, airports, roads and more recently in the railways, there are new projects, new ways of doing things and very big plans for investment.
• Is it to your satisfaction so far?
If we achieve what we have planned, yes. For the Eleventh Plan we have chalked out a big investment programme covering both private and public sector investment in infrastructure - almost up to 350 billion dollars which is Rs 16 lakh crore. That’s a significant increase from what we are doing now. A lot of the increase is going to come through public private partnership. The main focus of the government has been, first, getting the idea of public private partnership accepted because traditionally we’ve built infrastructure through the public sector. Second, to put in place a process that will make choices transparent and that will make people realise that what we are doing is putting private money into public projects and not public money into private projects. In roads, ports and railways a lot of the process issues have got sorted out and things will now start moving.
• That’s not what some of the user ministries say. They say that the process issue has become so complicated and you’ve produced such perfect documents, the national highway authority being an example, that it’s impossible to work along with these. No contracting has happened for six months.
It is true we’ve had a new process. It’s not a complicated process. We have said when you have a public private partnership please work on a model concessional agreement where the risks and the obligations of different parties are clearly laid out. But for this you have to get the agreement of the finance, planning, and concerned ministries. That’s complicated. But the good news is all that’s over. We have agreed with all the ministries on a model concession for roads.
• You have not been inflexible?
We’ve not been inflexible. Our strategy always was, let us have a model but let us change the model to suit the specific circumstances. When you approve a project, the focus will only be on change. You know the model concession is a two to three hundred page document. If you had to appraise everyone and everyone was to make it to order, it would take months. Now we have a model and we can say, in different projects certain things will change and we can focus on those.
• There was a six month setback.
You can always have projects with bad concession agreements and run into problems later. Some of the bad eggs of the past are projects started when issues were not clarified.
• Such as?
For example, very close to Delhi, the NH-8. The stretch from Delhi to Gurgaon.
• Why is it continuing to go wrong?
One of the problems is that you get a change of scope. Somebody says let’s have a flyover here or adjust it to do it there. If there’s not enough prior work, you can get a concession agreement early but it just delays it two years later. But this new approach says, let’s sort these problems out first. Mind you the key thing is that when ministries disagree it takes time to get them to work a way out.
• And when ministries agree, it takes time to get over the surprise.
Well, those are the good surprises. Thirteen projects have been cleared through PPP approval in the last three months.
• On the new model concession agreement?
Well, no, one has been cleared. There were a number of projects which were somewhere in the pipeline and we agreed to use the new one for the new projects.
• So now these issues are settled, do we expect movement on highway projects?
Absolutely. I have discussed this with the ministries and the secretary. They have laid out an ambitious programme for the next six months. At least a dozen projects are going through various processes. You can measure progress in two ways. One, how many roads are constructed, and two, how much contracting and approval is given.
• The last 12 months were bad.
In 2004-2005 and even 2005-2006, the first two years of this government, a lot of the projects that had started earlier were completed but very few projects were started by the previous government beyond the Golden Quadrilateral. So now our task has to be to get new projects underway. The test of performance is really the new contract. In 2005-2006, there was almost 4,800 km of contracting which was the largest ever. This will get completed two or three years down the road. This year we have also switched to the new concession agreement. I am expecting a significant amount of contracting which will build up.
• So when this government goes to the polls in 2009, you know governments live election-to-election, are they going to be able to say that Vajpayee may have given you the Golden Quadrilateral or the idea of the GQ, most of it, but we have given you several times more of these highways?
A correction. The GQ project was before Vajpayee’s time. I think what he announced was the north-south NHDP2. Certainly in 2009 my expectation is the government will be able to explain to the people that there’s been major progress in the following areas. For example, airport modernisation. It was during this government’s time that the final sign off on Hyderabad and Bangalore took place and also modernisation of Mumbai and Delhi, all of which are now fully underway. Chennai should be next but we haven’t got a decision on that.
• You are not mentioning Kolkata.
Well there’s an issue about how it should be done and I think that the ministry of civil aviation is looking at what would be acceptable. But by 2009 nobody will be able to deny that in the airport area, there is major change, and in roads too. You would be able to see that the action is not just on the GQ. In the GQ, now the idea is to six-lane most of it. So we would have started that and for the first time, 1,000 km of expressways.
• But when you are getting a road built between Delhi and Jaipur or Delhi and Jalandhar or Delhi and Agra, you know these are going to be very busy corridors. Why do we start homeopathically? First two lanes, then two lanes, then two lanes?
But it took two decades to go from two lanes to four lanes and it’s taken only one and half years to make those into six lanes. Ideally India needs several thousands of kilometers of expressways. But I think the problem is a lot of land acquisition is necessary so you have to go in for it in areas where the state government is willing to engage in acquisition of land. The good news is that there are state governments wanting to do it. Haryana is keen there should be an expressway that will go all the way from Delhi through it and up into Punjab. Punjab government is also willing.
• Haryana and Punjab have got competition and that’s a good example because Pakistani Punjab has built a beautiful expressway.
Mind you, they are not utilising it extensively and that’s a problem. When you go for an expressway you must factor in utilisation, financial viability.
• I drove once on that motorway and it was empty and I asked my driver why nobody was using it. He said that’s because politicians built this motorway and they made sure it passed through each one’s village so it actually runs a 100 more kilometers than Sher Shah Suri’s grand trunk road. So the motorway, to that extent, is not a good example.
You could say that. One of the most important infrastructure initiatives is this dedicated freight corridor. For years the Planning Commission has been arguing that if you want to move bulk traffic you need a dedicated corridor. This is now underway. When it’s finished it will be a huge improvement in infrastructure. The railway ministry has really been dynamic in introducing reform-oriented infrastructure.
• Tell me about your experience in dealing with the railways.
I found Lalu Prasad Yadav to be very pragmatic, result-oriented. He’s taken decisions which have changed past practice which is the key thing in reform. The minister and his team have zeroed in on all the critical issues. The railways have achieved a terrific performance. Some people say this is because the economy is booming - that’s part of it. Actually, they’ve made a large number of operational decisions which increase the carrying capacity of the railways, a reflection of good management. They have made a major change in mindset. For example, he has opened up container traffic for competition.
• So the old story of calling 20 people to carry 20 bags is now gone. And the need to have fixers in Delhi who will be calling somebody in the railway ministry to get wagons.
Absolutely. And it will put Concor under competitive pressure. In the same way that Indian Airlines was put under pressure.
• In your conversations with Lalu Prasad Yadav, do you get the sense that he has understood the change or do you think he’s an instinctive politician who thinks he has to go with it?
I have found him to be very performance oriented. He does believe mindless privatisation is not what he wants to do. And frankly in the railways that is not the way to do it anyway. But the point is within the public sector he’s given a lot of emphasis on the little things that will improve performance.
• He is now allowing hotels to come up on railway land in public private partnership.
It’s a very broad-based effort to bring in public private partnership in many areas. I’ve suggested to him that all over the world railway stations in metropolitan areas have become major centres of commercial activity. There’s no reason why this huge amount of land can’t be used for commercial development at the upper end and railway platforms lower down.
• He buys into the idea? Tell me about the exchanges. Must be fascinating, you and Lalu.
I have met him on a number of occasions. I have sat through presentations the railways have made and he manages to bring to fairly complex issues a homespun wisdom which actually reflects an understanding of what the key issue is.
• Such as what?
Well, he has a nice phrase he once used which said that freight railways ka kamau ghoda hai, isko kafi lag kay chalaiye. This is the fundamental decision they made. They raised the quantity of freight that could be loaded on a wagon.
• Freight is the horse that earns your living, so drive it as much as you can.
Yeah. The moment a minister takes a performance-oriented view, the managerial system responds.
• And have you seen some of that happen with civil aviation as well, although your department and civil aviation have had a few brushes.
That’s actually not true.
• Over the airports contracts...
Not the department, but the inter-ministerial group, but let me say that I found that...
• Although the Supreme Court has appreciated that.
The SC has appreciated what the government did.
• It also appreciated the fact that there was transparency, there was difference of opinions, and open discussion.
Absolutely. I think that it is a model, really. At the level of the empowered GoM when these matters surfaced there was remarkable commonality of views on one thing: what we do has to be defensible. If there’s disagreement at lower levels it’s not that a political decision was imposed but a higher-level technical committee was set up.
• So again we have a situation where a minister, albeit a junior minister, relatively, has been able to push change in one way.
I think there’s been totally fresh thinking. You see Mumbai, Delhi, Hyderabad, Bangalore run by the private operators and the possibility of Kolkata and Chennai coming up. We don’t know how that will go.
• You don’t know how Kolkata will go?
Yes. There’s no disagreement on the Chennai front. But let’s hope that it moves quickly.
• Otherwise you see a real problem with the eastern sea board getting left out. You have Bombay, Delhi, Bangalore, Hyderabad, somewhere in the centre, Cochin. All this activity happening on the western side and the east getting left out.
Not because of central government.
• Because of complex politics?
I’m sure that’s exactly the nature of the regional competitive forces. The truth is that airline traffic into India is going to expand and airlines are going to end up going wherever the airports are good.
• Also air cargo, because that is linked to economic development.
I agree, but those are areas where we are certainly not still fighting the same battles that we were two years ago. The inter-ministerial agreements are in place, we’ve had discussions with chief ministers. I find there is wide agreement among states that PPP in building infrastructure is perfectly acceptable.
• Rajasthan and Uttar Pradesh have done a marvelous job.
And it’s not just road. In Punjab, in Amritsar, they’ve done a public private partnership on a bus terminal.
• Tell us about your disappointments in two and a half years.
I wouldn’t call them disappointments. Let’s say, areas where we need to make a major breakthrough. Agriculture. It has decelerated over several years. We are not yet in agriculture where we can say now there’s a consensus on what to do, but by the time the 11th document is produced, we will have a new approach.
• So that’s the new focus now?
That and the business of how to get the social sectors, that is health and education, off the ground. I would say on education, on primary education, the government has done a pretty good job. You will find problems here and there. But if you look at the enrolment numbers in primary schools, we are really up to 70 per cent now.
• The problem is higher education right now?
Higher education is a problem. What has happened is we suddenly realised that if the economy is now growing at 8 per cent, and could grow at 9 per cent, the skills the economy needs will become a constraint.
• It’s a question I ask all my economist friends: why are they so conservative talking about good numbers? When a government economist tells you 8 per cent, it’s always 8.3, 8.4.
That would be the one thing I would be happiest to be wrong on. Nobody will be happier than me if we do better than 9 per cent but my point is that setting up institutions, these are things which create whole cultures. And it’s only in the last three years when we’ve begun to say 8 per cent is normal. Now we are talking about 9 per cent. It’s really urgent that we do something on higher education. Both in health and education the real concern is, are we sure that the system is sufficiently reformed or is it just a matter of throwing money into it. Frankly I think you have to do both. We have to start putting the money in. I don’t think we can wait until the system is reformed.
• As Americans would have said, is the HRD ministry on the same page as you and others on this?
Well, the HRD minister is very sensitive to the fact that we need to expand the system. He also fully recognises the need to improve quality. But a lot of this is not in the central government’s hand. Political control over most universities is exercised by state governments. Unionisation in higher education personnel is a major impediment. When you talk to students unions, I am not sure that they are arguing for the kinds of things that are oriented towards educational reform. They are certainly interested in keeping fees low. At the present moment about 8-9 per cent of the population gets into higher education. This is the creme de la creme, so how much subsidy can you justify for it? At the same time, you need a lot of merit scholarships.
• Indian politics in 2003 had become BSP - bijli, sadak, paani. Now it is becoming BSPPN - bijli, sadak, paani, padhai, naukri.
What about swasthya, health? That’s important too.
• Maybe not in politics. Maybe the voter is not demanding so much of it. But maybe he will. He is getting sensitised by dengue and other things.
If you don’t improve the health status of children you won’t improve their nutritional status and if you don’t do that, their learning ability. Between ages 0-3, poor nutrition can permanently impair the learning ability. So education and health are very closely related.
• So are these issues that will occupy your mind in the second half - agriculture, education, health?
On agriculture we know what needs to be done. A lot of it has to do with putting more investment into water management, supporting the diversification of agriculture, building new marketing systems.
• So two and a half years to go, you may feel like a batsman in the 26th over of a 56 over match - the slog overs are coming. Wish you all the best. I hope you get to your targets. Thank you very much.