The Indian Economy Blog

August 25, 2005

The McKinsey Quarterly Interview with Manmohan Singh

Filed under: Growth,Infrastructure,Labour market,Regulatory reforms — Reuben Abraham @ 12:22 pm

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.

UPDATE: It seems like this interview has been picked up by the media in a big way. I’ll not be surprised if our leftist brethren come out all guns blazing since a lot of the implicit criticism in the interview is directed at them.

5 Comments »

  1. Manmohanomics will work provided Manmohan gets a chance. The left doesn’t waste any opportunity to pull him down, and going it alone doesn’t seem possible at the moment. When Gurucharan Das interviewed Manmohan for his book(India Unbound), he says he found a reticent chap, a political player and not a visionary like Mahatir. As long as the losers on the right ( BJP & other templewalas ), and the losers on the left ( CPM,CPI,various Marxist,Leninist, Stalinist factions ) hold him down on either side, Manmohan will be left airing sound economic critique to McKinsey instead of getting the go-ahead to actually implementing these policies & doing some good for the nation.

    Comment by Krishnan — August 25, 2005 @ 4:07 pm

  2. None of the responses actually tell us anything we didn’t already
    know. But to be fair, the members of parliament would not have been
    forgiving of a forthright Manmohan.

    Comment by anon — August 25, 2005 @ 7:56 pm

  3. The same issue of the Mckinsey Quarterly also has a fascinating comparison between India and China. The two contrasting are contrasting experiments in market reform: one is doing it the authoritarian way, with populism automatically managed through the state; the other must muddle through the populism-reform dynamics through democratic processes.

    I’m willing to bet in the long term on India, mainly because I have strong reasons to doubt whether China can insulate its political system from democratization pressures as a vocal middle class emerges. India it seems faces the reverse problem of insulating its economic policies from political pressure. Eventually, this will turn out to be the easier task.

    Comment by Roehl Briones — August 26, 2005 @ 8:37 am

  4. The World Bank Blog has also discussed this interview, and it seems McKinsey has also given them some sort of special link to another article on our poor mineral performance – I guess that the advanatge of being the WB?! They also say McKinsey is working on a special India edition.

    See:
    Special links: http://psdblog.worldbank.org/psdblog/2005/08/from_the_kind_f.html
    Mineral red tape: http://psdblog.worldbank.org/psdblog/2005/08/unearthing_indi.html
    Innovative indian business models: http://psdblog.worldbank.org/psdblog/2005/08/innovative_indi.html

    Comment by Sanjay — August 26, 2005 @ 5:18 pm

  5. I was rather surprised at how forthright MMS was..it’s one thing for outsiders/ journalists to complain about the Hold-India-Back crowd but one thing for a PM to be so forthright.

    However, I’m still unclear whether MMS’s words are the harbinger of more action to come (as Bhalla seems to think http://indianeconomy.org/2005/08/06/manmohan-singh-finally-flexing-his-muscles/) or whether they’re just a signal of frustrated intentions. I’m hoping it’s the former, but as the cliche goes, actions speak louder than words

    Comment by Prashant Kothari — August 27, 2005 @ 8:26 pm

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