Dr Montek Singh Ahluwalia, economist and aide to former PM Manmohan Singh, speaks with Mayank Chhaya | SAM Conversation
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00:00:00In 2014, during his last news conference as the Prime Minister, a somewhat crestfallen
00:00:23Dr. Manmohan Singh said, and I quote,
00:00:26I honestly believe that history will be kinder to me than the contemporary media,
00:00:31or for that matter the opposition parties in Parliament, unquote.
00:00:35A little over 10 years hence, and soon after his death, history already seems to be kinder to Dr.
00:00:41Singh. Offering a broad overview of how India's economy has evolved over the last 34 years,
00:00:48after Dr. Singh's first extraordinarily reformist budget in 1991 is Dr. Montek Singh Aluwalia,
00:00:56an eminent economist who himself has been at the heart of the country's economic planning
00:01:01since the late 1970s. In a career spanning some five decades, during which he has held
00:01:07highly consequential positions in India's economic establishment, as well as at the
00:01:13International Monetary Fund and the World Bank, Dr. Aluwalia has had a first-hand experience
00:01:19in the country's transformation from the commanding heights economy to a free market one.
00:01:24Dr. Aluwalia spoke to MCR from New Delhi about what he thinks of Dr. Manmohan Singh's legacy
00:01:31and beyond. Welcome to Mahim Shah Reports. Dr. Aluwalia, it's a great pleasure to have you.
00:01:38Thank you. Thank you for having me on your show.
00:01:41I was in the press gallery of India's parliament when during his first budget speech in 1991,
00:01:49Dr. Manmohan Singh said that no power on earth can stop an idea whose time has come.
00:01:5534 years later, where do you think that idea of India has reached?
00:02:01Well, I think it's clearly made progress. I mean, look, when he said that, we were still
00:02:07a low-income country. And I mean, the whole focus was, can we get out of this and start
00:02:14a process of development? I mean, we haven't done anything like the kind of transformation
00:02:21that China has brought about. But compared to many other developing countries, progress in India,
00:02:27progress in India by most of the metrics has been actually not bad at all. And I think today,
00:02:36people are willing to believe that India will be one of the larger, more important economies over
00:02:45the next 10, 15 years or so. And, you know, I don't think that Dr. Singh's notion of an idea,
00:02:55you know, was that India would become some kind of a dominant power, but that India would be
00:03:00a power to be taken seriously. I think that's come, that's happened.
00:03:05Since 1979, when you returned from the World Bank, you have been at the heart of India's
00:03:11economic planning for more than three and a half decades. What was the view in the 1980s when you
00:03:18were Special Secretary to Prime Minister Rajiv Gandhi? What was the conversation about the
00:03:23country's economy at that point? Well, I was Special Secretary to Mr. Rajiv Gandhi, the second
00:03:30half of the 80s. I mean, for the first half, I was just Economic Advisor in the Ministry of Finance.
00:03:37And, you know, I think when I came in, it was very clear to me, and I've said this in my book
00:03:42Backstage, which is kind of, it covers that area and my thinking at the time, that I had felt even
00:03:50when I came back, that we were not performing the way we should. I mean, basically, if you look back
00:03:57over the history of India since independence, I mean, in the first maybe 10 years or more,
00:04:04right up to 1960, India's economic growth fell slightly short of what was targeted. And in those
00:04:12days, the target of 5% was quite common, and we were actually achieving something like a little
00:04:18over four, depending on which time period you use. But the point is, there weren't too many
00:04:24other countries doing that well, either. Everybody else was also doing poorly. And it was hugely
00:04:30better than the performance before independence. So, you know, that's normally what you would use
00:04:36is, are you doing better than you were doing before independence? Clearly, we were. And are
00:04:41you doing better than other countries? And I think we clearly were. But I think somewhere from the
00:04:47early 60s onwards, and certainly through the 1970s, India's economic performance deteriorated.
00:04:54And those of us who were looking at it from the outside were more aware of it than the ones inside.
00:05:00So I was quite clear when I came back that, look, this is underperformance, and we need to be doing
00:05:07a lot better. Then the question is, what do you need to do in order to do better? And my feeling
00:05:14was that the economy is overcontrolled. The old planning kind of philosophy had got converted
00:05:24into the wrong belief that by government imposing a lot of controls on resource allocation,
00:05:32you lead to an improved outcome. We didn't. And I think we needed to change that. You know,
00:05:38Rajiv Gandhi was actually aware of the fact that our policies were, if you like, out of sync.
00:05:46Because, you know, he became the prime minister immediately after his mother was assassinated,
00:05:52Mrs. Gandhi, in November of 1984. And there was a brief period, he went to a general election,
00:06:05he became an elected prime minister at the beginning of 1985. And shortly after that is
00:06:11when I moved to his office. And we got into a sort of, I mean, it takes a little bit of time
00:06:17before you can get used to a new boss. But then we started the interaction. And it was very clear
00:06:24to me that he was aware that we need to make big changes. I mean, you know, when he came in,
00:06:30he said, we got a plan for the 21st century. In Parliament in February, he said, look,
00:06:35how can we compete if we are working with systems that are 20 years out of date?
00:06:42Now, you know, this was the first time ever that the prime minister of India had said
00:06:48that the system we are working with is wrong. I mean, this was never said by Panditji,
00:06:53it was never said by Indira Gandhi. People were willing to accept that something is going wrong.
00:06:58But nobody had said the system itself is wrong. But you know, having said that, and I think he
00:07:03started making some changes. But I think he ran out of steam, partly perhaps, not having put
00:07:11together a team that actually believed in his views. Such team that he had put together
00:07:18disintegrated very early. It may be bad luck. It could be a little bit of bad political management.
00:07:26He was overtaken by other events, the Bofors scandal. But you know, when you look back on it,
00:07:32I don't think that he was at the heart of it at all. But it did happen. And then politics took
00:07:39over. I mean, after the first two years, he was not in a position to push anything very much.
00:07:47In the meantime, I mean, you know, we ran into problems on export performance,
00:07:53current account deficits slowly building up. Many people felt that his effort to, if you like,
00:07:59increase defence capability led to increased expenditures that would have contributed to
00:08:06the balance of payments crisis. And as you said, in 1990, you know, the country ran out of
00:08:14you know, the country ran into a very, very severe balance of payments crisis.
00:08:21During that period, you know, we'd been working on what needed to happen. I mean, his
00:08:29principal secretary was BG Deshmukh. I was the special secretary below the principal secretary.
00:08:38And BG had said to me that, look, you know, we managed to do some things,
00:08:42but we're not really delivering on what the prime minister wanted, which is to bring about a system
00:08:48change. And why is that? And I said to him that that's because we're not taking a comprehensive
00:08:54look at the reforms that we need. It's all being done in silos. Each ministry is looking at what
00:09:00it can do. Whereas the whole problem is that no ministry is really in charge of everything that's
00:09:07needed to improve its own performance. You need a comprehensive look. Now, technically,
00:09:11the planning commission should have done that. They didn't. And BG said, why don't you write a
00:09:17paper? And you know, if Rajiv comes back, we'll give it to him. So I started writing this paper.
00:09:23Of course, he was tragically assassinated. So that put an end to those kinds of thoughts.
00:09:29And when a new government came in, what you had was a government that ultimately was run by VP
00:09:38Singh. VP Singh then ran into his own problems because, you know, didn't have a strong support.
00:09:47It was a minority government and the balance of payments crisis was getting more and more difficult.
00:09:53And separately, he brought in reservations for the OBCs, which created more domestic instability.
00:10:01And then you had the Iraq oil price hike when Saddam Hussein invaded Kuwait and the Americans
00:10:10went in and, you know, things were highly uncertain. India didn't look like in good shape. I
00:10:16mean, we were hit by high oil prices. We had a pre-existing balance of payments deficit.
00:10:22We were losing money even before then. And then given the instability of the government and the
00:10:29uncertainty about oil prices, it was bound to get worse. And it did get worse. Nothing could be done
00:10:36during that period because you had a government that didn't have a long lease of life. It was
00:10:41replaced by another government supported by the Congress party from the outside, which was
00:10:45obviously a temporary arrangement and reserves. We kept losing reserves. So I think that was the
00:10:53crisis when the government at the time was run by Chandrashekhar with the support of the Congress
00:10:59from the outside. And obviously, the Congress was not going to support a government that had to do
00:11:03a lot of tough things because then they would get blamed for whatever was done. And so basically,
00:11:09that was the end of that government and we had a new election. As a result of that election,
00:11:15the Congress came back as a leader of a coalition. Narsimha Rao became prime minister
00:11:25and he was advised that you need, you got a big short-term crisis that has to be managed.
00:11:32You need a very, very credible person. And one of the two names recommended was Manmohan Singh,
00:11:38who in the end became prime minister. At that point, I mean, to my mind, it was a bit of a
00:11:46no-brainer what we have to do. And you have to remember that at that time, it was also the time,
00:11:54one and a half years or so after the fall of the Berlin Wall, the Soviet Union hadn't collapsed
00:11:59yet, but most of East Europe had gone. So, I mean, it didn't take much thinking that we need to
00:12:05change and we did. And Dr. Manmohan Singh laid out what needs to be done. It was not very different
00:12:12from the paper that I was working on, which had also got leaked during VP Singh's time and came
00:12:18to be known as the M document. Dr. Singh was, of course, aware of that paper. And when the budget
00:12:27came, I mean, he just did a whole lot of difficult things that needed to be done.
00:12:31You know, bring the fiscal deficit down, devalue the rupee in two steps,
00:12:39eliminate import licenses over a large range of items, not over consumer goods, but capital goods
00:12:46and intermediates and get rid of industrial licensing controls in a big way, give more
00:12:53freedom to foreign investment and so on. It still wasn't what I would call Big Bang. You know, I mean,
00:13:00we still had controls on foreign investment, but I mean, up to 50 percent, it became automatic
00:13:07in a certain range of items. So it was a typical, a little bit of, I mean, it was by Indian standards,
00:13:13a huge change. But you wouldn't say there was a wholesale adoption of free market economics,
00:13:20which many of our critics accused us of. But one way or the other, I mean, the thing worked
00:13:29and the crisis was over within two years. I mean, we managed to get assistance from the IMF and the
00:13:35World Bank. We were doing things that most of these guys approved of. And I would say confidence
00:13:42returned. Now, if the only job to be done was to control the crisis, we could have given up
00:13:50by 1993 because the crisis was over. I think this is the difference that Manmohan Singh
00:13:57was aware that this is only a start. We have a huge agenda of structural reforms to do,
00:14:03and we continued doing it. Now, you know, when you look back, you can ask yourself,
00:14:09did we do enough? Almost certainly we didn't. I mean, my own view, and I've expressed that in my
00:14:14book backstage, that, you know, we were compelled to do things gradually. I mean, we could not,
00:14:22we didn't even want to do a Big Bang reform of the kind that had become very popular by
00:14:28American economists advising Russia what to do, which would turn out to be a disaster anyway.
00:14:34So, I mean, you know, we made changes, but we made them slowly. And I mean, if you ask me,
00:14:40I have said that, look, it was right to do it slowly, but we did it too slow.
00:14:45So what we did in the next 15 years, we should have done in the next seven.
00:14:49That's something we were not able to do. So I don't say that, you know, in that sense,
00:14:55it wasn't a perfect program reform. And many people also say that, you know,
00:15:02the reforms would have been more effective if we had done certain things first.
00:15:08Certainly, for example, education. I mean, if you could have fixed education,
00:15:13a lot of what we did would have been much more effective. But, you know,
00:15:17it takes 15 to 20 years to fix education. I mean, the idea was there, but fixing education means
00:15:25dealing with institutions, dealing with state governments who control primary education,
00:15:31et cetera, et cetera, et cetera. So that's for economists to work out. I mean, I would not say
00:15:38that we had an ideal sequencing of reforms, but we did have a very clear understanding
00:15:47that it's going to be gradualist. And I think it's a success of the system
00:15:53that although we were functioning in a democracy with governments changing, coalition governments,
00:15:59et cetera, we managed to get a sufficient consensus that succeeding governments didn't
00:16:05actually undo any of the reforms. I mean, the Narsimha Rao government was succeeded by
00:16:11the United Front government, which continued pretty much in the same direction,
00:16:17although it had as a member of the coalition, the Communist Party of India,
00:16:21not the Communist Party Marxist, but the Communist Party of India. That was followed then by the
00:16:28Vajpayee government, which, of course, was a BJP dominated, but still a coalition.
00:16:35And, you know, the BJP did not have a problem with certain aspects of the reform, but they did
00:16:41have earlier a problem with opening up more foreign trade, more foreign investment, et cetera.
00:16:47I mean, there were segments in the BJP that viewed this opening up as, you know, just the start of
00:16:53another East India Company experience. But they managed to continue. I mean, they saw that the
00:17:01time had come to change. How they managed to change has to be left to them. But I would say
00:17:06there was continuity. And then the UPA government came in when Mrs Gandhi was the political leader,
00:17:14but she appointed Dr Manmohan Singh as prime minister. So he had a tenure, two terms of five
00:17:20years each as prime minister of a new coalition government. And I think broadly the policies
00:17:28continued in the same direction, though some of the liberalization on foreign trade
00:17:33slowed down because the Communist Party of India Marxist was a member of the coalition. And you had
00:17:39to adjust to the fact that, you know, it takes a long time for people to change their minds.
00:17:46Right. You know, there's a great deal to unpack here, but I would say that right until 1991,
00:17:55although Dr Singh was very much part of the economic system as RBI governor, et cetera,
00:18:01he was still a peripheral figure in a manner of speaking in terms of
00:18:05making political impact of what he wanted to do. Is that a fair thing to say?
00:18:11Yeah, because, you know, before that he was he was being governor of the Reserve Bank doesn't
00:18:16enable you to make reform the whole range. I mean, it enables you to do the right thing
00:18:22in areas where the Reserve Bank is important. And then I think he did in a critical area,
00:18:29preserve the independence of the Reserve Bank. At a certain point, I think there was very strong
00:18:35pressure that the Bank of Commerce and Credit International, the Y-based bank
00:18:42owned by a Pakistani banker. They were very they were operating on a sort of representative basis
00:18:49and they wanted to have a banking license. Dr Singh did not think that the bank quite deserved
00:18:56the license because he had doubts. I mean, he had a very good sense of what markets think.
00:19:04So he collected a lot of information. So, you know, as governor of the Reserve Bank,
00:19:09he was, I think, responding to what he was hearing in the market, not any actual,
00:19:16factual documentary evidence. And he just felt that there were doubts. At that time,
00:19:21the finance ministry had this question that why should the Reserve Bank of India have the right
00:19:28to decide which bank is to be given a permission? And they moved a proposal to change the law to
00:19:37shift that right from the RBI to the finance ministry. And of course, they said, we consult
00:19:43the RBI. So look at it that way. It just looks like a little bit of changing the furniture.
00:19:50But Dr Singh took the view that, look, this is reducing the credibility of the Reserve Bank. And
00:19:56he made it plain that if that change was made, then he would resign. And Mrs Gandhi found
00:20:04his continuation to be sufficiently important that she negated that decision to shift the power
00:20:13from the Reserve Bank of India to the finance ministry. So that was a case of,
00:20:20you know, within the limited context of where you can operate, he was doing his bit.
00:20:26Would you say that he was a natural free marketer at heart as an economist of such caliber?
00:20:33Who? Manmohan?
00:20:35Dr Singh, yes.
00:20:37No, you know, Manmohan is too broad thinking and wide ranging a guy to try to characterize as a
00:20:47free marketer. I mean, he knew better than most the values of the market. He also knew better than
00:20:54most the likely failures of non-market. And he always knew that you got to do a bit of both.
00:21:01So he was he was not an ideological person. I mean, even when he's pushing for markets,
00:21:08he was doing it in the context of, yes, you can always have an argument for more regulation.
00:21:15But on a balance of consideration, this sort of regulation is bad. This sort of market pressure
00:21:21is good. Let me take it. If you take that view, there's no question that we were doing far too
00:21:29much regulation. So, you know, the need to move India from one extreme of regulating. I mean,
00:21:37we were more regulated than most than the social, not more, but almost as regulated as many of the
00:21:43socialist economies. So it was a no brainer that, you know, if you want to be somewhere in the
00:21:48middle, then India must liberalize. And that's what he did. Can one argue that had it not been
00:21:55for the absolutely desperate foreign exchange reserves crisis, the reforms may not have been
00:22:01pushed that strongly during the prime minister, PM Narasimha Rao's government?
00:22:08Well, I think I'm very sympathetic to the idea, you know, crises are always a great opportunity
00:22:16because it's in a crisis that you can actually do something. But this depends in the sense that
00:22:22if you've been, if you have a government that's been going on for a while and it faces a crisis,
00:22:28then it's able to do a few things to counter the crisis. It's not able to get up and say,
00:22:34oh, by the way, everything we've been doing is wrong and let's change the whole lot.
00:22:39When you have a situation where you have a new government come in, it's easy to blame the
00:22:45previous lot for having mismanaged things for a couple of years. And then you make bigger changes.
00:22:51And where you're making more basic changes, which he was, and I mean, the Congress party political
00:22:58guys were very aware that, you know, we're really walking back on what we used to say.
00:23:05Well, he managed to persuade them that, look, we've always modified our policies in the light
00:23:11of changing circumstances. So there is continuity, but there's also change. So what is this continuity?
00:23:17You could say, well, you know, we've always wanted growth. That's what we want now.
00:23:21We wanted growth that is just, that's what we want now. I mean, the previous system wasn't
00:23:27generating growth. It would have been a different matter if it was generating a lot of growth,
00:23:33but not a just growth. It was not generating growth. It was not reducing poverty,
00:23:39not doing anything on inclusiveness. So it was easy to get up there and say, look,
00:23:43we've got to do something dramatically different. And the agenda that was laid out was very large.
00:23:49I mean, industrial policy, trade policy, exchange rate policy, financial systems,
00:23:55attitudes to foreign direct investment, attitudes to technology, and attitudes to reserving things
00:24:02for the public sector. Now, that's a pretty big agenda. And, you know, we didn't get it all done.
00:24:08And we took too long. I think quite a bit of it got accomplished over the next 10 years or so.
00:24:16When you do that, you basically take yourself out of the low income category into the bottom
00:24:23of the middle income country category. And then new challenges arise. The economy becomes more
00:24:28complex. You need different institutions. If you're going to let the private sector,
00:24:35a much bigger reign, you need to know how you're going to deal with competition.
00:24:40You put in competition commissions. I mean, you approach things in a different way. And you almost
00:24:47have to set up new institutions to deal with these things, which is, again, a very complex task.
00:24:55In a way, that's still happening. I mean, you know, we haven't finished by any means.
00:24:59Right. How do you see the fact that Prime Minister Rao stood by so solidly in terms of
00:25:06its political backing to what Dr. Singh was trying to achieve? Was that something that's
00:25:12not been fully assessed in my judgment the way because I had had a couple of conversations with
00:25:19Mr. Rao around that time. And he basically said that I had told Dr. Singh that you look after the
00:25:25economic side, leave the politics to me. That was basically his message. Do you think that's been?
00:25:32I think that's correct. In fact, what Dr. Singh told me was only a slight variation
00:25:40on what you've said, because he said, look, you've been chosen because you know
00:25:46what to do on the economy. And I would go a little further than that. I think Narasimha Rao
00:25:51knew that the policy we had inherited wasn't working. So, he knew that changes had to be made.
00:25:58In fact, when he first got elected, he called a bunch of us. This is before he would have had
00:26:05any briefing from Dr. Manmohan Singh. And he said, you know, we've got to get the cobwebs out of our
00:26:12mind. So, we've got to think anew. He knew that. He knew it had to be different. I think he also
00:26:19knew that he didn't have the technical competence to design the reform and that's where he needed a
00:26:25technocrat and Manmohan was the ideal technocrat. So, you know, somewhere in my book, I mentioned
00:26:32that people always ask me, how do you distribute the credit for the reforms
00:26:39between Narasimha Rao and Manmohan Singh? Well, it's very clear that without the backing of the
00:26:47prime minister, Manmohan Singh would not have been able to do anything and Manmohan Singh fully
00:26:52accepted that. No problem at all. I think it's probably also clear that Narasimha Rao didn't
00:27:00see himself as wanting to educate people on the reforms. He would rather let Manmohan do that.
00:27:08As long as he's providing the backing. I mean, his view was, he was a cautious man and I think his
00:27:13view to Manmohan was that, look Manmohan, you do what you have to do and if it fails, you'll
00:27:20get the blame but if it succeeds, we'll share the credit and I think that's fair. We should
00:27:26therefore get some. You know, it's a little bit like, somewhere I think I said that, you know,
00:27:31it's a little bit like people ask, you know, who built the Taj Mahal and you say Shah Jahan.
00:27:38That doesn't mean that Shah Jahan was the architect. I mean, to build the Taj Mahal is a complex
00:27:44technical thing. I think Narasimha Rao would be quite happy to be called the Shah Jahan of the
00:27:50reforms structure and Manmohan Singh as the architect. I think that's a very major thing
00:27:57because you can have a structure but if you get it wrong, the damn thing will collapse.
00:28:01Absolutely. You know, at that time I used to hear some criticisms about how two men in particular,
00:28:11Dr. Singh and you with their World Bank backgrounds were really bringing in things
00:28:17that India was not ready for. How sensitive or how aware were you of those criticisms?
00:28:24It was a bit unfair on Dr. Manmohan Singh because he was completely untainted by the World Bank
00:28:29background. I mean, his exposure as an employee of the UN was in UNDP, which was more a kind of
00:28:37developing country view on development. People didn't care about that, right?
00:28:43They didn't care about that little detail. Yeah, I mean, if you want to insult someone,
00:28:48you insult them, what the hell. Look, many people told me, you're just following
00:28:55the World Bank script. That's an important issue. I mean, were we just following
00:29:00the World Bank script? The answer is no. We had our own script that was discussed at length
00:29:08internally. I mean, the paper I mentioned, which I authored, which came to be called the M document
00:29:15because it was released during VP Singh's time. He asked the cabinet secretary to have it discussed.
00:29:21It didn't have an author identified, although it came from the PM's office and I was the
00:29:27senior most economist there. So, everybody said, we know it's written by Monte Carvalho,
00:29:33but he doesn't admit that. So, let's call it the M document. That's what one of the journalists,
00:29:38that's why it came to be called the M document, right? Now, I think the thing is that
00:29:44it laid out something which was internally consistent and went much beyond what the World
00:29:55Bank would normally have plugged for. I mean, for example, clearly the first devaluation, yes,
00:30:01they would have insisted improving the fiscal deficit. Of course, they would have insisted.
00:30:08But I think what we did in terms of the extent of de-licensing,
00:30:13I mean, they loved it. I don't think they even dreamt of pushing that through because they never
00:30:20thought India would do that. So, you know, and by the way, it's not as if the World Bank invented
00:30:25these things. I mean, the theory on what is distortive about trade was actually invented
00:30:33before the World Bank got into the act. Because after all, I mean, Jagdish Bhagwati,
00:30:39a well-known trade economist, and his late wife, Padma Desai, wrote the kind of, you know,
00:30:47classic book on Indian planning and how it's mucking things up by interfering with trade.
00:30:53And that was way back in the early 60s or something like that, right? There were other
00:30:59people internationally who had raised these issues. We were aware of all that. We were
00:31:04also aware of the fact that the World Bank was pushing a similar line. You know, the idea that
00:31:11you, as long as the World Bank is saying something which is broadly in line with
00:31:17the current consensus, it's impossible for any reformer to be not following something similar,
00:31:25unless the reformer is completely doing something completely out of the consensus.
00:31:30So, I think we had our own, and by the way, in certain areas, we clearly didn't agree with the
00:31:36World Bank or the IMF. One of those is freeing up capital controls. It was a highly contentious
00:31:44issue. And I think Jagdish Bhagwati had written a very famous, you know, the difference between
00:31:50a trade in widgets and trade in capital, that it's a good idea to free up trade,
00:31:57but it's not a good idea to free up capital flows. That's exactly what we did. And that was not in
00:32:02those days, the World Bank, IMF line. The World Bank generally was in favor of freeing up capital
00:32:09controls as much as possible. So, I think we had a job educating our own public.
00:32:16And we weren't just doing it, what the World Bank said. But you know, I think deep down,
00:32:22people also understood that. But you know, when you're in public life,
00:32:25I mean, if you're going to be criticized, you might use whatever insult you can think of.
00:32:29Right. To come to the period when Dr. Singh rose to be Prime Minister in 2004, the first term
00:32:37between 2004 and 2009. By 2004, the reforms had been in place for a little over a decade,
00:32:45in effect. And India's GDP grew at that point, I think 8% per annum. How much of that do you
00:32:55think can be attributed? Of course, it can be attributed to the reforms, but how much of that
00:32:59can be attributed to what happened in 1991? Well, you know, I mean, let's put it this way.
00:33:06The growth rate of any economy in any period has got to be a function of A,
00:33:13the inherent strength of the economy, okay? A function of the state of the external economy
00:33:21that matters. And then, of course, the policy changes you make during that period.
00:33:26Now, the inherent strength of the economy, obviously reflects policy changes made earlier.
00:33:33So, the fact that the 91 reforms liberalized a lot of things, opened up a lot of things,
00:33:38affected the manner in which investment took place. And so, the economy we had at the start of
00:33:442004 was affected by the 91 reforms. I mean, if we had not had the 91 reforms, we would not have
00:33:52done nearly as well. It's also, I think, the global economy is important. And that was a
00:33:59period when globally everybody was doing well. So, that added a bit. You know, I think in terms of
00:34:07domestic policy, critics, and there are many, have said that the UPA didn't do anything in terms of
00:34:16policy. It just sort of benefited. Some people say, therefore, you just benefited from the
00:34:23reforms that happened earlier. Others feel, oh, you just lucked out. I think that's not entirely
00:34:28fair. Because first of all, you know, the high growth that we observed between 2004 and 2009 or
00:34:3610, that was really the result of a creation of confidence in the private sector, that we are
00:34:45pro-private investment, and especially pro-private investment in infrastructure. I mean, it was clear
00:34:52that infrastructure was a lagging area, and the signal given was, look, we want more private
00:34:58investment in infrastructure. This led to this great big boom in investment in that period.
00:35:05I mean, it was later, by the way, criticized that, you know, too much lending during a boom
00:35:11to various fellows in the private sector, that's virtually impossible to control. You know, all
00:35:16upswings lead to some excess investments, and then the downswing takes care of that.
00:35:23We had a big upswing hit by the global financial crisis in 2008. We managed that quite well,
00:35:31because we had a very aggressive fiscal stimulus to counter that. But the strategy we had originally
00:35:38outlined was the fiscal stimulus is only for one year, and we should then phase it down.
00:35:44I think the finance minister failed to phase it down. So that was clearly a failing. I mean,
00:35:49it should have come down starting in 2010. I mean, it started in 2008 towards the end,
00:35:57the Lehman Brothers crisis, and also the terrorist attack in Mumbai, which would have affected people.
00:36:04But, you know, so we countered that. Most of 2009, you needed that stimulus. In 2010,
00:36:13that stimulus should have been withdrawn. That was not done. And I think that's a mistake.
00:36:18The government then ran into the problem caused by, you know, what is called the temper tantrum,
00:36:24when the US sort of started signalling that they may be going to raise interest rates,
00:36:30and so on. That led to a big withdrawal of funds. So we were also hit. So we had a bit of turbulence
00:36:35at that point. But you know, it's very important to note that India survived that turbulence
00:36:42without having to go to the IMF. I mean, we were on the mend within two years. In spite of having
00:36:50had an interruption in growth, the growth rate had begun to pick up in the last year of the
00:36:57European government. I think on the political side, one of the things that happened at that time
00:37:03was a series of allegations of scams, connected with the, you know, allocation of spectrum or
00:37:12coal mines or whatever. And I think that was poorly handled, in the sense that the Prime
00:37:19Minister's position was always very clear, that look, if there is a problem, let's discuss it in
00:37:27Parliament. And let's see what a considered view would be. And then let's take corrective action.
00:37:35And furthermore, when you found a problem, let the law take its course. Whereas the
00:37:42attitude of the opposition was, for example, the CAG report had claimed that, you know,
00:37:48there's been this huge loss of revenue. And there are very serious doubts about the technical
00:37:54quality of that report. And we know later on that the first draft of that report did not assert such
00:38:01a large loss. It was the CAG himself who revised it to a huge loss. Nothing wrong with that. That's
00:38:07his right. But we must remember that the CAG report has never meant to be a final pronouncement.
00:38:14It's not like a Supreme Court judgment. It's a document that goes before the committee of the
00:38:21house that deals with CAG reports. This committee then questions the CAG. He has to defend whatever
00:38:29he said. And it's the report of that parliamentary committee that constitutes, if you like, the
00:38:36document on the basis of which policies made. Well, the opposition stopped Parliament from
00:38:41functioning because they said, we don't want to discuss this report. You should set up a joint
00:38:46parliamentary committee. Okay. The whole year was wasted. When the minister, when the CBI thought
00:38:53that they had found something wrong in what the minister did, Mr. A. Raja from the DMK,
00:39:01and they charged him, Dr. Manmohan Singh ensured that he resigned. Of course, the DMK appointed
00:39:08another minister, but that was their, if you like, sharing of cabinet seats. But the interesting thing
00:39:14is that if you look back after five years of court cases, the CBI court comprehensively rejected
00:39:24the charges and said that nothing has been proved and there's nothing remotely resembling proof of
00:39:31corruption. Now that's not to say, by the way, whether the allocation should have been done
00:39:37administratively or should have been auctioned. That's a separate issue. The scam was not whether
00:39:44you followed one method rather than the other because countries are varied in that. The scam
00:39:48was simply that the method you followed was either intended to or led to massive corruption.
00:39:54After years of examination, no such corruption was found. But even in retrospect, nobody is
00:40:01willing to admit that they overdid the criticism. I think that had to be politically managed
00:40:08and they failed to manage it. Yeah, that's where I think his weakness as a
00:40:14sort of non-politician came in. He was not a natural politician by any yardstick.
00:40:21I'm not even sure if he really enjoyed being prime minister in his second term.
00:40:26He seemed to give the impression that he had essentially switched off in very significant
00:40:32ways. Although if you look at the accomplishment overall, I was just looking at it right to
00:40:37information. The National Rural Employment Guarantee Act of 2005, right to free and
00:40:43compulsory education for children between 6 and 14. And of course, Aadhaar, not to mention the
00:40:50seminal 2008 Indo-US nuclear deal. So these are quite remarkable accomplishments, but they
00:40:56normally don't get talked about much. Well, I mean, we did talk about them and I've talked
00:41:03about them in my book, but you're right. I mean, you can write a book on it, but the question is
00:41:08at that time, how do people react? And I think that was not managed well. I think part of the
00:41:17problem was an unwillingness on the part of, let's say the Congress party as a dominant party
00:41:26to take the stand behind its colleagues from another party. I mean, when there was the slightest
00:41:33suggestion of something improper being done by a Congress minister, he was promptly removed
00:41:42because that's a party decision. Right. But to remove someone from another party cannot be a
00:41:48purely party decision because the other party would say, look, if he's not charged by the CBI,
00:41:53why are you assuming? Once he was charged by the CBI, of course, he was removed.
00:41:57But I think there was a great hunger, a sort of a Madame Defarge-like desire to get the
00:42:05guillotine working on whoever was charged with corruption. These things happen. I think
00:42:14we had no experience of such charges being thrown around. Since then, around the world,
00:42:20you've seen these charges. Right. I mean, huge charges of corruption in other developing
00:42:24countries also. Right. And people have maybe got a bit more used to the fact that these are
00:42:32problems that have to be handled in a particular way. Yeah. You know, in the context of the nuclear
00:42:36deal, you have spoken about how Dr Singh had turned to President APJ Abdul Kalam to tide over
00:42:44the severe opposition that it was facing, especially from someone like Balam Singh,
00:42:50Yadav, and even within the Congress party. Talk a bit about that.
00:42:54Well, I mean, look, I think the nuclear deal was... India has historically always
00:43:03valued its sort of so-called non-alignment and so on. And the nuclear deal looked as if we were
00:43:09sidling up a bit too much towards the Americans. But, you know, the truth of the matter is that
00:43:16Dr Manmohan Singh was quite convinced that the non-proliferation treaty, to which Russia was also
00:43:25a signatory, was unfair because they isolated five countries as having a right to have nuclear
00:43:33weapons and others were not. And I think the Indian view always, our view has always been
00:43:38consistent that, look, we are in favour of unilateral disarmament. So, if all countries
00:43:44agree to give up nuclear weapons, we applaud that, we will ensure that we don't do it.
00:43:49But if five countries insist on having nuclear weapons, then we reserve the right to develop
00:43:54ours. And after all, we are in a difficult part of the world. Our neighbour to the north
00:43:59was a declared nuclear weapons power and Pakistan was reported to become a clandestine one,
00:44:07but we knew, everybody knew that they were developing it, right? So, the idea of having
00:44:12a nuclear weapon and this was developed during Narasimha Rao's time, explosion took place during
00:44:18Vajpayee's time. And of course, the Americans actually came down on us like a ton of bricks,
00:44:23all sorts of sanctions, etc. And I think Vajpayee did a very good job in restoring relations with
00:44:30America, kind of back to where they were before the nuclear deal. But that only meant that the
00:44:37additional sanctions have been removed, but we still had the full weight of non-proliferation
00:44:46burdens because we couldn't actually get technology or even uranium fuel as long as
00:44:53those burdens remain. I think it's an interesting question that, I mean, I've written my book that
00:45:01I think it was Condi Rice who persuaded George Bush that it's not in America's interest
00:45:08to do this and we should discuss with the Indians. Dr. Manmohan Singh immediately saw
00:45:14that this was an opening and he gave the go-ahead that we should pursue this matter.
00:45:20Domestically, there was a lot of concern, including from our own Topping Energy Department,
00:45:27that is this just that the Americans are pushing their way in, in order to sell us a lot of nuclear
00:45:33reactors, which will prevent us from building our own reactors. And I mean, that was not the
00:45:39case because there was no compulsion on us to purchase American reactors. I was one of the
00:45:46team that actually was in a meeting with George Bush before the Prime Minister's visit, in which
00:45:53Bush was very clear. I mean, he said, look, I'm not doing this deal because I want you to buy
00:45:59American reactors. I'd be happy if you do, but I'm doing this deal because I cannot easily expand
00:46:07nuclear energy because I've got lots of opposition within the country. And if you're going to save
00:46:13the world, it's good for India to expand nuclear energy. So you can get your reactors from wherever
00:46:18you like. And he went out of his way to say that that is so. But of course, Dr Singh was very clear
00:46:28that the only people who know about nuclear energy in India are the guys in the Atomic Energy
00:46:34Department. I mean, the rest really haven't got a clue. So he made sure that the head of the Atomic
00:46:43Energy Commission, the Department of Atomic Energy, Anil Kakutkar, a very distinguished nuclear
00:46:48physicist, he was part of his team when he came to America to sign up on the nuclear deal.
00:46:56And at the very last minute, when they were discussing the final version, which had been
00:47:03approved by the two official sides, including by Condi Rice on the American side and by
00:47:11Napra Singh on our side, Kakutkar raised certain points that certain phrasings in the nuclear deal
00:47:20could create problems for India. I see. And Dr Manmohan Singh said, look, if Kakutkar is not
00:47:27in favour, it's not going to happen. So he effectively, quite publicly gave Anil Kakutkar
00:47:34the effective veto. And we told the Americans that the prime minister, this was at 8pm on a
00:47:41particular day and the meeting with the president was the next day at 10 o'clock. So, Dr Singh
00:47:50told our guys, please tell the Americans that we can sign our statement but the paras on the
00:47:55nuclear deal will have to be dropped. And you know, you can always put in things like we had
00:48:00useful discussions and we haven't reached any agreement. But basically, we would not have an
00:48:05agreement. And that would have been disastrous. Well, at the last minute, when this information
00:48:14was conveyed to the Americans, they were a bit shocked. And they informed Condi Rice. And in
00:48:21fact, their team had gone home, because they thought it was all done, right? Condi called up
00:48:28Natwar Singh in the middle of the night or early morning, saying, I must see the prime minister
00:48:32once to just give it another chance. So, I mean, people were not very sure what's the point of a
00:48:39last minute intervention, but the prime minister agreed to meet her. And she said, let's get our
00:48:46team together to just see what your problems are and see whether we can adjust. So, Sham Saran,
00:48:54who was our foreign secretary at the time, and Nick Burns on the American side, were told to go
00:49:02away to another room and see whether problems could be resolved. And for this purpose,
00:49:09the prime minister asked Kakodkar, look, what changes do you want? And be precise on those,
00:49:15because I don't want a situation where you say something in general. And then these guys come
00:49:20back saying, we've taken care of it. And then you say, no, it's not good enough. So, Kakodkar was
00:49:25asked to specify what changes he wanted. Now, this required the Americans to accept those changes.
00:49:31And this required us to persuade them that, look, this doesn't jeopardize US interests. Now,
00:49:39the problem is in the US, there were a bunch of non-proliferation Ayatollahs. I mean, they were
00:49:45inventing reasons, always suspecting that India might misuse any flexibility given and all the
00:49:53rest of it. That's normal negotiating. But I think Kondi must have told Nick Burns that, look,
00:50:00if the Indians want more slack, and if it doesn't compromise our essential interests,
00:50:07give them some slack. And you know, the word went back to Bush and the PM as they were discussing
00:50:17that the differences have been resolved. So, they were able to say, and we are going to have,
00:50:22we've reached an agreement on the nuclear deal. They were not able to circulate the document
00:50:29because I was still being typed. So, you know, the press was told, it's coming, but let's talk
00:50:36about it. This is what's happening, blah, blah, blah. So, it's very exciting. And, you know,
00:50:41it's interesting, many people think that, look, what's a big deal? I mean, you know,
00:50:46so we didn't sign it then, maybe we would have signed it four months later, three months later.
00:50:50But it was a very complicated arrangement where several things had to be done. American laws
00:50:57altered, American amendments to their own act made, the International Energy Agency had to
00:51:05make some changes and the Nuclear Suppliers Group had to accept that India will be given a
00:51:11special carve-out. Now, that requires a lot of diplomacy. But you know, the fact is, without
00:51:18the American help, it wouldn't have happened. And as a matter of fact, even vis-a-vis the Chinese
00:51:25president, Bush had to call the Chinese president and say, look, we want this, it is good, then get
00:51:30it done. Now, think to yourself, this happened in the last maybe two weeks of the Bush
00:51:36administration, everything was completed. Had we missed that, it would have gone into the Obama
00:51:41administration. Now, remember, the Democrats were much more pro-nuclear, anti-proliferation than the
00:51:52Republicans were. And Senator Obama had actually voted against the 123 Amendment that was necessary
00:51:59when it came to the Senate. So, is it reasonable to believe that had it missed the Bush thing?
00:52:06It may not have happened. It may not have happened at all. In my book, I say we have
00:52:14to give credit to Condi Rice for picking up the phone at the last minute. She said this in her
00:52:23autobiography. She was really depressed, but she felt that if the Indians want to be in a
00:52:29nuclear ghetto, then who am I to stop them? Then in the middle of the night, she woke up and said,
00:52:34no, I must have one more go. Very interesting case. I think that decision to have one more go
00:52:41made a huge difference in getting the deal done. Now, most people in India do not realize
00:52:49that the benefits of the deal was not whether we get an American reactor or not.
00:52:56The benefits of the deal was the removal of certain restraints, which earlier prevented
00:53:02many other forms of cooperation. A lot of the defense-related cooperation that has taken place
00:53:09in the present regime in India with the US should not have happened if the nuclear deal had not
00:53:16happened. So, these are continuations. Something you do now makes it possible to do
00:53:22something later, etc. And I think that on the Indian side, that was masterminded,
00:53:28personal responsibility taken by Dr Manmohan Singh. And in the end, as you pointed out,
00:53:34the left decided to leave the government on this and he called their bluff. He advised Mrs Gandhi
00:53:42that we will look ridiculous. He said, let's call their bluff and he then managed to get
00:53:50APJ Kalam, former president, to get Mulaim Singh on board. Relations between Mulaim
00:53:58Singh and the Congress party were not all that great. But APJ Kalam persuaded Mulaim Singh and
00:54:04Mulaim Singh came on board and the left leaving the Congress, leaving the UPA did not cause the
00:54:12government to collapse. It's a great achievement. It is. Just last couple of things, Dr Ahluwalia.
00:54:18One is not related to what we are talking about. I want your view on
00:54:24why it is that we still don't have the full convertibility of the rupee. I've been hearing
00:54:29about it for the last 30 odd years. What is the obstacle here? First thing, let's be clear.
00:54:38The most successful developing country in the world is China. We don't have convertibility of
00:54:44the renminbi. So, the notion that the convertibility of the rupee is a sign of strength
00:54:51is a fundamental mistake. Okay. Convertibility of the rupee is only possible if you also believe in
00:54:59full freedom of capital movement. I don't think today, this used to be the view of the Americans.
00:55:07It used to be during when Larry Summers and all were treasury secretary. It used to be the view
00:55:12of the IMF also. But in the last several years, that has not been the view of the IMF. They've
00:55:18recognized that in a world of freely floating currencies with large movements of capital,
00:55:23which can be driven by any number of expectational things, you really cannot assume
00:55:31that the international capital flows reflect well-considered market judgments.
00:55:38Therefore, nowadays, the view is you should manage capital flows. That doesn't mean
00:55:43ban them, but do it with certain amounts of regulation. That's what we're doing.
00:55:49As long as we're doing that, we can't have convertibility of the rupee.
00:55:55In that context, somewhat related is this current debate over de-dollarization
00:56:00and the way the US has bristled at the possibility. What is your view on that?
00:56:07Well, the US, of course, and the current administration of the US expresses itself
00:56:12with great joy and exuberance on almost everything. I just want to step back a little.
00:56:19The proposition that the BRICS countries want to de-dollarize is actually false. I don't think
00:56:27there's ever been a report or a document or a communique that says we should do that.
00:56:35What I think has happened is that once the United States decides to sanction Russia,
00:56:41for example, on oil sales, I don't think any country is willing to take the line
00:56:48that just because the US doesn't want you to buy oil from Russia, you shouldn't buy oil.
00:56:54The problem is that buying oil from Russia is not possible if you have to go through
00:57:00the established channels because the banks will not, in fact, agree to that. So you have to invent
00:57:07a way of accepting rupee payments or whichever country. So many countries are looking at ways
00:57:13and this is an inevitable consequence of, if you like, weaponizing the dollar.
00:57:21But I think, I'm not sure about this and we should check, but I think our foreign minister
00:57:27has said that there are no plans to, as it were, dethrone the dollar, although that is bound to
00:57:36happen over time and it is happening, but at a very gradual rate. The proportion of international
00:57:43reserves being held in dollars is slowly declining. The proportion of transactions
00:57:49denominated in dollars is not declining that much, but that too is likely over time to decline.
00:57:56And that's a natural process. I don't think we should, neither we nor the US should worry about
00:58:02it. So, I think this BRICS, the assertion that the BRICS have agreed to do something
00:58:08here is false and I don't think the BRICS would do it and it doesn't make any sense anyway.
00:58:15To conclude, how do you look at President Trump's threat to levy major tariffs on India? He
00:58:22described India as one of the biggest abusers of tariff regime. Well, he said we are a tariff king.
00:58:31It feels good to be a tariff king, though I can see the implicit threat in what he's saying.
00:58:37No, look, frankly, I don't know enough about US politics. So, I don't want to complicate life for
00:58:46those of our government that have to deal with the US. But I think it's early days of the Trump
00:58:52administration and I frequently hear American commentators saying that President Trump likes
00:59:00kind of making very bold and extreme statements and maybe it's part of a strategy of making you
00:59:08feel a little nervous because God knows what he's going to do, etc., etc. That's fine. I think we
00:59:13just have to wait and see what he actually does. Clearly, if he imposes tariffs on India,
00:59:19it'll be bad. Whether we can negotiate, discuss with him, persuade him that it's not called for,
00:59:26etc., that only our negotiators can tell. I hope he does. It's not just us. I mean, I think the
00:59:34decision to impose the assertion that you're going to have tariffs from February 1 on Mexico and
00:59:41Canada, that's also a bit of a disruption because, you know, after all, the United States has entered
00:59:47into formal treaty agreements with these countries. So, what you're doing is you're unilaterally
00:59:52changing them with no obvious reason why you should. I can see that the United States has a
00:59:59problem with China. But, you know, the earlier view expressed by Jake Sullivan was that, look,
01:00:07we have a security concern. So, in certain small areas, it won't be free trade. But what he had
01:00:14said was a small yard with a high fence. But that yard seems to be becoming bigger and bigger.
01:00:21And it's not easy to determine what the yard will be. I mean, after all, you can say, I'm not going
01:00:28to import X and Y from China. But what are you going to do about importing the same thing from
01:00:33ASEAN if most of that stuff is coming from China? So, are you going to impose tariffs on ASEAN
01:00:41because they have some Chinese components? It will become very difficult to manage this. So,
01:00:46we need to see in practical terms, what are the Americans going to do?
01:00:51And I just hope that over time, some of this will settle down.