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Strategies for growth

Kohli: The fundamental issue is how to lift efficiency and productivity. This economy is very much capable of growing 7% to 9% a year, not just the current 5%. But the biggest problem is the fiscal deficit, which is partly related to subsidies for power, water and other things. Unless users are asked to pay for the services they're getting, you cannot make infrastructure companies commercially viable. You cannot get the private sector coming in.

Chidambaram: The government should find ways to boost production. The effort should start with short- and medium-term, well-focused measures to revive four central industries: cement, automobiles, steel and textiles. These have always been the leading segments of India's economy. If they show an uptrend, then the domestic economy picks up. Also, in the first years of reform, India had a series of new sectors coming onstream--automobiles, telecoms. But in the last few years we've had nothing, except perhaps information technology. We need to push new sectors--roads, ports, mining, petroleum.

Barnevik: Can market prices for, say, kilowatt hours of electricity or telephone calls be introduced to stimulate inflows of private capital to infrastructure?

Chidambaram: No offense, but that's a very Delhi-based overview of what appeals to Indian people. The real growth story in India lies in addressing issues that concern the rural and domestic economy. Unless, of course, you are willing to privatize the state electricity boards.

Barnevik: Why not? If you could get political forces to rally behind the privatization of the electric network, you would free up private capital to invest. You'd get increased electricity supply and a narrower budget deficit.

Chidambaram: Yes, but it's difficult to implement. Which party has the political courage and strength to do it? To the farmer, free power today is a bird in the hand. Reforms, efficiency, an eventual price drop--that's all pie in the sky to the farmer. That road can be taken only by determined leadership willing to bring reform to the people and take flak for it.

Barnevik: If you cut subsidies to loss-making state industries and create a market economy in key services, then you really open up opportunities for growth. We've seen it in Thailand, even in Indonesia and China.

Chidambaram: Inflation control must also be high on the government's agenda. A government that sends out a signal that it is not concerned about prices has egg on its face sooner than later.

Laboratories of reform

Kohli: There are interesting economic experiments happening in some states. What's going on in Andhra Pradesh is a good test. You have a chief minister, Chandrababu Naidu, who is openly saying he will deliver better services. It will be interesting to see what happens in the next election there. If he wins, it may be a signal that the public will reward you if you deliver on services and efficiency.

Godrej: Naidu is the first politician who has very clearly focused on delivering economic results. It's the first time a grassroots politician has believed that good economics is good politics. There can be several Chandrababu Naidus thrown up by the Indian system, provided the system rewards such initiative.

Chidambaram: It's true. Some states already are well ahead in privatizing public services. These are important islands of change. For the most part, water, electricity and public transportation are still subsidized. But if the states get their acts together and begin to recover user charges, they will benefit greatly. These reforms are better than anything coming from the center.

Kohli: It is quite important to develop these islands of success and then expand. China started with a few special economic zones in the coastal areas. As they took off, as they proved their success, as foreign investment came in, China expanded the reforms to the whole economy. You don't have to do everything from the top down.

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Daily

December 14, 1998

ALL IN THE FAMILY
After leading her Congress Party to victory in state elections on an issues-based campaign, Sonia Gandhi has set herself up to take on a familiar mantle

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