On May 20, the Economic Times interviewed Prabhu on what might be the Modi government’s early steps in its promised campaign to revive the country’s economy. “Prabhu told [the Economic Times] that he expects the new government to quickly announce policies on infrastructure, agriculture, gender issues, education and healthcare, about which [Modi] spoke during [the] election campaign,” the paper wrote. "I think in the first few months of the government he will be able to convert these statements into implementable policies," it quoted Prabhu as saying.
You can read the article here, and a transcript of the interview is below.
Q What are the key priorities for the economy that the new government needs to address?
A. This is the first election in which there has been more talk of economics than politics during the campaign. Mr Narendra Modi highlighted almost all aspects of social economic developmentt during his 500-odd rallies and innumerable social media communications. Consequently, economic agenda has already been spelt out by him through a public address. We always feel that elections should be fought in a programmatic agenda for the next five years of the government’s tenure but rarely has it ever happened that such large number of people have been taken in confidence. So in a way, his articulation of economic vision has already been endorsed by the people through this huge mandate. He talked about infrastructure, agriculture, gender issues, education, healthcare, also the delivery system of dispensing with the services and I think in the first few months of the government he will be able to convert these statements into implementable policies. This is also the first time that a three-time chief minister of a state will assume the office of the prime minister. If you look at it, the growth in the economy or the development of social sector has to happen in the states only. The aggregation of the state’s development paradigm becomes the national growth numbers. Having worked in all these sectors as a chief minister, he is familiar with all aspects. Therefore we should see in the shortest possible time, a policy in each of these.
Q. Given the current state of infrastructure, energy and the overall economy, should people expect some tough corrective measures before getting the benefits of good governance? How can infrastructure be revived?.
A. In this election he talked about governance more than anything else. He also talked about bringing entrepreneurship and empowerment to the fore, rather than doles and giveaways. He has demonstrated in his own state that what people need is dependable and affordable power and not unreliable promise of free power. So I’m sure India needs to create infrastructure to the extent of $10 trillion dollars in the next three decades. Then, it has to be paid for through some form to make these projects bankable and viable. Either investment must come from domestic savings as well as from budgetary support but largely by payment of reasonable user charges. Plus, bringing new paradigm of thinking for infrastructure development is essential. We are probably the only country in the world which will create public infrastructure through large private investment of this magnitude. Providers of equity and debt need comfort that these should be viable projects. For that his new thinking will serve the purpose.
There are 115 projects in which Rs 7 lakh crore are stuck. We need to disentangle them; bring money back into circulation and to spur further investments into long term projects. We also need long-term maturity funds like pension funds to fund longer life projects like power and roads.
Q. How challenging is the economic situation?
Many of the costs that should have shown in previous budget have been suppressed. For example, fertilizer subsidy is not shown in the budget. Fertilizer companies were asked to borrow from banks to conceal the real deficit. Similarly income tax refunds of thousands of crores have been deferred. It may be a good idea to take stock of the reality and take country into confidence. The previous government passed FRBM and never implemented it, so we should be fiscally prudent and economically more responsible.
Q You took path-breaking initiatives as power minister. What is the way out of the current mess in the sector? There is fuel scarcity, and tariffs that seem too high for consumers and too low for producers?
A Thanks to the Electricity Act 2003, as well as the blueprint for integrated power sector development, made during my tenure as the power minister, we have legislative and policy framework to take the power sector forwards. Unfortunately, last decade we did not act on it to our own peril. We had launched for the first time in India, distribution reforms, to make power sector commercially viable. The mess in fuel supply could be sorted out very quickly so that the stuck power project would go operational and the low plant load factor (PLF) of existing capacity can be increased quickly. Both will result in big payback to the banking system besides getting more electricity to the grid.
Q The Vajpayee government, of which you were a part, took effective steps to build roads and introduced toll roads without attracting any public protest. Things seem different now. How can the new government change this?
A. Toll has to be related to the capacity to pay by the users as well as the reasonable payback for the financing institution. We need to introduce therefore new financing mechanism. When the life of the road is 25 years, I don’t see any reason why the financing institution should finance it in a way that money should be repaid in 5-7 years. They have 5-7 years deposits, so they want to finance it only for 5-o7 years to avoid asset-liability mismatch. This puts unnecessary strain on the developer, necessitating him to charge higher user charges for quicker payback. We thus should introduce new instrument of finance, matching with the life of the projects.
Q . You headed a panel on linking rivers in the country. Is this a practical idea? Do you think the new government should renew efforts in this direction? What the costs and benefits?
A. We need a comprehensive water-management strategy considering that agriculture, manufacturing, services, besides all the social sector development full depends on it. For that we need both demand and supply side interventions, and a bottoms-up approach besides top-down. Each and every village which is currently drawn on revenue basis. All villages are revenue villages, but we need to create a water village on the basis on catchment areas. Honourable Supreme Court has directed the central government to implement inter-linking of rivers project. I had submitted very comprehensive reports to the Supreme Court which was monitoring this project because of a PIL. I had started studies to deal with environment forests, social, political, economic legal, technological and financial viabilities of these projects, involving top national experts. This work was not completed as we lost the election in 2004. The Supreme Court has asked in an unprecedented order to implement it forthwith even after hearing the revision petition. (Earlier they passed the order, ) If my studies had been comleted as they were in progress, the real cost-benefit analysis would have been possible to take a comprehensive view.
Q When you were environment minister, you took steps to increase forest cover. Today some corporate leaders feel the ministry is a huge obstacle to economic growth. Others argue that the ministry should not be stopped from implementing environment laws. What is your position in this? How can one balance industrial growth and environmental protection?
A. The environment ministry’s primary job should be to protect the ecological capital of the country, which is available in the form of biodiversity, water, clean air etc. No country has ever developed in the world which has not leveraged on its human and ecological capital. So, to develop India, we need to tap this ecology but we should not grow in a manner that diminishes the capital. And for that, we need sustainable development strategies. The ministry handling has always come under severe criticism. Thus we need complete transparency in its functioning. I had started the process of putting all environmental clearances in the website. Not just the final outcome but also the process of decision making on the website. Forest cover in India has to be increased to 33% of its landmass, however first we need to find land for that, because without land I don’t think any forest can be developed. Knowing the pressure on land, we need to be more imaginative and think of community forests. There are several places in the country where communities have protected green cover due to their religious beliefs. Could be thus involve communities to make this happen? However, economic development is a priority too for the poor and thus the population and poverty both could be big challenge to environmental protection. Environment is under siege due to lack of poverty and population growth.
Q. Should the government have an integrated energy ministry?
Mr Narendra Modi, in my opoinion, could be the first prime minister who has a clear vision on energy. Gujarat has developed the largest solar park in the world. Gujarat is also home to one of the fastest growing wind energy. Again Gujarat could probably be the first state which is trying to harness tidal energy as it has the longest coastline in the country. Mr Modi has always been talking about energy security as a national priority. If we continue to import oil and gas and now coal, we could never be truly independent, and thus we need integrated strategy. The call of having an integrated ministry can be taken by the PM himself.
Q. India has reserves of coal and hydrocarbons that are not being exploited. What are your thoughts?
A. This is a very important issue. 48% percent of our sedimentation is not even been explored. On the remaining 52% that has been explored, we have not been able to produce oil and gas to its optimum level. Despite having huge coal reserves in the country, India will import 200 million tonnes of coal in a few years. Now the present infrastructure in the sector needs a complete revamp. The bulk of investment that India needs is in this sector because hydrocarbon imports is a cause of drain on our foreign exchange, on our fiscal situation and also has impact on our environment. We thus needs to attract huge investment from both public and private sector to ensure we get away from the dubious distinction of helping the oil and gas exporting countries to support their economies with unprecedented imports.
Q. You have been involved in NGOs. What role should NGOs have?
A. The modern governance demands participation of civil society organsations. They have become far more important than formal structure. NGOs, in my opinion, should not be described in the negative way as non-governmental, but should be property described as pro-people, pro-development organisation. They must participate in development not through what should not be done. What is the better way of doing the project. For example if we need 10,000 mw of electricity, rather than saying don’t do it at all, if you can provide the same quantity by avoiding the pitfalls in which in my opinioin are avoidable. They must have the same form of accountability as the government so that together we can truly develop India sans the problems that NGOs.
Q. How can India’s mining sector, especially coal and iron ore be revived?
A Mining is a necessary evil. No economic activity can be carried out or no modern living is possible without minerals being extracted from below the surface. Telephone, any form of travel other than walking; any source of communication or any modern medical care is impossible without equipment and activity that are carried out through a primary mineral. Even bullock-cart wheels are made out of iron ore. Even that form of transportation not possible without mining. At the same time mining causes huge costs to environment (land use change is one cause of climate change), there are social issues, because people are displaced, and even causes damage to underground water if not done properly. The challenge is how to do mining avoiding all these attendant costs. We need thus a modern approach, using better than the best in the world technologies and a transparent supervision and control over mining operations to bring about economic development sans these issues. We need to share some of the royalties from these minerals, not only with the states but with the local communities as well. The Naxalite- infested areas could be free from this social problem if we can share the royalty with tribal and other communities in the mineral-rich areas.
Q How can the manufacturing sector be boosted to create jobs? How much support would this need from states?
We are walking in a thin air, having constantly diminishing share of manufacturing into India’s overall GDP. We thus need to increase the share of GDP substantially to create more jobs, sustainable jobs, at the same time allowing migration of unwilling farmers into stable well-paying jobs. For that we need to relook at the laws which prevent labour-intensive industries to come up and at the same time reduce cost of capital and electricity, both key components of economic growth. The government must create clusters for specific sectors like shoes, clothing, stuffed toys, like China did. This will create huge employment besides helping to develop a backended supply chains for raw material and equipment. India cannot survive on 65-70 percent of services alone. Manufacturing and agriculture will be serviced by the service sector but service sector cannot service itself unless the real economy keeps pace with the overall economic development.