Forget big bang, give and take is the only way for reforms in India: Yashwant Sinha

In a chat with Supriya Shrinate of ET Now, Yashwant Sinha, Former Finance Minister, says he does not agree with Manmohan Singh. Not only crisis, reforms have been voluntary process in India as well. Edited excerpts

Supriya Shrinate: It is a great day talking to you because we are also celebrating 25 years of economic liberalisation. It may have not been ushered in your part by your party but you have been a key architect of economic liberalisation in India in both your stints as Finance Minister. As somebody who has been a key architect, do you believe India has done enough in the last 25 years?

Yashwant Sinha: Well it is a difficult question to answer because there is always a debate on the pace of reforms. Some people think it is very slow, some people think it is at the right pace. In India, we have built the consensus needed for a reform. We have taken one or two steps. We have made sure that we do not have to step back again, take them back and then we have moved forward. So the hallmark of Indian economic reform process has been a) as much consensus as possible. GST is an example. b) It is a necessarily slow pace because it does not have approval of all sections of the population, of all the political parties in the country. But there is no other way in which we could have tackled the reform process except in this way.

Supriya Shrinate: Fair point indeed. I think that is a pragmatic way of looking at things, building consensus even if it means moving slowly. Manmohan Singh recently talked about the time in 1991 when he was the Finance Minister and India opened up to reforms. He laments the fact that we reform only in a crisis. Do you believe we finally got out of that mode?

Yashwant Sinha: I would not agree with him 100 per cent. It is true that the reforms which were initiated in 1991 were triggered by a crisis. It was reform under duress. But take our period, for instance 1998-2004, in the six years of the Vajpayee rule, we had different kinds of crisis but reforms were not triggered by that crisis. The conversion of FERA into FEMA was not triggered by a crisis. It was a reform that we chose to proactively introduce and therefore it is not always that reforms have been predicated on an economic crisis. They have been very volitional, voluntary also at times.

Supriya Shrinate: Many people believe that the present government is the first full majority government in an economically liberalised India. Governments in the past have been coalition governments but this is a full majority government with a stunning political capital of 282. Do you believe that given the narrative right now on reforms, enough justice has been done to the political capital? Some people now say that there could have been more path breaking reforms at least in the first two years.

Yashwant Sinha: Well it is a question of choice and I think as this government and its spokespersons themselves say, they have chosen to move incrementally. They have done a lot of things in an incremental fashion instead of big bang reforms and you have to give it to them. The choice is theirs.

Supriya Shrinate: You were called a very bold finance minister. If you had a 282 seat backing, would you be more path breaking or would you be more incremental?

Yashwant Sinha: Let us not forget that it is only in Lok Sabha, it is not in the Rajya Sabha. Wherever you have to have reforms backed by legislation -- it was true in our time also -- you have to depend on alliances on the upper house to move the legislation forward. Now that is a major handicap in this majority government. It was a major handicap in our time also and my experience should suggest that one has to adopt the attitude of give and take. I give an example when I introduced the amendment to the insurance laws, I had suggested 49 per cent foreign direct investment.

Supriya Shrinate: They could only settle for 26 per cent.

Yashwant Sinha: It was the congress party which insisted on 26 per cent and therefore we had to settle for 26 per cent. So that is the kind of give and take that I had in mind when I mentioned this. But let us leave the choice of the pace of reforms and whether there are going to be big bang or there are going to be incremental to the government of the day. It is their call and they will take the call depending on all these circumstances.

Supriya Shrinate: Because we are speaking about reforms, GST is a big game changer and you know you have spoken about it in the past, you have championed it also in the past. Do you believe many people are betting their hopes on the Monsoon Session for this legislation to go through and like you rightly pointed out, reforms is an act of give and take, you settle somewhere midway and it go through. Are you as optimistic on the fate of the GST as some stakeholders are beginning to be or do you believe hopes are belied?

Yashwant Sinha: If government spokespersons are to be believed, they are hoping that they will be able to get the majority in favour of the GST in the upper house and I wish them luck. I hope in the Monsoon Session, GST will be adopted and this is almost the last opportunity if we want to introduce GST with effect from 1st April next year.

Supriya Shrinate: Keep the numbers aside, but can GST be a reality without the Congress coming on board and do you believe there also needs to be some amount of working by the government of the day? The Congress party has put in three demands. They are well on course with one demand which is the 1 per cent additional levy to go. There two more demands that continue to stay. Do you believe there has to be give and take there?

Yashwant Sinha: Well there has already been give and take on that 1 per cent as far as putting the GST rate in the constitutional amendment is concerned. I am totally against it, you cannot amend the constitution especially through the long procedure and put a tax rate there. That should not be accepted by the government. On the other issue, they should be open to discussion with the political parties including the Congress and the various state governments.

Supriya Shrinate: Talking about the FDI reforms, one did see at one level the narrative is that finally India has given up its paranoia about security concerns -- whether it is opening up 100 per cent in defence or 100 per cent in civil aviation. Is that how you read this as well, the whole FDI liberalisation that has happened in the last two weeks?

Yashwant Sinha: I think they are welcome steps though I will hasten to add that the economic reform process in India should not merely be looked at from the point of view of FDI liberalisation. There is a lot to economic reforms then merely FDI, but having said that I would say that these are welcome steps. When I was finance minister, we had taken courage in both hands and introduced or permitted 40 per cent in defence production. Now, this government has move forward and it is 100 per cent. To me it appears that 100 per cent foreign direct investment in defence production is much better than spending billions of dollars every year on importing defence supplies.

Supriya Shrinate: So have we finally gotten rid of the Swadeshi argument or the security paranoia argument at one level, where you are opening up our telecom sector?

Yashwant Sinha: I think the government will be careful as far as the security issues are concerned because no country would like its security to be compromised with the investment of foreign direct partners up to 100 per cent. But as far as Swadeshi is concerned, I think the Swadeshi angle is fully met in creating self reliance in the field of defence. I look at Swadeshi as the strength of India and I have repeatedly said that the weak and the poor cannot practice Swadeshi, it is only the strong who can practice Swadeshi because if we are going to people with a begging bowl, what is it that we can talk to them about?

Supriya Shrinate: At one level though do you believe there is a lot of focus, a lot of emphasis, a lot of if I may say obsession with reforms for the foreign investors whether it is FDI, whether it is opening up our markets is that a narrative that you would force this government for?

Yashwant Sinha: I would say that it is not merely the government. Ever since the reform process started in this country 25 years ago, there have been elements in India and abroad who have related the reform process directly to foreign direct investment. I can tell you from personal experience vis-a-vis the insurance sector. I remember when I went to the US during the elections of 1999, the most important concern of the foreign investor was whether we were going to permit a foreign direct investment in insurance sector and the entire narrative was concentrated just on that. We do not have to buy that theory as I already told you. Foreign direct investment is only a small part of the total reform process. I would say any day that the Pradhan Mantri Krishi Sinchayee Yojana is perhaps more important for us as a reform measure than FDI.

Supriya Shrinate: There is a reason why I asked you that question because there are stakeholders in the Indian economy and there are commentators who have said that the whole FDI clearance actually happened as an effort to neutralise the impact of Raghuram Rajan's exit. It happened the day after. My question to you really is that do you see this as a move as well? How damaging has the decision of the governor not to seek a second term and go back?

Yashwant Sinha: Well we are talking I think a few weeks after that incident took place and if you recall the media reports and comments which were being made before the governor made this announcement. You will find that everyone was predicting doom for India.

Supriya Shrinate: Were those fears over exaggerated?

Yashwant Sinha: Absolutely. I mean this country has seen famous prime ministers pass away or being unseated and therefore a big country like India cannot be dependent just on one individual.

Supriya Shrinate: I will tell you why these comments were being made. It was because Raghuram Rajan was personally attacked by Subramanian Swamy and the government of the day did not really come to his defence and by his defence I mean to the defence of India's central banker, to the defence of the RBI or the institution that he largely represents and that caused some amount of concern. Did it concern you?

Yashwant Sinha: If I remember right, the finance minister came out quite openly in support of the governor and at one time the prime minister also spoke about it and he said that the fact whether he is going to get a second term or not is an administrative matter and it is best left to those who are going to decide that matter. So this controversy was perhaps entirely unnecessary and was easily avoidable. This gave it a hype which was not called for.

Supriya Shrinate: Do you believe the short-term impact of a Rexit as it was being called globally and acronyms now describe the events in the world that we live in but the Rexit as it was so called may have not turned a short-term damage. The rupee did not fall as it has been predicted. Stock markets did not crash. But from a medium to long term, it could perhaps dent at least the image of India in terms of we do not support people who have views of their own in offices and the counter argument to that is do you believe Raghuram Rajan breached his brief?

Yashwant Sinha: I will not the answer the second part of your question, it is for Raghuram Rajan to make a judgement. But as I like to repeat what I have said to you earlier, a governor of the Reserve Bank is a governor of the Reserve Bank. He is not the Prime Minister of India. He is not even the Finance Minister of India. He has a role which is well defined in our system and he has to perform that role. Most governors have performed that role very ably and there has been no problem. If there has been an issue with Raghuram Rajan as I said, it was because of the hype which was created both because of the controversy which was raised about him and also because some of his own statements. The whole thing was entirely avoidable and then this build up that if Rexit were to take place as some people described it, then India will collapse, its economy will be ruined. I mean when we looked at, I looked at such stories and comments in the media, I was aghast because this country is much bigger than an individual.

Supriya Shrinate: There is a reason why we must spend a little more time talking about the narrative around it because Subramanian Swamy has not just attacked Raghuram Rajan. I buy your point that yes the Finance Minister and the Prime Minister made a statement but they did not come to his defence like they came when Arvind Subramanian or Shaktikanta Das was under attack and that was perhaps because they had learnt a lesson with Raghuram Rajan. Subramanian Swamy is doing a lot of damage to this government. Should he have been brought back into the BJP fold to begin with?

Yashwant Sinha: For me it is very difficult to answer that question. I would only say that the issue has been settled by whatever the PM has said. We should leave it at that. I will take the issue as settled.

Supriya Shrinate: You will take the issue as settled but the man in question has not. He is attacking people and most people believe he is on war path with the Finance Minister of this country for a party and a government that has projected a very unified image of sort. This is not UPA II where there was a lot of infighting and there were camps within the government. Do you believe at that level, this has done damage?

Yashwant Sinha: I will say again that this is too big a country and such things are of a very transitory nature and we move on. So let us leave that behind us and move on.

'Tap Institutional Memory'
Supriya Shrinate: Let us move on and talk about the imminent cabinet reshuffle is in the works for a while now and we were given to understand one will finally happen. Do you believe what the government needs today and I am going to go back to the Vajpayee government, the kind of people who worked in that government, the intensity of the capital. Whether it was people like yourself or other ministers, there was a lot of experience, a lot of capacity that was brought to the table. A lot of people worry about the talent deficit in this government. Do you believe the Modi Sarkar can perhaps do with some amount of technocrats, some lateral inductions or do you believe this is going to be one face powder reshuffle we will get some people from UP to come in and that is about it?

Yashwant Sinha: No in our system it is entirely the prerogative of the Prime Minister and let us trust him with the best possible judgement, I am sure he is aware of the kind of comments that you have made and I like to make only one point here. There are very experienced people in this government and there are people who have been members or ministers of the Vajpayee government also. The more important thing for any government is not so much who is in what position. The more important thing is institutional memory, that the government benefited from that kind of institutional memory. The fact that there are people in the government, in the civil service and elsewhere who will be able to tell the government what had happened in a similar situation in the past and I am not merely referring to the Vajpayee government, I am referring to all governments in the past and that institutional memory should be provided by the system.

Supriya Shrinate: But do you believe the system is encouraging that institutional memory to be tapped right now? Dialogue is not a very favourite mode of communication?

Yashwant Sinha: No, it is not a question of dialogue also. It is a question of those who are responsible for advising the government, at least pointing out that look in a similar situation in 1995, we did this. In a similar situation in 2005, we did this, in a similar situation this was a response of India. If that kind of institutional memory is available to the government, then it will help take the right decision.

Supriya Shrinate: Fair point. I also want to move to India's foreign policy and there are two specific issues that I obviously want to touch upon. I first want to talk to you about the NSG issue. As somebody who has been a part of the policy making and specifically held portfolios there, how do we approach the NSG issue? Do you believe it was a diplomatic error of sorts? We are going after China, blaming China alone but the opposition came from other members as well and some of the members from countries where the prime minister visited?

Yashwant Sinha: Institutional memory becomes important. In 2008, we were able to get a clean waiver for ourselves which gives us all the benefits which NSG membership would make available to us. Now what were the factors which enabled that clean waiver? A phone call from President Bush to the Chinese leadership for instance. There was no phone call this time. So we had to make an assessment before we give it such hype. How strong was the Chinese opposition, how strong was the US support for us and then in the light of that and also the reservation of some other countries, we should have decided whether we will give it this kind of hype or not. I am not against India making an application but we should not have pressed it in the manner in which we did and the last minute appeal of our Prime Minister to the Chinese President in Tashkent could have been avoided if we had taken a decision well in advance that we will not play it beyond a point, we will not press it beyond a point and if it comes our way fine, if it does not, then it does not hurt us.

'We should not have brought ourselves at par with Pakistan in NSG talks'

Supriya Shrinate: Where did you think we erred? Did we err on the fact that we did not have enough support from the US and other members who did finally object or were we too obsessed with chasing China?

Yashwant Sinha: No, we had to chase China because China was the main opposition. There is no doubt about it, other people might have raised issues or procedure but I think the most critical mistake which was made was that we ourselves hyphenated India with Pakistan when the external affairs minister of India said in her press conference openly that we do not mind Pakistani becoming a member of NSG. I think that was entirely avoidable and we should not have brought ourselves at par with Pakistan. Our record in nuclear field is much, much superior to Pakistan, Pakistan is a rogue state even in nuclear technology.

Supriya Shrinate: Because you are talking about Pakistan and of course that is a subject again very close to your heart and something that you have been very candid over with your views on, there has been so much of outreach at a personal level as well from the Prime Minister making that impromptu visit and yet Pakistan comes back with a very treacherous record. The Prime Minister in his interview with Arnab on Times Now did say that one does not know who does one speak to in the Pakistani government. Should we be speaking to the elected representative, should we speaking to the army? Is that a dilemma that policy makers in India have always been caught with and what is the way out?

Yashwant Sinha: One thing which has always been clear is that whoever is the elected or unelected government in office, it is always the army which has been calling the shots as far as relationship with India is concerned and that is a reality, that is a given and we have to be conscious. Now when we talk to the elected government and we have to talk only to the elected government or any government which is in power, in Pakistan we have to keep in mind how much clout the government has with the army. If the government does not enjoy a clout with the army, then talking to the government becomes that much less fruitful and then we should decide to what extent we shall engage with Pakistan depending on our own assessment of the situation. There are two very strong opinions in India; some people believe we must continuously talk to Pakistan irrespective of the results and the second is that terror and talks -- which has been our stand -- cannot go together and I am a very strong advocate of this line. This was Mr Vajpayee's line also that terror and talks cannot go together and as long as Pakistan is sponsoring terror activities in India or exporting cross border terrorism, there is no point in talking to but stand (25:05).

Supriya Shrinate: But how do you de-escalate the tension that still exists?

Yashwant Sinha: By protecting ourselves. Why do we have to de-escalate the tension with Pakistan because Pakistan is at war with India whether we realise it, recognise it or we do not recognise it. The manner in which now the terrorists are attacking are security forces and are security establishments, it is clear that Pakistan is at war with India. So what do you do when you are at war, you protect yourself that is a first thing and that is why I feel that India perhaps has not done enough in all these years to protect itself.

Supriya Shrinate: Is not a cost of protection too high?

Yashwant Sinha: No, whatever the cost of protection, it has to be paid by this country, we cannot allow our people to be killed, our jawans to be killed by Pakistani terrorists.

'Rajan was being a little too strict'
Supriya Shrinate: I am going to go back to Raghuram Rajan and his tenure many people thought during his tenure in the RBI over the last three years, he was an inflation warrior. Now we can be on both sides of the argument but he did...first time inflation targeting happened in India, he went after the bank NPAs. Do you believe his exit - a) makes both those arguments a little redundant today and that is the fear that the market has and b) at a stage when there are chances of a loose monetary policy and I know you have been a big votary of a little bit of fiscal flexibility and having an FRBM range is that really warranted right now a chances of a loose monetary policy and perhaps fiscal flexibility as well?

Yashwant Sinha: No, I am not in favour. I have never been in favour of a loose monetary policy and I personally feel that inflation targeting is a good objective but what kind of inflation? You cannot target food inflation. You should not target food inflation. You should target the wholesale price index and if the wholesale price index is in the negative territory and food inflation is 5-6 per cent or even more, then what are you going to achieve through monetary tightening? There are only two things you can do in monetary policy - one is raise interest rates or go for liquidity squeeze. Both hurt. They do not hurt the person who is buying food. They hurt those who want to make investment and therefore it has to be a right balance struck between the need of controlling inflation and the state of monetary policy.

Supriya Shrinate: So are you saying inflation targeting is a good thing but targeting CPI is perhaps erroneous and one should go after WPI?

Yashwant Sinha: No, you cannot put all your eggs in the CPI basket and say because CPI is 5 per cent or 6 per cent therefore I will continue to target it while inflation WPI is in the negative territory. That is where I had a difference of opinion with Raghuram Rajan. I felt that he was being perhaps a little too strict, there was need for further loosening of interest rates in a situation where the wholesale price index was under control.

Supriya Shrinate: I had a last question to ask of you and as a finance minister you face this dilemma and you have looked at the Rain Gods for it to rain many times over. Too much has been talked about the monsoon. Indian markets are also perked up despite the Brexit, the Rexit and all that because they believe monsoon is going to be good, demand has come back, consumption is going to be revived. Are we betting too much on the rain ods?

Yashwant Sinha: What is happening in this country unfortunately is everything is hyped...

Supriya Shrinate: So now monsoon is a big hype as well.

Yashwant Sinha: Monsoon for the time being will be a big hype. I have seen reports that in June it has been deficient, July is supposed to make up for it let us see. I mean we are a monsoon dependent country our agriculture is but all this hype perhaps is not necessary. I cannot think of any year where there has not been some deficiency of the monsoon in some part of the country or the other.