Mint Street in Mumbai where the Reserve Bank is headquartered to Parliament in New Delhi — Bimal Jalan made an unusual career shift in 2003. Unusual, because he is a cautious man, someone who acts with great deliberation. Why would one of India's most successful central bankers choose to give up the certainties of high office for a stint in the Rajya Sabha?
Then he had said that he had wanted to move on. But as a backbench MP, Jalan found that Parliament was less a forum for debating national issues and more a stage for low politics. His book, India's Politics: A View From The Backbench is an insightful analysis on what's gone wrong with the political system, and what needs to be done to fix it.
R Jagannathan talks to Jalan about his book, and the Indian economy.
Your book takes a dim view of Indian politicians…
Not politicians, but the political system as it is evolving. The book is not about people. We are lucky to have first class people (at the top of the government). It is also not about (the perils) of multi-party coalitions. But the problem is that even at the start of a coalition government, its life expectancy is short. Somewhere along the line, politics has become purely opportunistic.
How has coalition government affected governance?
The original vision of the Indian constitution was based on the principle of collective responsibility. In our coalition experience, we have seen an erosion of the principle without substituting it with individual responsibility (of ministers). With small, regional parties being part of government, we (sometimes) have individual ministers exercising power without accountability.
Is there a remedy to this?
If coalitions have become a regular form of government, then we have to make them more stable, more transparent, more coherent and more accountable. I have discussed a political reform agenda in my book. The two most important ones among them are reforms to increase the life expectancy of coalitions at birth, and improvements in the conduct of business in Parliament. When there is a systemic change, the rules of the game have also to change. You cannot play cricket with the rules of football.
How do you improve the life expectancy of coalitions at birth?
One way would be to change the anti-defection law. Currently, if five members of a large party decide to defect, they have to seek re-election. But if a small party of four or five members decides to defect, the law does not apply. This can be changed.
You also talked about improving the conduct of business in Parliament.
Three out of the last four budgets have been passed without a discussion. To bring accountability, you can bring in a rule that you can't pass the budget with a voice vote. No legislative bill should be passed by voice vote even if government has to come to a standstill. Then at least people will know what is happening. With a voice vote, you think the government's business is done. Everybody is happy. But where is the accountability?
How to fix corruption?
More than corruption, it is deadweight inefficiency that is the problem with public services. Over a period of time there has been a proliferation of agencies, a proliferation of schemes, and politicisation of the administration. Public services do not have to be run by the government. You can do some outsourcing. The government could own a facility, and monitor it, but a professional organisation can run it. Exploration of oil is one example. The Sulabh Shauchalayas (public urinals) are another example of this kind of outsourcing arrangements.
What about our economic prospects? The India story.
There is no stopping India. There are few constraints because the whole confidence game has changed in our favour. We have become competitive, and the pie is not limited. The globe has become our area of operations. Capital is no longer a problem.
With the opening up of India, the most important change is external viability. People (foreign lenders) don't feel you will let them down on debt or payments. We also have a skill advantage, a large market. The middle class may be only 20-30 per cent of India, but it is as large as the US in numbers.
What can go wrong for us?
The political system is one. Then there is lawlessness. One third of India is lawless, due to terrorism and extremism — the whole Maoist belt. I feel the role of the central government has to grow here, for states cannot handle it alone.
Are you surprised with the sudden spike in inflation ?
Not surprised. It is quite elementary really. When you rise from a level of 6-6.5 per cent growth to 8-9 per cent, even if you start from 55 per cent capacity utilisation, then in three years you will be operating at 95 per cent. So there is a supply constraint. Investment decisions take time. So you will always get this cyclical gap after three to four years, which is called overheating.
Will the hike in interest rates hurt growth?
No, I don't think that will happen. But we should build our infrastructure now. Otherwise we can't get to higher growth.