American Enterprise Institute

April 19, 2006

[Edited transcript from audio tapes]

11:45 a.m.	Registration and Luncheon
Noon	Introduction:	Danielle Pletka, AEI
	Remarks:	Montek Singh Ahluwalia, planning commission, government of India
	Question and Answer
1:30	Adjournment

Proceedings:

Danielle Pletka:  Good afternoon, everybody.  I’m Danielle Pletka.  I’m the vice president of AEI for Foreign and Defense Policy Studies.  It is very nice to see everybody here, and we are very, very pleased to be hosting today Montek Singh Ahluwalia, who is the deputy chairman of the government of India’s planning commission.  This is not something that we often do, which is to have sort of an individual foreign government official come and talk about things in front of an audience. 

One of the reasons why I was eager to welcome Dr. Ahluwalia when I heard he was coming to town was that he had in fact taken part in a group that AEI had hosted some years back, which we were just talking about.  And he had given a particularly incisive and thoughtful and surprisingly apolitical presentation at that time, and his contributions had really been, I thought, very useful to certainly our deliberations but to our understanding of what is really a terribly, terribly important part of the bilateral US-India relationship, which is the economic component.  Now he has told me that he is happy to talk, not only about the economic relationship, but about anything.  So I challenge you all to think up difficult questions for him in other regards but really the economy presents, I think, enough for us to talk about here today. 

The Indian economy is growing at an eight percent rate.  It has slightly increased from previous years.  It has been growing like gangbusters for some years.  It is said that India will be one of the top three world’s economy by 2050, which is coming all too soon.  Is it overheating?  Is there inflation?  Is the big problem of bureaucracy, one that will continue to plague people? The fact that somebody came here and felt the need to check our microphone before you arrived from the Indian embassy is perhaps a sign that bureaucracy still does prevail just a little bit. 

But, of course, the one thing that we all hear again and again and again is the problem of infrastructure.  The old cliché of the cart-before-the-horse, that in fact the economy is so large, the economy is growing so well, but it does not have the infrastructure withstand that.  I know that that is going to be something that everybody is interested in talking about and overall what the future holds for us. 

Doctor Ahluwalia, as I said, is the deputy chairman of the government of India’s planning commission.  The commission was established in 1950 with the aim of improving the standard of living, increasing production, and expanding economic opportunities in India.  Since its inception, the planning commission has played an integral role in the Indian government’s economic policy decision-making; however, previously, Dr. Ahluwalia served as director of the International Monetary Fund’s Independent Evaluation Office in Washington and held other posts as well in the Indian government and at the World Bank. 

Montek Singh Ahluwalia:  Thank you very much, Danielle.  Thank you.  It is really nice to be back in this forum which I participated in more as a person listening than speaking earlier.  My experience with earlier meetings here is the audience, people turn up, not because they want to know what is going on but they want to ask insiders what is really going on.  And I did suggest that perhaps I should simply say, “How nice it is to be here,” and then just take six or seven questions and then weave a theme around those questions.  But I think it is proper that I should say something by way of an introductory, a set of introductory remarks from the economies so I agreed to do that.  But I look forward to having a more lively exchange based on specific questions from the audience. 

You know the subject I have been asked to address is India and the US:  The Economic Dimension.  I’m not sure whether this is meant to rule out any comments on the political dimension.  So let me just say in two sentences, I think the political side of the picture is a very important backdrop in the sense that in the last 10 years, there had been very profound changes in the world economy that have, in effect, put India and America in both our perceptions on the same side of seeing what is happening in the world and what our national interests are.  I mean in the earlier years, it is obvious that before the collapse of the Soviet Union, the United States viewed India very differently given the way the world forces of power were aligned. 

With the collapse of the Soviet Union, it is a different world.  Our perception of the world has changed.  The US perception of the world has changed.  And as the world’s largest democracy, clearly we see ourselves as having enormous commonalities in terms of global political perceptions, given the importance of new threats especially the rise of terrorism.  So I think we are now in the situation where the political side is markedly different from what it was, and I am not going to go into that.  I just like it to be on the record as part of background. 

That is not to say that the changes are only because of the politics.  I think there are profound changes on the economic side which reflect the fact that India’s economic policies in the last 10 years have transformed themselves.  And India’s perception of what kind of policies are going to be most effective in achieving our developmental goals now reflect the fact that the process of global integration, of opening up of economies, lowering trade barriers, encouraging financial, technological trade flow, et cetera, is part of the common perception around the world and we are simply part of that consensus.  Unlike other countries, we have been slow in making changes, and I will address some of those issues, but it is a very different set of economic policies that the government of India has been following, which clearly leads to differences in the scope of Indian-American relations for two reasons. 

One is the United States is obviously the dominant force in the world economy that anyone trying to integrate with the world economy would naturally see the US as the most important single factor and therefore, would take a lot of interest in whether economic relations with the United States move ahead. 

The second is I think that India, being a large economy, is not just that is opening up, but then the opening up of India has implications for everyone else as a very significant economy which will then provide new and expanding opportunities.  And we like to think that perception has changed over time and has made the United States view India as one of the important new economies, which could make a difference.  We are probably too small at the moment to make a difference to the world, but make a difference in terms of the increment that is taking place in world trade, world investment, and virtually everything.  And I think that is true, and that is why on the economic side, the new policies that we have entered into have moved in a manner in which Indo-US economic relations have become much more important. 

Of course, I am speaking in the aftermath of a recent presidential visit - President Bush visited India.  In our view, that visit went very well, and I think in the course of that visit, a very broad agenda of economic engagement was outlined.  Some parts of it received a lot of exposure in the press, like the civil nuclear deal, that is a very important part of what was agreed between the two governments, but I want to emphasize that the range of things that we agreed upon go much beyond just civil nuclear.  And I think it is that broad-based agenda, which we are now trying to follow through and during this visit, I will be meeting with the administration officials, with Secretary Bodman in the Energy Department this afternoon, and day after tomorrow with Al Hubbard in the White House, who is my counterpart as the co-chair of the Indo-US economic dialogue. 

Let me just mention what are these areas that we are really engaged in, and then I will come back to a little bit on the state of the economy.  The areas of engagement are, first of all, we have a new initiative called the Knowledge Initiative in Agriculture.  India and the United States had a very productive engagement at the time of the Green Revolution in the early 1970s, which took India in agriculture past the first stage of the challenge of food security.  We are now in a position where this government pays very special importance to the need to accelerate growth, focusing on income-earning opportunities in rural areas.  I mean for us, it is part of making sure that the growth process is inclusive, that is going to require agricultural diversification and modernization, is going to require major changes in agricultural marketing and a transition from a basic food self-sufficiency type of economy to an economy that is engaged much more in agro-processing, value addition in agriculture, and even access to world markets as we hope that the Doha Round leads to a reduction in tariffs and barriers in this area.  So in all these areas, one of the things we are doing with the US is trying to see whether there can be expanded cooperation in agriculture. 

Second, the broad ranging exchanges in the energy area.  One of them, of course, is civil nuclear energy, but we have four other working groups that have been established, all of which reflect areas where India and the United States have a lot to do with each other.  And these are very roughly the whole area of oil and natural gas where, like everybody else, we are oil deficient, but we do have a lot of scope for expanding domestic production of oil.  We are interested in having US companies take an interest in the Indian oil sector.  There is a lot of interest in upgrading India’s technology in these areas, which opens up the possibility of partnership both with American research organizations and with American companies. 

So there is quite a lot work going on there.  There is coal, where India has ample reserves of coal, but I think our technology for exploiting the coal, the technology for beneficiation, the technology for making coal cleaner, we are very far behind what is possible.  And all of these are areas where we see the need for massive upgrade and modernization.  So we are interacting with the US in the form of intergovernmental working groups, but which involve coal producers and the private sector in both sides trying to see how we can move forward in these areas. 

We have got the whole area of energy efficiency in electricity generation.  We are jointly working with the US in developing methods of generating electricity, which will minimize carbon emissions.  So there are concrete possibilities of cooperation in those areas, which are being explored. 

And finally, of course, there is non-conventional energy, solar energy, as well as extraction of ethanol from agricultural ways, and other kind of possibilities, which we are trying to engage in.  In addition to these, there is a new opening up which has economic implication and that is in the defense relationship.  So that is another possibility where in the years ahead, you could see a significant increase in economic interchange with the United States, and of course there is more on the international global front, the democracy initiative, et cetera. 

On the scientific side, we have agreed to set up a Bi-National Science Commission, which will provide a way of moving forward the scientific cooperation agenda.  These are all initiatives that we have sort of outlined and agreed upon during the President Bush’s visit, and I think we are working forward to make these into reality. 

Now having said that, I mean, government-to-government cooperation with these agreements, et cetera, are important, but that is not really what determines the core of an economic engagement.  And we are quite clear that the core of the economic engagement would simply be US businesses’ spontaneous reaction to exploring economic opportunities in India.  And the dominant driving force of that is the change in India’s economic policies.  I mean we recognize we have not been as open as we could have been in the past.  That is not so different from India as for other countries. 

All countries are now opening up.  The difference is a very, very large country, and I think the other thing is that the initial reaction and responses of Indian economy have been very positive.  Many countries have engaged in the process of opening up and liberalization, but for most of them, the economic response has not been all that positive.  There are many parts of the world where opening up has been followed even more dramatically than India, but it has not led to the kind of economic response that you are expected to get.  That has been really a very distinctive positive feature in India. 

Right now, I think there was reference to the fact that the economy is growing at eight percent, actually last year, it grew at 8.1 percent, but the year before that it grew at 7.5.  We think in the current financial year, which really began two weeks ago, we think it will do another 7.5, which is a three-year average of approximately 7.7 percent.  Three years before that, which is actually in the previous government’s period, the economy averaged six percent.  I’m not making a political point here, although it is nice to know that the government’s record is going to show an improvement on what was actually quite a good performance in the previous year period also. 

Now the interesting thing is that knowledge of the fact that China has been growing for three decades at 9.5 percent or something like that, has raised the bar for expectation in India.  We are currently working on what should be a five-year performance kind of target for India beginning in the year 2007 to 2012.  And frankly when I first took the job, I thought when we have never done eight percent and so it would be rather good if we could really deliver eight percent.  But the political mandate that we are working to quite clearly now is to go beyond eight percent and try and get to 10 percent.  So we have not actually made up our mind on what is a feasible target, but you got to accept that if this three-year average is already 7.7, you do not need a planning commission to set a target of eight percent. 

So I mean the idea of a planning commission is to push the system.  And I think our feeling is that just as China, after many years of slow growth, was able to catch up through a strong burst of policy in putting 9.5 percent or 9.6 percent performance.  India is in roughly the same position.  There has been a lot of buildup of production and productivity possibilities, and I think if we can get to act together by putting in place the policies that would get rid of some of the existing constraints, then there is a lot of growth potential still to be utilized. 

Many studies have been done on this subject, and they all sort of vary between people who think we can grow at eight percent and people who think we can even do 10 percent, so it would not surprise me if we kind of be cautious and say, “Well, let us try and do nine percent on an average.”  I do not have the decisions on that number yet.  We will be heading towards that in the course of the next six weeks or so.  But certainly, our objective is that for the five-year period, beginning 2007 to 2012, it is very clear to us that with the additional policy inputs needed, we can go beyond eight percent.  And we can probably end the period closer to 10 percent, which is what people expect but, of course, the average during that five years will be much closer to nine percent.  That is roughly a picture of an optimistic picture of what India could do. 

I want to emphasize, it is not our view that this can be done by simply continuing on a business as usual basis.  I mean our perception is that if we do not make any macroeconomic mistakes, and one should always put that in because countries do, every now and then, get stuck with mistakes, if there is not a very big shock, then continuing at a cruising speed of 7.5 percent or so with the past gradual phase of reforms carrying on, it is probably the most likely outcome.  And what we are trying to do is to go beyond that.  So to go from a sort of a business-as-usual seven, maybe a little more than seven, to something of the order of 8.5 and maybe nine is actually the gap that has to be met through additional policies. 

I will not take too much time on this but I just want to mention what are the three major areas that we think the government should concentrate on in order to achieve this outcome.  The framework of policy has already been laid down.  It is in fact to continue with the economic reforms, you can call it economic liberalization or economic reforms or policies that will enable us to integrate more seamlessly with the world economy, etc.  And I think that while in India, there is always a lot of debate and controversy, and that is a very important point and aspect of the Indian decision-making process.  We are, after all, a very active, functioning, large, pluralistic, diverse democracy and the essence of policy making in a democracy is that even if you think the government is doing the right thing, there is actually no percentage in saying so if you are not part of the government. 

And we have many parties in parliament.  I mean the government is continually facing criticism from everybody on virtually everything, but I think we take that as a normal cause of activity.  We have different parties in power in different states.  And virtually all the parties are doing the same things, and so generally you will find the party is doing something in one state and their representatives are criticizing the central government and parliament for doing the same thing nationally.  You got to filter out all these noise and just look underneath.  I think if you do that, you will see that there is a significant consensus behind the changes that have taken place in economic policy. 

There is a perception that these changes have produced results.  This is the key point.  There are too many countries that have liberalized in their reform, and they just keep going from one crisis to another, and the growth rate does not improve at all.  India is not in that position.  I mean from what used to be long-term growth rate of 3.5 to 4 percent, it went to a growth rate much closer to six percent in the 1980s and 1990s and is now somewhere between 6.5 to 7 and trying to shoot for 8.5.  So people looking back certainly do not say nothing has happened, but we are under continual sort of scrutiny about whether the reforms are producing an all-inclusive growth. 

Is everyone benefiting?  Is it lopsided?  Are the gains only going to some people?  And these are real issues.  I mean I think one of the most dramatic areas where India has done well is in the area of the IT sector, which gets far too much attention, although actually in terms of size of the economy is very small.  Its greatest contribution has been the demonstration to Indians, that faced with the right environment and positioning yourself in a way that you can exploit global trading opportunities, we can produce winners.  And all the 500,000 reasons why poor countries cannot do a good job disappear when people look at what happened in the IT industry, and then they ask themselves why not in textiles and why not in other things. 

And that is the most important change that has really taken place.  I think unlike China, India’s growth is not driven largely by export penetration.  Obviously as we liberalized, we wanted to become more integrated with the global economy and I mean that is happening in the sense that India’s share in world trade is increasing, but the increase is actually quite modest.  Much of the growth in India is essentially an internal demand-driven growth and I expect that to continue.  But the other side of that coin is people have to see those benefits reflected as inclusive of manner in the population at large.  And you know when I say inclusive, it is very difficult to tell what you mean by inclusive, and some people say, well, it means agriculture. 

Well, that is certainly important.  At other times, they say it means different states that are important.  But increasingly now, we are getting to a situation where states are doing well, but the backward districts in those states are not doing too well.  So suddenly the focus of debate shifts and some of the fastest growing states in India have districts in the state, maybe accounting for one-third of the area or one-fourth of the area, which is not experiencing this rapid growth. 

And I think that how we manage to make growth inclusive is the key to the whole thing, and what it requires is a continual revalidation and re-examination of policy.  What do we need to do to make this growth inclusive?  We have done some thinking on that, and in just two minutes, I want to mention what we want to do and then stop and ask for questions. 

Number one, India needs a much better infrastructure, by which I mean things like roads and ports and airports and telecom and electric power in order to do well in the economy as a whole and in order to be competitive with East Asia.  I think anyone who has been to India and compares our infrastructure with the infrastructure in East Asia will certainly recognize that this is a major problem.  And I think this is something the government is clearly committed to doing.  The highest level, from a political and policy point of view, this is the direction being given to us that we better design a set of policies that will make sure that there is a lot of investment in infrastructure. 

That does not mean it has to be public investment.  In fact, the strategy is that we should outline the entire spectrum of infrastructure areas, identify the ones where investment will only take place if public funds are used, and these would be typically infrastructure areas relevant to rural areas and the poor.  And those areas were actually, there is a revenue model that would enable private investment to come in, provided, A, There is the right kind of policies, and B, some amount of government support.  So we are designing policies that would make it possible to have a very big injection of private investment in infrastructure. 

The good news is that there are lots of signs of success.  I mean, if you look at ports, there are a lot of private investment in ports that has taken place, not enough to remove the gaps, but more than enough to satisfy people in India and abroad that is possible, and that India is open for business.  And we have a very ambitious program for further port expansion which we are in the process of outlining.  Similarly in the case of airports, traditionally a completely public sector activity, but in the last couple of years, there have been major changes in this policy.  We have already got one private sector airport fully functional, two of which are actually under construction in Bangalore and Hyderabad, and two which are in Mumbai and Delhi, which are in the process of being handed over to people who have won in a competitive bid, and these efforts will be developed now through the private sector. 

These are developments, all of which have foreign participation of different kinds.  So that is the new policy on airports.  Clearly, I mean, we have not yet got good airports but there is ample evidence that the policy is at work and the investment is coming in. 

Similarly in the case of roads, there is a combination of public money going into rural roads and private money being brought in as much as possible to construct toll roads in the country.  So in this way and in the case of electric power, again a combination of trying to improve the existing public sector system while at the same time, trying to bring in private investment. 

Now the extent of success in these areas varies.  And I think one of the things we have learned is that bringing in the private sector if you are talking about big bucks, I mean it is easy to bring in one or two projects.  But if you are really talking about bringing in large volumes of investment, and when I say large volumes of investment, our estimate is that in the next five years or so, we ought to be targeting something of the order of $200 billion of investment and infrastructure, including irrigation.  And maybe half of that or little less than half of that could come from public sector money, and more than half of it should come from the private sector.  That is a big order and certainly not easy to achieve. 

When I say private sector, I do not mean necessarily foreign, so private sector, some of which will be domestic, some of which will be foreign.  And these are the numbers that we are trying to quantify.  Put it in another way, India’s investment in infrastructure including this rural infrastructure - irrigation and rural roads - probably about six percent of GDP and the way we look at it, this should go up to about nine percent of GDP.  So there is another three percentage points of GDP that should go into Indian infrastructure.  So that is one area. 

I mentioned agriculture.  That requires a new set of policies that would encourage the commercialization and modernization of Indian agriculture while at the same time making it possible for small farmers to participate in the process.  That is the real challenge.  We are not in the business of going in for corporate farming but we are very much in the business of going in for contract farming.  So we are encouraging corporations to come in and contract out to individual farmers and serve as the intermediary between what the farmer produces and what is needed and can be sold in the markets. 

The third major area, which the government will be paying a lot of attention to, is really health and education.  I mean it is well known that India’s social indicators, if you look at the country as a whole and ignore the kind of top 20 percent type of situation, our social indicators lagged behind East Asia, and I think it is generally recognized that we have not spent as much money as we should have in things like primary and secondary education.  We have excellent universities, but I think our primary and secondary education system is not commensurately developed, and also issues of public health.  This is something that the government now is giving a lot of priority too, and what it really means is that government money is going to shift into these sectors and the private sectors supposed to do the regular manufacturing activity and industrial growth activity. 

Now, this is taking place in an environment where foreign direct investment is welcome and we are quite happy that over the years there has been a significant increase in the flow of foreign direct investment.  It is still much lower than, let’s say in China.  I mean our numbers vary but we make a distinction between foreign direct investment and investment in Indian equities through portfolio flows.  China does not do that much of the portfolio-type thing partly because we think that India’s corporate markets are more transparent and more aligned with international practice, which encourages people to come in and buy equity and stocks that are actually being traded.  And that has been a very big success.  In fact, some people worry about it. 

Last year I think we attracted about $10 billion through that mechanism.  If you look at foreign direct investment where people come in with an actual management stake, either partial or full, then that sort of is around five to six billion.  So taken together, the foreign institutional investment plus the foreign direct investment hit probably somewhere around $16 billion.  Now in our view, China attracts, I do not know, $70 billion or something of that order, so it seems to me that there is still a lot of scope for India to attract more foreign direct investment.  And maybe some of the money that comes in, in the form of investment in Indian equities over time will switch to being investment in a direct manufacturing.  And I think how that will change, we do not know but our expectation is that the declared policy of the government of India is to increase the volume of foreign investment in the country very substantially. 

Well, I think these are some of the things that have been happening.  End result is, I think quite good.  Growth is high.  The macroeconomic seems to be okay.  The fiscal deficit is coming down, not as fast as some of the more orthodox defenders of the faith would want, and I probably agree that it should come down fast, but anyway it is coming down.  Inflation is very comfortable below four percent.  Foreign reserves are very high, too high, which is not uncommon.  I mean, most of the Asian countries seem to be doing that. 

So on the whole I really do not see too many negatives.  The only problem area, which India is going to worry about like everybody else, is energy.  I mean clearly the global oil price prospects are a matter of concern; we are concerned about it too.  We are working as much as we can to reduce energy intensity and we are succeeding in that because the scope for greater efficiency in energy use in India is very large, and I think that is happening. 

We are also trying to diversify and it is in that context that what is much in the news in the Indo-US agenda today is obviously the civil nuclear energy agreement which would essentially enable India to expand energy supplies relying on nuclear power to a much greater extent if that agreement comes true.  So although there are many initiatives underway, a lot of policy changes, by and large, the economy seems to be doing well, and I am sure there are questions you have that will chip away at this very rosy picture, and I will be very happy to answer them should you want to do that at this point.  Thank you.

Ashley Wills:  Ashley Wills, I used to be in the Foreign Service and was happy to serve your lovely land and good to see you again, Dr. Ahluwalia.  We deal with American companies that want to invest in India among other things, and one subject that is often mentioned is labor market inflexibility.  And I saw where the Prime Minister made a statement to a business group in India just yesterday, I think, indicating there might be some consideration of changes in that area, and I wonder if you could comment.

Montek Singh Ahluwalia:  Well, I think this is one of the things that had been on our agenda for some time.  I mean it is generally felt that India has greater inflexibility in labor laws certainly than China and some of the other East Asian countries, probably not greater than in Europe, and this has been a matter of some concern.  Our own view is that we need more flexible labor laws.  You can imagine that politically, it is very difficult to handle this.  So our official position is the following:  We are not in favor of hire-and-fire.  But actually, nobody is in favor of hire-and-fire.  What we are in favor of is introducing more flexibility, but we will only do it in the context of heightened discussion with labor unions in order to create a consensus. 

Now a lot of these discussions actually are taking place.  It is not the case that something will happen in the next month or so.  I do not want to give the impression that something is about to happen.  I believe there is recognition amongst labor unions that the labor laws really do need to be more flexible, but there is no way politically.  They don’t gain anything back when you’re saying that. 

I think their real concern is that it is two things.  I mean one is the labor laws are inflexible, but the other is very little social insurance.  So they want a package that would be both more flexible for employers but will then contain something for labor.  So you need to work towards that.  I think there are two other points I want to make.  One is that attitudes of labor towards changes in labor laws will be much more positive if the growth process is seen to have gained momentum and to be creating employment. 

One of the problems that we have had is that, while we have had good growth, it has been in a period where people are still restructuring and shedding labor, which is actually a necessary part of the process.  I mean it is not something that is going to continue indefinitely, but sooner or later when they have shed enough labor and sort of become sufficiently lean, they will not have to also be mean.  And then you will see employment growing.  That actually has not happened in the last few years.  My feeling is that if we can do something on infrastructure and bring the economy to eight percent plus, you will see growth of employment and that will alter the views of labor leaders. 

Second, there is more flexibility than is perceived in the law for the simple reason that the introduction of competition in the product market automatically changes the attitude of labor in a negotiating forum.  I mean 20 years ago, if you were a labor leader, it made sense to make outrageous demands even if the company sort of went broke because then the government will just nationalize it in order to protect employment and you would become a civil servant, which is the best thing in the world because then you keep getting your salary and do not have to work at all. 

That is not what is happening today.  I mean people realize today that if you carry labor militancy beyond the point, it simply helps some other company.  Maybe not next door, maybe in another state in the country.  So I think we are underestimating the extent to which the economic reforms are making labor much more flexible than the law might technically allow.  So actual labor mobility and flexibility is greater, especially if you are in the higher skilled areas.  Where we lose out is in the ability to expand low-skilled manufacturing, but China has done so successfully. 

So I mean that is a problem, and we keep trying to explain to our labor leaders that while many people are now coming to India and wanting to do contract research, wanting to do clinical trials - all of which is great and we like that - but nobody is coming to India saying, “Why do we not produce 10 million garments?”  Because that requires handling large amounts of labor subject to flexible seasonal variations in demand and so on.  And I think we are trying to make that point. 

I am giving you half an answer because that is really a constraint, but it is not the case that nothing is happening.

Will Martin:  Will Martin from World Bank.  India’s export numbers are really very different from East Asian countries.  Many of which, labor-intensive countries have moved into the global production sharing model, importing lots of imports, adding labor, that sort of thing.  And I am just wondering why there is, apart from the labor issue addressed, that India has not gone that way and what sort of reforms are underway that might encourage more of a shifted network?

Montek Singh Ahluwalia:  Yes.  Well, one reason clearly is the lack of flexibility on the labor front.  I mean for example, if you going are to be in an export market that is seasonal and you are going to have to be able to employ a lot more people for four months of the year and then lay them off, it is very difficult to do that in India and we are making that point. 

I think the other reason, really, is to get into global markets where you are essentially assembling a lot of components from everywhere and then processing them and selling them out, and maybe you are producing some, but that is going off somewhere else, the whole logistics is really a very important part of the solution, and I think we have been poor in that respect.  I mentioned infrastructure, and overlaid on infrastructure is the soft institutional requirements of quick movement and “quick processing,” all of which is the new buzzword is logistics, right?  So we are very into logistics now.  Our feeling is that if we can crack back particular bottleneck, we will have greatly improved the competitive position of Indian industry in getting towards the simpler processing oriented towards manufacturing. 

We begin with a big and important advantage in this respect and for which we should be grateful to the East Asian countries including China, and that by penetrating world markets, they have successfully relocated production away from these countries anyway.  So actually, getting a share of this market is not something that would lead to any protectionist upsurge in the final market.  They are not being produced that in any case.  Such straight competitive gain with very little political danger, and I think it is up to us to really get it done.  We are operating on the infrastructure plus the logistics side. 

I mean since you raise the question, one of the very interesting things that are happening now, in ports for example, is customs clearance are being hugely modernized using IT so that you can get advanced information, payments, clearances, risk-based methods of determining what you check and what you do not check, all of which is designed to knock several days off, what otherwise used to be a much longer time period for getting stuff in.  I mean I think a lot of microstudies done have shown that India, in terms of the actual production skills, is quite competitive but loses badly in terms of the number of days it takes to assemble the stuff and then take it out.  And that is clearly what we need and that is really the infrastructure side of it.

Hasmukh Shah:  Dr. Ahluwalia, my name is Hasmukh Shah from Business Times.  This morning, you explained very well about India’s energy needs and how you expect to resolve them.  Now I have two questions on the other fronts.  One is, you mentioned about the agriculture initiative between President Bush and Prime Minister, Dr. Manmohan Singh.  Now many US businesses are interested in food processing areas.  Can you also enlighten on that subject? 

And the second question is on the economy on which you are an expert.  What is the possibility of the rupee capital account convertibility?

Montek Singh Ahluwalia:  Well, on food processing, this is a shared perception.  I mean we regard it as very important.  One of the major initiatives necessary was to create a legal basis which would simplify the laws in this area.  Because we had encrustation of legislation enacted at different times, which covered food processing in a very patchy sort of way.  It was a longstanding demand of Indian and foreign business that you should integrate all this into an integrated food safety law.  That has been done and the bill is currently in parliament.  Hopefully, it will be passed in the next couple of months or so.  So suddenly in the second half of this year, we will have overcome one of the major things that was holding back people in the area of getting into food processing.  Otherwise, there is no policy impediment that we see. 

I mean foreign investment is welcome.  They are involved in some of it.  Some of the major food processing companies are actively involved in India.  I think more could be involved.  Many of the Indian larger companies are now getting into the act also.  So we see that as a very important part of improving the value addition and the agriculture business and therefore in rural areas and that certainly are going to happen. 

What was the second question?  Ah, convertibility.  Well, you know, that is an old standing issue.  I mean like everybody else, we expect to see a steady movement towards capital account convertibility.  I must mention we tend to feel that the financial sector representative sort of regard this as some kind of a symbol.  That if you could say you are doing capital account convertibility, they say, “It does not matter whether you are improving your infrastructure, it does not matter whether they are doing anything.” 

I do not think it is that crucial, by the way.  I think it is important and we need to continue, but if you ask me, the other things that I’m mentioning are far more important.  However, the prime minister very recently said that we ought to move towards defining a road map, which clearly indicates that the move towards capital account convertibility must continue and we have already taken a number of initiatives.  And we are much more convertible now than we were, let us say, two years ago or 10 years ago.  A group has been set up that will lay out this new road map. 

You know, in 1997, actually just before the East Asian crisis, we had set up a group meant to make recommendations on capital account convertibility and those guys said that, “I don’t want [sounds like] inflation.  It must be less than five percent and the fiscal deficit should be something… and also that the financial sector should be strong.”  Now the inflation target has been met.  It is less than four percent.  As far as the fiscal deficit is concerned, it is improving, but it did not where they had said it should be.  And as far as the financial sector is concerned, it also improved and I do not think it is as strong as they would have wanted it. 

So this is an opportunity to redefine that road map, and I would expect to see continuing movement in that direction, but I expect it to see as a gradual movement, not a sort of you wake up one morning and the headline say, “Lo and behold, capital account convertibility is here,” so do not hold your breath but do not rule it out.

Danielle Pletka:  Can I press you on that question?

Montek Singh Ahluwalia:  Yes, of course.

Danielle Pletka:  In 1997, they set this up.  They made the recommendations that they are probably going to make with the same commission now with the largely similar make up, and the recommendations were under the proper circumstances to go ahead and do this.  What it seems to me is that the Indian government has fallen back on the time on it, Washington, and apparently international tradition of setting up yet another commission in order not to do, what it otherwise wants to do.  Why not?

Montek Singh Ahluwalia:  Okay.  Number one is that compared to the situation that prevailed in 1997, when there was, if there is such a thing as the Washington Consensus, because the Washington Consensus bodies have become very sensitive to the word, and I see there are representatives from the World Bank here.  But if there was such a thing as the Washington Consensus, it was very gung-ho about capital account convertibility.  Those same institutions are much less gung-ho about it today.  I mean the conventional buzz is, it’s important to put in place the institutional requirements that would enable you to benefit from capital account convertibility, and the focus should, therefore, be on those institutional requirements, not on capital account convertibility.  So the scene in 1997 was six months before the East Asian crisis and the International Consensus changed around dramatically, maybe too dramatically in the aftermath of the East Asian crisis. 

So it is true that we were cautious, but to be honest with you, in being cautious, we received a sudden amount of applause, and many people thought it was sensible that we were cautious.  Now what we are saying is, we want to get out of the impression that this is a good thing and we should not have capital account.  We are putting it back on the agenda.  And I think the focus will be that, that commission focused too much on endpoints.  It did not focus on a road map.  There is no good saying fiscal deficit should be X because if it’s not going to be X for eight years, does that mean you do nothing? 

The implication now is, suppose we can bring the fiscal deficit down over a four-year period or whatever it is, how do you think we should move in stages?  So the terms of reference, if you like, of this committee is significantly different.  And I think when you have a road map, if you say precondition, it is very easy to get up and say, “Well, they are not mad, so nothing.”  If you have a road map, then you have to say, “Well, how come you are not able to do the little thing?”  So I think it will be a significantly different stage. 

I think it is also true, by the way, that there are many more little things that need to be done which can be done.  I mean for example, which we were not even aware of, and in 1997, the focus on access to hedging instruments and the role of derivatives was not understood at all.  And many people say that if East Asia had had more derivative operations, they would not have had as big a crisis that they have now.  So opening up the scope for operation in hedging is something you can do bit-by-bit because there are a huge number of options and you can slowly start increasing it. 

World Bank:  Sir, thanks for the great presentation.  Two quick questions:  As an outsider reading into the civil nuclear deal, I do not see anything preventing private sector investment in the nuclear sector, even FDI in the nuclear sector in the future.  Is that something which is worth looking at?  The second question is on, given the growth rates that you were talking about, do you see India graduating out of the IDA and the World Bank?  And if yes, what role does some institution like the World Bank have in India going forward?

Montek Singh Ahluwalia:  Well, on the civil nuclear deal, you know at the moment, Indian policies calibrated to the pre-nuclear deal scenario, where defense and civilian nuclear reactors were all kind of together.  So at the moment, we do not allow any private sector activity in atomic energy.  This is simply a reflection of history.  If the nuclear deal goes through as we hope it will, and we have, of course, as part of our requirements under the agreement, put forward a separation plan under which, I forget, 65 percent of the reactors are under safe guards and the rest are military.  So there will be a clear separation on what a military reactor is and what a civilian reactor is.  The moment you have a reactor that is civilian, is fully safeguarded, and there is no logical reason at all why it should be public sector. 

Now I should clarify.  At the moment, the policy does not allow it.  What you are really asking me is if the nuclear deal goes through, would we change policy?  The private sector has already represented to us, our own private sector.  They are very keen to simply get into the business of providing nuclear energy as a commercial activity, because private sector investment and energy is allowed on 100 percent basis, including foreign investment.  Many of the private sector guys who want to go into this will obviously do it within partnership, and that partnership could be whatever they want.  I mean could be in the sense if government allows it. 

My own feeling is that if the nuclear deal goes through, I personally feel that there is a very strong case for reviewing this present arrangement, simply because the arrangement was designed for a time when there was no distinction and obviously if you have no distinction.  And if every reactor is potentially a military reactor, then you can have it in the private sector.  So it will be a new scenario and the issue you raised is very relevant and people have in fact brought it to our notice and I think we would take up that issue after the thing is over. 

You had a second question?  IDA?  Well, yes.  I have not thought about that.  Actually I am here because the World Bank has appointed something called a “Growth Commission,” of which I am a member, so no doubt I am going to wait until then and it will no doubt try to do is to find out what exactly is the role of the World Bank.  I would be better able to answer this question after I benefited from this deliberation, but honestly I have not thought about it at all.

Question:  I have two questions, one on the capital account convertibility, which you have answered sufficiently.  The second one is on investment.  You were saying for investment and infrastructure of 50/50 of private and public.  I was wondering when it is a private investment, what safeguards or what regulations would be in place to make sure that there would not be any mistakes like what happened with Enron?

Montek Singh Ahluwalia:  By the way, the mistakes, I mean when you say what happened with Enron, you mean the Enron project?  Or what went on with Enron here?  Do not hold us responsible for what happened with Enron. 

Female Voice:  What happened in India.

Montek Singh Ahluwalia:  Well, let me say, what happened in India and Maharashtra is a contractual breech between the Maharashtra State Government and a project setting up electricity.  In my view, those kinds of things have to be handled within the framework or whatever the contractual agreement is. 

Unfortunately, when these things happen, the central government, I mean the Enron problem in Maharashtra did not involve the central government in any worthwhile way.  We were not a signatory in anything other than a very marginal counter-guaranteeing of some part of the obligation.  But more seriously, in my view, the Enron type, Enron is a much bigger animal, the problem is best resolved by telling investors quite clearly that these are the risks you are taking and these are the risks you are not taking. 

And I think payment risk is a risk which, in my view, the foreign investor should take.  It is for the foreign investor to decide whether he is selling to a customer that is credible.  If the customer does not pay, you should build in to the contract whatever counter-obligations you want and you can get.  And then, I think, we should act on them and that is about it.  There is nothing else you can do outside the framework of a contractual agreement. 

Now the central core of this is will foreign investors find State Electricity Boards sufficiently credible to invest in?  And I think that is a very real issue.  We are trying very hard to put in place a set of economic reforms that would improve the efficiency and therefore the financial standing of the State Electricity Boards.  One of the big - and there is less progress in that than I would have liked - but there is progress and hopefully over time, that progress will increase further. 

One very big change, which has occurred compared to the Enron problem.  Under the Electricity Act of 2003, which was obviously enacted in 2003, we are required — the State Electricity Regulatory Commissions — I should mention by the way that when that happened, there was no Electricity Act, there was no State Electricity Regulatory Commission.  It went into the thing before what I would call the minimal regulatory structure had been put in place.  That is not the case now.  There is regulatory structure. 

One of the key things about the regulatory structure is that generators are able to access credible high-tension bias directly bypassing the Electricity Board by paying a small, what is called a wheeling charge, to the distribution company.  So if you have an arrangement with the distribution company, which is broke, and the distribution company decides not to pay you, he could always sell you electricity to some successful industry which you think is quite credible, and you would only pay the Electricity Board a very small charge for the use of the wires, and that is a statutory requirement.  They have to allow you that access. 

So if you wanted to invest yourself, and let’s say, advise someone to invest in electricity, my advice would be first, find yourself an Electricity Board which is showing improved performance.  Second, make sure that you are selling power at a price that is attractive.  One of the big problems with this was that the price was not at all attractive.  Admittedly, the foul play with the Maharashtra government because they accepted gas price as a pass-through and the entire exchange rate depreciation as a pass-through, as a result of which, the price of power shot up.  Now we have learned something from that.  Nobody would sign a power purchase agreement of that kind today.  But if you are selling power at a decent price, you will today have the option that if somebody does not pay you for the power, you just switch the power to consumers who want power. 

Now the economy grows at eight percent, and more and more industries are coming up that need power.  It would be possible to do deals with individual consumers who pick up a lot of the power.  So that is another assurance if you like, which would avoid the whole type of problem coming up.  I do not know if that is good enough but it is a big change from the earlier position.

Martin Apple:  I represent the council of scientists but my question is in a different realm.  If there were 25,000 companies across the world who were networked and they were to be visiting India and China, one-third as investors, one-third as buyers, and one-third as sellers, and they came back to make a report, which would have strategic advantages, and what would they be and if they came five years from now, having done the same thing, what would be the difference?

Montek Singh Ahluwalia:  That is a very nice question actually.  No, I would guess that if they went today, they would say that China is clearly from a production and demand and other points of view, a very well-functioning economy.  I do not want to elaborate on what might be the risks in China because I’m not currently thinking of investing in China.  But these guys would know, but on India, my guess would be that they would say, they would have a very genuine private sector.  When I say a very genuine private sector, it is a private sector, which is quite distinct from the government and associated with that is a structure of laws appropriate for that kind of environment. 

I think they would say that therefore the regulatory framework for financial investment and regulations in the stock market etc, are much closer world standard than in most developing countries.  They would say that this is a country, that is the second largest developing country after China, seems to be growing a lot better than it was earlier, got a lot of problems on infrastructures, so they better set up a subcommittee to make up their mind whether the Indian government really is going to do what is it says it is going to do. 

And quite frankly, if they came to the conclusion that it is, they would be right in concluding they we are not going to grow at above eight percent, but I would hope they would not come to that conclusion.  So very critical in the Indian context would be, “Do you believe that the Indian government is going fix the infrastructure problem?”  What will it be five years from now, quite frankly, if we fix the infrastructure problem, I would hope that they would say that India has massively underinvested in compared to China.  That is not to say that you should not be investing in China, but I think if they looked at their relative investments, China to India, they would have to say that India is underweighted and maybe they would correct it over time.

Danielle Pletka:  Can I ask you a follow-up question on that?

Montek Singh Ahluwalia:  Sure.

Danielle Pletka:  One of the biggest problems that India has, frankly, in comparison to China, in addition to all of the fact is that you are aligned as a democracy… China is…

Montek Singh Ahluwalia:  That is a problem?

Danielle Pletka:  Yes.  This is what you hear from business people.  No, I don’t know.  I do not think we are standing on the backgrounds here.  The question is, in China, far more than in India, you are able to do the kind of dictatorship one-stop shopping that is extraordinarily convenient from the standpoint of people doing the business.  It is not quite as one stop as it used to be 20 years ago.  On the other hand, none of the barriers of democracy or dealing with the states of representative government and if there are very inconvenient elections that often happen, bringing people who do not even know to govern come along. 

Now talk a little bit about this from the standpoint of a long-term view. 

Montek Singh Ahluwalia:  No, it is a good question. But to be honest, I do not think, I mean I suddenly do not think any investors should think that, “Don’t worry, you’re going to have less democracy in India.”  I’m afraid we actually liked it and it is going to be there.  I think the difference is that it is a better story than it is often made out. 

In my view, the fact that we keep having elections is actually an entertaining and socially useful thing.  The important thing is how many policies have developed?  How many investors, having invested in the state and found that the government has changed, suddenly rue the fact they invested?  My guess is zero.  Now it takes a lot of time for people to work that out.  But I think by now, I would say if you listed in the American’s all foreign businessmen who’ve invested in India, I’m sure they have a lot of problems and the problems are the bureaucracy is still slow, and the infrastructure is not good enough.  I doubt if the problem ever is.  You know it is a crazy country because you go there and you invest, and then the government changes and then it is a mess.  I do not think they say that. 

And I hope that if I’m right, I hope that message gets across.  Governments are going to change, but I think we have established an adequate track record that governments can change but business does not have to worry about it.  I mean really if you are going to be a democracy, that is what you have to get across, and I think that is coming across. 

On the issue of one-stop shop, I think that there is a lot of progress in the sense that today the central government is not a source of delay.  What I think is correct is that the second level of interacting that governments relate to state governance.  That, quite frankly, and here I get into a difficult area because as the deputy chairman of the planning commission, I’m supposed to regard all the states as potentially, equally attractive.  So I’m not going to mention states by name, but there is no great secret that states vary. 

Now in my own experience, there are at least 10 states out of 29 in India and many of them are very small, 10 states where state governments today are far more pro-investment and investor-oriented than they were five years ago.  So I expect that in the next five years or so, that awareness on the part of all states that they are very, they have to attract private investment and private is both domestic and foreign.  That is going to very strongly evident.  I mean take for example the government of West Bengal, which is run by the Communist Party, a Marxist, which is one of the parties which supports the government in the center. 

In the national debate, you very often get newspaper reports.  They tend to exaggerate the extent of actual disagreement.  Newspaper reports saying they are not happy with this and then they are not happy with that.  But if you were to judge what the government of West Bengal does, and what achievement as to West Bengal says, you would come up with a very clear picture that this guy wants to attract foreign investment and private investment, and he loves American investment, et cetera.  So frankly, I mean you will have to look beneath the noise that is associated with the democracy in order to, so to speak, discern the music and I think hopefully people do that. 

And at the same time, I recognize this is our job, as much as anyone else, to get that message across.  But you know frankly, I think the message is going to go across when people know enough investors who have had a good experience.  And if you look at the data, I mean in terms of actual profitability, American companies investing in India probably have found the entry cost a little irritating and delays a bit of a nuisance, but once they have overcome that transactions cost of entry, I think they found business profitable.  They found the environment hospitable, and most of them are now expanding their investments.  They are not sort of saying, “You know we have made a mistake.”  I think that message has to be generalized and, but I hope the American Enterprise Institute will help to generalize it.  Let me invite you to do that.

New Info Solutions Consulting:  I have two questions, very brief.  The first one is on the approvals process for foreign direct investment at the center and the state.  To what extent have they changed in the recent times and how much?  And the other one, I remember reading some 20 years ago your book, Redistribution with Growth, with Hollis Chenery, and congrats on your Growth Commission membership.  That was, of course, a study on East Asian agrarian economies and had some policy prescriptions for agrarian economies in general.  My question is in terms of the evaluation role of the planning commission, can you comment on the trend that India took over a long period of time?  How growth was affected because of those trends?

Montek Singh Ahluwalia:  That is a very, I mean will that not take too long to answer?  I mean, look, the bottom line I think is that we changed policy around 1980.  I think in the earlier years, we followed a far more control-oriented system.  And actually we did not do very well during that period.  I’m not saying maybe other countries were more naturally given to accepting an authoritarian system may have done better, but India did not do well during that period.  But I think since 1980, policies have been changing. 

That is true, my friends would say they have been changing too slowly.  Personally, I think they should have changed faster.  But there is no doubt that after 1980, we have been essentially following policies that correspond to the general consensus on what makes for good economic policy in a developing country, and I think we are continuing that, hopefully at an accelerated phase.  And you know the big difference between India and many other developing countries, and if you measure what India does by its policies, the change looks niggardly, hesitant, unduly, uncertain.  But actually, if we look in terms of measured results, it is a lot better.  I mean I spent years being told, “What can you do?” “What these guys doing or those guys doing?”  With the exception of China, we have done better than all these other guys one way or the other. 

So, there are must be something that we are doing right.  That is not to say that we should not have done it faster and I personally think that we could have done it faster.  But a basic approach of, a gradualist approach, which builds a consensus as you go along, is an unavoidable consequence of running a participative political process, basically.

David Good:  I represent the Indian conglomerate, the Tata Group, here in Washington.  Two of the objectives that you mentioned for yourself included a greater, what you call, penetration of the export market, as well as a greater FDI inside India.  The recommendation of the US-India CEO forum were intended to facilitate part of that, and I wonder if you could just tell us what the status of the recommendations are, and who is responsible for implementing them.

Montek Singh Ahluwalia:  Well, the prime minister when he met with the CEOs, complemented them on producing a first rate report, and I think that is actually, in my view, that is correct.  It puts on the agenda, a number of things, some of which were, if you like, already on the agenda but they put it in a manner which brings a very strong private sector focus, has the advantage of also being a unanimous report, so this is not just an American agenda — this is what 10 Americans chosen by the president and 10 Indians chosen by the Prime Minister are recommending today to governments.  And therefore, it is a very unique document.  We have never had anything like that before. 

The PM has asked me to orchestrate a serious examination of each of the recommendations in that report.  We have set up little groups of civil servants coming from the relevant ministries looking at each of these recommendations that they were supposed to come back to me by the end of May, telling me what their initial assessment is.  I’m actually quite hopeful that on many of these items, they are not items that are outside our own span of consideration.  Premature for me to say how much can be done over what deadline, but I’m quite hopeful that we should be able to make progress in most of those areas in a relatively short period.  But they are being formally examined, and I’m supposed to get back to the prime minister with an assessment that this is what the ministries think and to give him my recommendations on whether the ministries are basically right or they are a bit too cautious or whatever, and based on that, we will get a government decision.  So it is very much on the agenda being looked at.

Jane Montgomery:  My question concerns data collection and some kind of subsidiary to that.  If you could be more specific about what particular reforms seem to be most important in this change in India’s economic situation, and more generally, how well you can collect data from across a very large country with very large number of employers, employees, citizens, whatever.  How well have the effect of your reforms been and how do you know it?

Montek Singh Ahluwalia:  Well, that is a very good question, actually.  In India, we are uniquely blessed compared to many developing countries with a very extensive available public database.  Unfortunately, we are even more blessed with a large number of economists who have access to this database.  So no sooner you reach a conclusion based on any one database that X is true.  It is immediately economically and professionally rational for somebody to get up and say, “Have you seen these other databases which contradict what you said,” etc.  So actually, you would think that having a lot of data is a source of strength. 

In India, it is actually a source of debate.  There are people asserting poverty has gone up, poverty has gone down, poverty has collapsed, disappeared, and depending on what database you choose, you can come to whatever conclusion you want, and that is a bit flippant.  I think the point you make is very relevant, and we are in fact moving institutionally to strengthen both the independence of the data collection system and also its scale.  Up to now, the Central Statistical Office has been a department of the government reporting to a minister.  And I think that there is a feeling that we need to make this a non-departmental activity. 

So what we have done is we have set up something called the National Statistical Commission, and we are creating a new job called the Chief Statistician of India who will have the rank of a Secretary, but will not actually be reporting to a minister.  He will be reporting to a statutory Statistical Commission.  We are recruiting for this position internationally based on an advertisement for professionals.  We are not promoting people internally.  That advertisement should appear in The Economist.  So if there are people interested in applying for that job while working abroad, then I would happily encourage them to do so. 

We are in the process of setting up this Statistical Commission, and I think that by the end of this year, this new system will be very much in place.  That is only a matter of structure in creating a sense of independence.  The hard work of actually processing the data and improving it is just a continuous process.  I think, India’s data probably… they are not worst than other developing countries.  But I think they would need to be hugely improved.  Questions now get asked which require sort of online assessment.  There are many things like, for example, the latest information that we have on, say, the status of nutrition is from the National Family Survey in 1998-1999. 

So we know what happened to nutrition between 1993 and 1998-1999, and the next thing will be available next year which is, say, 2005.  So for five or six years, all discussion on whether economic growth is improving the nutritional status of the children is based on these two observations.  I mean most people think that that is not really sensible and realistic.  So we are now looking at aspects of data, which are new and then aspects we do not need. 

I mean for example, in the old days when the Planning Commission was making all kinds of details and input-output analysis and whatever, you needed to know how much zinc was going into batteries and how much something else there, all that is irrelevant, unnecessary, and of no operational use in government whatsoever.  On the other hand, it is very important to know what is happening to education, what is happening to the maternal mortality rate, what is happening to the infant mortality rate, and actually we got a data system which historically has focused on certain kinds of data and not focused enough on other kinds of data, and we need that complete.

But having said all that, I think there is a big role in introducing integrity and credibility in the data collection process. So even with the existing systems, the establishment of an independent Statistical Commission will, I think, contribute hugely to improving the quality of public debate.  But it is absolutely true that people are just not interested in many of the kinds of… after all, if somebody wants to invest in a sector, he would usually does not rely on government data anyway.  And they have enough industry-type of information.  In the public debate, what people want much more information on is what is happening to the standard of living of ordinary people.  And while we have information on that, none might be good enough.  So we have to concentrate a lot more on those things. 

I mean a lot of economic reforms today are driven by a perception of how the economy works, perception of what other countries are doing, and a perception of what has happened in the past.  A lot of that data we have, I mean, we know how the economy responded, we know that when you liberalized, this is what broadly happened in sectors.  What we do not know is did it actually improve nutrition levels of children?  And in fact today, the big concern in India, nobody denies that India is growing at 7.6 percent, but what they are saying is who cares?  I mean, what is happening to infant mortality?  That is what they are really interested in.  So the focus of debate has changed quite a bit.

Jeanette Tom:  Thank you very much, Jeanette Tom with the Telecommunications Industry Association.  We are very pleased about India’s development and liberalization of the market in Telecom and ICT, and also regulatory independence.  But one area we would like to hear comments on, we have submitted our thoughts on spectrum, licensing, and allocation policy, and I wonder if you could also comment on that.  And second, in using the example of ICT, how do you see the Planning Commission’s role in bridging the diversity and development from rural areas and the metropolitan areas?

Montek Singh Ahluwalia:  Well, on the spectrum issue, there are issues currently before the government in terms of spectrum allocation.  One of them, of course, is the issue of vacating spectrum currently occupied by the defense people.  I mean, there is no doubt that, historically, when defense guys got allocated a huge amount of spectrum, nobody knew that this is really a valuable resource. 

So if you ask me, we probably allocated it without much regard to efficiency.  But switching, getting them to vacate it is not a costless activity, and that is something that we are working toward but sooner or later, we are bound to get there.  There are separate issues in terms of allocation of spectrum, whatever is available, amongst different telecom suppliers and there are, quite frankly, I received almost every other day cogently argued points of view in favor of side A and side B, and since I’m a member of the group of ministers that has been set up on this issue, I should not pronounce on it until it comes to us formally. 

But the broad answer is we are very aware that it is a very crucial issue and there is no dispute that we need to increase spectrum availability, and the only way we can really do that is getting defense to migrate out and that will happen.  The other question is, “How do we allocate across?”  That is something that is, I mean, whenever I receive a representation from someone, it sounds very reasonable until I receive representation from the other and that also is something.  So you have to wait for, I mean, I need to be better briefed on both sides.  But, that is something I expect would be resolved in the course of this year.  You know, the group has been set up.  We have not actually met yet.

Montek Singh Ahluwalia:  But you, on ICT, I meant to, that is a very major, the recognition that that can make huge differences to efficiency is something that we are just grappling with.  I mean we kind of rode the international wave in terms of the need to supply services because other people were using ICT and we did quite well.  But we did not actually do well in incorporating ICT as a productivity enhancer in our own economy.  Anyway, that is not the fault of the ICT suppliers because if other people are willing to pay for their services, they do not need to find a market in India. 

But I think today what is happening is that both in the government, in whatever the B to C, we can never get all those right, but both from the government point of view and the commercial point of view, there are very strong success stories coming out at how much productivity gains are possible.  So I expect to see a multiplicity of actions aimed at increasing the input of ICT into the economy. 

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