By Ashok B. Sharma

NEW DELHI, Feb 17

In 1991, we faced the worst economic crisis that resulted in the initiation of liberalisation process. This called for a close and comparative examination of the economic situation prevalent both in the pre and post-liberalisation periods, said the former Dean of ICFAI, Hyderabad, and currently Director of Indian Institute of Finance, Prof, Jai Dev Agarwal.

Prof Agarwal, in an exclusive interview to Financial Express said in 1947 we were a country with 34.5 crore population, a positive balance of payment position as well as trade, bestowed with all possible factor endowments, a high level of motivation and as agrarian-based economy. Our only problem then was to build up appropriate industrial and social infrastructure, opined Prof Agarwal.

He said that late Pt. Nehru with his vision began extremely well and we faltered somewhere which led to a depression in 1991. We adopted a "mixed economy", but followed the pattern prevalent globally during sixties and seventies i.e., giving more importance to the public sector, he said.

Pof. Agarwal said, in 1991, our balance of payment position was pitiable, inflation rate high and foreign currency assets low. On the other hand, Japan and West Germany, which were almost totally destroyed in the World War II and did not have much natural resources, technology of manpower, emerged as supper economic powers in by 1991. Similarly, Singapore, Hong Kong, Taiwan, South Korea, Thailand and Malaysia which were at a primitive stage in Sixties, gathered sufficient economic strength 1991.

Analysing the economic scenario over the past years, Prof Agarwal narrated that the depression in 1991 was due to our ignoring the concept of market economy.

We treated 'profits' as a dirty word and pursued social welfare through a long route. As a result, employment potential did not grow and the illusory monopolistic tendencies curbed the growth of the economy, resulting in scarcities. Competition, globalisation and upgradation of technology took the backseat.

Commenting further on the preliberalisation scenario, Prof Agarwal said we did not have enough loans or grants. We neither desired direct foreign investment nor allowed generation of internal resources. Why did we allow the private individuals to reap profits at the expense of HMT, when its watches were initially priced R's 95 and sold in the market at Rs. 130, he quipped.

Complimenting the Finance Minister in rightly identifying the necessity of a market economy, Prof Agarwal said the fiscal, financial and economic reforms initiated by the Government emerged out of both compulsions and convictions. He said that the Finance Minister resolved to reduce the fiscal deficit to a tolerable level, contain inflation rate, increase foreign currency assets , devalue the currency, give a boost to exports and contain revenue and budgetary deficits.

Prof Agarwal said the Government's experiment in reducing customs and excise duty proved that it was costlier, but a necessary exercise as our existing rates of customs and excise are too high to enable us to compete globally. He suggested that the Government should exercise strict control over expenditure and raise revenues through alternate resources.

Level-Playing field: Prof Agarwal criticized the demand for level playing field from a section of the industry as protectionist and a desire to have more concessions in excise. He asked, "what had the domestic industry done to upgrade itself to compete with the MNCs?"."Why did not the Premier Automobile or the Hindustan Motors take the market advantage when Maruti prices rose on account of high import content consequent on rupee devaluation, instead of raising their prices matching with Maruti ", he asked. Similarly, when excise was reduced not even one per cent thereof was passed on the consumers. Therefore, the demand for level playing field was misplaced, he said.

Finance & Banking: He said that the Government had already implemented certain suggestions of the Narsimhan panel such as opening up of the banking sector to private investment, capital adequacy norms and reduction in SLR.

Prof. Agarwal sought a further cut in SLR as in a capital-starving country, large amount of funds should be made available for productive purposes at cheaper rates to facilitate expansion of industrial activity.

He called upon the Government to take necessary steps to increase bank efficiency and disinvest the shares of some of the bank to bring about privatisation in banking sector. Computerisation should be resorted to and Bank should be asked to operate efficiently to earn and maximise profits, so that such fund generated through profits could be used for expansion and also argumenting the welfare facilities to the banking staff.

Regarding insurance, the Government should consider the Malhotra panel report seriously, he said.

Forex reserves: Prof Agarwal said that the $ 11 billion foreign exchange reserves accumulated, though not so much through our export earnings, had helped us to be out of the clutches of those who could have twisted our arms.

As foreign currency assets have a cost, they should be used productively to give us surpluses over costs. The Government and the RBI should draw a prospective plan in this context or else, the results would be counter-productive and put

us in difficulty in 1995 when the first repayments would be due, he said.

In 1993, exports had shown an impressive growth, but were still short of expectations. The under-invoicing of exports and the floating of the rupee on trade account discouraged exporters from fulfilling the target. The exporters resorted to under invoicing because they needed foreign exchange on current account as well.

Prof Agarwal, in this context called upon the Government to go for partial or full convertibility of rupee on current account. Devaluation of the rupee had also boosted exproted, he said.

FIIs, FDIs : Prof Agarwal said that the Finance Minister announced the entry of FIIS immediately after the securities scam which was untimely. the FII investments had picked up lately. A sum of about $ 2 billion is estimated to have come so far in 1993-94, increasing volatility in the stock markets, he said.

In sixties FDIs flew from the West over India to S.E. Asia, resulting in a faster economic growth in the region. Since the constraints of the sixties no longer existed, FDI should be welcomed in areas other than the consumer goods sector, he said.

Re-convertibility: Prof Agarwal was of the opinion that the Government should not go in for full convertibility of rupee on capital account although conditions existed for such convertibility.

Inflation: He predicted that the inflation rate based on movements in the wholesale prices on a point-to-point basis would hover between eight and 10 per cent for the year as inflation was not likely to go up in february and March as the salaried class is hard- hit by higher tax deduction, resulting in lower carry-home salary and for business and industry; these were the month of adjustments rather than incurring expenditure;

Taxes: Prof Agarwal wanted the Government to raise the minimum exemption limit on personal income tax by Rs. 2,000, reduce corporate tax marginally to 47 or 45 per cent and further reduce customs and excise duties.

He used the Government to reduce customs duties on raw materials, intermediate and capital goods rather than on consumer and other finished products. This measure, he said, would help in generating employment and satisfy the demand of a section of the industry for a level playing field.

He called upon the Government to widen tax base and include the telephones in the list.