The word control had become anathema for us in 1991: Sudha Pillai | Specials News

What was the situation before the reforms of 1991?

Applications for foreign direct investment (FDI) and the government’s technology policy were approved by the finance secretary after due process within 40 days. Converting letters of intent (LOI) into licences in export-oriented industries was conditional on certain approvals.

At the Secretariat for Industrial Approvals, the corridor outside our rooms would be crowded with people in the afternoon, enquiring about their LOI applications.

We had already started reforming during Rajiv Gandhi’s prime ministership. The list of industries that required licensing had reduced. These companies were only required to give an intimation of the activity they were embarking on.

Now, after approval was granted for FDI or for any investment decision, say, an acquisition or diversification, if it touched a certain threshold, the application would go all the way to the Department of Company Affairs. The person dealing with these files had no time limit. When it came to the MRTP clearance, we entered an entirely dark, unlit tunnel, with no clue about when the approval would come.

At that time, there was talk about raising the threshold for the MRTP law, which had been as low as Rs 20 crore, but had gone up to Rs 100 crore. It went on so until the P V Narasimha Rao government came in.

Suddenly, one day, I received a message in Punjabi from Rahul Khullar, who was then the personal secretary to the finance minister (Manmohan Singh), saying that the entire concept of MRTP was to be swept aside. He told me that the finance minister said we have to do this.

There wasn’t enough time to even give a dictation. I had a notepad lying on the table and I wrote out the Cabinet note in longhand because it had to go for approval. I left the office very late that day, possibly close to midnight, because the Hindi translation had to be completed.

What was the thinking behind the MRTP Act amendment?

The concept of a threshold for investment had to go. No prior approval would be required for acquisition, expansion, or diversification. Certain parts relating to acquisition of shares were taken out of the law and put in the Companies Bill.

The focus had shifted. The amendments talked about checking the misuse of dominance. Size, per say, was not to be the focus; firms were to be allowed to grow, because everybody felt that the industrial domain had become very complex and putting artificial curbs on Indian industry was unfair. It was like sweeping aside the concept of MRTP so that everything could be done quickly.

Separately, we were in the process of providing statutory powers to the Securities and Exchange Board of India (Sebi), setting up the Company Law Board, and the competition policy.

Why was it felt Sebi needed statutory powers?

The entire machinery was found to be dysfunctional. We had a Controller of Capital Issues sitting in the ministry. The word ‘control’ itself had become anathema, even in imports and exports, where there was a Chief Controller of Imports and Exports. These concepts were to be jettisoned. In fact, it was a time of wholesale change. It was an electrifying feeling.

Were there fears when the MRTP Act was amended that it could lead to concentration?

At that time, there were discussions on creating a very powerful regulator to curb dominance, abuse of dominance, or practices like predatory pricing. Our law was to be on par with that of other countries. Besides, powerful people had already entered a particular sector through the MRTP route.

We thought we shouldn’t stop companies from growing, and that when you permit more players, competition would be good and [it would] lead to growth. We were confident that nobody would try to manipulate systems to prevent others from entering a particular area or from growing. Plus, the MRTP Commission was still there.

However, in later years, I feel that, barring the Amazon and Flipkart cases on abuse of dominance, where Competition Commission of India (CCI) came to some conclusions, MRTP and its successor body could have done much better.

For me, the bigger challenge is to make sure that the market does not shrink, and consumption of staples does not come down. It was hoped that wages would rise and there would be more economic activity, [and] more players.

Has that vision been achieved?

Indian industry is characterised by dominance. You never have more than four players. Back then, we were looking at restrictive business practices in cement and tires, but the CCI is even today engaged in that inquiry, and it has not gone anywhere.

Also, our big companies are not exporting – they have no pressure to export.

Many changes were also proposed in the Companies Act. What was the thinking behind that?

There were many problems with corporate law – for instance, in winding up companies. Besides, there was too much power concentrated in the Department of Company Affairs, as it was then called, to decide things that should have been decided by company boards.

Was there a list of items that had to be changed?

In 1988, when I moved to Delhi, there were already discussions on reforms. Even after the Rajiv Gandhi government fell, liberalisation was proceeding apace, but there were doubts over whether people would accept the changes. We would not have gone all the way had we not had the balance of payments crisis; it [reforms] would have been incremental. Everybody already knew that it was the right thing to do, but the crisis forced these reforms on us.

You went back to Kerala as finance secretary. How did states take the reform signal?

The country is very diverse. There were many states with a strong industrial base. Certain states, like some in the South and the West, which already had a [good] track record, were able to attract investment and become magnets for migrant labour. That said, by and large, states’ responses have been very diverse. Policy wise, certain states were definitely able to take advantage.

The mistake others made was that they tried to follow the large industry pattern, which was not suited to their ecology, and they failed. Kerala is an example.

What were some of the other big things that could have happened in 1991, but haven’t materialised even today?

Social protection should have featured prominently at the time. Take a house, for example. When we are redoing it, we don’t just look at the front door or the back door. We also look at the roof, the foundation.

When we were liberalising, the hope was that the medium, small, and micro enterprises – and everybody else – would respond to the demand generated by the growth. Everybody would benefit; the water would swell, and the rising tide would lift all boats.

Why do you think social protections didn’t feature more prominently?

We either have trade union oppression, as our colleagues report in Kerala, or suppression of trade union rights. Why we go to these extremes, I never understood. Why can’t we have a political or intellectual leadership that tells us the right things to do. That’s how advanced countries function; they don’t distinguish between social ministries and economic ministries. The problem arises here in Delhi.

They don’t truly understand the interconnectedness of various parts of our economy.

One of the big reforms of the last 12 years was the dismantling of the Planning Commission. You were deeply involved with it, but over the years, did the Commission become a hurdle to development?

Before I joined the Planning Commission, I had been at the receiving end as labour secretary. When I joined as labour secretary, our budget was Rs 100 crore, which became Rs 1,100 crore within a couple of months. It had to be distributed across the country and there was a new scheme to help Industrial Training Institutes, along with industry loans. But the approval from the Planning Commission just wouldn’t come.

I remember once a batchmate said at a meeting, “But for the Planning Commission, we would grow at 12 per cent.” Once something has been announced in the Budget, it shouldn’t need in-principle approval from the Planning Commission.

The good thing about the Planning Commission was that you were actually able to help state governments and departments. And you were able to provide a negotiating platform for states because the Prime Minister was the chief of the Commission. Now, the Department of Expenditure is their interface, where the job is very simple; they have to keep their deficit under control.

We had the power to do good. For instance, I told Sheila Dikshit, who was the chief minister of Delhi at that time, that the state had a surplus Budget, so why not start dispensaries? You saw that implemented when the government changed and Mohalla Clinics were started [by the Aam Aadmi Party].

In the process of finalising how money would be spent and looking at what problems were being encountered by different states, we could make policy recommendations.