Online Extra: Q&A with India's Arun Shourie

Getting government out of business is key to growth because society is much more creative than the state

Indian Disinvestment Minister Arun Shourie is a rarity in a country whose political class is more prone to talk than action, where the elite is fond of back-stabbing -- yet reluctant to step out and take risks.

As a journalist and author, the 60-year-old Shourie has been among India's most outspoken and courageous crusaders against government corruption and malfeasance for nearly three decades. But he's a man of action, not just words, eschewing " statements...[and] plans we don't go through with."

Since being named Privatization Minister nearly two years ago, Shourie has acquired an impressive record of selling off assets -- and ensuring that control of the companies really passes out of the state's hands. Many of Asia's so-called privatizations raise money by tapping the stock market while keeping real change to a minimum.


  Shourie contends that "it's just not possible to change the governmental culture of these enterprises" without selling all state shares and changing the management. He aims to "infuse a new culture into these unlock the production potential that's in these enterprises."

While many government officials minimize problems in their country, Shourie impressed a Hong Kong audience recently with his advice that foreign investors should complain more loudly: "It's very important to scream and shout at bureaucrats.... Use a drill to get through to our brains." He urged a questioner who complained about bad service at a state-owned bank to "vote with your feet" and "change your account."

Shourie doesn't just want to make India safe for business. He has a broader development agenda, one that means getting the state out of business as much as possible so that India can develop more rapidly. And he's intensely proud of the way that India has managed to grow quickly, yet remain a democratic nation.

He spoke recently with BusinessWeek's Mark Clifford in Hong Kong and followed up these remarks with e-mail. Edited extracts of the interview follow:

On India vs. China and the former's development:

We're acutely aware that China has done better than India in the past 10 years. India has had a tectonic change in the past 10 years [away from a] lethargic, sclerotic regime. This was done without substantial dislocation. Foreign-exchange reserves went from $1 billion in 1991 to $52 billion now. Government warehouses hold 60 million tons of grain. Abject poverty has fallen from 36% to 27%.

We should be as prosperous and strong as our size dictates. There's an infinite opportunity in India.

On the role of the state:

We should reduce the role of the state and provide those minimal functions [that the state still provides] more efficiently. That's the key to development in India. Let's get the state out [of business] and create incentives for others to take up these functions.... Society is much more creative than the state.

On the support of Prime Minister Athal Bihari Vajpayee for Shourie's privatization efforts:

He has seen the rot, the condition to which these enterprises have sunk. [Companies] cannot fool him by saying: "Give us three more months and another $100 million."

On the prospects for privatization of assets controlled by state governments:

Privatization will come to [the states] next. Within six months, four or five -- probably five -- states will have difficulty even paying salaries of the bloated number of [their] employees. The financial bind will accelerate reforms.... We need a crisis to move forward.

On why privatization is necessary:

From 1992 until 2000, about $7 billion was spent on packages to revive companies. In addition to this expenditure, there were waivers of guarantee fees, freezing of loan and interest payments, moratoria on repayments, exemption from payment of taxes, etc. Not one company was revived in spite of these enormous outlays.

On the economics of privatization:

If no more is done than to keep the amount earned in fixed deposit, these sales shall yield for the taxpayer more than $220 million every year in perpetuity. At present, these companies pay a dividend of $11 million every year on the equity sold.

However, two of these companies had to be subsidized by $26 million a year over the last eight years. Thus, taking the two figures together, the government's earning was in fact negative, i.e. minus $15 million a year. This means that sale of 1% equity of Central Public Sector Units has led to a gain per year in perpetuity of more than $235 million ($220 million + $15 million) for the taxpayer.

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