[lbo-talk] Re: McKinsey to help design India's economy ?

uvj at vsnl.com uvj at vsnl.com
Sat Sep 25 09:53:47 PDT 2004


The Hindu Business Line

Monday, Sep 20, 2004

Making an issue of the foreign hand

S. Venkitaramanan

The fracas about the inclusion of the ADB and the IBRD representatives in consultative bodies is, in fact, a result of a failure of communication. There is no harm in listening to opinions of international experts, fortified as they are with experience of other countries similarly situated.

[The Deputy Chairman, Planning Commission, Dr Montek Singh Ahluwalia... Only listening to experts' advice.]

IN A characteristically frank piece "Plan panel: Keep foreign hand at arm's length" (Business Line, September 14), the author has asked the Government to keep the foreign hand at arm's length. The case made by him against the association of foreign representatives, especially those from the IBRD, the ADB and the foreign consultancy, with the Mid-Term Review of the Planning Commission is, however, symptomatic of an unjustified fear of foreigners.

The association of foreign experts with the Planning Commission's work is not unique to this occasion. From the times of Dr P. C. Mahalanobis, many foreign experts, economists and statisticians have advised the Planning Commission.

Indeed, it was the unique networking skills of Mahalanobis that the Planning Commission or the ISI, Kolkatta, where Mahalanobis stayed, became the preferred destination for many economists of global repute. They were drawn by the challenge that India offered and Mahalanobis nurtured with his model and his expertise. Foreign experts who came in to advise the planners ranged from John Galbraith of the US through Kaleski of Poland and included such eminent persons as Alan Manne.

Consultation with foreigners is not intrinsically inimical to independence. It is up to us to choose what we can accept. Jawaharlal Nehru himself called on the management expert Paul Appleby to advise him on administrative reforms.

T. T. Krishnamachari, than whom we can find no greater Finance Minister, who resented foreign interference, had himself called on the economist Mr Nicholas Kaldor to advise him on improvements to the direct tax structure. The famous (or infamous) expenditure tax proposals of Kaldor, which came together with a wealth tax and a reduced rate of income-tax, were accepted partially by TTK. Dr I. G. Patel, in his memoirs, gives expression to the scepticism voiced by the establishment represented by B. K. Nehru to the proposal. That we did not gain by the Kaldor report is beside the point. That we examined separately the option he suggested on sensitive Budget matters is material.

C. Subramaniam himself was an "expert" in using experts, both foreign and domestic. When he took over the Ministry of Steel and Heavy Industries, he asked the US Ambassador and the Ford Foundation to help with an expert on reorganisation of public sector enterprises. The expert, who came in was Mr Leland Hazard, an eminent attorney from Pittsburgh with excellent contacts with US steel and other corporates. His advice was to eliminate the multiplicity of controls that vexed PSU managements and to end the emasculation of innovation through CAG's concurrent and other audit. The Hazard reports started an initiative towards larger autonomy for PSUs, but was stillborn due to resistance from the Finance Ministry.

Equally important, C. Subramaniam, as Food and Agriculture Minister, did not hesitate to call on the US Ambassador Chester Bowles to provide assistance. So came agricultural economist Dr Willard Cochrane. CS also used the expertise available with the Rockefeller Foundation, whose representative, Ralf Cummings, facilitated the availability of hybrid wheat seeds from his Mexican counterpart.

Indeed, I remember C S calling in a number of Rockefeller Foundation scientists to a meeting in Krishi Bhavan to discuss the strategy regarding the new variety of seeds. That they advised caution is not material. CS listened to them and soldiered on, aided by the magnificent support given by our own scientists led by the redoubtable Dr M. S. Swaminathan.

CS, as Minister of Food and Agriculture, also used the services of Sir John Crawford, a former civil servant from Australia, who was a consultant from the IBRD. Sir John was a grey eminence in Krishi Bhavan, reacting to various proposals made by the team of B. Sivaraman, Prof Swaminathan and A. L. Dias. He was a sounding board, used effectively and unobtrusively by CS. No one has ever accused CS of being less patriotic for that reason.

It is not a reflection on Indian ability that our authorities call on foreign experts to supplement Indian views with their advice. It is, indeed, an expression of self-confidence that we are willing to expose our expertise to scrutiny by foreigners. In this view, what the Planning Commission Deputy Chairman, Dr Montek Singh Ahluwalia, has done is sensible and transparent. It does not offend the criterion of self-reliance, for after all, we are only listening to advice and not surrendering our right to make decisions.

Objections have been raised to the presence of lenders' — the IBRD and the ADB — representatives on the Consultative Committees. The argument advanced is that lenders cannot run our governance.

The ADB and the IBRD anyway impose conditionalities on their loans and we have learnt to accept them where they agree with our own experts' judgments. Lenders, like the ADB and the IBRD, are not necessarily purveyors of wrong advice.

On the contrary, history will show that the IBRD has, in particular, rendered sensible advice on many occasions, although we did not always accept it. For instance, on the ill-fated project of Dabhol, the IBRD had raised a number of doubts, including that of viability and refused to finance it. It is another matter that we committed the blunder of going ahead with it.

The IBRD had played an important role in our accessing additional resources during our initial phase of economic growth. I recall CS as Finance Minister landing in Washington D.C. in 1975 carrying the project proposal for NTPC's first thermal project at Singrauli. Robert McNamara, whatever his other prejudices, was an Indophile and encouraged our PSUs in building our infrastructure.

Besides, the IBRD and the IMF had both come to our rescue in the first oil crisis, and in particular, in our 1991 trauma. The extraordinary lengths to which the then IMF Managing Director, Mr Michel Camdessus, went to accommodate our requests for help in 1991, are still fresh in my memory. We cannot lightly dismiss the IMF, in general terms, as purveyors of wrong advice. Its advice in 1991, as earlier, was eminently sensible and helped trigger a faster pace of reforms than we would have otherwise had.

It is wrong to fasten the tag of wrong advice to the Bretton Woods institutions, especially when our experience has been quite the contrary. The quip used to be that when the World Bank started the IDA — International Development Association, which gives long-term aid — the critics suggested that it be called India Development Association.

The progenitor of the IDA idea, Peter Cargill, was unapologetic about it, because he saw the problem of debt-financing more clearly than many ideologues at Delhi and Washington.

Turning to the ADB, the key lesson, which our experience with the institution carries, is that it has been singularly unideological about help to India, partly because it is dominated by Japanese professionals, who are apathetic to India. We had had a very favourable treatment from the time we started borrowing in 1985-86. In particular, the ADB came to our help with balancing aid in the crisis year of 1991-92. It started lending for banking sector reforms even while the IBRD dragged its feet on ideological grounds.

The fracas about the inclusion of the ADB and the IBRD representatives in consultative bodies is, in fact, a result of a failure of communication or of wounded ego or both. The Left is not right when it insists that inclusion of foreigners in our consultative bodies is unusual. It has been done before quite extensively, albeit informally. There is no harm in listening to opinions of international experts, fortified as they are with experience of other countries similarly situated.

There is currently an added element of irritation in the form of inclusion of a foreign consultant's representative in the consultative committee on Mid-Term Appraisal. The association of the firm with alleged misdemeanours in Enron is only at second remove.

That the consultancy from McKinseys has spawned a number of CEOs of global corporates is well-known. It is a different question that one or two of them turned out to be bad eggs. There have been McKinsey-inspired reports on many sectors in India, including a reorganisation of SBI. It is perhaps unfair to target the company for the misdeeds of its former consultants.

All this does not mean that it has to be a free ride for experts from Washington or Manila. The notes of caution that the article sounded make sense to the extent that the admission of experts does not amount to licence. Information on sensitive matters has to be dealt with discreetly. That is part of the art of management. Is it not?

Above all, in Dr Montek Singh Ahluwalia and Dr Manmohan Singh, we have patriots of the purest ray serene.

They will never lay themselves open to even the slightest suggestion of trading India's sovereignty for a pledge of assistance or approval. In their integrity lies the certainty that the debate about the visible foreign hand is much ado about nothing.

Copyright © 2004, The Hindu Business Line.



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