Arun Shourie: ‘Reservation Is Not Affirmative Action’

Some 25 years ago, Arun Shourie, a former World Bank economist, made a major splash in Indian journalism when his articles in the Indian Express newspaper led to the resignation of Abdul Rehman Antulay, then the chief minister of Maharashtra state in Western India. Shourie was widely hailed as a pioneer of investigative journalism in India, and the International Press Institute in Vienna named him a “World Press Freedom Hero.” After several years in journalism — during many of which he was editor of the Indian Express — Shourie turned to politics. He joined the Bharatiya Janata Party and was the minister for disinvestment, communications and information technology in the Atal Behari Vajpayee government, which held power in India between 1998 and 2004. Shourie was on campus recently to speak about affirmative action in India, and discussed a wide range of issues in an interview with Knowledge at Wharton and Devesh Kapur, director of the Center for the Advanced Study of India.    

Knowledge at Wharton: Your investigative reports led to the resignation in 1981 of A.R. Antulay. In your years as editor of the Indian Express, did you pursue investigative journalism into business issues or just political matters?

Shourie: The first thing to remember about the Antulay case is that he is a minister today [cabinet minister for minority affairs], and I am out of a job! At that time we did only political work. Business journalism was just beginning, and I don’t quite remember investigating any big corporate issues.

My colleague S. Gurumurthy had written a series of articles on Reliance Industries. Their main point was that its founder, Dhirubhai Ambani, had circumvented the conditions under which licenses were given. I later said — and I was criticized a lot for this remark, including by my friend Gurumurthy — that we had put Mr. Ambani to great difficulties. But in retrospect, should the violation of those regulations have been condemned? After all, the licensing raj was bad; my own doctoral work had shown that. Now we were criticizing somebody for violating rules that should not have been there in the first place. If you give me a capacity of 100 yards and I produce 120, is it a good or a bad thing? But it was a violation of the law as it stood then. I took the view that such violations, in the end, help prepare the ground for the change of the law itself.

We had extortionate tax rates in the 1950s. More than 100% of our income went into wealth tax, expenditure tax, income tax, and so on. That led to honest people becoming dishonest. In the end, that huge blackmarket became one of the arguments for lowering tax rates.

Knowledge at Wharton: How do you compare that situation with the one that exists today? After some 15 years of liberalization, does the business climate in India still lead to honest people doing dishonest things?

Shourie: No, I think it is now possible — as the example of companies like Tata Consultancy Services, Infosys and Wipro shows — that you can make a lot of money doing things in the correct way. So there aren’t those constraints today, but sometimes, habits linger. I would presume that people, generally speaking, are much more honest. There is no need to be otherwise. There are no licensing rules which you might violate. You just have to go and compete in the market.

Kapur: Would you say that the role of the state is still large in sectors where you need access to land or mining, for example?          

Shourie: There are still many ways in which the state can interfere. But now one of the changes in the atmosphere is that the state is on the defensive. Formerly, it was the industrialist who had to show that he was still within the limits imposed upon him by the state. Now legitimacy has passed from the state into secular society, including entrepreneurs and middle-class professionals.

Knowledge at Wharton: There is a saying that Chinese firms succeed because of China while Indian firms succeed despite India.

Shourie: You mean, despite Indian governments, not despite India….

Knowledge at Wharton: Is that a fair assessment still?

Shourie: Less and less so, because of the reduced role of the government. But yes, that assessment is appropriate for whatever success was achieved earlier, after the 1950s. At that time, many things which the private sector may not have been able to do, Pandit Nehru and others did through the state. Afterwards, that whole approach ossified and they just started repeating the words and using them to justify the more and more complex regulations of the state. Therefore, whatever growth took place at that time was in the face of the great effort of the government to keep business and industry down. As Nani Palkhivala, one of our great lawyers, used to say, it takes great genius to keep India down, but our governments have it.   

Knowledge at Wharton: How was your transition from journalism to politics? What challenges did you face?

Shourie: I have not taken any profession seriously. So, it’s just that instead of sitting on this chair you go and sit on another.  

I entered journalism by accident. I had become friends with Ramnath Goenka [proprietor of the Indian Express group of newspapers]. One day we were in Bangalore in his house, and he asked, ‘What are you doing?’ I said, ‘I am writing a book. I can’t find a job.’ He said, ‘I can’t find a young man.’ That was my letter of appointment.

I entered politics in exactly in the same way. One day in 1998, I got a call from Kushabhau Thakre, president of the Bharatiya Janata Party (BJP). He told me that the BJP’s election committee had decided to invite me to join the party and put me up as a candidate for Parliament. Again, it was a happy accident that led to my joining politics.

There are, of course, many differences between journalism and politics. For instance, in journalism we can talk to a large audience outside and hope this will create some public opinion that will persuade governments, or maybe a minister will read our editorials or writing. On the other hand, in politics, you can talk directly to the people who are in authority. But the ambit in which you must work then becomes much more focused.

Knowledge at Wharton: You were the minister in charge of information technology, telecommunications, privatization, commerce and industry. What did you want to accomplish? What were your goals?

Shourie: In telecom, my goal was to abolish licensing, which did happen. Apart from the enterprise of the people in the telecom industry, the professional competence and the rapidly rising middle class, one of the things that enabled India to become one of the most vigorous telecom markets today was the abolition of licensing. In privatization, I wanted to execute a couple of policies. Over three years or so, we were able to sell 45 companies and raise some $9.5 billion.

In information technology, my goal was to assist the IT industry. My approach was “don’t interfere.” The IT companies are doing well enough on their own, and the government should leave them alone. My task was to insulate the IT industry from needless interference by the government.

Of course, there are many things that only the government can do, such as providing infrastructure. Nearly 80% of our IT exports, worth $22 billion, come from 39 software technology parks set up by the government. This infrastructure and telecom infrastructure enables IT companies to work in real time with other parts of the world.

Often, the government has to take up issues with other countries that individual companies can’t tackle by themselves. For instance, I-Flex is one of our companies that is very big in banking software. Chase Manhattan buys its products, and these have to be installed. But I-Flex cannot wait for four months for its engineers to get visas. The Indian government needs to work with the U.S. government to see how visa applications can be processed faster.

The government also had to get involved when some states in the U.S. passed anti-outsourcing legislation. John Kerry took it up in a big way as an issue in his Presidential campaign. Companies cannot do the kind of work that would be required. Our ministry coordinated with the Indian embassy to interact with the staff of governors of states where the anti-outsourcing sentiment was high. These types of things were necessary.

Knowledge at Wharton: In the telecom sector, what can open up VSNL’s access to the last mile, in a way that can ensure high-speed broadband connectivity to the home?

Shourie: I don’t know the current position. In my concept of a universal licence, it would be just like a registration, not a licence. The idea was that any service provider should be able to provide any service to any customer using any technology anywhere in the country. If VSNL wanted to go the last mile, it could either come to an arrangement with the company who owns the last mile, like BSNL or MTNL, or collaborate with some other firms to lay the optical fibers. There would not be a governmental restriction on that. But there is always the problem of an incumbent. BSNL may say, “No, I will make sure that you do not come in because eventually I will get your business by keeping that one mile with me, and I will set up the international facility.”

I think the privatization of VSNL was a really hotly contested one. The Tatas, I think, won by just Rs.90 crore, in a bid of about Rs.1,400 crore. That established our credibility, because this is the first instance in which even Reliance could not find out what was happening! But the Tatas have had great difficulties with VSNL as the whole sector has got transformed, completely liberalized, so they have had to do new things. 

Knowledge at Wharton: If it were possible to encourage broadband connectivity to the home, the potential of the telecom sector would explode. What do you think is holding that up?

Shourie: Absolutely, there is no doubt about the potential. I am not that clued into what is happening today. But I do hope that it is not the interests of the cable industry or something that is coming in the way.

Knowledge at Wharton: Do you think it is necessary for the press to take on a more expanded role to highlight some of these issues?

Shourie: Of course, yes. The press must do much more. That is the only agency bringing out the facts today. But it does not persevere. You know, this is the nature of journalism and the nature of journalists today. Editors have changed. Youngsters own these places. Therefore, the politician also does not fear exposure. He says, “Just keep quiet for two days, and they will be barking at somebody else three days from now.” So, sporadically such facts come out, but they just come out because they are planted by somebody who was inconvenienced at that time. You have got to be a crocodile. When you get somebody’s foot in your mouth, don’t leave it.

Kapur: There is a general sense that the Indian media itself is quite prone to corruption. Stories are planted. Some newspapers sell space for stories by the column inches. The idea that journalists can be bought easily is deeply widespread. What do you think of these trends?

Shourie: This is a very important point. And yes, that’s right, all these things are true. I was startled recently to see how openly this goes on. One of my books was being released in Calcutta, and after that, we were having dinner. This young man comes and sits next to me and says, “That was a very good function, sir. Tomorrow in such-and-such a paper we will get a three- or four-column photograph, but I am afraid the function has not been described.”

How do you react? The paper had been printed, but how did he know that the function had not been described? He said there was a printed rate card. If you paid this much, your photograph would appear, and if you paid a higher amount, your photograph plus text would be published. I said, “I don’t believe you.” He said he would send me a rate card — and he did, by email. A rate card! It was completely transparent!

Knowledge at Wharton: Why do the media not report on the media?

Shourie: That is the problem. They are afraid that somebody will report about them, probably. There is this incestuous relationship with the subjects. In the early days, in the 1980s, we first heard about this in sports journalism. Then it started a bit in corporate journalism. But now journalists in papers that you know well say, “Why are you surprised, sir, that our people play on the stockmarkets, and their story tomorrow is going to influence stock prices.” Because of our circumstances, we are blessed with a free press, free speech, and we are mortgaged with it.

Kapur: Earlier, politicians had too little engagement with business and now, perhaps, it is almost the other way round.

Shourie: That is right — now there is a much better intermingling. But that need not necessarily be for the worse. Everything depends on the quality of people in public life. If the person himself is a businessman and is looking upon his perch as a useful perch for expanding his business or gaining future contracts and link-ups, then that’s terrible. If he does not understand anything, then any piece of paper that looks good is a good idea. It is not just the ministers, but even the civil servants now are not specialists in anything.

On the other hand, if the quality of people in public life and administration is better, then I find this kind of association can be very useful. I will give you two instances. In the case of WTO negotiations, I found that we had a very good small team, with absolutely world class people. They are really good lawyers.

When I became a cabinet minister, having been a journalist, my doors were always open. Anyone was welcome to meet me, but only in the office and only by appointment. It had to be registered in the government register. But when any businessman came to see me, he had to first pay a tax. The tax was that he would have to give me some bright idea about some problem that I was facing at that time. In this way, I got free consultancy from many business people.

I remember one of the best ideas in privatization, on assessing bids, was given by Wharton alum Anil Ambani — as his “tax.” If you get bids, you open them. You ask the consultant to set a reserve price. He will be influenced by these bids because his fee depends on the bid going through. On the other hand, if the reserve price is made known, then the bidders will just put in two rupees higher than the bid.

What should be done? Anil said, “No problem, sir. Ask the consultant to do the preparatory work on the valuation but not finalize the reserve price. You get the bids, but don’t open them. They are sealed bids. Now the consultant finalizes the reserve price. Then you open the bids and see them.”

It was a simple trick, but it worked. We would receive the bids in front of all the competitors. Everybody would sign on the other fellow’s envelope at the back, cross sign it to make sure, and it would be opened only in front of them all. So, the “tax” worked.    

Knowledge at Wharton: We hear a lot of stories about India’s strong economic growth. What do you think could derail this growth?

Shourie: At the moment, a lot of space has been given for Indian industry to grow, so this derailment is not likely very soon. But eventually, industry, agriculture and other areas would have to be reconsidered, which have been freed by the reforms of the past. At the moment, except in civil aviation and the railways, there are absolutely no reforms taking place. There are no reforms in other important areas like labor laws and banking. These things will become constraints.

The second problem that could arise is the breakdown of governance in large parts of the country. Law and order could deteriorate in those areas to such an extent that you can’t have development and investment. Nobody will invest there, as has been happening in places like Bihar, Jharkhand and UP. The disorder could also, obviously, spread to other areas.

The third difficulty would be in employment growth. Modern manufacturing and modern service industries cannot provide the kind of employment we require in the country. We require a lot of investment in infrastructure and agriculture. That can generate vast employment opportunities. But weak governments are always under a compulsion to have more and more populist expenditure and policies such as   employment guarantee schemes and the fixing of petroleum prices. This will leave less money for investment in infrastructure and agriculture.

For example, under the administrative price mechanism, the government fixes the prices of things like fertilizers or petroleum products. Yashwant Sinha and Jaswant Singh worked very hard as finance ministers to withdraw the government from fixing prices, because every time we want to raise diesel or petrol rates, it becomes a big political issue. There is always some election going on, and they say, “No, no, the prices can’t be raised now.”

We said, “Leave it to the companies.” The agitations would be against the companies. It took a lot of struggle to get this done. Now, as economist Jagdish Bhagwati has said, with these displaced socialists being back in office, prices are being fixed again. The result was that last year, oil companies in India suffered a loss of Rs.42,000 crore, or about $10 billion. This year the loss is supposed to go up to Rs.100,000 crore, or about $20 billion. That means $10 billion or $20 billion less for infrastructural investment or irrigation. This can become a big problem.   

Knowledge at Wharton: You have been a critic of some affirmative action programs like the reservation of jobs for the scheduled castes and tribes. What would be the right way to marry economic growth with social justice, in your view?

Shourie: The first thing is to create labor-intensive activities. The second would be to give positive help. Reservation is not affirmative action. This is just blocking — just taking out things and saying this is for somebody, and not even caring whether those seats are filled or not.

Give all the assistance that society can afford to enable people who are disadvantaged or handicapped today to compete with the others. Supposing they have poor nutrition. Okay, give them not one but three free meals in a day. If they don’t have a place to study, give them free dormitories. If they require extra tuitions, give them free tuitions. Their parents cannot let them study because they need two extra hands to earn Rs.5 a day. Okay, give them stipends to compensate for the incomes they might have earned. Give all the positive things. But when the competition starts, everybody is equal, and they must be able to compete with the others. Don’t lower standards. Throughout a person’s career, only merit, efficiency and performance should count.

Knowledge at Wharton: You recently wrote a three-part series for the Indian Express on the nuclear agreement between India and the US. What could be the   economic implications of this agreement?

Shourie: This agreement is touted as a civil nuclear collaboration for the energy requirements of India. But the two bills have not one, not one word about anything to do with energy. The stated purpose of both the bills, and I am quoting, is to halt, roll back and eventually eliminate India’s nuclear capabilities.

Especially in the second and third part of my articles, there is a final analysis of the clauses of the House and Senate bills. They want to tie India completely, hand and foot. The U.S. President has to coordinate with every member of the nuclear suppliers’ group to make sure that if India does not live up to the standards prescribed here, then not one of the 46 members of this group will trade on even one item needed for India’s nuclear technology program.

There is no comparable constraint on China. There can’t be. So, they constrain us, and our options are closed. Then we are either subservient to China or we have to accept the U.S. nuclear umbrella vis-a-vis China.

Naturally, the U.S. will go by its own interests, as perceived by a handful of people at that moment. So, the Taliban must be created. We have to live with the consequences. Tomorrow they revise their assessment and say the Taliban should be destroyed. Then India and Pakistan must live with the consequences.

If today the U.S. administration had to decide about going into Iraq, maybe they would have a different view. But the people of the region have to live with the consequences. Similarly in the case of the nuclear umbrella. You may feel that only China is a land of opportunity. So, what will happen to us? Today, under President Bush, you may have some second thoughts about China. Then, that becomes a window of opportunity for us. But we cannot mortgage our future. It would be absolutely foolish for any country to mortgage its future to the assessment of a handful at that moment involved in another country’s interests. Consequently, I have analyzed the clauses from this point of view.

Secondly, it is never a good idea — and I am all for close Indo-U.S. relations — to make a single issue the be-all and end-all of bilateral relations. I remember the Dabhol power plant project. They did not want to upset Indo-U.S. relations. But what was the result? The Maharashtra State Electricity Board became bankrupt, and that very agreement became the reason for souring the relations.

So if this agreement goes through as envisaged in the two bills, and the government of India disregards public opinion and the opinion of scientists, then as the years pass, we will start feeling the options which have been taken away, and that will injure our relations.

Knowledge at Wharton: What do you think ought to be done?

Shourie: If this agreement has to go through, the bills must be recast to confine themselves within the parameters that the Indian Prime Minister has now helped to lay down. In a sense, he completely repudiated what his government was doing on each of the nine points. Now, to his great credit, he has laid down the lakshman rekha, beyond which the government will not go. I can’t see how he can disregard the special assurances given to Parliament.

Kapur: Is the agreement a formal treaty? Is it subject to a parliamentary vote?

Shourie: No. Actually, in India, a treaty is not subject to a parliamentary vote. But its agreement by the Prime Minister is a commitment to Parliament.

Kapur: In the U.S., a treaty must get the Senate’s approval. This gives the U.S. far greater bargaining power, as the Senate has to be satisfied on every issue. Why has India not chosen this path, especially now that it is signing many more international agreements?

Shourie: Irrespective of this agreement, I feel the legislatures are now so dysfunctional that we cannot make even international agreements subject to them. If an agreement is regarded as prejudicial in the national interest, we must have some other remedies to address it, like public discourses and so on. And it has helped. This is one of the very few instances in the last few decades, after Jayprakash Narayan’s movement, where public pressure has worked, and a public campaign has worked.