Courtesy of Press Information
Bureau
Finance Minister P. Chidambaram at his office
in New Delhi in this Aug. 1, 2012 file photo.
Palaniappan Chidambaram, the powerful minister of finance and senior leader in the Indian National Congress, has been a central figure in the recent flurry of economic measures pushed through by the government. His return to the Finance Ministry on the last day of July – he had previously served as finance minister from 2004 to 2008 – coincided with a new, more assertive attitude by a government that had been criticized for drift and ineffectiveness.
Business leaders and economists have praised Mr. Chidambaram and Prime Minister Manmohan Singh for pushing through a series of tough measures, intended to correct India’s fiscal problems, including an increase in prices for diesel fuel and cooking gas, along with policies that allowmore foreign direct investment in multi-brand retail, civil aviation, media, pensions and insurance.
The measures have infuriated the political opposition and led to the withdrawal of Mamata Banerjee and her Trinamool Congress party from the governing coalition. Yet, for the moment, the government is still standing. Mr. Chidambaram recently sat down with Jim Yardley, Gardiner Harris and Hari Kumar for a wide-ranging discussion about the Indian economy, Congress party politics, corruption and the impact of foreign direct investment.
Q.
You’ve certainly made a dramatic impact.
A.
I have made nothing. I just have happened to be at the right place at the
right time. Or, if we could say, (chuckling) the wrong place at the wrong
time.
Q.
What has been the impetus for change and what is the state of the economy
now? We’ve seen positive comments from business leaders who only weeks ago were
questioning the India story. Ratings agencies were warning of downgrades.
A.
Our fiscal deficit and our revenue deficit are out of line. The current
account deficit is also unacceptably high. Therefore, the first task was to
reassure the world, as well as the people of India, that we will take corrective
measures. It can’t be done, and it won’t be done, in a few months, or even one
year. But we are determined to take corrective measures. So I, we decided that
we would take measures that would, one, stabilize the rupee; two, reverse the
direction of capital flows from outflow to inflow; and three, control
expenditure.The first few steps were intended to achieve those objectives, and I am reasonably satisfied that we have made some progress in that direction. A depreciating rupee has very serious consequences. And outflow of capital will only make it worse.
Q.
The world economy is having a tough time. But many analysts have said India
also suffers from self-inflicted wounds. How do you see that? What got the
country into this situation?
A.
Well, because of the configuration in Parliament, we were unable to move
forward in the matter of passing the necessary laws. The configuration remains
the same, but I think we have brought home to many political parties that
irrespective who is in government and who is in opposition, it is necessary to
pass these laws. If I can, if we can carry that message to its logical
conclusion, we hope to be able to pass very crucial, very critical laws.
Q.
So you see the problem as rooted in parliamentary obstacles. Others have
pointed to ‘policy logjam’.
A.
The policy logjam is the result of laws not being passed, isn’t it? The
policy logjam is a conclusion you arrive at. But why is there a policy logjam?
Because these laws got stalled. Even today, I’m keeping my fingers crossed. But
I sincerely hope that the political parties, especially the principal opposition
party, will support these bills because, as I said, irrespective of who is in
government and who is in opposition, these bills need to be passed.
Q.
You are talking about the Thursday announcements on foreign direct investment
in pensions and insurance, which require parliamentary approval and cannot
simply be approved by the cabinet.
A.
Yes.
Q.
Given that you have your fingers crossed, is the economy still in a dire
position?
A.
No, I’m saying that we may have partially stemmed the tide against us. The
steps that we will take in the future will stem that tide. But to go forward, we
need the laws. And we need to pass the laws on banking, on insurance, on
pensions, the Company Law, the Competition Act – these have to be passed.
Q.
There has been much discussion of the fact that so much has happened since
Pranab Mukherjee ascended to the presidency and you took over at Finance. Is
there a philosophical difference between the two of you?
A.
I don’t think there is a philosophical difference. I think he was trying to
do it in his own way. (Pause) We just, we just decided that we could not wait
any longer for a few things like adjusting prices of some petroleum products and
announcing the changes in the FDI policy. We could not wait any longer.
Q.
There is also a narrative out there that Congress President Sonia Gandhi had
been resistant to some of the measures recently pushed through, and that it took
personal appeals from you and the prime minister to convince her. Is that
true?
A.
That is completely wrong. If you go back and read the speeches that she has
made at the last Congress plenary session, you will find that she was, and
remains, fully supportive of economic reforms. She doesn’t speak on the subject
because she is heading a party. She is not heading the government.
Q.
Do you think this burst of activity will reverse the party’s political
fortunes?
A.
Well, (again chuckling) I hope it does. But I don’t think our political
fortunes were, or are, in decline. These are perceptions of people. And while
each one is entitled to their own perceptions, I think the people of India know
who can hold the country together, who can provide an inclusive government, an
inclusive administration and who can take the hard decisions. If you go back to
any period in India’s history, all the hard decisions this country had to take
were taken when the Congress was in power.
Q.
There is endless speculation about Rahul Gandhi. Is he finally going to take
a more public, active role in the party or the government? How important is that
for the Congress?
A.
It is important. The Congress has always renewed itself by encouraging
younger leaders to take responsibility. And in the generation that is after my
generation, the one person who appears to be most acceptable to the party, and
to people outside the party, is Mr. Rahul Gandhi.Therefore, we would all urge him to accept greater responsibility, to take more responsibility. He seems to have indicated he would take more responsibility in the party. If that is his decision, I’m sure he will be given greater responsibility in the management of the party.
Q.
You think he doesn’t want to be more involved in government yet?
A.
That is what I understand, but I don’t know. I can’t vouch for that, but that
is what I understand.
Q.
How important is the new policy allowing more foreign direct investment in
retail? Do you think the floodgates will now open?
A.
The gates will open but there will not be a flood. What will happen is they
will come, one by one. And sometimes, the parts will come and you will see the
whole after only some time. Somebody will come in and build the storage house,
the warehouses. Someone will come in and build the cold chain. Someone will come
in and build the supermarket. Someone will come in and bring post-harvest
technologies.One fine day you will find all this coming together and you will have very strong chain from farm to supermarket. So I think they will come one by one, or they will come in parts and the whole will emerge later.
Q.
Just a few years ago, there were predictions that India was at the front end
of a super cycle that would bring annual average growth of about 9 percent for
possibly two decades or more. Was that naïve? Is India never going to achieve
that?
A.
To say that is not possible is wrong. We now have figures for eight years,
from 2004. Right? In six of these eight years, we’ve had 8-plus-percent growth.
The two years when we were sub-8 percent was 2008-09, when we were 6.7 percent,
and in 2011-12, when we were 6.5 percent.So once we get back to the 8-plus-percent growth path, 9 is very ambitious but 8 is achievable. If we get back to the 8-plus-percent growth path, we will reach that goal, if not in 20 years, we’ll reach it in 25 years.
Q.
Rightly or wrongly, Narendra Modi markets himself as an administrator who can
get things done for business. Now, oddly, he is an opponent of foreign direct
investment in retail, but for the moment let’s push that aside—
A.
Why do you push it aside? That shows that either he speaks in two voices or
he’s not a genuinely committed reformer.
Q.
O.K. But my question is that Modi and other critics blamed the central
government for bottling up projects. Now, things seem to be moving. How has that
happened?
A.
We’ve got a fair idea of what projects are stalled. We’ve a fair idea of why
they are stalled. So we have put the ministries or departments on notice, that
they’ll have to deliver. They are being very closely monitored.We will set up the National Investment Board in roughly about two weeks. And once the N.I.B. is set up, where the ministry has failed to take decisions within the time frame, N.I.B. will take unto itself the authority to take that decision on behalf of the government.
Q.
What about the land issues in the country? It is such a complicated issue,
balancing the rights of adivasis and the needs of industry.
A.
The Land Acquisition Bill is almost ready. One more sitting of the Group of
Ministers and the bill will be ready to be presented to the cabinet. As you
said, it is a very complex situation. We need land. We have the owners of the
land. We have the tillers of the land, which may be different from the owner.
And we have people who are neither owners nor tillers, but their livelihoods may
be dependent on that land.For example, the shopkeeper, the cart puller – his livelihood depends upon the activity that goes on upon the land. So there are several stakeholders on the issue of land. Ordinarily, you and I would think the only stakeholders are the owners of land, but that is not so in India.
Then we have the Scheduled Tribes, who have a very different concept of ownership of land, not the Western concept of ownership of land. For them, land is owned in the common, the common ownership of the community. And a lot of transactions have taken place where the tribals have been deprived of their land but they are still dependent on that land.
So the Land Acquisition Act is not an easy act to make, but we are almost there. But once we make that law, and get it passed in Parliament, I think many of the problems relating to acquisition of land for industry or other infrastructure would be resolved.
Q.
Corruption is a big political and economic issue. Some foreign investors are
very worried about corruption for their investments. This government has seen
Coalgate and the 2G scandal. How will this government handle corruption going
forward? How important is it to the economy?
A.
The allegations of corruption that target the prime minister and ministers
are largely untrue and most certainly exaggerated. Criticism of a policy is
welcome. But in the garb of criticizing a policy, if you allege that the policy
was made for corrupt purposes, I reject it. I agree that in the implementation
of policies, there have been illegalities and irregularities. But policy is
implemented by a large number of civil servants at different levels. And they
will have to be held to account.And if any minister or any political leader was involved in those illegalities or irregularities, of course, he or she will be held to account. But that doesn’t make the policy a product of a corrupt motive.
Q.
How much has the corruption issue paralyzed the government?
A.
Quite. Because Parliament has not functioned.
Q.
But what about the rest of government? Many people have said the bureaucracy
is now scared to make decisions?
A.
If you, if you whip up a cloud that hides everything, the administration will
indeed be paralyzed. The one example I can give you is the McCarthy era in
America. Everybody was tarred with the same brush. And everybody was a suspect
in everyone’s eyes. The U.S. got over it.Today, to allege corruption seems to be the pastime of most people. All kinds of allegations are leveled. I think it is self-defeating. It does paralyze the administration. But we are determined to rise above the noise that is made and get on with the job of governing this country.
Q.
You mentioned political equations. The Trinamool Congress is gone now. The
government has a different balancing act. Is it harder now? And will the
coalition make it to 2014?
A.
Oh, we will finish the term of our government and we will go into an
election.
Q.
Did the departure of Mamata Banerjee actually enable the government to
finally push ahead with these measures?
A.
No, no, no. I think you are attaching too much importance to individuals
coming and going. As I said, these things were being and worked upon for quite
some time. In about August, we had reached a point where we could not wait any
longer.
Q.
Economically?
A.
Yes.
Q.
What sort of investment numbers do you hope and predict this will bring?
A.
Oh, this will bring a lot of money: FDI, FII. Of course, in the hierarchy of
flows, I would put FDI higher than FII. But we expect to get a very large inflow
of FDI and FII. It is already happening.Tomorrow in Mumbai, I have a meeting with 20 top FIIs.
Q.
We’ve now had what the Indian news media is calling Big Bang I and Big Bang
II. What is coming next?
A.
When you hear the bang, you’ll know.
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