Even as most of the attention in the capital was centred on the ruling United Progressive Alliance’s choice for President, finance minister P. Chidambaram has been focused on the economy, elaborating on a range of topics in multiple conversations with various news media this week.
In a wide-ranging conversation with Shivnath Thukral of NDTV Profit, the finance minister spoke about his views on the challenges of formulating and implementing economic reforms in a coalition environment, the need to deal with agriculture’s slow growth and why the political system is failing to deal with the need for consumers to pay more for food items and about what worries him on the economic front. The finance minister was also pressed on his actions as an insider and how they contrast to his views when he was not part of the government, which were published recently in a compilation, A View from the Outside. Edited excerpts:
Mr. Chidambaram, what is more interesting, the view from outside or view from within?
Well, the view from the outside gave me a lot of opportunity to think, reflect, comment and plan. The view from the inside, of course, is a little more difficult to describe. It is, of course, more exciting, more controversial and perhaps could be the material for a book of the future but at the moment, it lies within me.
Whatever I’ve read, it seems you could be the finance minister under any government because your economic foundations remain the same. Politics has to be governed by good economics...
By that logic, no party is different in today’s day and age?
Except their ability to carry through reforms. Major or fundamental economic issues do not divide political parties, say in the US or in Europe. It’s the emphasis, the nuances or the issues that arise in that decade or that period. The fundamentals most parties have agreed upon. I think in India, too, except the Left parties, most are agreed on the path that we should take. But unfortunately, there are vast differences in the capacity of one (political) formation to deliver and the capacity of another (political) formation to deliver.
Today, when you reflect, do you say the view from outside was much easier, the view from within, or the ability to deliver from within, is far more difficult?
It would not be in a single-party government. It is (difficult) because of the coalition and the nature of the coalition. If the Congress party had, say 220 seats in the Parliament, the situation would be suitably different.
When you say that the only party that stands out is the Left party, have they really been able to stifle you so much?
Stifled is a wrong word. They have an ideology, they have a programme and they believe in that programme. They are entitled to. They have 61 seats (in the Parliament) as a result of that programme, but entitled to ask that the programme, as far as possible, is incorporated in the government’s agenda. Now, when the government’s agenda and their (the Left’s) programme conflict with each other, we have to negotiate. We have to find a way to move forward. Where we find a way to move forward we have done so, where we have not been able to find a way forward, things have slowed down.
For instance, the banking amendment laws have slowed down. I don’t know the fate of the Insurance Bill that we have introduced and we are discussing that. While these areas have slowed, we have moved forward in say, civil aviation, we have moved forward in telecommunications.
Why are you not being able to convince them?
Maybe I am not a very good politician or a very good advocate of the cause. The point is, there are differences. One must recognize that these differences are unavoidable in a democracy. Democracy elects members of different political parties, different ideologies, and one must except the situation as it is given to you.
You talked about being a politician, you used the line that “good economics works for everyone”. Is it working for you as a finance minister?
Of course, good economics works for everyone. If the country is growing at 9.4%, that growth comes down to everyone. Clearly, more jobs are being created today... Savings have gone up. Our estimate is that the savings rate has moved up by another 1.4% since 2005-06. Our estimate is that the investment ratio has moved up by another 1.4%. Actually, we have reached the investment to GDP (gross domestic product) ratio in 2006-07 that was planned to be achieved in the last year of the 11th Plan (2007-2012).
When you talked about growth, you also mention in the book that 8% growth should lead to an addition of about eight million jobs a year. We are quite far, aren’t we, from that magical figure?
I don’t think so. I think if we look at jobs in the organized sector, you wont get that figure. Most jobs are not in the organized sector... See, the services sector is by and large “unorganized” but that doesn’t mean it is less of a job.
Agriculture is something which you have felt very strongly about. You talk about how their incomes are not rising, you talk about making the consumer price sensitive, that they need to pay more. Politically speaking, that is suicide. If you ask consumers to pay more, it will result in inflation.
It’s not suicidal. It’s the only way we can assure our farmers a remunerative price. Look at this paradox. You want to give more for sugarcane but pay less for sugar. You want to give more for wheat but you want to pay less for atta and maida. You want to pay more for paddy but want to pay less for rice. How is this possible? Do you want agriculture to be a remunerative occupation? Do you want to be nearly self sufficient in foodgrains? You can import, small countries can import, but a country as large as India cannot. If you want to achieve these two objectives, then agriculture must remain a reasonably remunerative occupation. And India has no option but to be nearly self sufficient in most foodgrains and food items. The only way is for consumers to allocate a larger portion of their disposable income to food.
Isn’t this one of the biggest (problems for) any government that we are not being able to solve this paradox?
Because politically you cannot afford inflation?
I said you are right. I am not disputing.
Can we now at 5-5.50% (inflation) afford to let it go up a bit more?
No, we cannot. But I don’t think paying Re1 more per kg or per litre as I have argued...is inflation.
So where is the problem then? You have seen the paradox, you have identified it for us. Where is the problem? With politicians?
No. The problem is in the political system. Nobody wants to take the bull by the horns.
Not even P. Chidambaram?
Well I am only a minister, I am not a dictator.
Talking of agriculture, why are we not being able to step up the growth rate there?
We have to apply the laws of economics to agriculture as we do to manufacturing and services. Growth is a function of investment. Growth is a function of efficiency, therefore we must have more investment in agriculture. Since agriculture is by and large a private sector activity, most capital formation in agriculture will be private capital formation. Yet, the state must step in and make large degree of public investment in agriculture, which the UPA government has done from the Centre, the states are not pulling their weight.
Even the Congress state governments?
Even so, except Andhra Pradesh, where there is a very large amount of public investment taking place in irrigation.
How soon will this euphoria of a high growth rate of above 9% will peter out?
Why should it peter out?
If we don’t address the agriculture problem, you think it can co-exist?
No. We can achieve high growth rate even if agriculture grows at a slower rate, but that is not a satisfactory solution, that will mean that it is not inclusive, which why I say even while we maintain a high growth rate, to sustain a high growth rate we must ensure that agriculture grows at 4%. The difference between inclusive growth and non-inclusive growth lies in addressing issues of agriculture.
You said, at one point, that the government should collect as much as it is needed in a rational manner, who defines that? Today you can impose a new tax and say that is what I need.
Fact is we don’t. All taxes that we impose, I believe, are rational and I can defend it. I think, going by the results, we are doing the right thing as far as taxation is concerned. Corporate tax rate is 19.26%... I think the tax rates in India are perfectly reasonable, moderate and justified. Yes, there are problems in the way we administer the tax, problems in the way we collect our tax. This is a legacy issue. I am trying to simplify them, I am trying to make things easier for people. I am not saying we have completed the task.
You write somewhere that every commerce minister should fight his customs duty battle in the North Block corridors. Do you entertain their battles when they ask for reductions, when they ask for sops?
Actually, it is the finance ministry and I who are driving the effort to reduce customs duties. The reaction to reduction of customs duties is coming from industry and sometimes—not always, sometimes—from the department of industry. We are proactive in the sense that we want customs duties to come down.
Have you done enough to come back (to power) after 22 months?
I cannot say with any surety for there are 545 constituencies in India. Each has its own dynamics but surely, we have done enough for people to realize that there is a significant change in the whole economic outlook of India. For the first time the world is recognizing us as a emerging power. The criticality of high growth should not be minimized. My job is to ensure growth remains high.
What worries do you have?
There are many worries like declining export competitiveness, worries about interest rates, but the larger worry is, “Do we have a strong enough political consensus to drive the reforms forward?” And all departments need reforms.