New Delhi: A day ahead of the United Progressive Alliance (UPA) formally beginning the process of forming the next government, former finance and home minister P. Chidambaram spoke with CNBC-TV18 executive editor Shereen Bhan. Edited excerpts:
Plain speaking: P. Chidambaram. Madhu Kapparath / Mint
The stock markets seem to have given a vote of confidence to the fact that we have got a stable government. Your initial thoughts... What would your message be as former finance minister to both domestic and foreign investors, and to Indian companies?
This response from the market was expected. Over the weekend the message has gone out loud and clear, that there will be a stable, strong government, a government that will run its full course for five years under Dr Manmohan Singh. That is a positive. Secondly, the Congress party’s manifesto is a crisp document that spells out our plans and the Congress working committee (CWC) resolution yesterday (on Sunday) reiterated that we will forge ahead on the path of faster and more inclusive growth. All these are positives to which the markets have responded, and I’m sure the government will.
Can you give us a sense of what the thinking is within the Congress? The manifesto has spoken about a budget within the next 45 days. Are you sticking to that timeline, and what can we actually expect from this budget, given the fact that we are facing a global slowdown? Do you think there is room or necessity for another stimulus package?
We promised that there will be a full budget in the next 45 days, and we intend to keep that promise...45 days from the date of government formation. As far as another stimulus package is concerned, that is a decision (to be) taken by the finance minister in consultation with the prime minister after the government is formed. I think it is premature to talk about another package now.
The Congress manifesto did not talk about contentious issues. It did not talk about insurance, did not talk about pension reforms, it did not talk about the banking Bills. Will these Bills go through, because we know that they have the Congress’ approval...in a lot of cases even the group of ministers’ approval?
There is no need to talk about issues that the government has already taken decisions on. Please remember, on the insurance Bill—the government took a decision and introduced the amendment Bill. So those are decisions that have been taken. Why should a Congress government go back on those decisions? What that manifesto spoke about are new issues, or issues that required further articulation.
There is anticipation, or at least hope, as far as the technology sector is concerned that in order for the sector to be cushioned from the global slowdown, the government may consider an extension of the STPI (Software Technology Parks of India) scheme that promises tax benefits. I know that in the past both you and Prime Minister Manmohan Singh have said that exemptions that have outlived their utility need to go. Do you think there will be extensions in schemes such as STPI?
Our basic position is that every exemption must constantly be reviewed, and all exemptions must eventually end. The question is: When will an exemption come to an end? An exemption itself cannot be a policy. That is a decision, again, which the finance minister will take.
Given the global context and the fact that we continue to see exports declining in India, we continue to see factory output numbers looking pretty abysmal at this point. What needs to be done on a priority basis to get demand back on track, to get growth back on track?
Rural demand is good. It’s demand in urban areas that has fallen. Job loss in (some) sectors has continued. The last stimulus packages took note of these and deliberately cut taxes, and I think the government will bear all this in mind, and we will do everything possible to ensure demand remains high. In a developing country, it is crucial to keep domestic demand very high, given the overall global situation. It is even more crucial now...
It is worrying that the fiscal deficit has ballooned. We understand the rationale behind that, given the global context, but how soon can we actually see the government returning to its FRBM (fiscal responsibility and budgetary management) targets? What sort of fiscal deficit number would the incoming government be comfortable with?
You can’t have it both ways. When you are stimulating demands, when everybody has agreed that demand has to be stimulated, factors that impede demand have to be cut... It will have an impact on the fiscal deficit number. So I think a balance will be struck between stimulating demands and keeping deficit within manageable limits. But we will get back (to FRBM targets), as we said in our manifesto. We will get back to the path of fiscal prudence very soon.
Perhaps one way to raise resources is disinvestment. The Congress manifesto spoke about disinvestment; you don’t have the Left parties to deal with now. We know that you are not talking about privatization, but can we expect disinvestment to be back on track?
Yes, our manifesto said that. Public sector companies will remain in the public sector, finance companies will remain in the finance sector. But if resources have to be raised, they will be allowed to go to the market.
In the last lap of the UPA government, we saw it pushing forward a review of foreign direct investment guidelines. What more will the government do? What sectors will you look at specifically in order for the message to go out to the foreign investors that India welcomes foreign direct investment?
Foreign direct investment is a way to tap into the savings of other people, other countries, for our own investment requirement. To my mind, its plainly logical, that you not only use domestic savings to increase investment, but you also use the savings of other countries. Therefore, FDI would have to be welcomed into India just like every other developing country would welcome FDI.... But FDI in a regulated manner...As long as the regulations are clear, transparent and non discriminatory, there should be no fear of FDI.
A quick word as far as the interest rates are concerned. We have seen rates coming down significantly from the highs, but this is something both corporate India and the stock markets are watching out for. Before the elections when the monetary policy was announced, there was a question mark on whether the small savings rate would be touched. That, of course, is a political issue. Do you think there is a case for a small savings rate cut?
It has been said before. One has to keep in mind the interest to both savers as well as borrowers. Small savings is the preferred avenue of savings for a large number of very ordinary people, poor people...we must be very careful. There is a case for interest rates to come down, but we also owe an obligation to people who save. No specific answers can be given to these questions unless all aspects are studied after the government is formed.