EDITED EXCERPTS FROM AN INTERVIEW
Are we set to remain stuck as an economy in the GDP?
Only after second-quarter results can we make a reasonable estimation of whether the growth will be a notch higher. For about nine quarters, we have seen declining growth, but one hopes that if the second quarter shows growth above 4.4 percent, then we will see the third and fourth improving. There will be an upswing. Point is, are we still on a downslide or is there an uptick? These are not spikes. You don’t have bottoming out of growth and then a straight jump back. Point is, if you are sliding for a long period, one has to see when one reaches the nadir and then whether you climb back.
If industrial growth remains low, then what will trigger this recovery?
In agricultural growth, we will do very well. If we do better, we will produce more than last year, and then it will get reflected in the GDP. That is growth. I’m confident that the growth is visible here and it will multiply and that the economy will revive; there will be an upturn in the second half of this financial year.
Although I don’t expect you to predict, what are the signals from the bodies advising you? Are we in for a static growth period until the election?
I don’t make projections. I seek the advice of the PM’s Economic Advisory Council (PMEAC), the Economics Division and the RBI. Growth doesn’t recognise the election calendar. We have three estimates — in the RBI’s 5 percent, Economics Division’s 5-5.5 percent and the PMAEC’s 5.5 percent with an upside. Let’s see which turns out to be correct.
You have been at the forefront of rallying with global investors in the past 18 months. What’s the latest feedback coming from them?
It’s been very good in sectors like pharma, telecom and power.
How come power?
Some projects are coming on stream, and once the construction risk is over, people will surely invest. For example, Sasan II (in Madhya Pradesh) is moving. It’s the construction risk that worries investors.
How are you convinced the construction risk is mitigated? Are the investments signalling that?
Take the Tatas, who are building a brand new plant, with Rs 40,000 crore invested to make something like a brand new Jamshedpur. Somebody is giving them equity and debt. Ninety-nine projects have been unlocked and that’s not a drop in the ocean. What were you guys doing when they were getting blocked? When they are unblocked, you take a cynical view; when they were being blocked, what were you doing?
Is there a CBI witch-hunt against the corporations?
When the CBI was registering cases against ministers and civil servants, the industry kept quiet. Now when one of them has been named, they suddenly wake up. Why these double standards? An industrialist is considered innocent until proven guilty. I accept that. That’s also true of ministers and civil servants. But, where was the outcry when civil servants were being targeted?
But corporations believe this kind of a chase by the CBI is an exercise to defame them.
You wanted autonomy for the CBI, so don’t complain! When the “caged bird” phrase fell from the Supreme Court, you all applauded it.
Would you agree with industrialists when they argue that the CBI, so far, was after their corporations but now it appears to be a personal vendetta?
How can you prosecute a company unless you prosecute a chief executive? The company has no body to be kicked or soul to be damned, so you have to prosecute the owners. It’s unfortunate, but then how do you prosecute a company without prosecuting its bosses?
But Mr Chidambaram, would you agree some of these cases are far from reaching the level of prosecution or being proven?
They haven’t. But even in an investigation, how do you go ahead and probe a company without naming somebody? It’s sad, but that’s the hard truth.
There is the fear even among foreign investors that Indians themselves want to exit the country due to the investment climate.
All I know is that very large investors have set up projects in India and many more are in the process of doing so. One or two who choose to move out for whatever reason do not represent a trend.
There has been a lot of opening up in the past 12 months, such as FDI in aviation, retail and telecom… While the government is being applauded for it, some people are also pointing fingers at the timing of these reforms.
How do I decide the timing? I came back to the finance ministry in August. Within days, we planned what we wanted to implement. I could only do it thereafter.
Do you think that FDI in retail was a bit rushed?
Everyone is focussed on one multi-brand retailer, Wal-Mart. Please remember, the country’s retail sector is led by thousands of retailers. It’s driven by Indian multi-brand retailers, the mall brand of retailers, and so on. If one well-known multibrand retailer has difficulties in accepting the Indian model and the Indian policy currently in force, that’s unfortunate. That doesn’t mean no other retailer will enter India.
There is a reason I go back to the timing of these reforms… Hasn’t the general economic slowdown impacted the gusto with which these investors once looked at India?
That’s because the investor countries are also constrained. Constrained by the banks, constrained by the capital they can raise. Some of that will indeed get reflected in the amount of money that they will invest overseas.
When you got into UPA-1, we were on an upward economic journey. Did you anticipate things would turn so much worse, given that we hit 8.5 percent growth at one point, and particularly that there would be a breakdown between corporations and government?
When I left the government, we were averaging 8.5 percent growth, but since then there have been both external and internal events that have affected our long-term growth rate. Despite the slowdown of the past two years, the average of the past nine years is still 7.5 percent. The whole world has slowed down. China has slowed down by 250 basis points (A unit used to calculate changes in financial instruments such as interest rates and equity indexes) and India has also slowed down by about that much. Growth can only take place if you do the right things. If you do the rights things, everything will fall in place.
You say ‘if you do the right things’. What are these?
We are containing the fiscal deficit and the current account deficit. We are also taking steps to contain inflation. We are pushing for more foreign investment in crucial sectors. We have done a number of things to liberalise the capital market. We have recapitalised our banks. We are opening up the banking, pension and insurance sectors.
When are you opening up the banking, pension and insurance sectors, given that there is still some opposition towards these reforms?
We are opening up banking. By January, we will have new bank licences for sure. We have opened up the pension sector, as we have a statutory authority now. If the principal Opposition party cooperates, then we can also have the insurance Bill passed before December.
So are you convinced that we will have some of these reforms sealed before the vote on account — as we do not expect a full Budget in an election year?
Reforms are a continual process. Every day we take a step. In the past 450-odd days, I can list at least 200 steps we have taken. But one has to be patient. If the external environment is friendly or turns more friendly, you will find success.
What are the internal challenges?
Why has the GST (Goods and Services Tax) been blocked? Why is insurance not being cleared? Why are some states loath to take steps against profiteering? That’s a part exclusively for the states. There are challenges because people are stopping mining, power plants, steel plants and dams. How do you execute projects if that happens all the time? How do you produce more power or produce more steel then?
What’s the solution there, Mr Chidambaram? How do you convince people that there is indeed a government-people dialogue in place?
Democracy is the worst form of government, but there is nothing better. We cannot have a government of unelected people. The system we know is a government of elected people. If the elected people don’t deliver, the answer is to throw them out. The answer is not to have a government of unelected people. Therefore, right or wrong, if you believe in democracy, then you have to keep your faith in the elected representatives. If they do the wrong thing, throw them out after five years, but at least given them the space to do things. At every turn, the elected government cannot be interrupted.
India Inc believes there are only two people in the political scene today who have some clarity of thought and they are yourself and Narendra Modi. How do you differentiate your style of economic management from Modi’s potential style?
My views are on record. Mr Modi is still an enigma. He hasn’t yet spoken on GST, insurance Bill, etc. He tried to stop the Food Security Bill even when his party was supporting it. But he would not come out and talk about it. He hasn’t spoken on the current account deficit, divestment or FDI, so why do you compare me with him? He is still a closed book. Only when he speaks on these issues will we know whether he has the capacity to run an economy.
What about Modi’s discourse on youth and jobs?
I don’t believe he has a solution on the jobs front. When you say jobs, what do you mean? Are jobs going to be created in manufacturing? In which event, you have to outline a manufacturing policy. Are they going to be created in agriculture? What’s his vision? I have not heard Modi spell out his ideas.
On the jobs front, has it become harder for the UPA to rally on the subject given that Planning Commission data suggest jobs growth was stunted during the peak growth years?
That’s not correct. The number of people who entered the labour force declined substantially because more women remained in schools and colleges. You can’t look at only that statistic. Jobs have been created if you take it as a proportion of the people who entered the labour force.