respect to your book, what exudes in every word is your conviction about liberalisation,
about reforms, your sincerity about the idea of market and reforms. If this is
the real, Mr Chidambaram then you maybe a slightly unhappy man with your government.
There are after all several places where the government has not really respected
market or reforms or liberalisation.
am not unhappy. When I took on this job, I knew that I was taking on a job in
a coalition government and within days, we were given a common minimum programme.
unhappy; I have to work within the limits set for me; I have to play within the
field. But I am confident that even if we implement the CMP as it is, much reform
would have been done in India and then we can go forward from that.
of the principles that you believe so sincerely in this book are thwarted by the
government. For instance, the way in which cement prices were handled clearly
against market forces or for that matter reservation in private sector or the
thing about CEO salaries, all these are against the market principles that you
have got two - three things, which don''t fall in the same category. Take cement
prices. It''s the very writers and articulators of market principles who also invented
the word cartel, who also invented the word monopoly pricing, who also invented
the word predatory pricing.
Therefore, there is nothing in my principles,
which would warrant that I should not urge industry not to act like cartels and
not to exercise predatory pricing. Take, for example, CEO salaries. When has the
government suggested, and I am absolutely clear in my mind that the prime minister
did not suggest that we should legislate on CEO salaries.
that he pointed out was there must be a reason and justification for CEO salaries
and I think the refrain will be taken by others - shareholders meeting, stake
holders meeting will ask why do CEOs deserve so much as salaries and that is very
we also know that we are living in a time when employment or getting quality employees
is a problem?
We are not talking about middle management salaries. We
entirely agree that professional people, skilled people, must be retained in this
country. They must be paid near global salaries. We are talking about huge compensations
to CEOs. We don''t intend to legislate. We are simply appealing to shareholders
to ask the question, ''why does the CEO deserve so much?''
general would you say that since this book was largely written when you were not
in our power, is it easy to be a liberal in the opposition and more difficult
when you are in power?
No. Not necessarily. I sharply cut direct taxes
when I was in power and in the years that I was not in power, I did not advocate
a further cut in direct taxes.
when I am in power now that I have said there is scope for further deduction if
compliance improves. So that proves the point that you can be a liberaliser even
when in power.
me come to a specific point about forex flows. There is a point where you are
almost chiding Mr Jalan, asking him to be a little bold about forex flows and
use of forex flows. Do you still advocate that forex reserves should be used?
And we are doing it.
wouldn''t think that it would increase money supply?
Not if it is spent
outside the country and that''s what we are doing. We allow companies to take out
capital, three times of net worth or so.
have liberalised imports, which means the money will be spent outside the country
and we will even set up in the next two-three months the SPV that I promised,
outside the country that will borrow from the Reserve Bank of India through the
government of India and will co-finance ECBs for capital expenditure outside India.
>As long as the
Forex is spent outside the country, it is not inflationary.
have really no discomfort at all with the kind of effects of liberalisation or
capital account convertibility that you advocate in the book?
I have; but
I think they are manageable. All the developed economies of the world are either
fully convertible or nearly fully convertible; they manage their economies. So
we aspire to be a developed country.
must learn to manage fully convertible or nearly fully convertible capital account.
was desperation in the tone of some of the speeches of reserve bankers and deputy
governors on forex flows. In fact, one delivered just yesterday says how long
can we manage to simply build up our reserves and sterilise them with MSS, which
is the cost of the fiscal or the CRR, which is the cost of the banks. There is
a feeling that this system can''t go on. Do you share that kind of desperation
on the situation?
This question goes beyond the book but I will make an
allowance to answer this one question.
point is that I don''t envy the job of the central bankers. But we must learn to
manage large capital account flows and the only way to manage large inflows is
to evolve a set of policies that will encourage large outflows too. If inflows
and outflows are equally large, then it is manageable.
at a time when these capital account convertibility measures are announced where
you ask your citizens to invest abroad
to have capital savings abroad, precisely
at that time, the money never goes out because India happens to be the best destination
for those savings?
Not right. I know your views on the subject. But I
think if we aspire to be a developed economy, we must learn to manage a nearly
full capital account convertible economy. That is why the prime minister used
the expression fuller capital account convertibility.
have said at one point on forex that too much of a good thing is never enough.
Are you convinced that at this point of time, forex flows should not have any
controls whatsoever? After all, a lot has flowed into real estate and has created
its own asset price inflations. Are you sure that you are happy with the way forex
flows are flowing in and there is no need to control them?
I am quite
clear. We should not impose quantitative controls; that would be a retrograde
step. You can''t say 16 years after liberalisation you will put quantitative controls
on capital flows.
you can make things a little more difficult. You can throw some sand in the wheels;
but I think we must learn to manage the flows, not go back to the days of quantitative
statement of yours on record says at one point in time, that the finance minister
is a playmaker and he really goads his team to go into reforms. But lately, your
Budgets are more like an accountants budget, you don''t put too much of you policy
or your vision into it?
That is not quite right; I sat down one day in
Parliament and made a long list of Budget announcements in the four budgets and
it ran into two pages. A number of initiatives are announced in the Budget after
consulting the Prime Minister and with his consent. That is the way to trigger
I can give you number of examples of initiatives taken through
the Budget. But the Budget is essentially a statement of account; that is what
the Constitution says. So how can you neglect your basic duty of presenting a
statement of account, income, and expenditure? But part A of the Budget speech
is number of initiatives.
of the statements that you make in your book is that our forgotten fields
you accuse the government of the day of literally forgetting the agricultural
sector and you enumerated a number of points; most important among them being
higher prices for agricultural products. Is that something this government can
really deliver because it probably leads to other problems of inflation?
1999 and 2004, the minimum support price for wheat was increased by only about
Rs50 - an average of Rs10 per quintal per year
in three years.
(the UPA) have increased it by Rs160 or so. So we have given more prices to the
farmers. But we have not be yet able to convince our consumers; something, which
I write about in the book, that consumers in India must be prepared to pay Rs1
per kilo or per litre to the farmer if farming must remain a remunerative activity.
twice about buying a bottle of mineral water for Rs10 or Rs12, but if price of
wheat goes up by Rs1 or price of sugar goes up by Rs1, the consuming class complaints
and because we are caught between rock and a hard place, we cannot do more for
also remember that the aggregate measure of support or AMS to farmers in India
is still negative, which means the farming community, the producing community
is subsidising the consuming class. We need to pay our farmers more. But before
we do that, we must convince our consuming class that it is in our self-interest
to keep farming a viable and remunerative activity in India. We have not succeeded
in that yet.
the next two years you think that some such headway will be made?
trying to tell our people that otherwise, we will be dependent on imports and
I have argued passionately; in the Planning Commission, the NDC (national development
council), a country as large as India simply cannot be dependent on imports. We
must be self-sufficient or at least nearly self-sufficient in food grains, oil
seeds and pulses. There is no other way for a large country.
point out a puzzling arithmetic which is probably bedeviling the economy that
agriculture employes, about 70 per cent of the population but it contributes only
25 per cent of the GDP. That was in 2002-2003 when you were writing; the ratio
has only gotten worse. Would not that be an indication that your government also
has not done its part?
It''s inevitable; the share of agriculture in the
GDP will decline because agriculture cannot grow at 9 or 10 per cent. At best,
it can grow at 4 per cent a year average. So as a proportion, it will decline,
that is simply basic school level arithmetic.
must follow is that we should employ fewer people?
What must therefore
follow is, we must create more job opportunities outside agriculture.
what we are trying to do is, since we cannot create that many jobs in services
or manufacturing immediately, we are trying to create more non-farm or off-farm
activity like poultry, piggery, dairy and other activities like fishery, which
will supplement on- farm activity.
in the long run, the answer is to wean a large proportion of the agricultural
work force or at least their children to the services sector and to the manufacturing
sector. The best employer will be the services sector like in any other country
in the world.
that light, you made a statement saying ask Narayan Murthy to promote the Taj
that was the advice you gave. How did you come with such out-of-the-box idea?
I would. If I had the power to do it, I would. I would tell him, this
is the statement you made and now I am giving you the chance to promote the Taj
and bring so many tourists to the Taj.
you must give him authority for that. We must give him authority over a land area.
Say, within a 20 km radius of the Taj, you must give him authority to acquire
or purchase land, to put up the hotels and the resorts to attract the honeymooning
couples or those who are spending their wedding anniversary. Please remember,
that is in the context of enticing people to spend their wedding anniversary.
If you give a challenging task like that, I am sure Narayan Murthy or
someone like him should be able to accept the challenge and deliver. Mr Shreedharan
is delivering; so why should anyone not deliver the Taj to us.
point is, this is the out-of-the-box idea. But we don''t see so many such out-of-the
-box ideas or any such ideas implemented even in your tenure. You think you will
be able to do that in the next two years?
What is the out-of-the-box idea?
Something, which is unconventional. There are numbers of unconventional things
that have been done. Except that, since so much has been written about or talked
about it, people don''t notice it.
when this government came into office, there was not a hope on earth by anyone
that the FRBM (fiscal responsibility Budget management) Act would be implemented.
We notified that within weeks after coming into office. Not only that, we are
sticking to the law.
will bring the fiscal deficit down to below 3 per cent and we will wipe out the
revenue deficit. Now you can call that an out-of-the-box idea or you can call
that a very conventional idea.
point is that it has been implemented is being implemented. I can give you any
number of other things. All this has not happened by accident - 7.5 per cent,
9 per cent, 9.4 per cent. Notwithstanding what some scribes will say, this is
not an accident.
next big issue for the Indian economy is the infrastructure. We speak to a lot
of experts on CNBC-TV18 and one of the statements they make, is that there is
no problem with the Indian private sector; got a huge number of micro stories,
not 10 companies, not 20 companies; 200 companies, which will qualify for global
standards of corporate governance, accounting standards, the works.
is why FII gets attracted. But FDI depends on infrastructure and depends on the
consistency of government policy delivery. And you have repeatedly chided prior
governments for not being able to be consistent on their FDI policy. Would you
say that your government has delivered on that issue?
We have not gone
back on any FDI policy statement that we have made. In fact, the effort is to
take it forward. Last year, we got $16 billion of FDI. Is that an accident? Only
a few years ago, we were talking about crossing $10 billion.
when we actually got $16 billion, nobody even blinked, not even raising the eyebrow.
The fact is $16 billion flowed in last year and what my colleague tells me is,
that this year also we will get the same amount of FDI.
think he said $30 billion.
is wrong with our infrastructure is, not that we are not adding to infrastructure,
not that we are not adding to capacity, but what we add still falls short of what
we need and the pace at which we add, still falls short of the pace at which we
need to add.
Suppose we had to build 20km of national highway a day and we
average say 11km, then there is a shortage of 9km a day.
we need to build a power plant in 24 months and we take 36 months to do that.
For the 12 months, that power is not available. We are adding to infrastructure
capacity. But I concede the point, we are not adding as much as we should nor
are we adding at the pace at which we should.
particular power because you have devoted a whole article to shortfall in power
and shortsighted policies followed by state governments. Would you not say that
that charge can be applied to the UPA government?
Yes it can. In terms
of delivering on the power sector, 8th plan, 9th plan figures, which are given,
show that we did not even reach 50 per cent of the planned target. Likewise in
the 10th plan as against a target of about 41,000 mega watts we added only 21,200
megawatts just a little over 50 per cent.
charge will apply to the present government, three years of this government and
two years of the previous government, so we share the blame. That''s a classic
example of our inability to deliver what we have promised on the power sector.
China adds 100,000 MW every year and our goal for the entire 11th Plan is only
78,000 MW and, therefore, we need to learn from other countries.
you think that in the remaining two years some progress can be made on that your
views on FDI in insurance, or FDI in telecom or thoughts that you hold dear to
FDI In telecom has gone through. I am confident we convinced
the allies that the reason why we are asking for an increase in the FDI cap is
not because of any ideological predisposition, simply that these companies require
more capital and now if they tell me another way to raise this capital, then I
will be quite happy to listen to those ideas.
The point is that capital
brings the technology, the product, brings the new systems, which are required
in insurance. We must remember that India is one of the most under-insured countries
in the world.
number of Indians do not know of any insurance product - life, health, home, fire,
theft, riot, calamity, motor vehicle; no insurance at all. We are the most under-insured
country in the world and this requires massive capital.
the only way to bring in capital is Indian capital and foreign capital, in more
or less equal measure. It will lift the burden on the Indian entrepreneur, it
will impose the burden on foreign entrepreneur; but control will still be in Indian
hands because Indians will still control 51 per cent.
are convincing the convinced.
I am trying to convince my viewer today and I hope that I will be able to convince
our allies too.
of other things which you hold dear to your heart - for instance banking consolidation
and the income tax reform bill which one thought would be underway; can you set
some goals, do you think these two goals you will see some progress made on these?
income tax code will be introduced before the end of the current calendar year.
In fact I have already spent nearly 15 hours on drafting the code and they are
asking me to spare another 7-8 hours.
the code will be introduced before the end of the calendar year then of course
it has to go through the legislative process - committee, Parliament, law ministry,
banking consolidation we are not forcing anyone to consolidate. I am only pointing
out that the world over; consolidation is taking place including in China. What
does that mean? It means Indian banks, which are relatively small-sized today
will become even more small-sized relatively and that means they will be cut out
will not be able to fund major mergers, acquisitions, takeovers, restructuring.
They will be cut out of action. The only way therefore, is to consolidate first
among banks in India and then look for opportunities to acquire banks abroad.
But we are not going to force anyone to do that. I am still confident that managements
and unions of Bank A and Bank B will voluntarily come forward some day and say,
we wish to consolidate.
manner in which the forex flows have come in and the manner in which the rupee
has probably hurt a lot of commoditised exporters, do you think there will be
some kind of a rethink on the part of the government on helping certain communities
that have been deeply hurt?
Yes, textiles, leathers. They have met me and
I said, we would find ways and means in which we can lend them a helping hand.
But in the medium- to long-run, they would have to become more efficient more
competitive; price alone is not the factor by which you acquire and secure export
You do that by scales, by delivery, by quality, by design, by
brand equity and there are other hosts of factors, which have to play. In fact,
what they told me was not that they cannot adjust to the sharp rupee appreciation
it just it happens too sharply and too quickly.
this appreciation, say between January and May, happens say, over 18 months, they
could have adjusted. I think there is force in what they say and we said we will
look into this.
this entire collapsing of the rupee surge in three - four months was primarily
because the flows at that time were so severe or so huge and they don''t show any
signs of flagging at all. So do you think that you will have a rethink on hedge
funds? Will you start scaling or spacing out the kind of liberalisation that your
are thinking of?
Your idea of liberalisation is very different. Liberalisation
does not mean gong back to quantitative controls. Liberalisation means managing
a changed situation. The yen has moved from 130 to 98 per dollar, today the euro
is 1.3 to a dollar. Germany is still a large exporter the largest exporter
in the world.
am not saying that we have all the advantages of Japanese and German exporters,
we do not have. My sympathies are with Indian exporters. But the point is while
we can lend a helping hand for the short term; in the long term, Indian industry
including Indian exporters must prepare themselves for competing in the export
market, not only on price but on other factors.
rupee will appreciate; the rupee will depreciate. In 2005, many of our rivals''
currencies appreciated. They didn''t lose their market shares. Relative to 2005,
our currency has appreciated but if
you go back to 2001 there is hardly any relative change between our currency and
rival exporter''s currency. Lets not get into details I recognise the fact
that the sharp appreciation may have caused some discomfiture to our exporters
and we said we would look into it.