‘My vision is to get 85 percent of India into cities’

As India’s Finance Minister, P. Chidambaram must unravel some of the most complex riddles of our time. In an unusually candid interview, he spells out his committed, but debatable, vision to SHANTANU GUHA RAY(SGR) and SHOMA CHAUDHURY(SC)

A long wait in an ante-room and then the summons. A neat man in meticulous white at the far end of a football field-size room. In a stellar career, P. Chidambaram, 62, has gone from being a left-wing trade unionist to Finance Minister, driving a globalised new economy. Inevitably, he’s in the crosshair of every major argument about the future of India. Certain of his vision, contemptuous of doubting socialist romantics, in an hour-long interview he spoke less numbers, more vision, with combative eloquence

SGR: Let’s start with what’s top of mind. Inflation. Wholesale inflation just hit a whopping 7.83 percent. Given that the tolerance level for inflation has come down in India from a time when people were willing to tolerate 8-10 percent inflation, does this put your government on notice?
I’ve said this many times in the past. In the 70s and 80s average inflation was well over 8 percent, in the 50s and 60s it was even higher but since the 90s the tolerance level of inflation has come down drastically. Since the turn of this century, I think tolerance level of inflation is only between 4 to 5 percent. Therefore when the headline inflation number goes beyond 5 percent there is resentment and naturally political parties seize the opportunity to feed this resentment. We are doing everything to control the situation, but I don’t think it will have too adverse an impact on our government

SGR: What about growth? The International Monetary Fund recently said the Indian economy stands at an increased risk of overheating. Do you think there could be a backlash against fast growth in India?
What is overheating? Overheating is when you have a situation where demand is far in excess of capacity. You can have overheated segments of an economy, but I do not think, in India, that demand across the board is in excess of capacity. For example, there is a demand for steel but we also export steel. The same for cement and rice. In some markets, yes, there is very high demand and some bubbles have built up, for example, in the real estate market and may be, to some extent, in the equity market. But to say the Indian economy is overheated is something I don’t agree with. I think there is still capacity for our economy to grow at a higher rate. The consequence of arguing that the Indian economy is overheated is to slow down the growth rate. And that would be disastrous for India.

SC: In one of your budget speeches you spoke about a triad of concerns: growth, equity and social justice. The first is being globally celebrated. Do the other two give you moments of disquiet?
Everything is relative. The UPA government did not invent poverty nor can you say that pre-2004 this was a land of milk and honey and poverty has hit us only today. We have had poverty for 5000 years. We have had children out of schools for 50 years, infant mortality for hundreds of years. The point is, have our policies made a dent in these poverty indicators? Clearly, things are better. Per capita incomes have risen, fewer children are out of school, drop-out ratios are declining, even if slowly. More jobs are being created. In that sense, our policies are clearly progrowth and pro-equity. But if the question is, have we reached a point where we can say we are satisfied with the pace of inclusive growth, my answer candidly is, no. Our growth is at an impressive rate, but the pace of inclusiveness of that growth is at a very tiny rate. If we had a better system of administration, a better system of reaching benefits to the poor, greater accountability — we could have reached the benefits of this growth to a much larger number.

Let me give you just one example: the PDS. On an average, we have put 70-lakh tonnes more food grain into the PDS after 2004, compared to previous years. This should’ve taken the PDS to a larger target group but, on the contrary, due to high rate of leakage which is stubbornly stuck at 35-36 percent, the perception is that the PDS is a broken system, and people are more resentful of it.

SC: When you have undertaken such massive innovation with the economy — dismantling the socialist regime, dismantling an entire way of thinking — aren’t there real innovations you can undertake to improve these sectors?
Of course, we can. In my first budget I said, we must move over to a smart-card based PDS system. There were no takers. I have only just found two takers — Haryana and Chandigarh. The progress is at a glacial pace but at least it’s a beginning. Very early on, I also said the fertiliser subsidy must be given directly to the farmer. Even today, the Ministry of Fertilisers does not buy that idea. Therefore, while some very remarkable changes could have been brought about in the manner in which we distribute subsidies and the manner in which we reach direct benefits to the poor, since we are unable to get people to agree to change we are continuing with a broken system.

SC: What is this resistance based on?
Well, a new system is always threatening. It may succeed, it may fail. In fact, some very sincere people oppose it out of fear of failure — what if fertilisers don’t reach the farmer, what if there is a crisis in the distribution, we will have a famine in this country. But the real block is that basically everybody is loath to lose patronage. And

I am not necessarily using the word patronage in a pejorative sense. There can be patronage without any element of corruption or malfeasance, but because people don’t want to lose patronage is why you continue with old systems.

SGR: The Prime Minister has been talking about crony capitalism. You also prodded corporates recently to absorb one lakh disabled people in return for big incentives. Why should governments foot the cost of corporate social responsibility, for things that should normally happen?
Where is it ever normally done? US business did not give contracts to blacks, nor employ blacks for many, many years. You heard chairperson of the Central Bank, Ms Daruwalla, on television yesterday when she said that in 1972 she was turned down by every business house — including some Parsi ones, notwithstanding the fact that she is a Parsi — who told her that you are very qualified but we would prefer a male. So it’s never normally done. People normally do not employ disabled people. We have to woo them, and that is why we’ve offered to pick up the tab for ESI and EPF for three years if corporates employ a differently abled person

SC: But the question runs deeper. The perception today is that government policies are entirely skewed towards corporate growth. At a time when social spends have dropped, why are there so many sops for corporates?
If all this is about creating free, competitive markets, why SEZs, tax holidays, subsidised land taken over from people under the Land Acquistion Act? In fact, to correct you, we are not reducing social spending. The numbers show we have sharply increased our social expenditure.

SC: Maybe as compared to the BJP but not...
No, not correct. Education, health, drinking water, sanitation — the amount that is spent today on all this was never spent at any time in India’s history. At the same time, you have mentioned SEZs. Now I am reluctant to reply to that because I am bound by government policy.

SC: China has just six SEZs. But our Board of Control cleared more than 200 SEZs in its first sitting. I know that privately you...
It doesn’t matter what I think. We are not talking off the record, and I am reluctant to talk about it because I am bound by government policy. There is some consternation about the way the policy is operating. An empowered group of ministers has been asked to look into it. It’s taking more time than I would have liked, but hopefully some of the concerns expressed will be addressed.

SC: India’s opportunity for growth has come at a time when we can learn from the mistakes of other societies, when we are privy to new ways of thinking on environment, climate change etc. Must we insist on the same model of growth, make the same mistakes? Can’t our roadmap be different?
To an extent, but let’s not be overawed by the arguments of the developed countries that we should factor in many of the new ideas and concepts which they did not factor in when they were growing. Our emission is among the lowest in the world. If you accept that there is equality amongst human beings...

SC: But it is lowest because we aren’t at the peak of our industralisation curve.
See, we have made an offer that our per capita emission will be lower than that of the developed countries. In fact, we have challenged developed countries to lower their per capita emission with a promise that we will remain even lower. If you accept the fact that all human beings are equal, and are entitled to emit equal amounts — our per capita emission is a fraction, one-twentieth of that of the most developed countries, onetenth in some places, one-fifth in others. So I don’t think we should be overawed by these arguments from the developed countries. In our self-interest we have decided we will adopt policies and strategies that will keep emission low and reduce the rate of emission over a period of time without interfering with our high rate of growth. We are entitled to grow like those countries were entitled to grow when they had the opportunity. This is our opportunity, we are entitled to grow.

SC: But our industrial projects, our growth centres, our cities have zero concern about environment, human life. Shouldn’t quality of life — a sense of well-being — be a factor in the growth story? France is revising what its GDP should mean to include the intangible but crucial idea of “well-being”.
Yes, but that’s after you reach a certain level of GDP, a certain degree of per capita…

SC: That’s the point. First we must arrive at the crisis, then we will look for the remedies.
Poverty is the worst polluter. If you are poor, you live in the most polluted world. The sanitation is poor, the drinking water is poor, the housing is poor, the air you breathe is poor. Everything is polluted. Poverty is the worst polluter. It’s our right, our duty, to first overcome poverty. In the process, yes, we will be sensitive to concerns expressed by other countries but not at the cost of our growth and our goal of eliminating poverty in our lifetime.

SC: The worrying thing is that on the ground the exact opposite of what you say is happening. Take the POSCO project or Vedanta or the sponge iron factories in Raigad. It is the poor who are suffering the most from the move towards industrialisation. Most of the unrest in the country today is over development projects that are anti-people — in terms of land takeover, resource usage, pollution of water and air. On the very things you talked about — air, water, basic health, basic living — the growth that is meant to alleviate poverty is adding to their misery. Do you call this inevitable collateral or would you admit the way we are going about things is wrong?
I think people are being deceived to believe that the existing state of life is an ideal state of life and development and industrialisation will make it worse. Here we talk about steel prices going up, but for three years we have stopped the world’s largest steel producer from producing steel in India. This could be categorised as a conspiracy of the socially-driven class to keep poor people poor. What is the quality of life we are talking about? They have no food, no jobs, no education, no drinking water. These districts of Orissa have remained poor since the world dawned. They live in abject poverty and you want me to accept the argument that if you set up a steel plant or mine the minerals there, they will become even poorer? What are we talking about?

SC: I am talking about the way it’s done. So what do we do?
We keep the minerals buried in Mother Earth? We keep the iron ore where it is, we keep the coal where it is and keep people poor? Is that what you’re suggesting? I’m telling you, we must develop those iron ore mines, we must mine that coal, we must build industries, we must give jobs to people. If this argument had prevailed there would be no Jamshedpur, and today the quality of life in Jamshedpur is better than in any other city in India. It has 24 hours water supply, electric supply, it has education for all its residents, and it has cleaner air than any other city. Had these people been around to advice Mr Jamshedji Tata in 1908, there would have been no Jamshedpur at all.

SC: That’s just one example, and it’s a hundred years old. I am talking about the way we are industrialising now, the complete absence of a “best practice” culture. How was Jamshedpur built?
Are you questioning the way industrialisation took place there?

SC: One would have to go back to see if there was unrest and pollution.
Look at the environment there today. They may have done some short-term damage. It might have been a curve — you might do some shortterm damage but you ride the curve, you hit the trough and then it improves. Would you have wanted them to continue living in abject poverty? Why do you assume that POSCO or the Mittals will not build in Orissa and Jharkhand a place like Jamshedpur. Why do you assume so?

SC: There’s little evidence to go by. There was a culture of collective good and nation-building which no longer exists.
I don’t agree that the only ones with consci ence and sensitivity to the environment are NGOs, and that business houses and entrepreneurs have no conscience and are totally oblivious to the larger good. I don’t agree at all. Just go to Neyveli and see. What was Neyveli? It was the poorest part of Tamil Nadu and today it is a humming, buzzing town and it has a school which has hundred percent pass results every year. The boys and girls from that school are toppers in competitive examinations. I sincerely hope you do not believe the poor enjoy a high quality of life.

SC: Our governments have been pretty derelict in regulating or nudging corporates to behave well. The Vedanta project in the Niyamgiri hills in Orissa is a good example. It earned international censure for its untenable behaviour in Orissa, a Norwegian fund even divested from it because of that. But here it took a PIL to stall the project. Would you agree that our government is failing to bat for the common good?
We have enough laws to take care of the issue. Apply those laws. If the Central or state government does not enforce environmental laws then blame that government. If the laws are inadequate, strengthen them, but in the name of the environment, for heaven’s sake, please don’t say that the poor should remain poor for the next five thousand years.

SC: Take Vedanta again. I’m asking what is the view from the other side, what is the government’s thinking on them? Even after they were stalled by the Supreme Court, the government asked it to reapply for the project under its Indian company. You argued as a lawyer for them when you weren’t Finance Minister.
In one of their excise cases. What has that got to do with this? Are you insinuating that my answers are coloured by the fact that I appeared for them? If a lawyer is pleading for a client in a murder case, does that imply that he has complicity in the murder? What is the relevance of your statement?

SC: Alright, I’ll withdraw it. I am asking, given their dismal track record in Orissa, why is the government defending their position instead of disqualifying them or pushing them towards better practices?
So do it. Who is preventing you? Apply the laws. But don’t stop the project. That’s the only way of rescuing those people from the clutches of abject poverty.

SGR: To switch track, why are you opposed to food crop being diverted for the generation of bio-fuel?
We grow food to consume it as food. We don’t grow food to be converted into fuel. Twenty percent of US corn is being diverted to fuel. Sugarcane is being diverted to fuel. Palm oil is being diverted to fuel and because of the high prices of fuel linked to the crude oil crisis, people are diverting land which is meant to grow food grain to grow crops for bio-fuels. How is this justified in a world where millions of people are still going without food? We are serious about making poverty history. We are serious about eliminating hunger and malnutrition. I think the first point everybody should agree on is that food should not be converted to fuel. If you want to produce bio-fuels using non-food, do so. Find other land to grow crops for producing bio-fuels.

SGR: What about your ban on futures trading in commodities?
The Abhijit Sen Committee said there’s no conclusive evidence that futures trade is fuelling a price rise. But it advised continuing the current ban on four commodities. Isn’t that confusing? I agree there is no conclusive evidence that banning futures trade has any impact on prices. But it was that very committee, not I, who said we should continue the ban on rice, wheat, toor and urad. When the Parliamentary Standing Committee says the same thing, if all political parties, including the BJP which introduced commodities trading in the first place, demand a ban, if people in villages start blaming futures and commodities trading as the reason for price rise, you have to heed the advice of the majority. That is what we have done. I’m reasonably sure this ban will have no impact on the prices of these items, but sometimes you do things that may have no positive impact, but hopefully no negative ones either.

SC: To come back to a question that vexes everyone. In a country as complex as ours, what is your vision for eliminating poverty? Does it mean the co-existence of rural and urban economies?
Urbanisation cannot be stopped. It is an inexorable process. All you can do is mitigate the harmful effects of mindless urbanisation by building new cities, by limiting the size of cities, by creating more green and open spaces in cities. I don’t think it’s within the power of any country or people to stop this natural progression. We must try to manage it rather than interfere with it. My vision of a poverty-free India will be an India where a vast majority, something like 85 percent, will eventually live in cities. Not megalopolises but cities. In an urban environment it is easier and more efficient to provide water, electricity, education, roads, entertainment and security rather than in 6,00,000 villages. I also believe a significant number of Indians would want to live in the countryside and continue farming. That should be welcome and we should encourage it, but it would be a much smaller number than people who have moved to cities. My vision again is that we must continue to emphasise the imperative need of growth over a long period of time. We get weary easily. We have three to four years of high growth and we sit back as though it is a given. Growth is not a given. You have to work hard for it. We have to ensure that the growth process continues for the next 20-30 years. When we have eliminated poverty, illiteracy, some of the most debilitating diseases, when we have immunised every child, when we have eliminated very basic deficiencies like lack of drinking water, electricity, rural road connectivity — at that point of time, the process will become automatic and people will themselves ensure that growth continues at a fairly sustained pace. But for that that moment to arrive, to get rid of poverty in our lifetime, we need to work very hard to sustain a growth rate of nine percent moving up to 10 percent. If you want to get rid of poverty over the next hundred years, you can have a different model or system. But if you want to get rid of it in the next 20 years, we have to work very hard for it.

SC: It sounds like a pipedream, because the experience on the ground is very different. Look at Gurgaon — emblem of India Shining, coming up on virgin land. It could have been a kind of urban utopia. Instead, there is no water, no electricity, no public transport, huge pollution, and absolutely no space or planning for the poor. Take any other B-town. Moradabad. Siliguri. Patna. Take the megalopolises — imploding under the weight of growth. The poor definitely don’t seem to be benefiting in these places.
So shall we leave people to live in these villages?

SC: I am asking is there a slower, deeper, more varied way of doing things that might not mean instant and insane wealth for a few of us, and yet ensure overall growth?
Apply the laws. Apply town-planning laws. The laws do not allow you to build without providing water and open spaces. You are passing off our collective failure to apply laws upon the model of development itself. I don’t think there is anything wrong with the model of development. It is just the unwillingness of the authorities to enforce rules and regulations. The answer is not to go back to the past and say, if we cannot apply the laws, let’s continue to live in our original state of poverty, neglect and despair.

SGR: So if you had no political constraints, how would you fix the agricultural sector?
This year, the latest assessment of 2008 by ICRA will show a growth rate of 4.5 to 4.7 percent in agriculture. We are going to end up with 227 to 230 million tonnes of food grains. So agriculture in itself is doing well. Yet farmers are poor because of the vast numbers dependent on agriculture. If the numbers were much smaller, let’s say half, you would say agriculture is doing very well in India. So I don’t think we should confuse the issue between agriculture doing well and farmers doing poorly. The way to fix agriculture is to address the five key inputs required for agriculture:water, power, seeds, fertiliser and credit.

I think we have done well on credits. We are beginning to do well on water, thanks to the massive outlays and irrigation projects. It will take some time, but when these projects are completed, we will do well on water. We have neglected seeds, we have got a completely distorted fertiliser subsidy regime, and we have failed miserably on the power front. But Gujarat has shown us the way on how to fix power for agriculture. With seeds, we made a beginning last year. We are trying to increase the replacement rate of seeds and, with fertilisers, there is a clear way out provided we are willing to bite the bullet. If all these five things come together, agriculture will grow at a very rapid rate of more than four percent a year. But even if it grows at four percent, farmers will continue to remain poor because of the large numbers dependent on agriculture. So the answer is to wean farmers away from agriculture into industrial services — not urban slums, just non-farm related activity. Do away with the romantic idea that we can continue to sustain 60 percent of our population on agriculture.

SC: Let’s go back to national resources, like minerals. When you hand over natio - nal wealth to private corporations driven purely by the profit motive, what is the logic of usage? What’s to stop them cynically destituting a place before moving on?
Don’t hand it over to a private corporation. Set up an efficient PSU if you want.

SC: But you are against PSUs. We are not, who said we are?
We are putting more money in NTPC, SAIL, NMDC. We have revived 29 sick PSUs and put aside 13,000 crores in the last four years for this. So create a PSU. But why this old mental block that private is greed and therefore bad, and public is good.

SC: There are bad examples. Union Carbide, Enron.
If you want to continue with those traditional images of public and private sector you are welcome. The point I’m making is coal and iron ore is not meant to be kept buried under Mother Earth. They have to be put to use. As for your fears about environment and overuse, when we found that mining Kudremukh iron ore is highly polluting, we stopped mining it. But the argument that resources should not be used is an argument that must be rejected. Those who say that have a vested interest in perpetuating poverty.

SC: You stopped mining in Kudremukh, but it is now a devastated place. SGR: Let’s move to another big fear. Retail. A government-sponsored study recently reaffirmed the fear that the entry of large retail formats will ultimately dry up all small and middle-level retail.
This is a genuine fear. There is no empirical evidence to show that mom and pop stores will be wiped out if retail chains come. For example, Walmart. I met its chairman the other day and he said their 47th store has opened in China and there’s no evidence that mom and pop stores in China are being wiped out. But still, the fear is genuine, and it is the duty of the government to allay that fear. And until it is completely removed, we are moving slowly and cautiously. We are not saying the fear is unjustified. That is why we have opened only wholesale, cash-and-carry and single brand retail to foreign investments. We have not yet opened multi-brand retail.

SC: How far do you see the Maoist-Naxal phenomenon related to economic issues?
The areas affected by Naxals are in a pretty bad situation. They are obviously thriving on the poverty and illiteracy of the tribal people and the State owes a responsibility here because it has not paid enough attention to those areas, nor has it respected the democratic rights of those people. The State today is seen to be in conflict with the tribals. And the Naxalites and Maoists are seen as allies of the tribals. But the answer to the State’s failure is not to encourage left-wing extremism. We have to fight the Naxalites and at the same time the State has to be more sensitive to the welfare of the tribals.

SC: The PM has brought up concerns over conspicuous consumption. Is that valid given the economy that’s being architected?
It is, but you can’t legislate on it. It can only be stopped by teaching values and ideals in schools and families.

SC: There is very little to distinguish between the economic policies of the BJP and the Congress. What does that say?
I don’t think the BJP is an originator of any economic policy. The Congress is the originator of the new economic policy. The BJP carried the ball forward in its own way, even if they made some mistakes. Therefore this question must be put to the BJP — does the BJP want to be a follower of the Congress-initiated economic policy?