vision is to get 85 percent of India into citiesí
As Indiaís 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)
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, heís 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
start with whatís 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?
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 donít think it will have too adverse an impact on
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 donít 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 ó 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 shouldíve 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 ó dismantling
the socialist regime, dismantling an entire way of thinking ó arenít 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
ó Haryana and Chandigarh. The progress is at a glacial pace but at least
itís 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
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 ó what
if fertilisers donít 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
Chidambaram does not want to ruin his own copybook but the
rising international crude prices, fuelling an all-time high inflation,
are making things difficult for the country's erudite finance minister.
Days before he sat down for this no-holds barred interview at his
office in the imposing North Block, the FM had rejected demands from
the oil ministry for bonds to bail out ailing PSUs and angered the
cement lobby by forcing the cement companies to lower prices.
Click below to post your views on eleven interesting issues raised
by the FM in the interview :
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 donít
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 ó including some
Parsi ones, notwithstanding the fact that she is a Parsi ó who told her
that you are very qualified but we would prefer a male. So itís never
normally done. People normally do not employ disabled people. We have
to woo them, and that is why weíve 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.
as compared to the BJP but not...
No, not correct. Education, health, drinking water, sanitation ó the amount
that is spent today on all this was never spent at any time in Indiaís
history. At the same time, you have mentioned SEZs. Now I am reluctant
to reply to that because I am bound by government policy.
has just six SEZs. But our Board of Control cleared more than 200 SEZs
in its first sitting. I know that privately you...
It doesnít 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. Itís taking
more time than I would have liked, but hopefully some of the concerns
expressed will be addressed.
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? Canít our roadmap be different?
To an extent, but letís 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
SC: But it
is lowest because we arenít 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 ó 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 donít 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. Shouldnít quality of life ó a sense of
well-being ó be a factor in the growth story? France
is revising what its GDP should mean to include the intangible but crucial
idea of ďwell-beingĒ.
Yes, but thatís after you reach a certain level of GDP, a certain degree
of per capitaÖ
the point. First we must arrive at the crisis, then we will look for the
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. Itís 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 ó in terms of land takeover, resource usage, pollution
of water and air. On the very things you talked about ó air, water, basic
health, basic living ó 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 worldís 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 itís 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
youíre suggesting? Iím 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.
just one example, and itís a hundred years old. I am talking about the
way we are industrialising now, the complete absence of a ďbest practiceĒ
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 ó 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?
little evidence to go by. There was a culture of collective good and nation-building
which no longer exists.
I donít 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 donít 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 heavenís sake, please donít say that the
poor should remain poor for the next five thousand years.
SC: Take Vedanta
again. Iím asking what is the view from the other side, what is the governmentís
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 werenít 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
Iíll 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 donít stop the project.
Thatís the only way of rescuing those people from the clutches of abject
SGR: To switch
track, why are you opposed to food crop being diverted for the generation
We grow food to consume it as food. We donít 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.
about your ban on futures trading in commodities?
The Abhijit Sen Committee said thereís no conclusive evidence that futures
trade is fuelling a price rise. But it advised continuing the current
ban on four commodities. Isnít 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. Iím 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 donít think itís 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
ó 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 ó 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 ó imploding under the weight of growth.
The poor definitely donít 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
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 donít 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, letís continue to live in our original state of poverty, neglect
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, letís say half, you would say agriculture
is doing very well in India. So I donít 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 ó 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.
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? Whatís to stop them cynically destituting
a place before moving on?
Donít hand it over to a private corporation. Set up an efficient PSU if
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.
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 Iím 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: Letís 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 thereís 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 Stateís
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 thatís being architected?
It is, but you canít
legislate on it. It can only be stopped by teaching values and ideals
in schools and families.
is very little to distinguish between the economic policies of the BJP
and the Congress. What does that say?
I donít 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 ó does the BJP want to be a follower of
the Congress-initiated economic policy?