P Chidambaram interview: “The economic situation is grave”
In an interview with National Herald, former Finance Minister<b> </b>P Chidambaram takes a reality check on the economy, noting that agricultural growth is very slow and credit to industry has fallen to 1%
Petrol price has reached ₹90 in Maharashtra. The rupee almost fell to 73 against the dollar. There are no jobs and fiscal deficit is under pressure. The current account deficit is set to rise. Exports are down for four years, so is manufacturing. Agricultural growth is at its slowest in more than a decade. Credit to industry has fallen to 1%. With international crude prices showing no signs of falling and price rise imminent, National Herald’s Tathagata Bhattacharya caught up with former Union Finance and Home Minister, senior Congress leader P Chidambaram for a reality check. Excerpts from the interview:
There is a lot of apprehension about the falling rupee and rising fuel prices. What should people of India be worried about right now and in the long term?
The first biggest blunder was demonetisation. It derailed the economy. It destroyed hundreds of thousands of MSMEs and nearly 1.5 crore jobs were lost. The government, even today, fails to acknowledge that it was a big blunder. Before they put back the economy on the rails, the government went ahead and implemented the Goods and Services Tax in a great hurry. There was no magic about July 1, 2017. Nothing would have been lost if GST implementation began on October 1 or January 1, 2018. So, an unprepared government, an unprepared infrastructure, an unprepared trading and business class had to face GST and that made the situation worse. On the other hand, the government neglected many of the ideas that were announced: Make in India, Skill India. All those fell by the wayside. Exports were neglected. In the four years of the Modi government, export growth is negative. In none of the four years, merchandise exports has crossed the $315 billion mark that was achieved in March, 2014. So, one mistake after another has led to a situation where the economy has developed very serious stress points. Unfortunately for the government, the external situation is also not favourable with rising crude oil prices and rising tensions in the Middle East.
How has the Modi government fared on jobs? On one hand, Labour ministry’s employment survey has been discontinued but the government is claiming it has generated many jobs. What’s the real picture?
The government is making false claims on jobs. Mahesh Vyas of the Centre for Monitoring Indian Economy has pointed out that total employment in the country has been falling in the last three years, year after year. I think Mr Nitin Gadkari, in an unguarded moment, blurted out the truth. “There are no jobs,” he said. Both empirical and anecdotal evidence point to the fact that jobs are not being created. Yes, there are replacement jobs. When someone retires or dies, someone gets a job. But there are no new jobs being created. Look at the number of applications for some 84,000 railway jobs. It’s over 25 million. I don’t deny that the applicants’ number was always higher than the number of jobs but these numbers are humongous, unprecedented. We have PhDs and post-graduates applying for peon’s jobs. This is again unprecedented. I think the Labour department should resume its surveys. The fact that it has been told to stop its survey raises grave suspicions.
A few days back, the Niti Aayog chairman had blamed former RBI Governor Raghuram Rajan for the dismal state of Indian economy. However, a scan of Rajan’s tenure and the statistics tell a different tale. On many other counts, we have seen the government taking recourse to questionable facts and data to ward off criticism. This is a new phenomenon in Indian politics. How does the Opposition counter this?
Governments, I concede, tend to exaggerate but unlike any previous governments, the Modi government puts forward completely fake claims. The counter to fake claims is to continuously and vigilantly fact check every statement that they make. Fact checks and putting out the truth is the answer to their fake claims. For example, CMIE’s data on jobs is irrefutable. I think that is the best way to answer these false claims.
Arun Jaitley has said there is no reason to panic vis-a-vis the falling rupee. He has also said that the tax base has been widened. What does the Central Board of Direct Taxes data tell us?
I agree that the government should not panic but it does not mean that the government should not do a reality check. We are asking the government to do a reality check. Take for example, the government’s claim on Direct Taxes. About 5.4 crore returns have been filed in the current year so far. But one crore of those declared a nil-tax liability and they pay no Income Tax at all. Why are you compelling them to file the return? It’s a huge burden on the system. And for all these rise in returns, the increase in Direct Tax revenue is only 6.6% against a budgeted increase of 14.4%. So, while the returns are being filed, the tax paid under each return is a very small amount. Even if you look at Income Tax alone, IT collection has increased by about 11% but the budgeted increase is 19%. So more returns do not mean more tax. It simply means that more and more people, out of fear, are filing returns.
How do you think this government has handled the windfall that they got as crude prices dropped to abysmal lows? Has it managed the finances well?
They blew a great opportunity. When crude oil prices fell to $28 dollars a barrel, and remained below $40 for nearly two years and, even after that, remained well below $60 a barrel for another year-and-a-half, they should have used these three-and-a-half years to consolidate India’s finances. They did not as can be seen from the fact that in four years, they have been able to reduce fiscal deficit from 3.5% to 3.3%. So the government did not use the bonanza of low oil prices or low commodity prices either to boost investment or to consolidate the financial position.
When crude oil prices fell to $28 dollars a barrel, and remained below $40 for nearly two years, they should have used that to consolidate India’s finances
Where do you think this money went?
Oh, this money went to all kinds of wasteful schemes. Unless one has all the data, one can’t, from the outside, explain where the money went. It’s only when you are in the government and look at all the data that you are able to reach a conclusion.
Whenever this government is quizzed about the rising NPAs in the banking sector, they point fingers at the former UPA government. They say the UPA gave bad loans and the banks are suffering. A few days back, none other than Prime Minister Narendra Modi said that Congress only gave loans to the ‘Namdars’. What’s the reality?
The NPA situation is grave. First, the government pressed the panic button whereas it should have handled it quietly and should have firmly told the bankers, “You lent the money, you recover the same.” We have had two bad NPA situations in the past. One during Mr Yashwant Sinha’s tenure as Union Finance Minister, in all likelihood it was 1998-99, and again during 2007-09. But there was no panic. We stabilised the banking system. On March 31, 2014, the NPAs were ₹2.5 lakh crore. Today, it has crossed ₹10 lakh crore. It has perhaps touched ₹11 lakh crore. What does it say? According to me, it says that accounts which were performing on March 31, 2014, have become non-performing subsequently. If the account became non-performing after the NDA took over, how can you blame the previous government? One of the reasons they became non-performing is the decline in the growth rate after demonetisation. But that is again the doing of this government. I have asked a couple of questions to which there have been no answers so far. One, how many of the loans given by the UPA government were renewed, rolled over or evergreened by the NDA government? If the loan was such a bad loan, why did you not simply recall the loan? Two, okay, the UPA government gave loans. Now, you tell us how many of the loans given after May 2014 under your dispensation have turned NPA. Now there are no answers to these questions. The NPA situation has reached a point where banks have no money to lend and bankers have no appetite or courage to lend. If this is the situation, how will industry grow? Credit to industry is at a low of 1%.
What’s your take on the agriculture sector? Farmers are definitely not happy and agricultural growth is slipping.
You see it’s a complicated situation. Agricultural production is rising year after year which means farmers have become more productive and investments in agriculture are yielding results. However, no farmer is happy because nine out of ten farmers find that farm income is inadequate to support a family. MSP attempts to address the issue of farm income. But MSP is not available to nearly 90% of farm production for one reason or the other. In fact, MSP is not effective except for paddy, wheat, sugarcane and cotton. And even most farmers growing these crops don’t get MSP for their produce. There is no effective procurement system in most states. I think only five or six states have an effective procurement system. So MSP is not an adequate answer to the distress of the agricultural sector. Other answers have to be found and this government is incapable of finding those answers.
The economy is in trouble. The country’s social fabric is in tatters. The nation is witnessing a new form of politics where propaganda and falsities rule the roost. As the Opposition, what are your plans to counter this brand of politics in 2019?
The Opposition will unite because every Opposition party, the Congress at the national level and every other party at the state-level, has a grievance against this government. The Opposition will unite through state-specific alliances. There will be this broad national coalition but that will be made up of actually state-specific coalitions. In UP, there will be one kind of a coalition, in Bihar another kind of a coalition. In Bengal, there will be a third kind of a coalition and a fourth kind in Kerala. I have always taken the view that India’s parliamentary elections since 1989 are only a collection of state elections. And, I think it is possible to put together state-specific coalitions in at least 25 states. Maybe more. If these state-specific coalitions are formed, the BJP will find it difficult to win any of these states. The BJP will still win a certain number of seats but they will not win enough seats to form a government. Between the Indian National Congress and state-specific parties, they will have a majority of the seats.