P Chidambaram says there cannot be two systems in the country, one for the rich and another for rest
On 30th anniversary of liberalisation, the former FM explains that our growth rate has plummeted and sooner the country realises the folly of current policies, the faster will be the economic recovery
Former Finance Minister of India P Chidambaram, in an exclusive interview to National Herald on the thirtieth anniversary of liberalisation, said that the current economic situation requires a complete rethink and revamp of the economic policies that are being pursued by the NDA government.
Chidambaram, who was the Commerce Minister in the 1991 Cabinet, elaborates that India’s growth rate has plummeted and unless “we restore the growth rate, there cannot me any meaningful development or enhancement of welfare. In that sense, there is a crisis for the poor and the middle class”.
Edited excerpts of the interview:
In 1991, we were on the brink of a forex-based economic crisis. Now, we face multiple crises in terms of rising unemployment, decline in consumer spending, and fall in savings and investment and high inflation. The situation has worsened since the pandemic. Does India require a drastic economic policy rethink? What are the most critical levers available to the government to take corrective action?
Of course, the situation requires a complete rethink and revamp of the economic policies that are being pursued by the NDA government. The government has brought down the GDP growth rate from 8 per cent to minus (-) 7.5 per cent. This is the nadir. How can anyone defend the current economic policies that have wrought such havoc on employment, incomes/wages, household savings, and consumption? The crisis of 1991 was caused by a severe macro-economic imbalance. The present crisis has been caused by inept and incompetent economic management. The levers available to the government are Direct Benefit Transfer (DBT), reduction in fuel prices, reduction in indirect taxes and capital expenditure.
In 2001, you said 8% growth could be called dramatic, something which UPA II achieved but has since been completely eroded. So are we back at the crisis stage we were in 1991?
We are not back to the situation we faced in 1991. Today, our forex reserves are very high. We have in place regulators like SEBI. However, our growth rate has plummeted. Unless we restore the growth rate, there cannot be any meaningful development or enhancement of welfare. In that sense, there is a crisis for the poor and the middle class.
The Modi government has called the application of the three farm bills a 1991 moment for agriculture. Do you agree and what do you have to say about it?
Whatever may have been the intent behind the farm Bills, the fact is the Bills are opposed by the farmers, especially of Punjab, Haryana and Uttar Pradesh. The knot has to be cut. The only way to do it is to start on a clean slate. Repeal the present laws and draft another law in consultation with farmers’ associations. Repeal and re-enactment is the only way out of the current impasse. Once the government and the protesting farmers reach an agreement, a Bill may be drafted and passed unanimously. Why is the government not taking the sensible route that I have outlined above?
Is there a dichotomy between a welfare state and liberalisation? How has that changed since 1991?
There is no dichotomy. Enhancing Work, Wealth and Welfare are the common goals of liberalisation and a Welfare State.
After the 2008 economic crisis, the world experienced new wave of liberalisation and privatisation. Do you think same course will be followed for recovery from the Covid induced economic crisis?
When there is a recession or a prolonged economic slowdown, the most effective tool appears to be ‘fiscal stimulus’. This was tried successfully post 2008 and again during 2011-2013. Unless we find a better alternative, I am afraid that we must resort to fiscal stimulus; of course, it has to be calibrated and carefully managed. Whether it will accompanied by a new wave of liberalisation and privatisation, only time will tell.
What are the reforms needed in India’s welfare state, given the context of the pandemic, especially in the health sector? Is welfare spending, possibly on the lines of NYAY, the way out for any crisis for India?
NYAY or a similar welfare scheme is intended to help the poor and to unleash their productive capabilities. Welfare is a larger question linked to Human Development Indicators (HDI), reduction of inequalities, quality of life, environment and social harmony. The two pillars of welfare are healthcare and education. We are obliged to make quality healthcare and education equally accessible to all the people. We know that, today, it is not. We cannot have two systems in the country, one for the rich (10 per cent) and one for the rest (90 per cent).
The current government has taken privatisation to unseen levels and they are even talking about privatising Railways and other strategic sectors including ports and oil reserves. You have earlier said full liberalisation requires massive deregulation and privatisation. Would you say we have come too far down that path?
I maintain that the private sector must play the lead role in all areas of economic activity. The best example is agriculture. Nearly all private goods and services can be produced by the private sector. The issue becomes debatable when it concerns “public goods and services”. Roads are public goods. An average citizen would expect that a road is “owned” by the State and not by a private person. However, with new instruments like PPP, we have found a way through which even a National Highway is “owned” by the State but “maintained and managed” by a private entity. Railways is more complex: there are no black or white answers. We have to experiment with different ideas and find models of ownership and management that will enhance the efficiency of the Railway system.
Is India transitioning towards an oligarchic model with big conglomerates like the Reliance and the Adani group moving towards monopolies in various sectors? Is this economic capture hampering democratisation of the economy and leading to growing inequality? Is equitable wealth distribution now entirely unachievable?
Monopolies are suspect. Monopolies can lead to grave economic challenges. Growing inequality is one such challenge. An oligopoly is only one step short of a monopoly and, in my view, just as suspect and dangerous. We must have strong laws and strong enforcement against emergence of oligopolies and monopolies. The Competition Commission has proved to be somewhat disappointing.
Given the growing consensus around a global "reset" due to climate change with emphasis on low carbon growth, where do you see India's place in that context?
I am not familiar with the details of the subject. I know that India has accepted some goals on reduction of carbon emissions; we must strive to achieve those goals. Finding and using alternative sources of energy (to reduce dependence on coal and other fossil fuels) is an important element of the global climate strategy.
Are we living in a post-globalisation world? For instance, in India, we are talking about AtmaNirbhar Bharat and in the US, ‘Make America Great Again’ still has currency.
The so-called post-globalization world that you describe is because of leaders (in this case, former President Trump and Prime Minister Modi) who do not understand the value of globalization and free markets. Atmanirbhar is a throwback to the days of import substitution, export pessimism and protectionism. We are already paying a price for the reversal of liberal policies. The sooner the country realises the folly of the current policies, the faster will be the economic recovery.
Back in 1991, India had already taken the first steps towards the IT revolution. Have the economic gains from that revolution plateaued, considering that India's IT leadership has not translated into domination in cutting-edge fields and technologies?
I will not say that our IT industry has plateaued. We must remember that we are not running a solo race. Just as Indian industry is improving its capabilities and reach, other IT companies of the world are also improving their capabilities and reach. We have to increase our pace. Innovation, R&D and disruption are the keys. If we can create an environment that will reward these risk-taking attributes, we can outpace the rest of the world. It will be a hard and long toil.
The Union govt had an economic advisory council, but arguably Tamil Nadu has done one better by bringing in some heavyweights. What is your experience of governments crossing the bridge between expertise and execution/ governance?
The Modi government has no faith in economic expertise. It eased out Dr Raghuram Rajan, Dr Arvind Panagariya and Dr Arvind Subramanian. I congratulate the Government of Tamil Nadu for bringing world-renowned economists to advice the government. All wisdom cannot be found only among political leaders and civil servants. The advice of independent and objective economists is a valuable input to policy-making and governance. We benefited by this approach during the UPA government.
On a slightly personal note, has your experience with liberalisation made you any less of a socialist?
If socialism is defined as enhancing work, wealth and welfare, I continue to be a socialist!
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Published: 24 Jul 2021, 6:20 PM