After UP polls, I don't know what the BJP will do: P Chidambaram

Interview with former Finance minister and senior Congress leader

Former Finance Minister P Chidambaram, whose book Fearless in Opposition: Power and Accountability came out recently, tells Aditi Phadnis everything could change after the outcome of the five state elections. He also says the tension between owners and management in Indian corporate houses will continue for the foreseeable future.

In 2014, India seemed to have everything going for it. Then how did we reach here?

I wouldn’t say that there were no challenges. In 2012-13 and 2013-14, the effort was to bring back fiscal and monetary stability which had been affected by the international financial crisis. We had succeeded in substantial measure but not fully.  So what the government should have done in 2014 was continue measures to bring greater financial and monetary stability; at the same time, restart the engines of growth. What they failed to do is address the reasons why private investment was drying up and exports were declining year after year. They thought, wrongly, that government expenditure and private consumption, which are the other two engines of growth, are sufficient to drive the vehicle. So two engines that stalled, two engines were driving, and they thought they could cruise along. That was a mistake.

In an article you wrote in 2016 you said the triggers for boosting the economy were absent. Have they come back?

In fact, one more engine has stalled. The engine of private consumption has also stalled, thanks to demonetisation. The figures are out and they tell us private consumption has been severely dented by demonetisation.

Demonetisation has had an effect on the economy which is akin to the Bhopal gas disaster or a severe terrorist act – it has left victims in its wake who will continue to suffer the effects long after the event has passed. But as you have observed, there is public silence on the distress people have had to go through. It is not showing in elections, it is not showing in public outbursts. People are not ready to lay the blame on any one person or party. How do we explain this paradox?

There is ambivalence about demonetisation. Most people do not comprehend what demonetisation is. And when the Prime Minister says: ‘I have done this to stamp out black money, corruption and funding of terrorism’ people tend to believe him and say: ‘all right, these are good objectives, let us see if demonetization will achieve these objectives’. But sooner than later, they will come face to face with reality. When they are faced with the next demand for a bribe; when they see that someone, post-demonetisation, has  accumulated a large amount of unaccounted wealth; when they are faced with the next terrorist attack and agencies find new currency in the hide-out of the terrorists; then people will realize that demonetization is not the instrument to deal with black money, or corruption or terrorist funding.

The first reality check will be in May-June when colleges demand capitation fee and parents who have to cough up capitation fee in cash will realise demonetisation has not put an end to black money and they are obliged to generate black money in order to meet the demand for black money. Similarly, when the farmer goes to the tehsildar’s office for an income certificate or a caste certificate or a mutation of his record, or he goes to the registrar of properties to register a sale deed, and he is asked for a bribe, he will realise that demonetisation has not put an end to asking for bribes.

We are trying to anticipate what your next column is going to be. There are a lot of unknown unknowns out there. What are the dangers you see on the horizon?

The biggest unknown unknown is the outcome of the five state elections. I think it is a crucial election for the BJP and it will certainly mark a turning point. If the BJP wins UP and picks up one or two other states, it could get emboldened and press ahead with its reckless agenda as well as its divisive agenda. If the BJP fails to form the government in UP and suffers a setback in Punjab and maybe one other state, it could go either way: it could become more reckless or it could pull back, pause and take stock and moderate its position. I said the same thing after the Bihar elections. But much to my dismay, the BJP did not pull back, pause, take stock and modulate its position. Post-UP, what the BJP will do, I don’t know. But since the country has to be governed for another two years, I sincerely hope the BJP will pull back, pause, take stock and moderate or modulate its position.

So what you are expecting from the BJP, to paraphrase a former trade minister, is to turn itself into another Congress plus cow ?

I certainly don’t say that. BJP must become a more mainstream party. At the moment it is seen as a party that excludes a large section of the people and caters to the aspirations and needs of only a small section of the people. Clearly, in my judgment, Dalits feel excluded. Minorities feel excluded. The business community is increasingly feeling excluded. Youth feels completely excluded. And women feel excluded. Therefore, the BJP must become a more mainstream party for the period it is in government. And since governance of India is the paramount consideration – and since the BJP willy nilly, must  govern India for a period of two years and three months – I fervently hope the BJP will become more inclusive.

The external business environment is becoming increasingly more unpredictable, even hostile. And many corporate houses are responding to this in a way that, maybe, is not rational. Squabbles are breaking out in some of India’s most important companies. Concerns about lower profit margins are being masqueraded as issues of corporate governance. What is really going on? How should corporate houses respond to a more competitive external economic environment?

In any business, there are two elements: ownership and management. You can’t wish it away. In very large corporations, the ownership may seem invisible, the management may seem dominant. But even in such cases, owners can band together and bring about a change of management. They’ve done in a large number of companies across the world. The last instance of such a change was in Deutschebank. Many American companies have seen a change of management, by owners banding together.

In the Indian corporate world, ownership was dominant. The owner was everything. Management was subordinate and subservient to ownership. But as companies are getting larger and larger, ownership is getting diluted. In that transitional phase, there will be conflict between management and ownership. When the owner is the dominant owner – a 51% plus owner – his voice will ultimately prevail. Where the owner is a minority, 20, 25%…

14%…?

...there will be conflict. And I think both management and ownership must learn how to exercise their relative powers and influence in this changing environment. Those lessons are, I think, being learnt. It will take some time for them to learnt and fully absorbed. In the transition there will be conflict.

I think it is really a question of control. Owners are loath to give up control. Management is keen to dilute the control of owners. I think if owners have less than 5% the management is totally dominant. If owners have more than 51% the owners are dominant. It’s the area that falls between this 5 and 51 …and when the dilution is taking place, more and more equity is being pumped into the company…this conflict is inevitable. Every country’s corporate world has gone through this conflict. India is going through this phase of conflict between diluting control of owners and growing control of managers.

As a finance minister yourself, what advice would you give to this finance minister?

I wouldn’t claim to give advice to the finance minister. I fundamentally disagree with many of the objectives of this government. But even taking the objectives of the government as a given, I think they are not doing enough to achieve those objectives. They claim growth is an objective. But they are not identifying the triggers for growth. They claim they want a tax-friendly administration. But everything they’ve done in the last two and a half years has only empowered and emboldened the tax men at the cost of the citizen. They claim that they are pro-poor. But they have repeatedly cut expenditure on social sector programmes. They claim they are the best guarantors of the defence of the country. In the budget of 2017-18 they have cut even defence capital expenditure! Therefore, if you can call it advice: even taking you objectives as sound objectives, you are not doing enough to advance those objectives. Let them do at least that!

What sort of a 2018-19 budget should we expect in light of the fact that post-demonetisation India will be heading towards a general election?

As I said, the outcome of the state elections is a crucial turning point. A budget can target growth. It can target financial and monetary stability. It can target expanded social welfare programmes. Which way the horse will turn I can’t say. I think it will depend to a large extent on the state elections and the cabinet reshuffle I am told will take place after the election results are out.