 "P Chidambaram")
Former finance minister P Chidambaram, talks to Aditi Phadnis about India’s economy, the Congress’ decline in Tamil Nadu and his new book, Standing Guard.
What do you make of the government’s attitude to the Reserve Bank of India (RBI)?
The government and the RBI seem to have an uneasy relationship. There is no one in the government who appears to be confident of sitting across the table with the RBI governor and talking to him in a candid manner. Unless there is a free and frank exchange of view between the governor and the government there will be perceptible differences and observers will not fail to notice these differences.
But several finance ministers, including yourself, have had differences with RBI governors....
Absolutely. We had differences but we were always engaged. We didn’t have a situation where the government said: “We may have to relax the fiscal deficit target and it is the RBI, which should lower interest rates” and the governor responded with equal forthrightness saying: “unless the government sticks to the fiscal consolidation path, there is no question of lowering interest rates”. There were no sharp differences when we were in the government.
The RBI governor’s tenure comes to an end in September this year....
I can’t speak for the governor’s tenure. All I can say is, if the finance minister sticks to the fiscal consolidation path — in fact, it is the modified path he announced last year — then I think there is a chance the governor will move forward. But the governor has now discovered another constraint — that Consumer Price Index (CPI) inflation is inching upwards. It was 5.7 in January 2016. It has been inching upwards for the last four months now. Since the governor has kept CPI as the benchmark, and not Wholesale Price Index, he’s unlikely to lower interest rates. From the governor’s point of view, given his mandate of targeting inflation, that CPI inflation is climbing up is a big deal.
There are allegations that the current bad loans problem is a legacy of your government....
Complete rubbish. The government does not regulate the banks. The government is just the majority shareholder in public sector banks. The RBI is the regulator. Second, you must compare the non-performing assets (NPA) situation in May 2014 with that of today. It has worsened after 2014. The worsening of the situation cannot be blamed on the previous regime. This government simply doesn’t understand why NPAs happen. NPAs will happen in a downturn. But there are two kinds of NPAs: one that is caused by wilful defaulters; the other that is attributed to victims of an economic downturn. One has to differentiate between the two and deal with the cases of wilful defaulters with a firm hand while lending a helping hand to victims of an economic downturn. An overwhelming majority of micro, small and medium enterprises are victims of an economic downturn.
In the interim budget of 2014, you started the process of devolving the government’s social sector schemes to the states. How has this worked?
We reduced the number of Centrally Sponsored Schemes (CSS), clubbed them together and transferred a huge amount of funds by way of grants to the states. That was pre-14th Finance Commission. The central government has withdrawn from several social sector schemes. There is no evidence that the state governments have stepped in to fill the gap. That is the complaint Abhijit Sen made and forewarned even in the 14 Finance Commission report. We have to wait for the numbers to see how much the central government actually spent on these CSSes compared to that of last year and how much of the gap was filled by the state governments. It’s only when all the budgets of all the state governments and the revised estimates for the central government’s budget for 2015-16 in July or August of 2016 come that we will know if the funding gap, which Sen had warned of, was filled or not.
Is this one of the reasons for rural distress?
One of the reasons, yes. It’s quite clear that the intended funds did not go to these schemes. How much, I cannot say. There are other reasons: the lukewarm attitude to MGNREGA, the unpaid wages under this programme, the average number of days of work coming down to about 44 now, the refusal to increase minimum support prices (MSP) by a reasonable level. All these have contributed to depressing rural demand and adding to the rural distress.
But you were one of those who said, “if you keep on increasing MSP, you run the risk of high inflation and a high-cost economy”….
MSP is indeed a contributor to inflation. But MSP is the signalling mechanism to the farmer that he should remain engaged in agriculture and society will give him a fair price for his produce. A Rs 5 or Rs 10 increase in MSP is virtually no increase at all. The Bharatiya Janata Party (BJP) said it would accept the recommendation of the M S Swaminathan Commission and give cost, plus 50 per cent, as MSP. That was simply a pipe dream.
Another area that this government feels is a legacy of your government is the retrospective tax. The fact is the tax came about as a result of an assertion by the then finance minister vis-à-vis the then prime minister....
I don’t know. I don’t agree with that assessment. On the liability to tax that transaction, there is weighty opinion on both sides. The high court was in favour of the government. The Supreme Court reversed that judgement. Therefore, you cannot dismiss the rival arguments as being without merit. Once the Supreme Court decided there was no liability to tax, the only way to assert that liability and recover the tax was by retrospective legislation. Was it wise and prudent to do it at that time? The finance minister at that time thought that there had been instances in the past where retrospective tax legislation was made and he followed that path. But it did have profound consequences. Which is why the broad consensus now is that we must find a way to reverse that tax either by repealing it or otherwise.
Can the government repeal it?
It should. I have told the finance minister publicly: “You’ve got 282 members in the Lok Sabha, just repeal that and make that section prospective”.
You also had the chance of repealing it….
No, I didn’t have a majority. What the BJP is saying now, it did not say then… It was a money Bill. Suppose the BJP had not supported us… I could not have taken the risk of having a Money Bill defeated in Parliament. Second, given the political climate in those days, if I had proposed a repeal, they would have accused the government of corruption — of doing a deal with the beneficiary of the repeal.
But in the interests of a good law?
I don’t think the interests of a good law prevails over those of political parties. They would have accused us of corruption — which is why I tried the conciliation route. And we were almost there, when Vodafone backed out. I got a mandate from the Cabinet to enter into a conciliation with Vodafone; I proposed to Vodafone that we appoint two conciliators… We were almost there. But they backed out at the last minute.
Regarding Standing Guard, in Tamil Nadu, your party is going from “being” to “nothingness”….
I won’t comment on my party’s standing in Tamil Nadu. That’s for the Tamil Nadu Pradesh Congress Committee (PCC) to answer. But yes, our vote share has reduced a lot and I am sure the PCC is fully competent to address it in the next election.
