Interview: Chidambaram on the state of India’s economy
By John Chalmers, Frank Jack Daniel and Manoj Kumar
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The Indian government will have to rein in spending and cut subsidies to meet its fiscal deficit target, Finance Minister P. Chidambaram said on Monday, underlining that an austerity drive will not be blown off course by an election due next year.
The urbane Harvard-educated lawyer, now in his third stint as finance minister, spoke to Reuters in an interview ahead of a trip to the United States. Here are edited excerpts from the interview:
Do you think that the government has done enough to pull the economy out of the crisis that we saw it in several weeks ago?
One can never say we’ve done enough. We’ve done a lot of things, but we have to do many more things, and I think we will do them in the next few weeks and months, both by the government and by the central bank.
Can you give us an example of some of the steps that would be taken?
Well, I think if the volatility of the rupee has been contained and speculation has come to an end, the central bank may want to unwind some of the measures it took earlier. On the government side, sooner than later, we will have to address the issue of higher subsidies than budgeted, on both fuel and food.
What about the slowing growth and the impact that it has on tax revenues?
Customs revenues are good, but excise revenues are a bit down, but we have an ambitious plan to target the stop filers and non-filers of service tax. We have offered them an amnesty scheme, so I hope that what we lose in the excise side, we can make up in the service tax side. But direct taxes are quite satisfactory so far. So altogether, at the moment, I am not too worried about the revenue side. We will continue to make every effort to achieve the revenue target as budgeted.
Could you raise taxes on anything like SUVs?
It is very unlikely that we will raise taxes at this point. We have only one effective session of parliament, that’s the winter session. It is very unlikely that any taxes can be raised at this stage.
How much are you going to have to rein in the spending as you head towards the end of this fiscal year?
Not as much as last year. People say last year was pretty brutal. There is no number at the moment, the number will depend upon what departments can spend. We are not cutting plan expenditure. We are asking them to cut down non-plan expenditure, we’ve issued austerity instructions, it will bring us some savings. And there could also be a natural slowdown in the last quarter, once the whole country goes into election mode.
Last week, Fitch expressed some concern about management of policy. Do you have any fears there may still be a sovereign rating downgrade on the horizon?
There is no case for a downgrade. Let me say what I said last year, if any rating agency is looking for candidates to downgrade, I can suggest half a dozen other countries. India is not a case for a downgrade. I think the whole world knows that, but we have to live with rating agencies. Sometimes, they do make statements which sound harsh.
So why do they keep coming back to India. They are wrong, are they?
Because we are a big country. There are not too many countries bigger than India. I think there is such a large land mass that there are many places to land in this country (Laughs).
What steps do you think could be taken to prevent such precipitous fall in the rupee again?
We think we have sent a message to everyone — don’t speculate on the rupee. All genuine needs for foreign exchange are being met and all exporters and foreign exchange earners are being encouraged to bring back the money to India as early as possible. There is really no need to speculate on the rupee. As far as inflows and outflows are concerned, yes, the fear of the taper did mean that money flowed out of the country. But I think the market has factored the taper more or less entirely … November, December, whenever it will happen — there will be some impact. But anticipating an impact, we have taken a number of measures to augment inflows.
Let’s talk about the mood of the foreign investment community here. How do you convince people that there really is a good India story to be told?
I think much of this is an exaggerated version of what is happening. Yes, some mistakes were made but if you open The Economist and read about country after country, every country seems to be facing one crisis or another … In telecom, after we opened up FDI, I know that there are two or three investments just round the corner. I can’t give you names. Two or three are just around the corner. If you look at sectorally — oil and gas, telecommunication, pharmaceuticals, civil aviation — these are all sectors which have attracted or will attract in the next few weeks major investments into India.
What about retail? That’s been a disappointment. Only yesterday, Wal-Mart said it’s just not worth it.
Well, Wal-Mart’s Asia CEO seems to have made a statement. I don’t think that’s their final word because I think the Wal-Mart CEO is in touch with my colleague … The investor must decide whether he wants to invest or not. And I think having regard to the size of the market and potential of India, the investor will decide wisely that in the long run, he must invest in India. In fact, the question is — can he afford not to invest in India in the long term. In the short term, I’m sure he can. But in the long term, is it not wise to invest in India?
With the benefit of hindsight, would you have done things differently?
I can only go by advice that I receive and I can only concur in what the experts decide is the right course of action. We did intervene in the market by selling dollars, we did raise the interest rate at the short end. In hindsight, we can always say that that is not the way it should have been done, this is the way it should have been done but then none of us has hindsight.
(Click here to read Chidambaram’s comments on Narendra Modi and the 2014 elections)