'Indian industries will overcome financial crisis'

ON THE JOB: There will be lesser jobs in Indian industries but existing jobs won't be affected, says Kamal Nath.

        

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Does the Government appreciate the enormity of the challenge that India faces as a result of the international economic crisis? That's the key issue Karan Thapar raised with Minister for Commerce and Industry Kamal Nath on CNN-IBN show Devil’s Advocate.

Karan Thapar: Many people believe that the RBI (Reserve Bank of India) was slow in cutting the CRR, SLR and repo rates. People say all that should have been cut a week earlier. Would you agree?

Kamal Nath: Well, the whole thing started three weeks ago and within a span of 10 days the Government acted. You can't act in panic. You can't have a knee-jerk reaction. You have to consider all aspects of it and the Government has acted and the Reserve Bank has acted too.

Karan Thapar: Let me point this out. When he presented his credit policy the RBI Governor said he was as concerned about financial stability as he was about price stability. In fact in his statement he even spoke of the possibility of tightening liquidity if the need arose. But exactly a week earlier the Deputy Chairman of the Planning Commission had said inflation was no longer the primary threat. His exact words were "the back of inflation is actually broken". So wasn't the Government speaking in two words?

Kamal Nath: Not at all. We had inflation which went up to 13 per cent. It was coming down the curve, had stopped rising. The rise in price had stopped. The Government itself had contained liquidity about six months ago because of inflation. Now there has to be a calibrating. There has to be a calibrating between money in the market and inflation. That's what we were doing.

Karan Thapar: If there has to be a calibration do you think the Governor has cut the CRR and interest rate sufficiently because Assocham is calling for a 3 per cent cut in the interest rate. FICCI thinks the CRR rate should be at three, maximum 3.5 per cent, so has he done enough?

Kamal Nath: There is a balance, there is a liquidity issue. First the liquidity issue was targeted by us, by Government because of the inflation. We got a double barrel, then came the international pricing, then came the lack of consumer and investor confidence, then came pulling out of Foreign Institutional Investors (FIIs) of about $12 billion from our stock market. So, all these things came double barreled. There has to be a balance between how much you will put in the prime bank and that fat is the liquidity.

Karan Thapar: But, the point is that in making that balance, I concede that it is a difficult balance for anyone to achieve, has the Governor urged too much on the side of caution. The industry was hoping for a big bang set up policy but what the Government offered was a drip, drip, drip of smaller measure; as a result the need for a psychological push to cut through fear and panic seems to have been ignored.

Kamal Nath: The Prime Minister had a meeting with the industry two days ago.

Karan Thapar: But, that was just now?

Kamal Nath: It is just a three-four week old crisis, it is not that it is three-four month old crisis. You really require an action which is not panic. We don’t have the problems which are there in the Western world, we must remember that. With our banks not being under trouble there is an element of caution to be exercised. While exercising that caution I think the injection of the liquidity into the system has taken place.

Karan Thapar: Except for the fact that people feel that it should have taken place earlier, you are saying that that sort of criticism made by certain industrialists and many sections of press against the Governor, is unfair and even unfounded.

Kamal Nath: It is not unfair or unfounded, everybody has to have a view. Somebody who has got liquidity crisis wants it all, he is not concerned with any other dimension. But, the Government and Reserve Bank is concerned with all dimensions and all facets of the problem.