Click to play videoDisclaimer: As a condition for granting this interview, Finance Minister P Chidambaram demanded the right to clear it as well as deny clearance without citing reasons. CNN-IBN was forced to agree otherwise the interview would not have happened. But the final take is being broadcast exactly as recorded and the Finance Minister did not ask for any change.
Karan Thapar: Hello and welcome to Devil’s Advocate. Will the Finance Minister be able to control inflation or will it sink the UPA Government? That’s the key issue I shall explore today with the Finance Minister P Chidambaram himself. Mr Chidambaram, with inflation crossing 11 per cent, senior leaders of the CPI, including General Secretary A B Bardhan, have publicly called for your resignation. Is this politics or can you accept that you haven’t been able to handle inflation as effectively as you ought have?
P Chidambaram: I'm delighted that Mr Bardhan should want my job. I'll be very happy if he can step forward and join the Government and one of the members of his party takes over this portfolio. These are all political statements. One must understand the reason behind the double-digit inflation in virtually every developing country today.
Karan Thapar: Let me explore inflation first before I come to an understanding. Were you surprised by the sharp increase of over 2.25 per cent last week or was such a large spike expected?
P Chidambaram: I was not surprised at all. In fact, I had cautioned the CCPA that the price increase in petrol, diesel and LPG together with the price increase in the products, which have no administered price, would push inflation to double digit.
Karan Thapar: But had you really expected it to cross 11?
P Chidambaram: I had expected it to be a double digit figure. This is a way of calculating. It all depends upon the base effect also. The base last year showed a dip in that week. The increase will be exaggerated but I said double-digit inflation, so none of us in the Ministry of Finance were surprised.
Karan Thapar: Given that you’ve only passed on a very small proportion of the international increase in oil price to the Indian consumer and yet we’ve end up with inflation that’s over 11 per cent, does this suggest that there’s more fuelling the inflation in India than simply the oil price?
P Chidambaram: No. It's only the oil price. You're only looking at oil as petrol, diesel, LPG and kerosene but in reality it's not so. Oil affects every price. First of all the direct products, then the products whose prices are not administered such naphtha, jet fuel, aviation fuel. Then come the plastics and subsequently naphtha leading to fertilizer, and finally DMT PTA and all the man made fibres. So all the products are affected by crude oil price increase, as they are all derivatives of it. Then there's the second order effect: it feeds into the transportation system and even agriculture where diesel pumps, etc are used.
Karan Thapar: But have you done enough to tackle inflation or not? On Wednesday, the RBI announced a set of monetary measures. You’ve increased the CRR rate the repo rate. Earlier your Government had taken fiscal steps. Are those two together sufficient to rein in inflation or do you still need further stringent measures?
P Chidambaram: If you believe Milton Friedman, inflation is always and everywhere a monetary phenomenon. There are, of course, people who disagree with that. But if you consider the monetary phenomenon, then monetary steps are the first and the most important line of defence. All that we are doing is tightening aggregate demand. If there is demand in the economy — and with the economy growing at 8.9 per cent there will be high demand — what we are doing is moderating demand. Fiscal steps are the next line of defence. We have taken a number of fiscal measures. If necessary, we will not hesitate to take more fiscal and monetary measures.
Karan Thapar: So, at the moment, you're inclined to the Milton Friedman view that monetary steps are the most essential, but if need be you're leaving open the possibility of further fiscal measures?
P Chidambaram: No. I said we have already taken fiscal steps. The RBI, as a monetary authority, has taken very strong monetary steps. If necessary we will take further fiscal steps.
Karan Thapar: Has the time come to seriously consider Left's advice that you should ban forward trading in certain selected essential commodities?
P Chidambaram: But we already have. We have banned forward trading of wheat, rice, urad, toor (pulses). We added four more commodities to the banned list two months ago. There is no other commodity in which there is significant forward trading that requires to be banned. And the Abhijit Sen Committee report said there is no conclusive evidence that forward trading is causing a rise in the prices.
Karan Thapar: So when the Left continues to demand bans in forward trading on essential commodities, you're saying to them that you have done what you can, further bans would not be necessary, therefore your advice at this point of time isn't actually pertinent.
P Chidambaram: It’s no longer pertinent. We have banned it despite the committee's advice.
Karan Thapar: What about the expenditure that you've committed yourself to in recent budget? Do you accept that in present circumstances, the Rs 71,000-crore farm-loan waiver, the decision to extend the NREGA to the entire country and, then on top of that, the Sixth Pay Commission could be highly inflationary? Do you need to rethink those expenditures?
P Chidambaram: Is there any political party which opposes the loan waiver and other things? Point is we are in a democracy and the measures we have taken are only in the aid of all universally articulated demands.
Karan Thapar: I accept that these are politically impossible to oppose but economically, at this juncture, ought you not postpone carrying out these measures?
P Chidambaram: It depends on how you look at it. Which demand do you moderate? Do you moderate the demand for wage groups by poor people or do you moderate the demand for the slightly more affluent sections for the groups in the services? I think the approach is not to moderate the demand of the very poor but to moderate the demand of the slightly better off people...
Karan Thapar: ...in which case could you moderate, dilute or hold back the Sixth Pay Commission because it affects the well-off rather than the poor?
P Chidambaram: I think that the Sixth Pay Commission report itself is manageable. The question is what will the committee of secretaries report.
Karan Thapar: Inflation is already at 11 per cent. How much higher is it going to go?
P Chidambaram: It's difficult to say. It will depend upon the rise in price of crude oil prices and the impact it has on other prices.
Karan Thapar: I accept that there's uncertainty and you can't be precise, but as the FM you must have an idea how high it could go.
P Chidambaram: It's not possible to make any estimate of that kind because this will depend on how soon the monetary measures will start to have an impact. It also depends on the behaviour and the inflationary expectations of people. All I can say is inflation will remain in double digit for some more weeks.
Karan Thapar: Last week we got the first 11-per cent shock. On Friday you will get the first inflation figure after that shock. Do you expect it to go to 12?
P Chidambaram: It’s difficult to say, but will remain in double digit for some more weeks.
Karan Thapar: Do you have a figure or a target that you would like to achieve by the end of the year ?
P Chidambaram: That’s what the RBI said. The target is to moderate inflation and bring it down to the accepted range of 4.5 to 5. Whether this will happen over a period of three month or more is difficult to say at this moment, but every effort will be made to bring it down.
Karan Thapar: Are you seriously suggesting that within a period of 3-5 months inflation could come down to 4.5 per cent?
P Chidambaram: I didn’t say that. You're misinterpreting me. I said beginning three months it will begin to moderate.
Karan Thapar: To what capacity is your expectation conditioned by the monsoons?
P Chidambaram: Good monsoons brings in some relief in the sense that the price of food articles normally decline. We have adequate stocks of wheat and rice. If the prices of vegetables and fruits, which are also dependent on a good monsoon, moderate, that too will bring some relief to the consumer. Monsoons also bring some cheer and sense of confidence to the people, so they don’t harbour high inflationary expectations.
Karan Thapar: Except for the fact that there are newspaper reports which suggest in some parts of Kerala, the monsoon has been as much as 35 per cent efficient and there are worrying reports about Karnataka and Andhra Pradesh.
P Chidambaram: It's too early to make these predictions. Monsoons are not something we can order. There will be some erratic behaviour. Last year too, about this time, there was a lot of concern about the monsoon but it turned out be a reasonably good one. There’s little that we can do except cross our fingers and hope the monsoons are good.
Karan Thapar: In trying to tackle inflation and hoping to bring it down to single digit in an acceptable period, to what extent are you dependent on good luck?
P Chidambaram: Good luck in the sense that the oil-producing countries will heed our voice and listen to us, that they will increase supplies, and that the western countries will try to regulate their markets. I mean my good luck is dependent upon the good sense of many others.
Karan Thapar: At the moment, battling inflation is your first priority. Have you, therefore, come to accept that this year you can’t end up with another nine per cent growth rate?
P Chidambaram: There will be some moderation in that growth rate but it will not fall precipitously. Given the structure of our economy, which is about 57 per cent services, growth will still be above eight per cent.
Karan Thapar: Above eight per cent? So it’s barely going to fall by a per cent?
P Chidambaram: If you think a drop of one per cent is not a matter of concern, then that’s a different matter. But the point is we want nine per cent growth growing up to 10. But this year we can't hope for that.
Karan Thapar: Given that oil price adjustment has had a fairly sizeable impact on inflation, and it could have an impact on growth, and certainly on the general sentiment in the economy, do you think that the Government should have started the process of adjusting Indian prices to international prices earlier?
P Chidambaram: This is all very well said but when we talked about price increase, I know the media, the newspapers , the televisions, the economists, the writers said this is the time to cut interest rates, this is the time to stimulate growth, etc. I can show you hundred of newspaper clippings to that effect. The point is that the RBI is the monetary authority, an independent authority, which decides interest rates and they have followed a particular course quiche will moderate inflation, not affect growth and ensure there’s financial stability when there’s turbulence in financial markets.
Karan Thapar: Except that I was talking about the Government adjusting Indian prices according to international oil prices. Shouldn’t have that started earlier?
P Chidambaram: There was no political support for that. We raised it by Rs 4 and Rs 2, if I correctly remember, in February 2006. Within months we were obliged to roll back Rs 2 and Rs 1 in two stages. So we effectively rolled back the prices.
Karan Thapar: There is never political support for a tough and difficult decision but the government is supposed to take them without looking for political support,. Shouldn’t you have been more courageous?
P Chidambaram: That’s not correct. Government in a Parliamentary system musters political support among its members, allies and people. Even today, there is very little support for increasing LPG prices. We subsidised LPG by Rs 303 a cylinder.
Karan Thapar: So reading between the lines, in a sense, your hands were tied by your allies and, perhaps, even by your party members?
P Chidambaram: Not allies; I said across the political spectrum. Even today, there are parties the say roll back the price increase done a few days ago.
Karan Thapar: In the three weeks since you’ve increased the price of petrol, diesel and LPG in India, the international oil price has increased somewhere between $ 10-15, depending upon which day’s price you take. Are you going to have to make further adjustments to the price in India?
P Chidambaram: I don’t think that given the double digit inflation, such a thought is possible at all.
Karan Thapar: So you’ve ruled it out?
P Chidambaram: I don’t decide that. The CCPA or the CCA decides. Given the double-digit inflation and my earlier cautions that price increase will result in double-digit inflation, I don't think there is an appetite now for a further increase in prices.
Karan Thapar: There certainly isn’t a political appetite or a social desire, but if the oil price were to cross a 140 and head towards a 150, would you still be able to take this position?
P Chidambaram: But then your channel will be first channel to say that inflation has gone higher?
Karan Thapar: But on the other hand should the FM be guided by what TV channels say?
P Chidambaram: It’s not what the TV channels say. We also have to gauge the public mood.
Karan Thapar: And there is a mood for greater realistic pricing.
P Chidambaram: You see we have not yet been able to communicate with the people of India. Since we import almost 75 per cent of our crude oil, we are victims of this price increase and, therefore, beyond a point, unless you want to bankrupt your oil companies, there is no way we can support high subsidies. Some part of it must be passed on to the people. We have not been able to communicate that effectively to the people of India yet.
Karan Thapar: And till you communicate it effectively you can’t actually increase the price they pay in India?
P Chidambaram: Well when we do it we take flak, and when we cannot do it anymore because of political compulsions, we just have to grin and bear it. But we have to communicate it to the people, that India and any other developing country, which is an oil consumer, is a victim of international crude oil prices. We must communicate in the language of the people.
Karan Thapar: And that communication has to start with you and the Prime Minister because you are the two people responsible for that message?
P Chidambaram: I'm the one who's making every effort to communicate via statements, interviews, speeches but I do it in English or Tamil. There are others who have to do it in other languages too.
Karan Thapar: Someone needs to do it in the national language, which is Hindi.
P Chidambaram: Not just Hindi but Bengali, Malayalam, Oriya, Telugu — all the languages.
Karan Thapar: Let’s turn to the political implication of the economic management. There is no doubt that you've given the country an unprecedented 8.9 per cent growth, yet the paradox is that many people don't feel; richer than more confident. Today, they feel poorer, unsure and, worst of all, they feel uncertain of your economic management.
P Chidambaram: I can’t rate my economic management. All I can say is we have delivered 8.9 per cent growth, something that had never happened before in India’s history. We have delivered on agricultural credit. Millions of farmers are happy. We will deliver, beginning today, on the loan waiver. We've delivered in educational loans, social sector expenditure — it's completely wrong to say that poor have become poorer. Many millions of poor have gained from India's economic policies.
Karan Thapar: Can you deny this that your handling of inflation and perhaps the oil price hike in particular has brought a smile to the faces of the Opposition and an anguish to your allies and, of course, your own party men as well?
P Chidambaram: As I said, we are going through a difficult time, I ask myself only two things in the morning — are we doing something wrong which we should not be doing, and are we not doing something right which we should be doing. And at the end of the day, I can answer both questions in no. I'm happy. I think our economic policies are right. We are today victims of crude oil price rise. Many other countries are victims too. If you look at the inflation, even oil-producing countries from Saudi Arabia to Venezuela have inflation ranging from 10.5 per cent to 31 per cent.
Karan Thapar: I accept that you can answer those two questions to yourself satisfactorily, but threes a third question which India faces and other countries don’t. You have the national Elections in about nine month’s time. With the inflation rate where it is and with wobbly economic sentiment, whenever that campaign starts the UPA is going to start as the most likely loser.
P Chidambaram: That's a premature conclusion. We will be on the defensive on inflation but as I said all politics is about communication. You must communicate to the people why prices are high and what efforts are being taken to moderate it.
Karan Thapar: Politics is about communication. It is also about answering the doubts in the mind of the electorate today. Today, the doubt is that this Government that comprises of Manmohan Singh, P Chidambaram and Montek Singh Ahluwalia — the dream team — has actually delivered a nightmare. They are doubting you regardless of the statistics you can roll out to prove you’ve done a good job. That’s a credibility factor problem.
P Chidambaram: That is your judgement but not mine. I think what people are saying is that no doubt they have delivered close to nine per cent growth, they have delivered on a number of items yet why are they not able to tame inflation? That nagging question is there but I don’t think they have come to the conclusion that all that we have delivered is a nightmare.
Karan Thapar: In these circumstances, is it wise for the Government to take a stand on the Indo-US nuclear deal that could precipitate early elections?
P Chidambaram: I'm not competent enough to speak for the party or the Government on the Indo-US nuclear deal. Our current position is we would like to go the IAEA board to get the agreement signed. I can’t answer any question beyond that because I'm not the authorised spokesperson for that.
Karan Thapar: As India’s Finance Minister, do you believe the Indo-US nuclear deal is essential for the country’s energy security or do you believe it’s more important that Government should complete its full term and not have early elections?
P Chidambaram: This is not an either or question. The point is that the deal is a very important part of our energy security policy. Look at what US is planning, and what France has done and what Japan and Germany are talking about — nuclear power is one sure way to guarantee your energy security.
Karan Thapar: Finance Minister, a pleasure talking to you on Devil’s Advocate.
P Chidambaram: Thank you.
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