All political parties agree on farm debt waiver: PC

HARD TALK: P Chidambaram explains the finer nuances of the Budget in an interview to Raghav Bahl.

        

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Keywords: Loan Waiver , P Chidambaram

P Chidambaram: But then that’s necessary for monetary management, for containing inflation.

Raghav Bahl: But that also could dislocate growth, which is everything that your revenue buoyancy is predicated on.

P Chidambaram: Which is why I said in my speech that there are limits to monetary accommodation and, therefore, I will take fiscal step. And I have taken fiscal steps to stimulate growth and demand.

Raghav Bahl: Are we saying that we are then stuck at this real interest level?

P Chidambaram: We are not stuck on anything. It’s the RBI which manages the interest rates. RBI consults the government and we convey our views to the RBI privately as we should. But since the RBI is the monetary authority, it has a right to decide interest rates and I am sure they factor the need to provide interest rates that will not hamper growth. In fact, more than once the Governor has said, growth with price stability. The Prime Minister has said it and I am sure the Governor fully recognizes that it is important to ensure that growth takes place with price stability.

Raghav Bahl: Well, there has been a lot of focus in your Budget in stimulating consumption, the sub-text there being that investment demand in the economy is now something which is stable and pretty much a given. But there could be early signs of investment demand also slowing in the economy.

P Chidambaram: Not the figures we have. The Economic Advisory Council places investment to GDP as over 36 per cent. My own Economics Division places it slightly higher. We will have final figures, of course, much later from the CSO. But assuming that investment to GDP is 36 per cent, that’s very high investment.

Raghav Bahl: It is. I am just saying that first signs of deceleration. I am looking at the signs of deceleration. Your credit growth is slowing?

P Chidambaram: No. That is a conscious, deliberate attempt to slow down non-food credit growth.

Raghav Bahl: Also the fact that you have, whether it’s admitted openly or not, in fact, a quota system where FCEBs and ECBs are not really getting approvals. When was that last big FCEB or ECB that got your approval?

P Chidambaram: $500 million is automatic.

Raghav Bahl: Yes, but you are not seeing the inflow of capital. And the government has openly said that we are not very comfortable and RBI also…

P Chidambaram: That’s not correct. FDI numbers, FII numbers, ECB numbers for 2007-08 are higher than 2006-07. For 2008-09, we will have a policy. But then numbers clearly show that these three heads are higher than 2006-07.

Raghav Bahl: So, you are saying no sign at all of any slowdown?

P Chidambaram: No. I am forewarned, there could be a slowing down because I see in consumer durables. And, therefore, we are taking steps to stimulate demand. We have cut excise duties, we have cut duties on project imports, we have cut some customs duties and we have also left more money in the pockets of consumers.

Raghav Bahl: But in investment demand, you don’t seem to see that kind of slowing down.

P Chidambaram: Not yet.

Raghav Bahl: In terms of how you intend to insulate the economy from a global recession, we didn’t hear too many steps in that direction. What the plan be?

P Chidambaram: There are no ready answers to this. We will have to respond, as I said, we will have to be prepared to respond swiftly as the situation evolves.

Raghav Bahl: What kind of responses would those be?

P Chidambaram: Monetary, fiscal.

Raghav Bahl: Monetary would be a cut in interest rates?

P Chidambaram: I don’t know. Monetary response is a standard textbook response. Fiscal response is a standard textbook response.

Raghav Bahl: Fiscal response you have already given.

P Chidambaram: Supply side responses are there.