In an exit interview given to Sunil Jain and P Vaidyanathan Iyer, finance minister P Chidambaram points out that, when it comes to critical reforms like getting GST passed or opening up the coal sector, the next government will be in an equally big fix — parliamentary paralysis, he says, was an important constituent of the so-called policy paralysis. Apart from saying the CBI didn’t seem to have all the facts when it registered a preliminary enquiry into former Sebi chief CB Bhave, Chidambaram said banks were not facing a crisis, that work had begun on the projects cleared by the CCI, that he disagreed with the Urjit Patel committee’s recommendation on inflation-targetting and that Aadhar will need to be thought through completely. Edited excerpts:
Should RBI be buying dollars? Is the rupee’s recent appreciation the reason why exports are slowing?
That would be a premature conclusion. The REER for six countries is about 96 or so.
Wasn’t the idea, after the Vodafone settlement was reached, that the law would be made prospective? Today, we have news that Cairn has put off an issue because of a tax notice. Do you think the taxman has gone on a rampage?
Every tax demand is not wrong or an extravagant act. Have you heard what the G-20 ministers said? Every country is worried about “base erosion and profit splitting”. The media immediately jumps to the conclusion that the tax notice must be wrong because MNCs say so.
But 60-70% of the tax demands are stuck down in courts.
That's not something which happened today. That's nothing to do with any policy change that was allegedly made in the last few years.
Since the amendment, other cases have been opened up. Isn’t that a problem?
You can re-open for six years without the amendment. There is no need to rely on the Vodafone amendment to re-open a case for 5-6 years.
What are the reforms you regret not doing? Labour?
I think we should have pulled back on the monetary expansion at least a year earlier. I can't speak on labour reforms. All those who talk about labour reforms when they are not in the government, don't try to implement labour reforms when they are. All I can say is that all the measures we took on the fiscal side and on the monetary side, since August 2012, I wish we had done it earlier. We would have given ourselves 2 years and 6 months to pull back the economy to the high growth path.
Will the next government be facing a banking crisis?
There won't be any banking crisis. The big constraint will be resources. Unless we grow at a higher rate, we will not have the revenue resources, both tax and non-tax. That will be the big constraint.
Uday Kotak has said that 30-40% of the net worth of the banking system can be eroded.
I don't comment on the view of experts. I have said earlier that banking is the only business in the world which requires additional capital even if it grows at a normal rate. What we have provided in the budget as government contribution is limited, that is why we are exploring today two or three alternatives to raise fresh capital. We will come up with options to raise more capital. Whether those options include reducing government holding is a political decision. The UPA policy is government holding will not go below 51% and banks will remain public sector banks. The NDA toyed with the idea of 33% but gave up on that.
Will a large number of the projects cleared by the CCI need to be restructured – economic conditions were so different when they were set-up.
I have not heard any banker say that any one of these project promoters, in cases where the CCI has cleared them, has come to them for restructuring. The bankers gave me a list of cases where the draw-down has begun, where disbursements have begun.
Despite the Cabinet clearance, the oil ministry says higher gas prices will only be given to RIL and not to BP or Niko.
The cabinet decision has allowed a price increase. Whether that has to be further granulated, to see whether it applies to A or B, that is a decision of the ministry of petroleum. If they have any doubt they will come back to cabinet and at that time we will look at it.
What are the biggest challenges you faced as finance minister in UPA I and UPA II?
In UPA I the most challenging moment was when the financial collapse took place in September 2008. We had to ensure that the economy was not affected too much, which is what we did.
In UPA II, the most challenging moment was when I found in August 2012 that both the fiscal and the current account deficit were completely out of line and if we did not take some drastic steps, we were faced with a downgrade.
You made a statement that Parliament will set a target for inflation targeting. So have you come around to the view that India should have inflation targeting rather than the RBI looking at multiple indicators?
Our goal must be price stability and growth. For price stability, the way to go about it is to set an inflation target. That inflation target must be set by the sovereign.
The Urjit Patel report makes a different recommendation. We have made it very clear that we don't agree with that conclusion. Our policy is that the objective of the monetary policy must be price stability and growth.
Has Aadhaar hit a political wall, or did it have bugs?
Aadhaar is in two parts. The issuing of numbers, to half the population, is an enormous achievement. The other is the use of Aadhaar. Now, when we use Aadhaar to transfer scholarships everybody is happy. But when we use Aadhaar for LPG, people are unhappy for different reasons. One group feels, erroneously, that they are not getting subsidies since they are making the payments and then getting reimbursed – it is a matter of communication.
Another group that is unhappy is perhaps a group of dealers who have been diverting the cylinders from a beneficiary to a non-beneficiary. The third group that is unhappy is genuine customers who support Aadhaar-based transfer of LPG benefit but who do not have convenient access to a bank account. We have to work out a system and find another way in which we link the Aadhaar to the dealer and the subsidy is passed on to the oil company without requiring a mandatory link to the bank account.
Are you in favour of extending Aadhaar to a Food Security Act?
If it has run into so many practical or perceptional problems in the matter of LPG subsidy, then there will be even greater perceptional problems when it comes to food subsidy. Ultimately we should extend it, but we must think it through completely.
Do you think it is time to open up the coal sector the way the oil and gas sector have been opened up?
I think the coal sector must be opened up, but we have the coal nationalization act. Unless Parliament revisits that, there is no way it can be opened up in the fuller sense.
If you look at the constraints your government faced, whether its GST or coal sector reforms, will another government have the same problems?
Of course they will have the same problems. That is why the BJP does not speak about these issues. The BJP's prime ministerial candidate does not meet the media. On any issue, on coal nationalization act, have they taken a stand? If you don't revisit that Act, the same problems that we face, will be there for the next government as well. If there is any paralysis in governance, much of that paralysis is attributable to the fact that parliament is paralyzed. More than the executive, it was parliament that was paralyzed by mindless opposition and obstruction.
Is there is a trade-off between jobs and subsidies?
If you offer people a choice between a job and a subsidy, he or she would choose a job. UPA-I’s success was, in part, due to the welfare measures that we took. But in large part, it was due to the growth that we created and the economic opportunities that we created, including jobs.
Should the next government be looking at re-balancing subsidies?
Subsidies have to be merit subsidies and they have to be carefully targeted. To that extent there must be some rebalancing. But the more important task is to stimulate growth so that economic opportunities increase for the people. That I think is a more fundamental task.
Do you think this election will be a job vs subsidy election or is that oversimplification?
That is an oversimplification. This election is a collection of 29 state elections. Therefore, issues in each state will be different. There is no Modi in my state or my constituency. It is a collection of state elections.
Will a big public-programme, like the Golden Quadrilateral, help raise GDP?
As I said, the biggest challenge facing the next government will be resources and those resources must be carefully applied. You cannot think of any gigantic programme without keeping in mind the resources.
Do the big-ticket entitlement programmes have to be rebalanced?
Those are all being provided for. Look at the interim budget, those have been provided for.
What is your ideal number for subsidies as a percentage of GDP?
The tax-to-GDP ratio touched 11.9% at the centre in 2007-08. If we go back to 11.9%, that will give me far more resources than what I have today. There is no number, it depends on your resources.