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Last Updated: Monday, 5 February 2007, 07:47 GMT
Indian Finance Minister: Full Text
Here is the full transcript of the BBC World Service programme "The Interview" with Indian Finance Minister Palaniappan Chidambaram broadcast over the weekend of 3/4 February 2007. The interviewer is Mike Williams.

INDIAN FINANCE MINISTER
Palaniappan Chidambaram
We have the right to grow, just as much as the US and Europe had a right to grow in the 19th century
Palaniappan Chidambaram

Williams:

Hello and welcome, I'm Mike Williams. My guest today comes from a country that's home to more than a billion people - India. It's the world's largest democracy, its economy is the second fastest growing in the world. But despite all of this a third or more of India's people live in poverty and my guest has the job of managing its economy. Palaniappan Chidambaram welcome to The Interview.

Chidambaram: Thank you.

Williams: India's finance minister - that's a pretty massive job you have, you've got a big task haven't you.

Chidambaram: It's a challenging task.

Williams: What's most challenging?

Chidambaram: To ensure that the economy grows at no less than 8% a year.

Williams: That's quite ambitious, that's I think second only to China isn't it - only China is growing faster than India. Why does growth matter?

Chidambaram: Growth is the best antidote to poverty. Growth gives incomes to people who are employed, throws up jobs for those who are not employed. Therefore growth is imperative. But growth obviously is not sufficient in a country that you introduced a minute ago as a country where a significant proportion lives in poverty the growth must be inclusive growth. So the task of the government - the task of the finance minister - is to ensure not only growth but that this growth is inclusive growth.

Williams: We'll talk a little bit more about that a little later. But I suppose my first question is can you sustain this growth, it's a very, very ambitious target - 8% or more - can you do it?

Chidambaram: I think we can, we have to do the right things and avoid doing the wrong things. Now what are the right things? The right things are one: Continue to observe fiscal prudence. Two: Ensure that people save and invest and that there is an enabling environment for investors, both domestic and foreign. And number three: Ensure that these investments are made widely, managed wisely, so that they give a return. If these principles are observed I don't think it's difficult in India to sustain a growth rate of no less than 8%, pushing 9%, and aiming to go beyond.

Williams: You mentioned foreign investment, why don't foreigners want to invest in India, because they don't do they - at the moment direct phone investments stands at only 1% of GDP. In China, one of your main economic rivals I suppose, the figure's nine times that?

Chidambaram: Well the comparisons are not quite appropriate. The way China counts FDI is different from the way India counts FDI. Besides overseas Chinese investments from Hong Kong and Taiwan are also counted. Be that as it may I can see that China gets much larger doses of foreign investment. But the foreign investment that will flow into India is also dependent upon our capacity to absorb it. And our capacity to absorb foreign investment will depend upon our willingness to open up more sectors which are regulated, open them up to foreign investment. Our current account deficit is still very modest - 1.3% of GDP - we need to expand the current account deficit and absorb foreign direct investment. This year, for example, 2006-07, FDI inflows are running 50% higher than last year.

Williams: And do you think foreign investments are scared of the politics of India, are worried about a return to the heavy hand of the state on the economy?

Chidambaram: Not at all, no foreign investor in recent years has expressed that worry to me. What they want to know is whether more sectors which are rather tightly regulated will be available to them.

Williams: Don't you risk annoying Indians at home when you start liberalising these sectors, when you start opening them up to foreigners, isn't that a political problem for you at home?

Chidambaram: There are some sections which are wary about foreign investment but by and large I think the political establishment, irrespective of the political party, because every political party is running some state government or another, recognises the place of foreign investment. Besides outward foreign investment from India, from Indian companies, and the acquisitions made by Indian companies have also helped to change the mindset in India.

Williams: Can India cope with the growth that you say you want, you say you can achieve, what about the country's infrastructure - its roads, its bridges, its ports, urban centres which can't sustain the pace of this growth?

Chidambaram: You're right but in a sense the deficiencies have been exposed by the rapid rate of growth. If we were growing at 4 or 5% these roads, these ports, these airports, would be considered adequate. So it's a chicken and egg - we need the growth but the deficiencies of infrastructure become more glaring, therefore we need to grow our infrastructure at the same pace as we grow the rest of the economy, which is why we are putting in a lot of money and we are attracting a lot of money into airports, sea ports, roads, railway, telecommunication, power, petroleum exploration.

Williams: Tell me about power, do you think you're going to be able to find the energy supplies to sustain ...?

Chidambaram: There's an 8% gap - there's an 8% gap between demand and supply today. I think we'll overcome this gap in the next five years. We have just done [indistinct word] and ultra mega power project policy and we have given out bids for two such projects by 31st December, we will give out two more by 31st March. We have no option - we have to overcome this demand/supply gap in power.

Williams What do you think when you hear wealthy Westerners saying that you shouldn't do that, you need to curb your energy use to protect the environment?

Chidambaram: Well I politely reject that criticism. When the rest of the world, the developed world, was growing nobody asked them why are you consuming so much energy, nobody asks them today why didn't you slow down and why didn't you consume less energy. The point is we have a right to grow, just as much as the US and Europe had a right to grow in the 19 - in the 20th Century. We have a right to grow, we have a right to consume energy, our carbon emissions are still among the lowest in the world, yet we are willing, as I've said before, to take our share of responsibility, provided we have access to clean technologies and clean development mechanisms.

Williams: You say you answer them politely but does it make you a bit angry when you hear Westerners talking to you about your responsibility to the planet?

Chidambaram: No, I think one can be polite and firm.

Williams: Do you ever look back at your childhood perhaps and say why on earth did I enter politics?

Chidambaram: No, I did as a matter of choice. I was inspired to enter politics when Mrs Indira Gandhi emerged as the leader. I came into Parliament when Mr Rajiv Gandhi had assumed the office of Prime Minister. These are two leaders I respect greatly. And I'm in politics but I'm also secure in the fact that politics is not all that I can do in this world - I can practise law, I can lecture, I can write, I can travel.

Williams: And you grew up - you grew up as a businessman really, didn't you, in a business family. I'm told that you're a Chettiyar - I hope I said that properly ...

Chidambaram: That's right.

Williams: Now I have to admit that I don't know much about the Indian caste system, I didn't even know that there was such a thing as a business caste - the Chettiyars. For those like me who don't understand the system how did that evolve?

Chidambaram: Well how did the caste system evolve?

Williams: Well particularly the position of the Chettiyars, I mean where did the Chettiyars come from?

Chidambaram: Well the Chettiyars are a very small business community but there are hundreds of such communities in different parts of India who are essentially businessmen, as opposed to farmers - traders as opposed to farmers. The Chettiyars are a small business community, they travelled overseas to Burma, to Malaysia, to Sri Lanka, to Singapore and set up businesses there, largely banking and trading. So I was born in that community but I have never regarded caste as an important factor, I've rejected caste.

Williams: Do you think that being brought up in that tradition though helped you to get to where you are, you must have been surrounded by the vocabulary of trade, of economics, of business when you were younger?

Chidambaram: I think the only thing that that did to me was to send me to business school in Harvard rather than law school. If I had a choice I would have gone to the law school but I went to the business school. But when I returned from business school I didn't do business I went to practise law.

Williams: You trained as a lawyer then, as you said, went to Harvard in the United States. What was it like as an Indian studying for an MBA in Harvard in the 1960s, what do you remember of those times?

Chidambaram: Oh we were a rather small and exclusive tribe at that moment, we were four Indians in that class, two of them had come from India, the other two were Indians who were living in the United States because their parents were living there. It was quite a challenge - coming from a different school and education system where I suppose by and large one learnt by rote. Harvard Business School challenged you to think, to analyse, to argue your positions. It was quite a challenge but I enjoyed myself. Basically I had a law degree and my aspiration was to be a lawyer.

Williams: What do you think you brought back from the United States to India and to Indian politics, do you think it made you the reformist that, I think it's fair to describe you as?

Chidambaram: No when I returned from Harvard Business School I was still pretty much wedded to socialism. So Harvard Business School did not change my political affiliation. What Harvard Business School taught me was that accept nothing as a given, challenge everything, ask for data, ask for reason and arguments and be prepared to receive counter arguments. Harvard Business School made you think and reason rather than accept conventional wisdom.

Williams: You said you returned home as a socialist, you wouldn't call yourself a socialist now would you?

Chidambaram: No I've explained that in a recent interview. I say if you want to define a socialist as one who believes in socialist goals - more equity, more social justice, more opportunity for everyone, care of the aged, care of the disabled, a special place for children and women - yes I'm a socialist. But if you ask me do I believe in socialist methods - state controlled policies, state driven economy - I don't any longer, I believe that a well regulated market is the best guarantor that you will achieve your goals.

Williams: Let's talk about your goals, where you came from politically. It was Rajiv Gandhi, I believe, who gave you your first big political break in 1984, tell us how that happened.

Chidambaram: Well I knew Mrs Indira Gandhi reasonably well, she was very fond of me. I used to translate her speeches from English to Tamil when she visited Tamil Nadu. I was the leader of the Youth Congress in my state when she was the leader of the party. Then I became a general secretary of my state party. But my first big break, in the sense that I contested an election and entered Parliament, was after Rajiv Gandhi took over, after the tragic assignation of his mother. We met on September 16th 1984 when he was visiting Tamil Nadu. I translated a speech into Tamil, then we started chatting and he asked me about Delhi, we started chatting about the forthcoming elections - his mother was alive at that time - and the prospects in Tamil Nadu. That's how we got to know each other. Then I got the ticket and I was in Parliament.

Williams: For people who don't know India well, just who are the Gandhis, how important is that family to the country historically?

Chidambaram: Oh they're very important. Unquestionably the most loved Indian of his time was Pandit Jawaharlal Nehru. Mahatma Gandhi was of course revered - near God. But the man who was loved most was Pandit Jawaharlal Nehru and as long as he lived he had complete sway over the people of India. Therefore he had a special place - he has a special place - in India. His daughter, Mrs Indira Gandhi, and then after her, her son - Rajiv Gandhi - also enjoyed a great deal of affection. You see there are many Indian political leaders who inspire respect or fear, there are very few who command genuine affection and love - the Gandhis are among them.

Williams: Rajiv Gandhi was assassinated on his way to see you, to campaign in your constituency.

Chidambaram: He would have been there the next day, he was assassinated the previous night.

Williams: How did you hear the news?

Chidambaram: When I was in a village making an election speech, I was told to rush to my campaign headquarters because there was no telephone in that village - I got a message. I rushed to the campaign headquarters and I got the news over the telephone. The radio was broadcasting that Rajiv Gandhi had been killed.

Williams: And how did that affect you?

Chidambaram: Very, very deeply, a small part of me died at that moment. If things had gone according to plan I would have been with him on that day, I'd have been say two feet away from him, it was the only meeting where I was not next to him as a translator, he was visiting Tamil Nadu, it was 300 kilometres away from my constituency and I had excused myself from that one meeting, promising to join him the next day at the first meeting. So that's it.

Williams: Since you accept, I think, a great debt to the Gandhi dynasty and its Congress Party, what made you decide to turn your back on them and join a breakaway faction ...?

Chidambaram: No we didn't turn our back on the Gandhis, we didn't even turn our back on the Congress Party, we turned our back on a decision made by the then Congress leadership to forge a particular alliance with another party, which we detested in Tamil Nadu, and therefore the bulk of the Congress Party in Tamil Nadu broke away and formed a regional party. But to all intents and purposes we were the Congress Party in Tamil Nadu.

Williams: So anybody who says - and I'm sure there are people who do - who say that you turned your back on the Gandhis and on Congress you'd dispute that?

Chidambaram: It was completely wrong. During that period we continued to maintain close relationship with the Congress Party in Delhi, with the Gandhis, I continued to be on the Rajiv Gandhi Foundation, I continued to be the head of the foundation. We were protesting a bad decision taken by the then leadership of the Congress Party which did not include Mrs Sonia Gandhi.

Williams: Your son - Karti - a businessman - he called that decision - this decision to breakaway - whatever word you'd like to use - as an extremely big event in your life, changing the direction of your life - is he right?

Chidambaram: Well I think he describes it in more enthusiastic terms. It was a difficult decision to take but a decision which was right and proved to be right. In the election that followed our alliance swept the polls - we won every one of the seats.

Williams: And it certainly gave your political career a boost - you became the Minister of Finance for the first time. What was it like when you first took that post, it must have been rather daunting?

Chidambaram: Well not quite - I had been promised minister earlier and I'd worked with the then Finance Minister Dr Manmohan Singh. I was of course daunted by the fact that in a coalition, the first genuine coalition government in India, I had become the Finance Minister. But the Prime Minister, then, Mr Deve Gowda, gave me a large degree of liberty and latitude to continue with reformist policies.

Williams: You're doing the job for a second time now and I've read a great many profiles of you, preparing for this interview, and you've been called, on a number of occasions, a star. Now ...

Chidambaram: A star of what?

Williams: Well a star - a star of financial management. I've also read quotes by some of your political opponents and I'm sure you won't be surprised to find that they dispute that. But where do you think this star status comes from, do you think you deserve it?

Chidambaram: No, I don't aspire to a star status. I'm doing a job and I think the government is doing a reasonably good job if you measure in terms of growth. We have delivered now 7.5%, 8.4% and the first half of the current fiscal year 9.1%. Now that certainly entitles the government to take some credit for doing a good job.

Williams: I have a quote, another quote, from your son, Karti, which I'd like to put to you. He says that you're unforgiving of failure, very quick on the uptake and at times you don't appreciate that others don't get it at once - do you think that's a fair character judgement from your son - is that what you're like?

Chidambaram: It was perhaps fair, now I accept more and more that there will be different points of view and some people will not perform as well as you would like them to perform.

Williams: That sounds rather - well still rather demanding, are you a demanding man?

Chidambaram: In this job one has to be stern and demanding. There are any number of people to tell me how to spend money, nobody to tell me how to raise money. One has to be stern in this job as I'm sure Chancellor Gordon Brown will tell you.

Williams: You're listening to The Interview on the BBC World Service. I'm Mike Williams and I'm glad you could join me and my guest today the Finance Minister of India Palaniappan Chidambaram.

Mr Chidambaram you've done very well for the Indian middle classes, in fact some would argue that you've helped to invent them, to create them, but poverty remains a stain on your country doesn't it.

Chidambaram: It is but that proportion is declining, it will continue to decline. The faster we grow and the more inclusive that growth is, the decline in poverty will be rapid. I'm confident we can wipe out poverty by 2040.

Williams: Twenty forty - wipe out poverty?

Chidambaram: I think so.

Williams: How do you measure that, what do you mean by wipe out poverty?

Chidambaram: Well that we will not have the abject poverty that we see, that afflicts about 25% of India's population. People will have homes, work, food, clothing, access to education and medical care. Most Indians would have these well before 2040 but I think abject poverty will be wiped out by 2040.

Williams: Well it's a bold - bold promise. Let's see how you might do it. You've always maintained that the best way to combat mass poverty is through free market reforms - why? Surely the economic reforms that we've seen so far have actually widened the gap between the richest and the poorest in India?

Chidambaram: Let me assume that the gap has widened, perhaps it has. At the same time those at the bottom of the pyramid have also seen improvement in their lives.

Williams: But still some - a third of a million - sorry, forgive me, some third of a billion live in abject poverty.

Chidambaram: Yeah about 250 million live in poverty. And the only way that they can be lifted out of poverty is to ensure that they have education, access to healthcare, skills and therefore make them employable or at least self-employed. That will happen if the economy grows. The economy does not grow there's not too much you can share.

Williams: But you believe that the effects of that growth will trickle down to the very poorest because what you've helped to do is to create - well I think there's something like 300 billionaires now in India, with a vast collective wealth, yet life expectancy is seven years less than China, the UN says that infant mortality rates in India are worse than China or even Sri Lanka - is that the brave new world that you want to create?

Chidambaram: You have to look at these figures and compare them with what they were 10 years ago, what they were 15 years ago. It is economic growth which has made these figures better today than what they were 15 years ago. Why compare India with China? Why compare India with Sri Lanka? Each country has a different set of problems, a different set of challenges. The appropriate question to ask is are we coping with these challenges in the best way that we can? I believe we are. Can we do more? Of course we can do more. We can do more if we use our resources wisely and get the best for every rupee. When we build a road, when we build homes for poor people, when we roll out a rural health mission, when we roll out the universalisation of education. I find there is so much waste and leakage. If I can plug those leakages we will roll out these services far more quickly and far more efficiently to the people who need these services.

Williams: Don't you find it painfully slow?

Chidambaram: It is slow but things are improving. There are differences between state and state, for example the southern states are growing at a very rapid rate and the delivery of services in southern states has improved tremendously. The western states are also doing very well - Punjab and Haryana have very low levels of poverty, Punjab, for example, is only about 6% people below the poverty line. Now Himachal, Delhi, the poverty ratios are very low. It's really the hinterland of India, the landlocked states - Rajasthan, Bihar, Uttar Pradesh, Madhya Pradesh, Jhark and Chhattisgarh where we have a serious problem. The problem's really a problem of governance. We do provide a lot of money but unless governance in these states improve you will not find a major assault on poverty. Even the eastern states are catching up now - Orissa, Bengal - are all catching up now.

Williams: What kind of country is India, what kind of economy does it have - is it a rural country, it is a manufacturing country, is it a service economy - what is it?

Chidambaram: If you go by the traditional classification 54% of GDP comes from services, 25-26% comes from industry, the remainder - about 20%-21% - comes from agriculture.

Williams: That's now, what about 5-10 years time?

Chidambaram: Five, ten years time the services sector will grow and occupy a larger space, industry will perhaps move up a couple of notches, agriculture will move down maybe 3 or 4%. But please remember the bulk of the working population is dependent on agriculture which is why it's important to pay attention to agriculture.

Williams: What effect do you think that globalisation is having and will have on Indians?

Chidambaram: Both positive and negative. The positive aspects of globalisation will be greater capital flows, greater investment, more trade, more jobs in the services sector, more exports - all that will be positive. The negative aspects, against which we are guarding against, are the impact on agriculture. Agriculture in India today is a livelihood issue, which is why when we go to the WTO we do not look upon agriculture as simply a trading issue, it is a livelihood issue, we have to protect the livelihood of millions of people.

Williams: Are you worried that globalisation exposes Indians to exploitation?

Chidambaram: No not to exploitation, unless we are on our guard, we are on our guard, if the Western countries, the developed countries, continue to subsidise agriculture and then seek access to India's market it will of course immiserise our farming population, we will never let that happen.

Williams: When it comes to bringing your population out of poverty your unique selling point, and this is true of other developing nations too, is the cheap labour, now that's the paradox which you can't overcome - the more they earn the less attractive they are to people investing.

Chidambaram: Much of this is myth, that India's labour is cheap and therefore we have an advantage. Well China's labour must therefore be cheaper. The point is India's labour is skilled, we are today a major hub for manufacturing - we export textiles, chemicals, pharmaceuticals, leather goods, steel, machine tools, automobile parts, cars - we export Mercedes Benz cars made in India back to Germany. Therefore please don't believe the story that India's labour is cheap and that gives us advantage. India's labour is indeed cheaper than labour costs elsewhere in the world but India's labour is also skilled and our comparative advantage comes from a number of factors, one among them being relatively cheaper labour.

Williams: Do you think that India is undervalued by the world, underestimated as a nation?

Chidambaram: It was, I don't believe it is anymore.

Williams: Would you like to see perhaps a seat on the Security Council, a seat at the top table of international politics?

Chidambaram: I think we're entitled to - our population, our location, our discharge of responsibilities given to us in the past by the United Nations, our role as a peacekeeper and a peacemaker and our economic size I think entitles us to a place on the Security Council.

Williams: Do you think a lot of Indian politics over the last decades have been devoted to - if not that specific aim - at least raising India's position in a world of international politics?

Chidambaram: I think our growth story has captured the imagination of the world.

Williams: But do you think that Indians have felt undervalued in the past?

Chidambaram: They were but I think Indians are very confident now, Indians travel round the world and come back and tell me that they are heard with respect and they have a place at the high table in most conferences and meetings.

Williams: What about you personally - would you like a seat at the top table of Indian politics, well you've already got a seat but how about Prime Minister Chidambaram?

Chidambaram: I'm quite happy to be Finance Minister, there are many other things in life to do than be in politics and be a minister.

Williams: Palaniappan Chidambaram thank you very much for talking to all the listeners of the BBC World Service and to me here on The Interview, thank you very much.


A week of special programming about India can be heard on the BBC World Service from 3 to 11 February


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