The growth that was achieved between 2004-05 and 2007-08 was based on prudent fiscal management. We managed the worst international financial crisis since the Great Depression in 2008-09 competently, P Chidambaram, Former FM, tells ET Now.
Edited excerpts:
The gross domestic product (GDP) back series issued by a committee of the National Statistical Commission (NSC), showed growth to be higher over 2003-04 to 2011-12 and lower before that from 1994-95 . What is your view?
This data points to the conclusion that the growth rate in UPA-1 and 2 was far higher than growth rate in NDA-1 and 2. Is that a wrong conclusion?
NDA-1 handed over the baton to UPA-1 at growth rates of about over 8% and rising. UPA-2 passed it on to NDA-2 at 6%. Are you using facts selectively?
No. Please understand in the five years of NDA-1 the growth was less than 5% in two years, just barely 5% in one year and crossed 7 and crossed in 8 one year each. The 8.08 which the new report says based on market prices is upon previous year of 3.73.
So, there was a base year impact.
The base year was so low that any growth will show up very high — 8.08% in this case. That is why we take the average of the five years and the average of the five years comes to 5.68%. I have done nothing more than take the average of UPA-1, 8.36%, and the average of UPA-2, 7.68%. What is wrong about this calculation? You do not take one odd year out of five and say we handed over a baton… Economy was not certainly not rising.
This 8.08% was not a flash in the pan. It was an economy on the upswing.
You said. Did I use the word flash in the pan?
No, you did not.
All I said is 8.08% is a bit of an exaggeration because it is based on a very low base at 3.73%. When you look at the other four numbers, 8.15% is upon 8.08%, 9.6% is upon 8.15%, 9.7% is upon 9.6%, 10.23% is upon 9.7%. The clear rise was in UPA-1, the first four years which Dr Arvind Subramanian, until recently the chief economic advisor, said were the boom years.
One of the allegations that is coming from the Congress is that the Modi government (the present NDA-2) has been blessed with a very benign oil regime and yet they could not capitalise on it too much. The reality is that you were also blessed with very heady global growth in terms of exports. The average export growth in UPA-1 and UPA-2 was upwards of 12%. We all know exports have slumped and that is a big driver of engine. Is it not? They may have benefited from oil but lost in terms of exports.
The difference is we had a benign or helpful external environment and we made use of it. They had an equally benign external environment because of a crash in oil prices, crash in commodity prices and they did not make use of it. That is the difference.
Rajiv Kumar of the Niti Aayog vice chairman says that the higher growth rate in 2009 to 2011 and in previous years was funded by untenable fiscal deficit and reckless expansion of bank credit. The response to the global economic crisis was fiscal steroid and was the economy growing on back of that?
I have to take exception to the words and previous years. Prior to 2009-10, there was no reckless spending, there was no reckless borrowing. He is wrong there. The growth that was achieved between 2004-05 and 2007-08 was based on prudent fiscal management. 2008-09 saw the worst international financial crisis since the Great Depression. In fact, it is called the Great Recession. We managed it competently. Our growth slumped. The world growth crashed. Most countries have negative growth yet we registered 4.15% under the new series market prices, 7.16% under the old series be that may. Then I left the finance ministry and Mr Mukherjee took over.
Now you can argue whether one fiscal stimulus was good, the second was good, the third was not, but to be fair to Mr Mukherjee, he followed the text book. And what do the text books say? The text book says in times of a decline in growth, a decline in private investment, spend more. So, he did relax the fiscal deficit limits. He did borrow and he did spend and that did cause high fiscal deficit and high inflation but the positive was that we revived growth and we had growth of 8.84%, 10.78% and 6.96% until the European crisis hit us. Whoever would have been in Mr Mukherjees place, I do not know what he would have done differently.
What would you have done? Would you have gone for this “reckless spending”?
It was not reckless spending. It was public spending.
Look at fiscal deficit levels. Those went up…. Those shot through the roof.
That is excessive borrowing but the spending was genuine spending.
Would you have done that?
Well it is hindsight. I have the benefit of hindsight. I would have done the first fiscal stimulus package. I would have held back on the second and certainly I would not have done a third package. But then a finance minister has to be eventually guided by the prime minister.
So are you saying Dr Manmohan Singh was responsible for high fiscal deficit?
No, no I did not say that. I said that the Finance Minister and Prime Minister.
You cannot divorce the Finance Ministry from your tenure to Mr Mukherjees tenure. It was one government.
I am not..
No, you are not but this is one government that was continuing in power. You cannot look at growth figures in isolation of high inflation and high fiscal deficit?
I am not. I am only saying that Mr Mukherjee followed the textbook and therefore you cannot fault him. If you have the benefit of hindsight, I think it is possible to argue that the first stimulus package was necessary, the second you know you could take a call one way or the other and the third was perhaps avoidable. But that is a viewpoint one must respect that and one must learn lessons for the future.
Do not you think there was indiscriminate lending that happened because of the fiscal steroids?
No, I do not agree. What is wrong with 14% credit growth? What is wrong is that current credit growth has slumped to 8.27% in 2017-2018 and has picked up only now. It has now crossed 12%. Suppose this credit growth picks up further and goes to 14%, would you call it reckless credit growth?
They say that we have to deal with the legacy of massive NPAs and deleveraging of bank credit and uncertain global trade environment where exports have slipped and a world that is increasingly looking closed?
And no time will all factors be in your favour. There will always be some factors or other which is against you. You must know how to manage and I shudder to think what they would have or what they would have done if they were in office in 2008 and the international financial crisis hit in. Why do not you give credit to Dr Manmohan Singh?
Or oil at a $140..
$145 in the first week of July 2008. Why dont you give credit to Dr Manmohan Singh and his government for managing the most challenging economic environment the world has faced in 50 years? 1,000 banks collapsed in US alone, banks collapsed in England, in Germany but not one bank collapsed in India.
You are known to be fiscally prudent to the point that people may even call you a fiscal hawk?
I did tighten the fiscal deficit in the one and a half years that I had before elections. I did contain the current account deficit to 1.7%. What is the current account deficit now? At the end of 2017-2018, current account deficit had touched 2%. I had contained it to 1.7% and this year I am told 2018-2019 current account deficit will cross 2% may even go up to 2.3-2.4%.
That is exactly the point. If you were fiscally prudent in hindsight and we have the benefit of hindsight now, if you are proud of the growth numbers, are you equally proud of the inflation and the fiscal deficit?
I am not. That is what I am trying to say. We had to stimulate the economy, we paid a price in terms of high inflation and high fiscal deficit, but in the year and a half, I did contain the fiscal deficit sharply, and I did contain the current account deficit to very creditable limits around one point.
You are also blamed for cutting down on spending?
P Chidambaram: What choice did you have? You cannot have everything, you cannot say I will contain the fiscal deficit, I will contain the current account deficit and I will spend. You would have called me reckless as well! Every decision is contextual, based upon how you find the economy at any given time.
Was high inflation a big red in your report card?
I think so. High inflation was a big red in the UPA II report card.
Your party has accused the government of pushing and doing the unthinkable, which is pushing the rupee beyond 70. But is not the exchange rate a function of global factors?
I would not comment on the exchange rate.
Because you agree with them?
I would not comment on the exchange rate but all I would say is what did you say before you came to power? Both Mr Narendra Modi and Ms Sushma Swaraj are on record saying that if they come to power the rupee will trade at Rs 40 to a dollar. We are only holding the mirror to them and say this is what you said and this is what you are delivering. Please explain why?
But as somebody who has been at the helm in finance ministry do you sympathise with the fact that rupee management is beyond their control? Its global factors and EM currencies have lost clout and dollar is strengthening?
You are asking the question to the wrong person. I did not promise Rs 40 a dollar, they did. Be that as it may, I am willing to concede that the exchange rate is not entirely under the control of the government but clearly there are some things which can be done to offset the depreciation in exchange rate, so that we are not hit by price rise, import compression or high deficits. What are you doing to offset the negative effects of a depreciating rupee?
NDA II has done the big reset with IBC and the NCLT. GST is gradually moving to what you would have envisaged it to be. Will you concede like some people in the BJP and the government do that they have laid the foundation for most sustainable high growth?
Well if they are good in laying foundations, now that they have laid the foundations, let them make way for somebody who can build the mansion.
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