Book launch: “A View from the Outside: Why Good Economics Works for Everyone.”

Speaker: Mr Chindambaram, Minister Finance, India.

Date: Wednesday, 26th March 2008

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Lecture Synopsis

by Radhika Puri

 

Honorable Finance Minister of India, P. Chidambaram launched his book in Singapore at the Lee Kuan Yew School of Public Policy on 26th March, 2008. The book is entitled “A View from the Outside: Why Good Economics Works for Everyone.” At the book launch, Mr. Chidambaram’s gave a two-hour long talk that touched on a diversity of subjects ranging from the Indian growth experience to global volatility. In a candid talk, the Minister was forthright in criticising certain developed world policies such as turning food into bio fuels and the lapses that led to the current sub-prime crisis.

 

Sustaining Growth amidst Global Uncertainty

 

Highlighting the fantastic growth run that the Indian economy had, Mr. Chidambaram stated that the two constant challenges of growing in a market-based economy are managing inflation and loss of jobs. These factors he said are highly co-related to the national structural adjustment process and can cause people to question the reform agenda. “Our government had used a range of monetary, fiscal and public policy instruments to manage these twin goals of inflation and large-scale employment,” the Minister noted.

 

He added: “These measures include steps such as the FRBM Act (Fiscal Responsibility and Budget Management Act), reducing both custom and excise duty since January 2004 across the board (for example: small cars and processed foods) and tightening the supply of money in the economy to battle inflation.” The second goal of increasing employment had met with mixed results. “Although the number of jobs have been consistently growing, India is faced with the paradox of increasing jobs while dealing with a high unemployment rate since the labor force has grown at a faster pace than the pace of job creation,” said the Minister.

 

Minister Chidambaram further pointed out that no policy in India can be said to be successful until it addresses the rural poor. He specifically mentioned the agricultural wage earner, a worker that typically earns the absolute minimum wage through daily work in the harvesting season and is left to battle poverty for the rest of the year. The Minister also stated that the government had also been trying to bring some relief to the daily wage earner in the agricultural sector by guaranteeing some employment in the year to the daily worker. The Minister was quick to refute that any policies aimed at the rural poor, particularly waiver of farm loans announced in the recent budget, had a populist tinge to it.

 

“We believe that the high-growth for the next several decades is an absolute imperative for India,” said Minister Chidambaram. Pointing out that growth was not an end in itself but a means to achieve objectives such as education for children, health and nutrition for the population, the Minister expressed concern that the on-going financial turbulence will not make things easy for the country.

 

Mr. Chidambaram stated that the country itself was financially stable and followed prudent regulatory policies but that in no way shielded it entirely from global volatility. It was unfair, he stated, when developing countries have to be “helpless victims of global uncertainty.”

 

What are these effects of global uncertainty?

 

“Despite the fact that Indian banks do not have any exposure (save one) to the subprime mortgage market, as the crisis moved to the credit market the consequences are being felt in India too,” noted the Minister. “As markets become more volatile, investors prefer to wait and watch and this has negative consequences for growth.”

 

In addition, Mr. Chidambaram spoke of the relentless pressure that rising oil and food prices is putting on India. “While rising demand is one reason for rising food prices, the diversion of food items to produce bio fuels is another reason,” said the Minister. Mr. Chidambaram was highly critical of the policy of certain nations to keep fuel prices low for the transportation sector while parts of the globe go without any food at all.

 

He also pointed out that the relentless rise in crude oil prices was another example of greed. “The risks of producing oil have not increased so much for the price of oil to grow from US $ 34 to US $ 110 in a matter of four years,” stated the Minister. To lessen the impact of these negative consequences, the Indian government he stated has taken certain steps in the recent budget to stimulate domestic demand.

 

These are: reductions in personal income tax, expanding and deepening the corporate debt market, and large outlays on public expenditure such as education, health and roads. “It is our intention to keep the environment helpful and friendly for foreign investors,” said Mr Chidambaram. “For instance, building crucial infrastructure in India will require US $ 500 billion over the next five years and this can only be garnered if there continues to be high growth, so that the money required for investment can be ploughed into infrastructure.”

 

The Minister was also highly critical of the failure of regulation in creating the subprime mortgage crisis. “A senior policy-maker from the West told me that it was because innovation was ahead of regulation,” said Mr. Chidambaram. “This is an ingenious spin on regulatory failure. Once the crisis exploded the system rushed to the aid of banks. But if this had happened in developing countries, we would have been lectured on the values of bankruptcy. “ he added.

 

Mr. Chidambaram concluded his lecture by questioning the importance given to erstwhile goals such as the Millennium Development Goals and the necessity of making food and fuel available at reasonable prices to wipe out poverty.