It’s often said that a crisis has two sides to it, one of which, is the side of danger and the other, that of opportunity. Lately, this idea has been ringing true with the Government of India particularly when it comes to India’s economy. Since the time that the Government announced its “Atmanirbharta” scheme in an attempt to not only manage the COVID crisis but also uplift MSMEs, almost every citizen has had an opinion and their own critique on it. With the viral pandemic refusing to blow over and a potential war with China hovering over heads, India needs to take a leap and overcome its limitations. In order to understand the how’s and what’s, we talked to one of the most renowned personalities in the history of Indian economy, Mr. Palaniappan Chidambaram.
Mr. Chidambaram is vividly remembered for his former years as The Finance and The Home Minister of India. He also served as a Member of Rajya Sabha from Maharashtra. He is marked in history as a reformist finance minister for his tenure under the economist turned Prime Minister, Mr. Manmohan Singh. In his career, he is credited for some very successful trademarks like his “Dream Budget” in 1997 and his management of the Indian economy in times of global financial crisis of 2007-2008. Further, he has stated frequently that the banking development and achievements made in his tenure have continued to benefit this country to date. Therefore, we at VIT Today gathered some of the most pressing questions on the implications of the current situation on our current Indian Economy, new schemes coming in, and on the role of global financial institutions. Here is what Mr. Chidambaram had to say, in conversation with VIT Today:
1. Sir, if you had to explain to a child how big a set back the global economy faces in a relative metric due to this crisis, how would you go about it?
>> “A child will not understand macroeconomics, as a matter of fact, many adults don’t. But I think a child of 12-16 years will understand poverty. I would tell the child that many million people will become poorer as a result of this crisis. Many will have less food, less clothing, less education, less medical care. Many children will leave school and go to work to help their parents. I think a child will understand that picture and feel sad and anxious.”
2. Would you say that you sense a global shift in economic supremacy towards China as we recover from the crisis or do you think that countries will boycott China for its alleged hand in the crisis?
>> “Neither eventuality will happen. Countries that are open, academically, and intellectually strong, and promote risk-taking and innovation will re-claim their positions. China is not open, but it is strong in other respects. These countries will maintain their relative positions in the world economic order. China is too big an economy to be ignored or boycotted. The big economies will work out an arrangement among themselves and with the rest of the world like GATT, WHO, US-Canada Agreement. ASEAN, RCEP etc. A new balance will be struck with some dropping out of, and some joining, the big league.”
3. If thought from the context of a national perspective, do you think this crisis will shift the principal on which policymaking is conducted; With the majority hinting to a protectionist economy now?
>> “A protectionist economy in India will lead to a failed economy. I hope the people are wise to throw out, at the next election, any party that is openly protectionist, insular, and anti-global.” Thus, maintaining that global aspect of our economy will remain central.
4. We wonder about the role that global financial institutions like the World Bank and IMF play in a short-term perspective and if you believe that they will relax their austerity measures while loaning to countries in dire need of funds?
>> “The World Bank and IMF are totally dependent on their members for funds. If the funds available to them are reduced or are limited, their role also will be reduced and limited. They will continue to hand out advice, but they have been so wrong so often in the past, that each member country would be advised to take care of its self-interest before following the advice of the World Bank or IMF.”
5. Do you see a growing role of BRICs?
>> “BRICS was always a difficult project with neither geography nor economic interdependence binding them. It was a dream of some leaders at that time. But with changes in the quality of leadership (Brazil), the decline in internationalism (Russia), and domestic troubles (India, South Africa), BRICS is a shadow of its original vision. I don’t see a growing role for BRICS unless a new set of leaders emerge in all five countries.”
6. In lieu of this crisis, do you believe that the iconic trade deals will slowly lose their significance and hence a regional-based economy led by bodies like ASEAN & the OPEC will have a higher monopoly going forward?
>> “No. All iconic trade deals have one or more strong regional components. Regional trade pacts will dominate world trade but, eventually, even regional blocs would have to trade with each other. It is possible to have pan-world trade arrangements consisting of the 70-80 most important economies of the world.”
7. Is the government banking on the growth of the Medium and Small-Scale industries to support the Atmanirbhar Initiative and how viable was this strategy when goods from MSMEs do not thrive in competitive markets?
>> “No country can aspire to be a world leader in everything. MSMEs are the backbone of India’s economy. Our social structure also is very supportive of MSMEs. As far as non-traded goods and services are concerned (i.e. goods and services that cannot be exported or imported), we must rely on MSMEs and encourage them to dominate that space. Large industries and multinational corporations are necessary to boost India’s position in traded goods and services. Unfortunately, this distinction is missed by most people. Atmanirbhar is one more slogan of slogan-peddlers. If it is a code name for protectionism and autarchy, it is bound to fail.”
8. The lack of demand in a consumption-based economy as India is extremely hurtful in situations like this. To what extent has the government’s economic policies been successful in reflecting this reality?
>> “This government is an ostrich. It is clueless about macroeconomics. The need of the hour is to boost demand. This government, through its wrong policies and parsimony, continues to suppress demand. Putting money in the hands of the people, especially the bottom half of the population, is the best way to boost demand.”
9. The Chief Economic Adviser to the Government of India, Subramanian believes that increasing the gross market borrowing and listing government bonds on global indices, would ensure that the government will be able to fill the budget deficit. In light of the dip in global demand, what were the odds that this strategy will help the nation, and how?
>> “It is sad but true that nobody takes the CEA seriously, not even his own government. You shouldn’t either. Imagine India going out into the world at the present time with its bonds and raising buckets full of money! It is worse than a pipe dream. I think the Ministry of Finance has rejected the CEA’s idea.”
10. In light of the recent support to debt monetisation to reduce strain on the economy by increased government borrowing, how can this be efficiently implemented in our country and how would its implementation affect the government's ambitious plans to revive the economy?
>> “Monetizing a part of the fiscal deficit is a tool in the hands of every government and the central bank of that country. There is no reason why it cannot be a tool in the hands of the Indian government and RBI. We have RBI domain experts who can handle that. Monetisation is not the first option. It is a reserve tool that we should not hesitate to use if the need arises. The present vague plans of the government will not revive demand and, consequently, will not revive the economy.”
11. In conclusion, what will be your recommendations to the community of youth who's entering into a jobless economy that has really little to offer?
>> “I know you are worried that you cannot find a job. Be patient, have faith. The country is going through a terrible phase now, but people will start voting for change in the state elections. If a new, progressive, and the determined government is in place in Delhi, we can recreate the magic of 2004-2009.” Thus, implying that only the future will hold more certainty about the success of new schemes and the stability of our economy. The glaring limitation of global institutions will be highlighted and new establishments will come in place while respecting the previously built agreements. And further that the demand for change should never cease in the youth for deriving a more assured future from the government."
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