India's Promise - Aiming for High Growth with Finance Minister P. Chidambaram
Monday, May 28, 2007DARREN GERSH: The Indian government believes the lives of the poor are getting better and as economic growth accelerates, millions will climb the ladder from poverty to the emerging middle class. I spoke with Indian Finance Minister P. Chidambaram about the government's perspective on India's rapid growth. Your budget laid out a policy goal of faster, more inclusive growth. I have to tell you that the poor people that we spoke to say they're not sharing in that growth, and the prices that they're paying for the food that they eat-- for limes, for lemons, for apples, for grains -- are all rising faster than their incomes. What is your government doing to address their concerns?
P. CHIDAMBARAM, INDIAN FINANCE MINISTER: These are supply side constraints. Part of it is the fallout of high growth. People are consuming more. Per capita income is rising at about 6 percent a year for the last four years. Supply is not growing as fast as demand. There is a supply/demand mismatch, which is what triggered inflation in the last quarter the previous calendar year. But it's quite obvious for anyone who travels extensively in rural India that in many -- mark my word, not all -- in many parts of rural India, life today is better and a little more livable than what it was 10 years ago or 20 years ago or 30 years ago.
GERSH: Are you concerned there may be a backlash against fast growth here in India?
CHIDAMBARAM: If there is inflation, yes. But if inflation is contained, I don't think there will be a backlash. The goal, therefore, is to maintain high growth even while moderating inflation. The tolerance level for inflation has come down in India. That's a good sign. There was a time when people were tolerating -- I mean, grumbling and tolerating -- 8 to 10 percent inflation. Today, the tolerance level has come down to about 5 percent, maybe less than 5 percent, which puts governments on notice.
GERSH: The International Monetary Fund recently said that there is an increased risk that the Indian economy is now overheating. Is the Indian economy overheating?
CHIDAMBARAM: Overheating is a misunderstood and misused word. What is overheating? In some sectors, credit growth is indeed higher than what we would like it to be, especially commercial real estate, housing loans, personal consumption loans. In these sectors, we would like credit growth to moderate. But certainly, if the infrastructure sector grows at a clipping pace, or if sectors like steel and mining and petroleum grow at a clipping pace, there's a much higher rate of growth of credit to these sectors, why should anyone call it overheating? These add to capacity. These add to production, these add to jobs. There's no reason to call that overheating.
GERSH: As you know, one of the biggest business complaints about India is infrastructure. The roads, the water, the electrical systems are all under heavy duty strain. Is India investing enough fast enough in infrastructure?
CHIDAMBARAM: Not enough. We can only invest what we can afford to invest. I concede that we are not investing as much in infrastructure as we would like to or we should, but that is a constraint which any democratic government faces, how to allocate finite resources.
GERSH: I just want to close by asking you this: if we come back to India five years from now, how will the economy be different?
CHIDAMBARAM: Oh, India will be a stronger economy. Our reserves will have grown. Our growth rate will be hopefully maintained at close to 9 percent. More people will have been lifted about the poverty line. There's no question today we are much stronger than what we were 15 years ago. I mean, who can deny that?
