Wednesday, December 31, 2008

Q and A with Chidambaram.

Text of Finance Minister P Chidambaram's replies to questions from journalists on the G 20 Financial Summit in Washington, on board Air India One, on November 14, 2008.

Q: Are we talking of a new mechanism for fund flows?

FM: That depends upon where the resources would be found. If the resourcescan be found and channelised through the existing multilateral institutions,that would be good. But if you find resources that cannot be channelisedthrough existing financial institutions, then we have to find anothermechanism through which these resources can be channelised to developingcountries. We have to talk to others about this.

Q: Can you tell us about the outcome of the G20 Finance Ministers' meeting?

FM: I've hinted at a number of ideas that came up in Sao Paulo to which wewere a contributor. We hear others' suggestions also. We have many ideas andsuggestions but we don't yet have a plan. A plan is what has to be devisedin Washington and subsequently.

Q: Are we talking about a global regulator?

FM: Regulation, in the present context, is a function which nationalregulators will be loath to give up. That is why regulation must benational. If we can agree on common prudential and regulatory standards, andthen ask national regulators to apply those standards, there can be somekind of global oversight [over] whether the national regulators are doingtheir job. I don't think regulation can be raised to [the level of] a globalregulator. That's too ambitious, perhaps not possible in today'scircumstances.

Q: Are we talking about a global oversight body?

FM: I didn't use the words, 'global oversight body.' I said there must besome way in which we can have global oversight over whether the commonlyaccepted regulatory and prudential standards are being applied by nationalregulators. These are things that have to be talked over. These are ideas,formative ideas.

Q: Basically standards will be global but their regulation will be national.That's what you are talking about?

FM: That's what I think will happen.

Q: Can we get countries like China and some of the Arab countries totransfer their reserves out of the U.S. and into developing countries likeIndia?

FM: I don't know where China keeps its reserves. I don't even know whereIndia keeps its reserves. It's a closely guarded secret. Each country willdecide where its reserves should be kept. We can't tell another country howto handle its reserves.

Q: Is an increased voting share for India in the IMF being considered?

FM: If it's contribution to additional capital for these [multilateral]institutions, surely we'll accept our share of responsibilities. But is thatthe way being suggested? I don't know. I don't know if they're talking ofinfusing additional capital into multilateral institutions. But ifadditional capital is infused, consistent with our share, voting share, wewill accept our share of responsibilities.

Q: Will the government undertake increased public expenditure?

FM: That's a question you should ask on the way back. On the flight back.We've just passed a supplementary demand, which is about Rs. 105,000 croreadditional cash expenditure. Where do you think all that is going? The bulkof it is going into NREGA, rural development. Just look at the heads underwhich we have provided additional cash amounting to Rs. 105,000 crore.

Q: Is reform of the IMF on the agenda?

FM: The IMF has just done one set of reforms, under which we got a highervoting right. Whether the IMF is ready for another major reform of votingrights, I don't know. I doubt it. But surely the IMF must begin to discusswithin itself further governance reforms.

Q: What kind of prudential norms are you looking at?

FM: These are the well-known norms to regulate financial institutions,capital adequacy, risk-assessment.what all bankers do, what the BIS issupposed to be doing.

Q: What might have happened if we had surveillance and early warningmechanisms?

FM: In retrospect, it is clear that if there had been an effectivesurveillance mechanism, that mechanism would have identified the huge risksthat were being taken by some international financial entities. In theabsence of such a surveillance mechanism or an oversight mechanism, thesefinancial entities, some of which have collapsed, took unacceptable risks.They caused a crisis in the United States, which is the epicentre of thecrisis. So what we are talking about, what we talked about in Sao Paulo andwe will talk about in Washington is: can we agree upon such a globaloversight entity? I don't know what shape it will take. But we need to talkabout it.

Q: What will be the impact of the financial crisis on India?

FM: We can't measure the impact. We have said we would be indirectlyimpacted. It will impact, to some extent, on our growth, our exports, and itwill also impact the currency flows, as it has already. But we are confidentthat given the underlying strengths of the Indian economy, we can weatherthe crisis and still return a decent growth rate for 2008-2009. Even theIMF's last week assessment places India's growth rate for the currentfiscal, 2008-2009, at 7.8 per cent. We'll still return a decent growth ratebut we will suffer an indirect impact.

Q: Is there not a contradiction between the need for regulation and freemarket reforms?

FM: There is no contradiction. That is why the Prime Minister has emphasisedthat the answer to the crisis is not to adopt protectionist policies.

Q: Won't President-elect Barack Obama's decision not to attend the Summit ormeet leaders visiting Washington during the Summit be a dampener?

FM: That's for Mr. Obama to decide. He made a very politically correctstatement when he said the U.S. has only one President at any given time.

Q: There seems to be a divide between Europe and the United States on how totackle the financial crisis. Which side will be on?

FM: I don't think this is a question of taking sides. In São Paulo, theFrench, the Americans and the British were all there and we did agree upon acommuniqué. If agreement could be reached in São Paulo, why doubt that anagreement can be reached at Washington?

Q: Is the creation of another Bretton Woods institution on the agenda?

FM: Very difficult to say we can invent another Bretton Woods institution.What we're trying to do is improve global governance and global oversightover these financial institutions. I don't expect that we will have anotherBretton Woods type of institution. That's my view.

Q: Given global trends, aren't Indian interest rates too high?

A: That's a question that the Governor of the RBI has to answer. And I thinkhe has given his answers on October 6, October 10, October 24, and October31. He will respond as the situation develops. I can't give an answer tothat.

Q: In the US you have a lame-duck administration, as lame-duck as any lameduck can be. What impact will this factor have on the Summit? Secondly, inIndia elections are approaching. What will be the input made byelection-oriented imperatives to our response to the financial crisis?

A: The resolution of this crisis will take us to a point of time well beyondJanuary 20, 2009. Likewise, it will take us to a point of time well beyondMay 22, 2009. So I don't think we are going to take an election-constrictedpoint of view. We're going to take a medium- to long-term point of view. AndI believe the U.S. will also take that view. After all, President Bush andPresident-elect Obama are reported to have talked about these issues atgreat length only two days ago. So I think the Obama input will be there inwhatever Mr. Bush presents. So we'll have to take a view that takes us wellbeyond these election deadlines. That's the stance, I think, that India willadopt.

Q: Can we get Saudi Arabia and other oil-rich states to invest in India?

FM: If someone wants to invest in India, we welcome that. PM has made thatstatement in Qatar.

Q: Can we get resources from the IMF and the World Bank?

FM: I think you are mixing up two things. Money through the IMF can comeonly if you accept an IMF programme. Money through the World Bank is fordevelopment. It depends upon what you need. We don't need an IMF programmenow. What we need is more resources for development. And if you ask me topick an institution, then I would say that if World Bank can give us more,we will happily accept that.

Q: Can the World Bank give more money to India?

FM: Our requirement is for project-oriented and programme-oriented funds.We're now taking World Bank funds of the order of $ 3 billion. If that canbe raised, it will finance many more projects that have been pushed to thenext year or the year after that. States' projects, Central projects. We'llbe happy if the World Bank can raise its development assistance.

Q: Are there plans to reduce the CRR?

FM: Once again, surely, a question the Governor of the RBI can answer.

Q: And about India's credit growth rate?

FM: I'm not targeting any growth of credit. It is growing at 29 per centtoday. If it is non-inflationary growth, we don't have to worry about thecredit growth rate. That is what Dr Bimal Jalan said in a recent interview.We have to juxtapose the rate of credit growth with inflation. If the growthis non-inflationary, then we can accept the current credit growth, but itdepends upon its impact on inflation. The [RBI] Governor will have to take acall on that.

Q: The British press is saying India's GDP growth rate will be less thanwhat is being projected.

FM: I said the estimates vary between 7 and 7.8 per cent. IMF 7.8, RBI 7.5to 8, Prime Minister's Economic Advisory Council 7 to 7.5. We still have avery decent growth rate. What do I have to tell the British? All I can sayis it's still higher than their growth rate!

Q: Can you tell us more about the agreement being sought on internationalaccounting standards?

FM: That was one of the points agreed in São Paulo. We have agreed to go tointernational accounting standards, IASB or something. Now there is anotherstandard, which the U.S. and some other countries are inclined to adopt.What we agreed in São Paulo was to have common accounting standards, so wehave to work a bit for that. Even if there are two accounting standards, wecan still arrive at a common standard. 

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