Is the decline in industrial growth the lag effect of the last days of Manmohan or is it something else?
P. Chidambaram took time off from his countrywide tour to popu-larise his pet scheme, VDIS, to speak to A.S. Panneerselvan about the state of the economy. Excerpts:
Is the decline in industrial growth the lag effect of the last days of Manmohan or is it something else?
The fact is that the policies of the government between 1994-96 led to a cash crunch. There has also been a decline in the agriculture production. I do not want to blame either Narasimha Rao or Manmohan for that. But, the foodgrain production was down by three per cent and the liquidity crisis was too palpable.
Why aren't the government's efforts to end the credit squeeze effective?
Prime lending rates have come down. Banks are flush with funds. Deposits are growing at a higher rate than lending. However, banks are afraid to lend because in the present circumstances, people tend to read political meaning into all business decisions. One or two accounts are bound to be sticky. That should not deter banks from their primary business—lending. The RBI governor has convened a meeting of the CMDs of the banks to talk about this. I hope the situation will be better in the next few weeks.
Does the slowdown in consumer durables offtake mean people have no faith in this government's future?
This year has witnessed a bumper harvest of 198.6 mt. There is a time lag between the harvest and the inflow of the money. I expect the purchasing spree to start any time now. I think we should insulate the economy from the fortunes of governments. In Italy and Japan, governments come and go, but the economy has its own momentum. A similar situation should, and will, come here.
What are the most urgent things that need to be done to boost industrial growth?
There's everything except business confidence. The need of the hour is to build that. There is money and foreign exchange. This is the time to import capital goods, the time to invest. So, I am trying to convince the business community to invest right away.
Is there something wrong with the economy or is it more psychological?
The economy is now very strong. Our inflation rates are under control. The lending rates have been lowered. We have a record forex reserve of $28 billion. So the fundamentals point to an economy in good shape. I don't want to guess the GDP for the year. All I'm willing to say is that it'll be better than most projections.