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G. Srinivasan

NEW DELHI, Jan. 28

THE prevailing low inflation rate should not tempt the Government to "reflate" the economy by "artificial measures" as the current low inflation rate is "extremely deceptive", according to the former Union Finance Minister, Mr P. Chidamabaram.

In an interaction with Business Line here, Mr Chidambaram contends that the low inflation is because there is very little demand - clearly "a demand recession" and there are few takers for industrial goods.

He cautioned that the low inflation should also not lead people to believe that "we have got rid of the demon of inflation and reached conditions which are prevalent, for example, in Europe".

The "stimulant" to the economy should emanate from increased demand and this could only supervene if there is an "enhanced investment" or "enhanced expenditure in a productive manner".

The economy is clearly in a slowdown, "virtually bordering on an industrial recession". It is only the services sector, which is showing some buoyancy and the agricultural sector continues to show "sluggish" growth, he said adding that the GDP growth in the industry segment of the economy is unlikely to be more than 2 to 3 per cent. This, he termed as "a sure pointer to the drastic slowdown, near recession".

To a specific query as to whether he regrets having endorsed the Budget of Mr Yashwant Sinha, Mr Chidambaram quipped, "I do not regret that I endorsed the Budget. I regret the fact that the promises have not been kept. I regret that clearly there was a great opportunity to put India back on a high growth path and that opportunity was missed by the present Government".

It is a matter of "concern that the Government has remained virtually paralysed. True, it has been virtually bombarded with advice from all sides and sometimes they have been contradictory". But then, he said, the "true measure of the Government is to sift the advice and choose a course of action which is right and proper. Unfortunately, the Government, despite several rounds of meetings, decided to do nothing. As a result, the economy is in a deep slumber".

To a query as to reviving the capital market to ensure return of retail investors, Mr Chidambaram felt that conditions were not favourable now because "there have been too many scams. There was more uncertainty about the stock market. There is also a grave doubt about the ability of the regulator, the Securities and Exchanges Board of India".

All taken together, "it appears to me that the retail investors are not likely to return in large numbers to the stock market". It is true that they have to put their savings somewhere and it is most likely that they will put it in some safer instruments even though such instruments secure them lower interest than they used to get.

Mr Chidambaram, who also held the commerce portfolio in the Narashima Rao Government in the early 1990s and was credited with trade policy reforms, felt that the export outlook too is "very pessimistic". Partly, the reason is worldwide recessionary conditions, he said adding that even if the recessionary conditions lift, "it is not clear whether India can take advantage of the situation and achieve high export growth rate".

There is no "focussed attempt to target either certain group of products or certain export destination".

The Commerce Ministry is virtually not seen or heard. Exporters have specific grievances and they do not lead to policy. If the Commerce Ministry takes active interest and redresses some of these grievances, exporters would be enthused to redouble their effort into making more exports".

He regretted that in commodity segments exports were "languishing" - coffee, tea, pepper, spices and marine products all now fetch very low prices for growers as well as exporters.

"If this state of affairs continues, it would impoverish the growers and take away whatever competitive advantages we have acquired in these commodities." He suggests that the sector-specific issues must be addressed by the Commerce Ministry.

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