James Lamont, south Asia bureau chief, Alec Russell, world news editor, and Amy Kazmin, the south Asia correspondent, interviewed Manmohan Singh, the prime minister of India, in New Delhi on March 29 2009.
FT: Do you agree with China on the failures of the global monetary regime and the case for a new reserve asset in place of the dollar?
Manmohan Singh: Well these are not new issues. I was associated with the first committee of 20 with Paul Volcker in the 1970s. These issues have been discussed many times – moving to a neutral reserve asset. But there are complicated issues. The power to issue money is an indication of the power of a country and no-one gives up power voluntarily. So these are complicated issues, depending on the power balance. There are virtuous technical solutions but I don’t see these are the issues that can be resolved through technical analysis.
FT: Do you expect this to be an issue that arises at G20 meeting?
MS: It’s too early. You need a lot of preparation.
FT: There’s been an intense debate about what G20 should be doing. The US is proposing deep fiscal stimulus, but Europe is stepping back. Where does India stand?
MS: In all these matters there has to be some umpire. I’ve seen a letter from the managing director of the IMF saying that the stimulus that has been planned in the year 2009 by major economies amounts to 2 per cent of GDP. This is probably adequate but it's necessary to ensure that stimulus is sustained and maintained in the year 2010. I would suggest that these are again issues that should probably be handed to an expert crew either inside or outside the IMF so that whether each country is doing its bit - its adequacy, effectiveness - can be assessed by objective means.
FT: What kind of agreement can be reached at the G20?
MS: In one day you are asking the leaders of the world to resolve all these issues. Beyond a point they are issues relating to the redistribution of powers among nations. I don’t think these are issues that can be resolved in a short period of time. If you look at Bretton Woods, it took two years for the Americans and British to work out arrangements. There was the Keynes plan, the White plan and now the power system is much more complex, there are much more issues. If you are talking about global reform it requires a lot more work. It is a task that should be entrusted to a competent group of people under the auspices of the IMF or another arrangement we are willing to look at.
FT: So what is possible?
MS: An agreement for effective, credible fiscal stimulus is the responsibility of all major economies to do their bit. The second is that credit flows must be resumed. For that matter, the cleaning up of the balance sheet of the financial institutions -whatever it involved. These are very unpleasant decisions. There are problems for the tax player, political problems. If you don’t have a functioning financial system the world economy won’t be revived. All the major economies have their responsibility to assist at a pace which is required to clean up the balance sheet of the banking system and to ensure that credit flows are resumed. We in the developing countries see the effect of the stoppage of credit flows much more. Capital flows have sharply declined. Trade credit has sharply declined. And there is a fall of export demand. The problems of emerging economies should also be taken on board. The decline in capital flows that has taken place should be made good by providing adequate resources to the international financial institutions to come to the rescue of the emerging countries and low-income countries.
FT: The last G20 meeting ended in lots of positive statements, but it wasn’t long before protectionist measures crept in. How can you guard against a repeat of that?
MS: Protectionism has to be avoided. Protectionism is not only on goods but also in the area of services. Financial protectionism is also bad and should be avoided. Some action by the developed countries particularly the withdrawal of capital resources from the developing countries by the banks of the developed countries is equally worrisome. We have entirely agreed that protectionism of all sorts including financial protectionism has to be avoided. Although some countries have taken action, in practice the impact of what has been done has not been reversed.
FT: Lashkar e Taiba, the militant group responsible for the Mumbai attacks, appears to be once again menacing India with this recent firelight in Kashmir. Why do you think that Lashkar has been able to bounce back so quickly?
MS: It is because the promises that the government of Pakistan have made to control terrorism and all its instrumentalities, they are either not able to control them or they are not willing to control them.
FT: Why has Pakistan not been able to do this?
MS: I’m not an expert on how Pakistan is being run. But the proof of pudding is in the eating. That the attacks on Mumbai were planned and acted upon in Pakistani territory is now admitted by everybody, including the intelligence agencies of developed countries. That is living proof that despite many promises made by Pakistan since 2004 to my predecessor and to me that Pakistan will not be allowed to be used to undertake acts of terror against India, in practice no effective action has been taken to control terror.
In the past, it has been our experience that there are elements in the armed forces of Pakistan, some segments of the ISI involved in perpetrating acts of terror, particularly the attack on the Indian embassy in Kabul. We have been told that the ISI in Pakistan has a different mindset. I hope that is right. The world has a responsibility that Pakistan lives up to the promise that it will not allow its territory to be used to promote acts of terror directed against India.
FT: How do you assess the chances of success for the strategy of US President Barack Obama to stabilise Afghanistan and Pakistan?
MS: We would like both Afghanistan and Pakistan to be free of the hold of terrorist elements. I have not studied the Obama plan. We are victims of terrorism and we hope that whatever the world community plans to do they will pay adequate attention that terrorism ceases to be a problem in Afghanistan as well as Pakistan. We all know the epicentre of terrorism in the world today is Pakistan. The world community has to come to grips with this harsh reality.
FT: What more does India have to do to protect itself from the global financial crisis?
MS: Our growth rate has been affected we were having a growth rate of 9 per cent until 2007/8 when the growth rate has come down to 7 percent and maybe lower than that. We have taken measures. Our fiscal deficit has gone up substantially. We have deliberately allowed it to go up to provide stimulus as a substitute for the decline of exports, for the decline of international capital. For the time being we believe that the fiscal stimulus that we have provided is adequate. With the decline of inflation there is added manoeuvrability in the use of monetary policy which will be utilised when and where it becomes necessary.
FT: There were high hopes that you could maintain the pace of economic reform that you achieved in the 1990s. Are you disappointed that you seem to have been constrained by your coalition government in doing more?
MS: You would have liked to push through more reforms. The coalition has its own compulsions. What we have done is something that can’t be ignored - the fact that the Indian economy has for the first time in the last four years grown by 9 per cent per annum is an achievement that deserves some credit. We have invested very substantially and there has been an increase in demand in education, health and in strengthening the social safety net. The employment guarantee programme which we have provided to the poor of the country in rural areas is one of the most important elements of moving toward an inclusive economic growth process. All these cannot be ignored. It is certainly true that we would have liked to move faster on some elements on the econ reforms but politics is the art of the possible.
FT: Critics in the BJP say you are also constrained by the president of the Congress party, Sonia Gandhi. Do you feel this?
MS: I am not constrained by the fact that the Congress party ‘s management is looked after by Mrs Gandhi and I can concentrate on managing the world of the government. It is a distinct advantage the fact that the Congress president has carried this heavy burden of managing the party and bringing various political parties together in the United Progressive Alliance is a positive element. It’s not a constraint on me.
FT: Is India doomed to have coalition governments that prevent it from pursuing its goals with the single-minded determination that China appears to have?
MS: The Chinese have certain advantages. The fact that it’s a single party government. But I do believe in the long run the fact that India is a functioning democracy committed to the rule of law. Our system is slow to move but I’m confident that once decisions are taken they are going to be far more durable. You take the case of economic reform. When we launched the reform in 1991, the Financial Times and all other friends used to tell me “How will you be sure that these reforms will be carried forward by all successive governments”. I used to say “Don’t judge politicians by what they say but what they do in power”. We’ve seen since 1991 there have been four or five governments in our country and none have dared to reverse the path of reform that we started. I’m confident. Democracy has its problems, it’s slow moving, the decision making process is slow. But once decisions are taken they are far more durable. I have every reason to believe that what is happening in India to move towards an inclusive growth path, in the framework of a democratic polity, committed to the rule of law, respect for fundamental human rights. If we do succeed we have lessons for a large number of countries in the so-called Third World.
FT: What is the future of capitalism, especially in India?
MS: Capitalism with a human face. We are a mixed economy. We will remain a mixed economy. The public and private sector will continue to play a very important role. The private sector in our country has very ample scope and I am confident that India’s entrepreneurs have the capacity, and the will to rise to the occasion.
The following questions were answered in writing:
FT: Can the world agree a common policy response at the G20? What do you think is achievable? What will India’s contribution be to the debate?
MS: We should not look for complete agreement in everything. The fact that G-20 Leaders are meeting after six months to focus on the global crisis suggests a shared sense of urgency and commonality of purpose which itself is bound to lead to more concerted, albeit, national responses. I think governments recognise that they have to intervene actively to restart the growth process. There is also agreement that supervisory and regulatory structures in the financial sector need to be hugely improved to reduce risk of similar crises in the future. There is also agreement that the international community should take special steps to counter the effects of the crisis in emerging markets. India will work constructively to expand the consensus in all these key areas, especially where developing countries’ interests are involved.
FT: Do you fear a wave of protectionism emanating from the global financial crisis? How will this affect India?
MS: Protectionism is a very real danger. It is understandable that in times of a severe downturn protectionist pressures mount but the lessons of history are clear. If we give in to protectionist pressures, we will only send the world into a downward spiral. This will obviously hurt all countries and also India. We have a common interest in ensuring that the global economy remains open and provides an environment in which emerging market countries can increase their interaction with the world through trade and investment.
FT: What line will India take on the sharp drop of financial flows into emerging markets this year as some OECD leaders pressure their banks into giving preference to lending at home?
MS: The withdrawal of private capital flows from emerging markets in 2009 is estimated at around 700 billion dollars and there is no immediate prospect of resumption in 2010. Although these flows in many cases were going in part into foreign reserves, withdrawal on this scale is likely to hurt growth prospects in emerging market countries. The international community must respond by expanding the flow of resources from international financial institutions to help developing countries to deal with this shrinkage, until international capital markets recover.
The phenomenon of industrialised countries pressurizing their banks to give preference to lending at home does present a problem. It is a form of financial protectionism which should be avoided and where possible reversed.
FT: The US is widely blaming India for the Doha Development Round deadlock. Where do you see responsibility lying?
MS: There is no truth in the charge that India is responsible for the deadlock in the Doha Round. I have repeatedly stated that India has a strategic stake in the successful functioning of the multilateral trading system and in a positive outcome of the Doha Round. We took on onerous obligations in the 1990s to bring the WTO into existence. We played an active role in launching the Doha Development Round. We want the developmental objectives of this Round to be addressed in any final deal. There were many areas of difference between different groups of countries, including differences between the US and the Europe. In our case the differences related to sensitive issues affecting the livelihood of small and vulnerable farmers. I should add that while public attention focusses on points of disagreement, we should remember that a great deal of work has been done to narrow differences. The negotiators just did not have enough time.
FT: What do you want to see in reform of the international financial institutions especially from India’s perspective?
MS: The IFIs were established at a time when the world was very different, the challenges facing the global economy were different and the distribution of economic power was very different. Since then, the world has changed dramatically. There is need to redefine their role to deal with the problems of today. This often calls for changes in their mode of operation and internal governance. Their voting structure also needs to be changed to reflect contemporary reality. They also need more resources to cope with the exceptional volatility in private capital flows which can present severe problems on occasion.
As for putting more money into the IMF, I can assure you that we will do our bit. India does not need IMF funding but we are ready to contribute to IMF resources on the scale required to reflect the rebalancing of quotas we want in favour of developing countries.
FT: What more can India do at home to mitigate the immediate impact of the financial crisis?
MS: We have taken a number of steps to counter the impact of the financial crisis. Fortunately, our banking system is sound and untainted by the kind of toxic assets that have caused problems elsewhere. This is the result of cautious financial regulation. However, the global slowdown has obviously affected our real economy via exports, the investment climate and the withdrawal of capital from emerging markets. Like other countries we have used both monetary policy and fiscal policy to counter the slow down. I think this is having some effect. Our growth rate in the five years ending 2007-08 averaged about 8.8%. In the current year 2008-09, which is just about to end, it will slowdown to less than 7 percent. No one expects the global economy to recover before the end of 2009. So the year 2009-10 will be a difficult year. We will have to continue to rely on an expansionary monetary policy and also on fiscal stimuli. Fortunately, inflation has come down very substantially, giving us more room to act contra-cyclically. We also do not expect problems in managing the balance of payments.
We will have a new government in place following the general elections by the end of May. Our government is very clear on what we will do if we come back to power. We will act in the short run to stimulate the economy to return to our medium growth potential, which is around 9 percent or so. We will do this in a manner which ensures that growth is inclusive. We have focused a great deal on strengthening the part of the economy which most directly helps the poor and they are therefore better insulated from the downturn. We must also continue to focus on infrastructure development.
FT: How can you bridge the $190bn funding gap that stands between India and its infrastructure needs in the short term?
MS: Infrastructure is a priority area for medium term growth in India. We are relying on a combination of public investment plus public private partnership for infrastructure development. The need to give a fiscal stimulus provides an opportunity to expand public investment in infrastructure. The change in the international financial environment does present problems in mobilizing some of the private investment which we had hoped would flow into these sectors. Recognising that the global financial crisis may present short term financing problems, we are taking steps to increase public investment in infrastructure and also to stimulate greater bank lending for infrastructure projects. This is an area where IFI funding can play a crucial bridging role for the next two years.
FT: What was your top achievement as head of the Congress-led government?
MS: Our Government has been able to increase the trajectory of India’s economic growth rate to a new high of close to 9.0 per cent while at the same time ensuring that our growth process is more socially and regionally inclusive. Inclusive Growth has been our watchword and that is what we are delivering. We have increased the income of our farming community by ensuring they get better prices. We have increased employment in urban and rural areas, and created the first ever ‘rural employment guarantee’ programme in the world. This is a safety net that will smoothen the harsh edges of extreme poverty across the country. There has been unprecedented capacity expansion in education. We have taken important initiatives in the area of foreign policy, including a landmark nuclear deal that has dismantled a decades old technology denial regime. It will give a big boost to our energy security and clean energy development programme. I think overall we have much to show both at home and abroad to say that India is a better place and a better nation today than five years ago.
FT: What do you regret most that you did not achieve?
MS: There is a lot to be done to wipe out the last vestiges of economic backwardness, poverty, ignorance and disease in this ancient and great land of ours that has lived through very difficult times for hundreds of years. So there is much more I would have liked to do in all areas. That is what we have dedicated ourselves to doing in years to come.
FT: During Nehru’s time caste politics were expected to be on the wane. But in contemporary times they are on the rise and ever more powerful. Is this good for India?
MS: Caste politics is an unfortunate fact of life in our environment where caste identity is important. However the only way of overcoming this is to show that non-caste parties deliver substantial results for those who belong to disadvantaged castes. That is what we are trying to do.
FT: Who are the best role models for young Indians?
MS: Our youth are fortunate today to have a wide variety of role models from the fields of education, science and technology, sports, art and culture, social development and business and enterprise. I find every year there are so many awards being given in so many different fields to the best and brightest. Each one of these awardees is a role model for millions of others. I find this energy and dedication truly inspiring. The diversity of role models in diverse professions adds richness to our social life. India is a society on the move. The energy of our youth is driving this nation to new heights and they seek inspiration from so many great achievers. Some of them in fact live outside India, like the woman astronaut Sunita Williams, an Indian American, who has inspired young girls in our villages to study science. Recently millions of our youth were enthused when our musician A R Rehman got two Oscars for composing music for a British film!
FT: What is the greatest threat to India’s security? Is it internal divisions or the external threat of Pakistan?
MS: India is a plural and liberal democracy. What you call ‘internal divisions’ we see as our plurality and our diversity. There were many in the West who imagined that as a developing country, post-colonial India would not be able to cope with this internal diversity. I think after 60 years we have proved them wrong. We are a functioning constitutional democracy and a secular Republic based on the rule of law. Our internal differences define us, they do not threaten or weaken us. That is why I said India is built on the idea of “unity in diversity”, and its experience holds great hope for the people of other multi-cultural, multi-ethnic, multi-lingual and multi-religious nations. Our main security threat is no different from your main security threat. The entire civilized world faces a grave security threat from terrorism.
FT: India’s minorities are facing more and more pressure from militant Hindu groups. Has your government done enough to protect minorities?
MS: During our five years in office we have worked to ensure the safety and security of all minorities. In fact many of the terrorist attacks in India were aimed at generating communal conflict. They have failed in achieving this goal. Wherever there have been attacks on one community we have taken action. There are enough correctives in our system.
FT: In your opinion is India a “great power” that can stand up to scrutiny of its internal affairs by the international community? Is India willing to make sacrifices for the good of the world beyond its borders?
MS: I think we have made strides in the past decade or two and the world is taking notice of what India is doing. I cannot claim that we have solutions to all our problems. But we have shown that it is possible for a pluralistic and diverse society to grow and flourish in an open democratic framework. The Indian experience is important for the world. I have great faith in the creativity and imagination of our people to address the challenges that confront us and this can be seen in our growing soft power that is making an impact on the world.
India is deeply conscious of its role in the international arena and we have been seeking a restructuring and reform of the global polity that will allow us to play a commensurate role. I can say with pride that Indians have made sacrifices beyond their borders for the good of the world. Our contribution to UN Peacekeeping Forces is recognized around the world. We have sent our troops to Africa and the Balkans and other parts to protect the lives and property of peoples of other nations. Indian Navy personnel were involved in tsunami relief in the Indian Ocean region. They risk their lives to protect merchant vessels from pirates in the Indian Ocean region and in South China Seas.
FT: India has been criticised for not doing enough on climate change. Is there really a serious lack of commitment to curb emissions?
MS: India currently has one of the lowest per capita emissions among large major economies including major emerging economies at 1.8 tonnes of CO2 per annum. The US figure is over 20 tonnes. Even in total volume terms, India’s emissions constitute only 4 percent of the global figure whereas the US and China are responsible for over 20 percent each. This is the result of India consciously pursuing a path of sustainable development and reducing the energy intensity and therefore the carbon intensity of its growth. Over the past decade our economy has grown by 9 percent per annum while energy use has increased by 4 percent per annum.
As one of the countries likely to be impacted most by Climate Change, India has every reason to contribute to an effective global response to this challenge. These criticisms are based on inadequate appreciation of our position. India is engaged actively in the negotiations under the UNFCCC to ensure an ambitious but also a fair and equitable outcome at Copenhagen. We are very conscious of the need for taking action on climate change and this is reflected in our National Action Plan for Climate Change. It was our confidence in our ability to ensure an ecologically sustainable path of growth which has enabled me to pledge on behalf of India that even as our emissions increase in the short term we will ensure that our per capita emissions will never exceed that of the average of developed countries. This is a very significant commitment.