A Conversation With: P. Chidambaram

By JIM YARDLEY

Palaniappan Chidambaram, the powerful minister of finance and senior leader in the Indian National Congress, has been a central figure in the recent flurry of economic measures pushed through by the government. His return to the Finance Ministry on the last day of July â€" he had previously served as finance minister from 2004 to 2008 â€" coincided with a new, more assertive attitude by a government that had been criticized for drift and ineffectiveness.

Business leaders and economists have praised Mr. Chidambaram and Prime Minister Manmohan Singh for pushing through a series of tough measures, intended to correct India's fiscal problems, including an increase in prices for diesel fuel and cooking gas, along with policies that allow more foreign direct investment in multi-brand retail, civil aviation, media, pensions and insurance.

The measures have infuriated the political opposition and led to the withdrawal of Mamata Banerjee and her Trinamool Congress party from the governing coalition. Yet, for the moment, the government is still standing. Mr. Chidambaram recently sat down with Jim Yardley, Gardiner Harris and Hari Kumar for a wide-ranging discussion about the Indian economy, Congress party politics, corruption and the impact of foreign direct investment.

You've certainly made a dramatic impact.

I have made nothing. I just have happened to be at the right place at the right time. Or, if we could say, (chuckling) the wrong place at the wrong time.

What has been the impetus for change and what is the state of the economy now? We've seen positive comments from business leaders who only weeks ago were questioning the India story. Ratings agencies were warning of downgrades.

Our fiscal deficit and our revenue deficit are out of line. The current account deficit is also unacceptably high. Therefore, the first task was to reassure the world , as well as the people of India, that we will take corrective measures. It can't be done, and it won't be done, in a few months, or even one year. But we are determined to take corrective measures. So I, we decided that we would take measures that would, one, stabilize the rupee; two, reverse the direction of capital flows from outflow to inflow; and three, control expenditure.

The first few steps were intended to achieve those objectives, and I am reasonably satisfied that we have made some progress in that direction. A depreciating rupee has very serious consequences. And outflow of capital will only make it worse.

The world economy is having a tough time. But many analysts have said India also suffers from self-inflicted wounds. How do you see that? What got the country into this situation?

Well, because of the configuration in Parliament, we were unable to move forward in the matter of passing the necessary laws. The configuration remains the same, but I think we have brought home to many political parties that irrespective who is in government and who is in opposition, it is necessary to pass these laws. If I can, if we can carry that message to its logical conclusion, we hope to be able to pass very crucial, very critical laws.

So you see the problem as rooted in parliamentary obstacles. Others have pointed to ‘policy logjam'.

The policy logjam is the result of laws not being passed, isn't it? The policy logjam is a conclusion you arrive at. But why is there a policy logjam? Because these laws got stalled. Even today, I'm keeping my fingers crossed. But I sincerely hope that the political parties, especially the principal opposition party, will support these bills because, as I said, irrespective of who is in government and who is in opposition, these bills need to be passed.

You are talking about the Thursday announcements on foreign direct investment in pensions and insurance, which require parliam entary approval and cannot simply be approved by the cabinet.

Yes.

Given that you have your fingers crossed, is the economy still in a dire position?

No, I'm saying that we may have partially stemmed the tide against us. The steps that we will take in the future will stem that tide. But to go forward, we need the laws. And we need to pass the laws on banking, on insurance, on pensions, the Company Law, the Competition Act â€" these have to be passed.

There has been much discussion of the fact that so much has happened since Pranab Mukherjee ascended to the presidency and you took over at Finance. Is there a philosophical difference between the two of you?

I don't think there is a philosophical difference. I think he was trying to do it in his own way. (Pause) We just, we just decided that we could not wait any longer for a few things like adjusting prices of some petroleum products and announcing the changes in the FDI policy. We could not wait any longer.

There is also a narrative out there that Congress President Sonia Gandhi had been resistant to some of the measures recently pushed through, and that it took personal appeals from you and the prime minister to convince her. Is that true?

That is completely wrong. If you go back and read the speeches that she has made at the last Congress plenary session, you will find that she was, and remains, fully supportive of economic reforms. She doesn't speak on the subject because she is heading a party. She is not heading the government.

Do you think this burst of activity will reverse the party's political fortunes?

Well, (again chuckling) I hope it does. But I don't think our political fortunes were, or are, in decline. These are perceptions of people. And while each one is entitled to their own perceptions, I think the people of India know who can hold the country together, who can provide an inclusive government, an inclusive administration an d who can take the hard decisions. If you go back to any period in India's history, all the hard decisions this country had to take were taken when the Congress was in power.

There is endless speculation about Rahul Gandhi. Is he finally going to take a more public, active role in the party or the government? How important is that for the Congress?

It is important. The Congress has always renewed itself by encouraging younger leaders to take responsibility. And in the generation that is after my generation, the one person who appears to be most acceptable to the party, and to people outside the party, is Mr. Rahul Gandhi.

Therefore, we would all urge him to accept greater responsibility, to take more responsibility. He seems to have indicated he would take more responsibility in the party. If that is his decision, I'm sure he will be given greater responsibility in the management of the party.

You think he doesn't want to be more involved in governmen t yet?

That is what I understand, but I don't know. I can't vouch for that, but that is what I understand.

How important is the new policy allowing more foreign direct investment in retail? Do you think the floodgates will now open?

The gates will open but there will not be a flood. What will happen is they will come, one by one. And sometimes, the parts will come and you will see the whole after only some time. Somebody will come in and build the storage house, the warehouses. Someone will come in and build the cold chain. Someone will come in and build the supermarket. Someone will come in and bring post-harvest technologies.

One fine day you will find all this coming together and you will have very strong chain from farm to supermarket. So I think they will come one by one, or they will come in parts and the whole will emerge later.

Just a few years ago, there were predictions that India was at the front end of a super cycle that would bring annual average growth of about 9 percent for possibly two decades or more. Was that naïve? Is India never going to achieve that?

To say that is not possible is wrong. We now have figures for eight years, from 2004. Right? In six of these eight years, we've had 8-plus-percent growth. The two years when we were sub-8 percent was 2008-09, when we were 6.7 percent, and in 2011-12, when we were 6.5 percent.

So once we get back to the 8-plus-percent growth path, 9 is very ambitious but 8 is achievable. If we get back to the 8-plus-percent growth path, we will reach that goal, if not in 20 years, we'll reach it in 25 years.

Rightly or wrongly, Narendra Modi markets himself as an administrator who can get things done for business. Now, oddly, he is an opponent of foreign direct investment in retail, but for the moment let's push that aside-

Why do you push it aside? That shows that either he speaks in two voices or he's not a genuinely committed reformer.

O.K. But my question is that Modi and other critics blamed the central government for bottling up projects. Now, things seem to be moving. How has that happened?

We've got a fair idea of what projects are stalled. We've a fair idea of why they are stalled. So we have put the ministries or departments on notice, that they'll have to deliver. They are being very closely monitored.

We will set up the National Investment Board in roughly about two weeks. And once the N.I.B. is set up, where the ministry has failed to take decisions within the time frame, N.I.B. will take unto itself the authority to take that decision on behalf of the government.

What about the land issues in the country? It is such a complicated issue, balancing the rights of adivasis and the needs of industry.

The Land Acquisition Bill is almost ready. One more sitting of the Group of Ministers and the bill will be ready to be presented to the cabinet. As you said, it is a very comp lex situation. We need land. We have the owners of the land. We have the tillers of the land, which may be different from the owner. And we have people who are neither owners nor tillers, but their livelihoods may be dependent on that land.

For example, the shopkeeper, the cart puller â€" his livelihood depends upon the activity that goes on upon the land. So there are several stakeholders on the issue of land. Ordinarily, you and I would think the only stakeholders are the owners of land, but that is not so in India.

Then we have the Scheduled Tribes, who have a very different concept of ownership of land, not the Western concept of ownership of land. For them, land is owned in the common, the common ownership of the community. And a lot of transactions have taken place where the tribals have been deprived of their land but they are still dependent on that land.

So the Land Acquisition Act is not an easy act to make, but we are almost there. But once we ma ke that law, and get it passed in Parliament, I think many of the problems relating to acquisition of land for industry or other infrastructure would be resolved.

Corruption is a big political and economic issue. Some foreign investors are very worried about corruption for their investments. This government has seen Coalgate and the 2G scandal. How will this government handle corruption going forward? How important is it to the economy?

The allegations of corruption that target the prime minister and ministers are largely untrue and most certainly exaggerated. Criticism of a policy is welcome. But in the garb of criticizing a policy, if you allege that the policy was made for corrupt purposes, I reject it. I agree that in the implementation of policies, there have been illegalities and irregularities. But policy is implemented by a large number of civil servants at different levels. And they will have to be held to account.

And if any minister or any politi cal leader was involved in those illegalities or irregularities, of course, he or she will be held to account. But that doesn't make the policy a product of a corrupt motive.

How much has the corruption issue paralyzed the government?

Quite. Because Parliament has not functioned.

But what about the rest of government? Many people have said the bureaucracy is now scared to make decisions?

If you, if you whip up a cloud that hides everything, the administration will indeed be paralyzed. The one example I can give you is the McCarthy era in America. Everybody was tarred with the same brush. And everybody was a suspect in everyone's eyes. The U.S. got over it.

Today, to allege corruption seems to be the pastime of most people. All kinds of allegations are leveled. I think it is self-defeating. It does paralyze the administration. But we are determined to rise above the noise that is made and get on with the job of governing this country.

You m entioned political equations. The Trinamool Congress is gone now. The government has a different balancing act. Is it harder now? And will the coalition make it to 2014?

Oh, we will finish the term of our government and we will go into an election.

Did the departure of Mamata Banerjee actually enable the government to finally push ahead with these measures?

No, no, no. I think you are attaching too much importance to individuals coming and going. As I said, these things were being and worked upon for quite some time. In about August, we had reached a point where we could not wait any longer.

Economically?

Yes.

What sort of investment numbers do you hope and predict this will bring?

Oh, this will bring a lot of money: FDI, FII. Of course, in the hierarchy of flows, I would put FDI higher than FII. But we expect to get a very large inflow of FDI and FII. It is already happening.

Tomorrow in Mumbai, I have a meeting with 20 top FI Is.

We've now had what the Indian news media is calling Big Bang I and Big Bang II. What is coming next?

When you hear the bang, you'll know.

Catching Up With: Raj Chetty

Raj Chetty, 33, is an Indian-American economist who accepted a tenured professorship at Harvard University while still in his 20s. He was awarded a MacArthur “genius grant” last week for his work in the emerging field of behavioral public finance, i.e., using empirical data to measure how economic policies and public-sector investment affect individual behavior and social outcomes.

READING What I often do is read the working papers of economists affiliated with the National Bureau of Economic Research. You come across the latest work of economists at all universities on various topics like health, education and other policy issues. On a broad level, you see that there are now much better sources of data in economics research. We used to rely on surveys, but now we have administrative data sources from health care, schools, grocery scanners, etc., so we don't have to rely just on what people tell us.

LISTENING Pandora stations seeded with OneRepublic or contemporary Bollywood musicians like A. R. Rahman, who blends traditional Indian melodies with Western music.

WATCHING A documentary I really liked was called “Kumare,” which follows an Indian-American guy who transforms himself into a guru. He studies in India, grows a beard and has the robes and then develops a following in Phoenix. At the end he reveals he's just a kid who grew up in New Jersey. The message is that spirituality and faith is not about specific people, it's within you.

FOLLOWING I surf Web sites of colleagues including David Card, a labor economist at Berkeley whom I tremendously respect. I also keep track of Jesse Shapiro at the University of Chicago, who does work on the economics of media, and my Harvard colleague Greg Mankiw, who blogs broadly about economics. I also like the Piano Guys on YouTube - very creative renditions of classical and popular music.

CONCENTRATING One gadget that I love is my Bose noise-canceling headphones - great on long trips to reduce noise fatigue. When you are trying to think deeply about a problem on a flight, it's hard to really zone in without them.

EATING Vegan “charcuterie” at Gather, a restaurant in Berkeley, Calif. It has really nice marinades and nice combinations.

India\'s Rich Benefit From Schools Affirmative Action

CHENNAI, India - The two women both claim that affirmative action cost them coveted spots at elite public universities. Both cases have now reached the Supreme Court.

One of the women, Abigail Fisher, 22, who is white, says she was denied admission to the University of Texas based on her race, and on Wednesday, the United States Supreme Court is to hear her plea in what may be the year's most important decision. The other woman is from the southern Indian state of Tamil Nadu, and two weeks ago the Indian Supreme Court ordered that she be admitted to medical school pending the outcome of a broader court review.

“When I came to know that I could not get into any medical college, I was really shocked,” C. V. Gayathri, the Indian student, said in an interview. “I didn't speak to anyone for a week. I cried. I was very depressed.”

Though the outlines of the two cases are similar, differences between how the world's two largest democracies have chosen to redress centuries of past discrimination are striking. While affirmative action in the United States is now threatened, the program in India is a vast system of political patronage that increasingly works to reward the powerful rather than uplift those in need.

Indeed, the caste-based affirmative action here raises questions, not only for India and the United States, but also for nations like Brazil and Malaysia that have adopted similar anti-discrimination programs. Without diligent judicial oversight, experts say, the efforts can help perpetuate inequality rather than redress it.

In Tamil Nadu, for instance, 69 percent of university admissions are now set aside for what the state has determined to be “backward castes.” Many of those favored with these set-asides have controlled Tamil Nadu's government and much of its resources for generations, but they claim special status by pointing to a caste survey done in 1931. (Ms. Gayathri, 17, is a Brahmin whose parents are civil servants with modest incomes.)

Five prominent university officials in Tamil Nadu said in interviews that those given set-asides at their institutions were generally the children of doctors, lawyers and high-level bureaucrats. The result is that rich students routinely get preference over more accomplished poor ones who do not happen to belong to the favored castes. None of the officials would allow their names to be used for fear of angering the government ministers who benefit politically and personally from the program.

India's caste system was created nearly 1,500 years ago to organize occupations in a feudal agricultural society. Those at the bottom of the system, now known as Dalits, were forbidden in some places from even allowing their shadows to fall on those at the top, known as Brahmins. Most castes were deemed “backward,” which meant that they were consigned to menial jobs.

Over the last 30 years, however, India's economy has been transformed, much of its populace has moved from villages to sprawling cities, and once distinct castes have been scrambled. That has led to the erosion of historic differences in education and increased income mobility within castes in India, recent studies have found.

“Caste is no longer an economic restriction,” said Viktoria Hnatkovska, an assistant professor of economics at the University of British Columbia, and a co-author of several studies on the changing role of caste in India.

Nonetheless, quotas have transformed the taint of “backwardness” into a coveted designation.

The Gujjars of Rajasthan, for instance, held violent riots two years ago to protest the government's refusal to declare them as “most backward.” Politicians win elections in India by promising to bestow this one-time curse, which has led to a dramatic expansion in those considered backward decades after the designation had true economic meaning.

Indeed, caste awareness among the young is sustained in part because of set-asides, so a program intended to eliminate the caste system is now blamed by many for sustaining it.

“When I was filling out my college application forms, there was this box for caste,” said Sneha Sekhsaria, 25, of Calcutta. “I had to ask my dad what our caste was, and he had to think about it for 15 minutes before telling me that we were in the general category.”

The general category meant that she received no preference, a fact that Ms. Sekhsaria blames for her failure to qualify for medical school. She went to dental school instead.

“Being a doctor was always my dream, but I got a dental degree instead and that's O.K.,” she said.

But she remains bitter that some of her friends who scored more poorly than she did on entrance exams were able to become doctors even though she and others in her circle were entirely unaware that they were “backward.”

Nonetheless, the benefits that flow from caste quotas have made them popular, and supporting them is one of the few issues on which the present government and its opposition agree. Within the next few months, the Indian Parliament is expected to overwhelming approve a constitutional amendment that would allow caste-based quotas not just in educational settings and in government hiring but also in government promotions.

The Supreme Court has repeatedly tried to curtail the scope of caste quotas, but the Parliament has passed amendments in response to protect and even expand them. The court has ruled that quotas should not exceed 50 percent of university admissions, but Tamil Nadu has ignored this restriction and a case challenging the state's larger quota has been pending since 1994.

In the meantime, the court has ordered the state to provide extra slots to at least some students who contest the higher quotas, including Ms. Gayathri, who has been admitted to Tirunelveli Medical College. In an interview, Salman Khurshid, India's law minister and minister for minority affairs, said that wealthy beneficiaries of caste quotas should acknowledge that they no longer need set-asides and voluntarily bow out of the system.

Some rules forbid the wealthy - or “creamy layer” - from taking advantage of quotas, but those rules have not been implemented in many states and are widely ignored in others.

D. Sundaram, a retired professor of sociology from Madras University and a longtime member of Tamil Nadu's now-disbanded Backward Classes Commission, defended the state's quotas by saying that even three generations of wealth and power cannot reverse centuries of backwardness.

“The system has not been in place long enough,” Dr. Sundaram said.

To be sure, many Dalits and people from tribal backgrounds are still overwhelmingly poor, and even many critics of India's caste-based quotas acknowledge that set-asides for them may still be worthy.

Ravi Kumar, general secretary of a Dalit political party in Tamil Nadu, agreed that many of those who benefit from the state's vast caste-based quotas are wealthy and powerful. But his party supports quotas, also known as reservations, for the wealthy “because if we opposed them they would stop all reservations,” Mr. Kumar said.

Pratap Bhanu Mehta, president of the Center for Policy Research in New Delhi, said that caste-based quotas will gradually become less important as the quotas themselves make public universities less attractive to the most talented students. “The talented people will simply migrate away,” he said.

But that is no comfort to Ms. Sekhsaria, whose family ended up spending tens of thousands of dollars to send her to a private dental school after she was turned down for a government medical school, where the fees are modest.

“Of the thousands of reasons to hate the government, reservations is definitely one of them,” she said.

Newswallah: Long Reads Edition

October 7, 2012, 11:31 am

By NIHARIKA MANDHANA

A lengthy article in The New Yorker takes a close look at India's newspaper industry, which, unlike the newspaper industry in the United States â€" which has lost 50 percent of its advertising revenue in the past five years â€" is thriving. There are an estimated 80,000 newspapers in India, the article finds, 85 percent of which are printed in one of India's 22 official regional languages, and the circulation of English-language newspapers is growing 1.5 percent each year.

Two reasons for this phenomenon, the author, Ken Auletta, writes, are the “absence of digital competition,” which has not expanded because access to the Internet in India continues to be limited, and the low price of newspapers, which cost between 5 to 10 cents, daily.

But the fundamental factor driving the industry's growth becomes clear as the article explores the business model adopted by The Times of India, the world's largest English-language paper with a daily circulation of more than four million. “We are not in the newspaper industry, we are in the advertising business,” the article quotes Vineet Jain, managing director of the media conglomerate that owns the paper, as saying.

Explaining this strategy, the author writes:

In the U.S., several years ago, editors of the New York Times and the Wall Street Journal debated whether readers would be served, or journalism harmed, if the business department sold discreet ads that appeared on the papers' front pages. At the Times of India, or the Times Group, as the company is often called, the business side need not ask permission. The entire front page might be sold as an ad, for four hu ndred and fifty thousand dollars.

In an article titled “The Nowhere People,” Open Magazine explores the lives of Kashmiri Pandits who fled the Kashmir Valley during the height of the militancy in the 1990s and started returning in 2008 through a government program that housed them in mass settlements and offered them jobs.

The story provides a glimpse into Jagti Township, referred to locally as “Jagti Taavanship” (hellhole), a settlement 12 kilometers, or 7.5 miles, from Jammu where about 4,000 Pandit families were shifted last year. It portrays a life amid squalor in a town that has no proper housing, sewage disposal system or opportunities for employment.

The author, Rahul Pandita, finds that the real problem for the returnees is the harassment they say they face from Muslim colleagues at work.

“They treat us like pariahs,” says one female teacher. “My headmistress threw a notebook at me the other day and shout ed: ‘You sixth-grade pass-outs have come now to lord over us!' I wanted to tell her that I have a double Master's and a BEd degree.” They won't say it openly, but there is resentment in various sections of the majority community about the return package offered the Pandits.

The Caravan Magazine chronicles India's fight against a form of tuberculosis that appears to be resistant to existing drugs. The story begins in October 2011, when Zarir Udwadia, a prominent chest physician, sent a letter to a U.S. medical journal, describing his struggle to treat patients suffering from what he called totally drug-resistant, or TDR, tuberculosis.

Since then, doubts have been raised about Dr. Udwadia's conclusions, about the laboratory in which the tests were conducted, and even about the motivations of the doctors, who chose to take their findings to an international audience rather than the government.

“While health officials may have attempted to di scredit the news of a ‘totally drug-resistant' strain of tuberculosis as needlessly alarmist and based on faulty science,” the article says, “in an editorial published in the medical journal Thorax, Udwadia wrote that tuberculosis ‘remains India's biggest public health problem. India bears a disproportionately large burden of the world's TB, one a developing country can ill afford.'”