Prannoy Roy

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Prannoy Roy

Montek Singh Ahluwalia says the food price rise was a one-time increase that has helped agriculture, which has suffered for years. Here’s the full transcript of the interview.

PR: We've got Montek Singh Ahluwalia...I hate saying you're the man in 1991 who...because you've done a lot of things since 1991 but we're going to ask you, Montek, 3 things which worry and concern our viewers...Number 1: Inflation, Number 2: Are bank loans going to cost more and Number 3: What about our infrastructure...we did a terrific story on the new airport but you know all voters now want 'bijli, sadak, paani'...Let's start with inflation...is it a worry now?

MSA: Well, it has been a worry for a little while...you know, about 6 months ago; it wasn't a worry at all...because we had very low inflation. It has edged up...led by food prices, I think in the aftermath of a drought, it is not very surprising. If you go back in the past, when inflation shoots up, you take a number of steps to bring it under control; it takes a little bit of time. I'm quite confident that inflation is on the way down. So, it's a worry in the sense that it's too high, I think we've taken steps, I believe it is coming down.

PR: Now, there is one view that food inflation feeds into wages of workers and therefore, it is eventually going to feed into industrial products inflation, is that a worry also?

MSA: Well, you know, that can happen if you allow the monetary situation to get out of control and if the other factors that are actually stoking inflation, productivity growth level is low, but I think that we are seeing an increase in food prices, which to some extent is a one-time relative price change, I mean, we did need to give the farmer a higher price if we are going to stimulate production...that doesn't necessarily mean that wages are going to go up by the full amount...

PR: I'd like to get you on that, because I've been saying that for quite a while...I've talked to many farmers and they said that this is the best thing that has happened to this country...we were getting nothing...now the land prices have gone up...their livelihood has improved and it's worth investing...so is it too cynical to say that this food inflation was almost planned...to give the farmers a boost?

MSA: The relative change in the price of food is different from inflation. Inflation is a year by year phenomenon. I think it is true that 5-6 years ago, the perception on the part of farmers was that farming was no longer productive; they were not able to do the investment needed on the land...

PR: It just wasn't worth it...

MSA:...to improve productivity, and you know, the National Sample Survey revealed that 49% of the farming community wanted to leave farming. Now clearly, this government, UPA government, consciously decided that they were going to improve the prices given to farmers. Now remember, the rest of the economy is given a boom - growth has taken place, incomes have gone up, production has gone up...agricultural production will go up at a faster rate, at the moment, the growth rate is relatively low. So, one of the ways that the rural economy can share in general prosperity is that you pay a little bit more for food...and I think that the governments combined this ...


PR: I'm going to put words in your mouth and say, not such a bad thing that a one time adjustment in food prices in favor of farmers has happened...

MSA: I would certainly say that a one time adjustment was necessary. Let's be clear...food prices have risen around the world...it reflects the fact that around the world, agricultural productivity is under pressure. The great advantage in India, on the basis of studies, is that in many parts of our country, we can increase land productivity by 80-100% but to do that, you have to do a lot of on farm investment, you have to go for better seeds, you should go for soil nutrition, better machinery

PR: the whole thing better be worth it, you should get good returns...

MSA:...somebody's got to pay for it...the only way you avoid that is if you do it via subsidy...you could certainly subsidize but that just leads to general inflation...so I think this relative price change in favor of farmers is a good thing...

PR: Many would agree with that...that it was long overdue, and it just wasn't worth being a farmer in India...now, sugar cane industrialists are making money and sugar cane farmers have doubled their income...the farmers...every truck they take full of it...they earn double the money they earned last year...so, you get a boost to production...ok, so, that's number one..but will this, if it feeds into industrial goods inflation...the RBI policy, which came as a surprise...they say those policies that come as a surprise are the only ones that work...to raise interest rates, did it come as a surprise to you?

MSA: I don't want to say whether it came as a surprise or not...let me put it this way, 3 months ago, if you had asked yourself what is the Central Bank going to do...it was a no-brainer that it wasn't going to loosen policy...now the only issue there was, is it going to remain there or is it going to tighten. Around the world, we loosen with every body, around the world, everyone is beginning to reverse stand, so I don't think it came to anybody as a surprise, you know, after all, he acted on the CRR a couple of months ago, done a little bit of adjustment to the exchange rate, to my mind, it's like signaling look, we're no longer in a situation where growth is collapsing, and we have to really, pull all the stops out...

PR:...or to look at it another way, no longer a situation where we can't be worried about inflation..
MSA: That's true, that's also true...

PR: Okay, one of the callers called in to ask you ok, a one time adjustment in food prices is ok for farmers to help them increase their productivity, what about the urban poor and the rural poor?

MSA: Well, as far as the rural poor, and that's the group that you really need to worry about, I think the government has had a very balanced strategy. I mean, this year, we are spending 40,000 crores on the rural employment guarantee - that program is generating about 3 times as much employment as the total employment that used to be done by all the employment programs before the rural employment came..

PR: That's a huge thing...

MSA: This is directly helping the rural poor...it's helping them first of all, directly putting wages into their hands, and you know, 40,000

PR: Now, I'm not going to ask you about infrastructure, because we've talked a lot about it...one trillion dollars...but I'm going to ask you now, and we're going to launch a series on what political thinkers or senior thinkers in this country what are the 3 big ideas for India over the next 10 years...

MSA: Well, given where we are at right now, which is, I think we are poised to transit to an even higher growth rate...I think we've done the 7%, we're in sight for 9-10%, that's what we are trying to get...

PR: You've said that double digit number - 10...

MSA: Well, the PM has just directed the planning commission for the 12th plan - we should try to work towards 10...

PR: Ok, sorry, I interrupted, you're trying to work towards 10...you're transiting

MSA: Now, that's a number that 10 years ago, for India, was unthinkable...so you really need to ask yourself...what are the 3 things that a country in that situation needs to worry about most...well, I would say that one is clearly infrastructure...you mentioned it yourself...

PR: Yes, crucial...

MSA:..I mean, our infrastructure is lower than what we need for our present level of development...and we need to do a huge thing...many programs...like the one on the Delhi airport...because I do think, whether it's sports, airports, roads, power, even railways...and 5 years from now, you'll see the effect of that...that’s one. Second, this is quite important really, skilled development and education. For India to try and transit to the kind of economy that can be competitive in current times, and also develop the sort of skills that will enable us to bring our labor force...

PR: And there's a hunger in India for education...

MSA: Huge!

PR: Huge priority in most families...

MSA: Yeah

PR: And the third?

MSA: Actually, I would say it's not just education, but skilled development...in many families, there is a tendency to think of education as a thing which gets you a degree to get a government job. We need to think of education as the thing that's going to make you a productive member of a rapidly growing economy...

PR: Perfect! Got it...the third big idea...

MSA: I think the 3rd big idea is, if we change and grow at the rate which we are going to grow...we are going to urbanize much faster that we have done before...about now, I think we have maybe something of the order of about 300 million people in urban areas

PR: So there is going to be huge urbanization...

MSA:...its not as if these 300 million are getting the services they need...we think that in 20 years, you'll have another 300 million...

PR: So 600 million people...

MSA: So to provide urban infrastructure for 600 million is a phenomenal task

PR: A huge task...

MSA: Phenomenal because urban infrastructure can’t be provided by the central govt...In a way, its a job of the urban - the cities, and the municipalities... we do not have government standards, financial systems, and capacity in these levels of government to deal with the challenge that we face...

PR: Ok Montek, brilliant, I think these are fine... 9 years ago

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