‘There’s no single area you can clamp down on to curb inflation. You have to use many measures’

Certain steps have been taken on the fiscal and supply side by the government, including cutting import duties, banning export of non-basmati rice. Let’s hope that increase in supply will bring inflation to a reasonable level. Monetary measures are also there, which the Reserve Bank is in charge of and in an inflationary situation the common thing that happens is increase in interest rates. It’s a little ironic that one hand you have prices oil, gold, coffee, iron ore and commodity prices at an all-time high. On the other hand you see the US economy, which is the largest economy, and the European economy, which are talking about one per cent GDP growth. The financial sector has never been as badly impacted as it is today. We don’t see any bright sparks in the economy of the developing countries, whether you look at Japan or at the East or the West. So this is the cause of concern: that on one hand growth is slow and on the other hand the commodities and prices of everything are going up.

It’s a little bit like the situation we are having in the employment side. On one hand, we are all talking about talent shortage and on the other hand we are talking about where do we find and create jobs for the millions of Indians who graduate every year. So it’s a dilemma, it’s a demographic dilemma that on one side there is shortage and on the other side we say that we are a country with 60 per cent of the population under 30 and our problem is that the next generation is going to churn out so many youngsters and where are we going to find jobs for them.

•MAHUA VENKATESH: Inflation has been going on in most of the countries, and it’s nothing really unique to India. Do you think that monetary measures, if RBI decides to implement a few monetary measures, are required at this point of time?

I did not say inflation is going up in every country. Inflation is going up in some of the emerging countries like China and India. But in Japan, inflation is just one per cent. US inflation is not that much. See the point is there is no single area that you can clamp down on to curb inflation. You have to use a variety of measures.

The best way is a simple economics of demand and supply. You add products to the market and the price will come down because of the oversupply. It’s the real-estate sector that I have been doing for 30 years. Why has the real estate price become so unaffordable? Because the supply is less and it has to go up. Even if you bring the interest rates down or up it is not going to solve the supply problem. It is the same thing as in agriculture. What we are suffering today is the five-six years of very-very low agricultural growth. If you see, agriculture has become 20 per cent of our GDP now from over 50 per cent about 10 years ago. So, agriculture has come down significantly, growth in agriculture in some years has been has been zero or one per cent and maximum at 2-2.5 per cent. So if agriculture grows the way the industry and service sector has grown we would have achieved double digit growth long ago.

We have to concentrate more on agriculture supply side. How do we produce more rice, how do we produce pulses, how do we produce edible oil, how do we produce wheat? So monetary measures are not the only answer. There is no one solution to this problem.

You have to block all loopholes so the Reserve Bank and government will have to take various measures to curb inflation before it goes up. Monetary steps are one measure and they will have to use this. Increasing the CRR to remove money from circulation is not a permanent measure. It can be reversed within 15 days. If the inflation comes down it is not a permanent impact.

•SANDEEP SINGH: High metal prices are also contributing to this. What can be done to ease the prices of metals?

If you see metals and if you see our mining and coal policies, I don’t think we have made progress. Today there are five-six new steel plants coming up and we are going to triple our capacity. But no one has started construction because the iron ore mines are not available. Orissa is one of the richest states in India so far as minerals and metals are concerned but it is a very poor state and for some reasons there are always issues between the industry and the state. What is happening to Posco? I won’t be surprised if Posco disappears due to delays. I think we have to get our act together.

The thing is, if we talk to Orissa government they have a point. For instance, you want to use the iron-ore from Orissa and make steel in West Bengal or some other neighboring state, why should we give up our natural resources that we have under Orrisa land because the royalty payments we get is so tiny under the old act? It has not been revised.

I think one of our failures is that we have not been able to get our metal and mining policies (in shape). If we talk about power and infrastructure, it is the biggest failure we’ve had. Cement construction is so expensive in India, I m not joking. The biggest concern is power: without power we do not have GDP growth. Without power you cannot progress. You ask Mr Tata or Mr Ambani, what was the basis of awarding the three power projects, the ultra mega power projects, to them? The basis of the projects was that we will give you land, water, connectivity or raw materials, environment approval. Mundra project was awarded a year ago; it’s still not happened because of permissions. We are not able to get our act together because of the number of agencies involved.

•SANDEEP SINGH: The CCEA has recently cleared the new business policy. Do you think it can actually adjust the issues of royalty?

As far as iron ore is concerned, when Posco wanted to export the iron-ore, we gave them permission to export. So when you export a product, you need foreign exchange. Today we are in a position in which we need more domestic production. We can rather have value added in our own country because value addition creates jobs and we need jobs. We are comfortable in foreign exchange reserves and funding side. We need to create jobs. Instead of selling iron ore, export steel.

•SANDEEP SINGH: What are some of the problems that you have had?

There are limestone deposits in a number of states like Meghalaya and Himachal Pradesh. I know companies in Himachal that were sitting on limestone deposits for 10 years. And there are one or two bankrupt companies that are sitting on iron ore mines and there is no way that we can take it back and re-allocate it to Tatas, who are ready to put in their money.

•ILA PATNAIK: What should be the regulatory framework in the Indian financial sector? Do you favour a single regulator ? Is India ready for a single regulator?

I think when you acquire a bank, you have to first inform the Reserve Bank of India, because that is the regulator. The support we got from the Reserve Bank this time was very quick: the paperwork is now going on. The Reserve Bank will only give its general approval after two general body meets. We have to inform the main regulator before we take up a strategic merger.

•SANDEEP SINGH: Would there be an increase in home loan rates?

I think there will be a marginal increase.

•TANEESHA KULSHRESTHA: Do you see speculatory interest moving out of real estate and should we see prices coming down further because of the same?

One did see investment or speculatory demand in real estate. People held assets with a view to sell them at a profit at a later date. However, we have been seeing such demand move out. Builders are already complaining of sales slowing down. Going forward, as these investors or speculators realise that there is no further upside in real estate prices, they will start selling out. There will also be people from who have been affected by the stock market meltdown and who will need to sell out their real estate holdings to make their margin calls. Such factors should bring rates down.

•TANEESHA KULSHRESTHA: There are companies like Rajshree Sugars & Chemicals in the South that are suing banks for selling them complex currency based derivatory products. What’s your take on the issue?

There are several companies that have filed such suits in courts recently. There have been differing judgments on the same. In some cases, the courts have asked the companies to take the losses and pay up, in some cases the banks have been asked to take the hit. However, one did not hear of such suits when people were making profits over the past two to three years. They have started complaining now. There have been companies who have said that they did not understand the risk involved or the information provided was not enough or the CFO did not have any power to enable such transactions. I do not think that the courts will ask for the banks to pay up based on such conjectures. However, at the same time, I do not think that such matters will be solved in the courts and will have to be settled out of it.

(The transcript was prepared by Neha Pal.)