Deepak Parekh at the EXPRESS

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 •SHEKHAR GUPTA: Welcome Mr Deepak Parekh, it’s a pleasure to have you here. I’m glad that you are here at a time when there is a lot of discussion and debate on what’s happening in banking, Indian financial sector. What’s on the agenda for Indian financial reforms? International financial sector has created a lot of controversy. What should India be doing?

No, I think you are right, we are at a very interesting time, where enthusiasm was at an all-time high, markets were at an all-time high. Suddenly we see a blip, because of a number of factors. We suddenly realise that our GDP growth numbers may have to be reworked. We have to balance growth and inflation. The inflation was around three per cent and today it is 6.68 per cent. Actually, in four months, inflation has more than doubled, which is a cause of great worry. The government also thinks that controlling inflation is more important than growth. Growth can be sacrificed but inflation cannot go on the way it has gone. So curtailing inflation is one of the major concerns today for the government.

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.