We are confident we can weather the crisis: Chidambaram

Here are excerpts from Mr Chidambaram’s interaction with journalists:

Question: Are we talking of a new mechanism for fund flows?

Finance Minister: That depends upon where the resources would be found. If the resources can be found and channelised through the existing multilateral institutions, that would be good. But if you find resources that cannot be channelised through existing financial institutions, then we have to find another mechanism through which these resources can be channelised to developing countries. We have to talk to others about this.

Can you tell us about the outcome of the G20 Finance Minister’s meeting?

I’ve hinted at a number of ideas that came up in Sao Paulo to which we were a contributor. We hear others’ suggestions also. We have many ideas and suggestions but we don’t yet have a plan. A plan is what has to be devised in Washington and subsequently.

Are we talking about a global regulator?

Regulation, in the present context, is a function which national regulators will be loath to give up. That is why regulation must be national. If we can agree on common prudential and regulatory standards, and then ask national regulators to apply those standards, there can be some kind of global oversight [over] whether the national regulators are doing their job. I don’t think regulation can be raised to [the level of] a global regulator. That’s too ambitious, perhaps not possible in today’s circumstances.

Are we talking about a global oversight body?

I didn’t use the words, ‘global oversight body.’ I said there must be some way in which there can be global oversight over whether the commonly accepted regulatory and prudential standards are being applied by national regulators. These are things that have to be talked over. These are ideas, formative ideas.

What kind of prudential norms are you looking at?

These are the well-known norms to regulate financial institutions, capital adequacy, risk-assessment…what all bankers do, what the BIS is supposed to be doing.

What might have happened if we had surveillance and early warning mechanisms?

In retrospect, it is clear that if there had been an effective surveillance mechanism, that mechanism would have identified the huge risks that were being taken by some international financial entities. Absent such a surveillance mechanism or an oversight mechanism, these financial entities, some of which have collapsed, took unacceptable risks. They caused a crisis in the United States, which is the epicentre of the crisis. So what we are talking about, what we talked about in Sao Paulo and we will talk about in Washington is: can we agree upon such a global oversight entity? I don’t know what shape it will take. But we need to talk about it.

What will be the impact of the financial crisis on India?

We can’t measure the impact. We have said we would be indirectly impacted. It will impact, to some extent, on our growth, our exports, and it will also impact the currency flows, as it has already. But we are confident that given the underlying strengths of the Indian economy, we can weather the crisis and still return a decent growth rate for 2008-2009. Even the IMF’s last week assessment places India’s growth rate for the current fiscal, 2008-2009, at 7.8 per cent. We’ll still return a decent growth rate but we will suffer an indirect impact.

Is there not a contradiction between the need for regulation and free market reforms?

There is no contradiction. That is why the Prime Minister has emphasised that the answer to the crisis is not to adopt protectionist policies.

Is the creation of another Bretton Woods institution on the agenda?

Very difficult to say we can invent another Bretton Woods institution. What we’re trying to do is improve global governance and global oversight over these financial institutions. I don’t expect that we will have another Bretton Woods type of institution. That’s my view.

Given global trends, aren’t Indian interest rates too high?

That’s a question that the Governor of the RBI has to answer. And I think he has given his answers on October 6, October 10, October 24, and October 31. He will respond as the situation develops. I can’t give an answer to that.

And about India’s credit growth rate?

I’m not targeting any growth of credit. It is growing at 29 per cent today. If it is non-inflationary growth, we don’t have to worry about the credit growth rate. That is what Dr Bimal Jalan said in a recent interview. We have to juxtapose the rate of credit growth with inflation. If the growth is non-inflationary, then we can accept the current credit growth, but it depends upon its impact on inflation. The [RBI] Governor will have to take a call on that.

The British press is saying India’s GDP growth rate will be less than what is being projected.

I said the estimates vary between 7 and 7.8 per cent. IMF 7.8, RBI 7.5 to 8, Prime Minister’s Economic Advisory Council 7 to 7.5. We still have a very decent growth rate. What do I have to tell the British? All I can say is it’s still higher than their growth rate!

Can you tell us more about the agreement being sought on international accounting standards?

That was one of the points agreed in São Paulo. We have agreed to go to international accounting standards, IASB or something. Now there is another standard, which the US and some other countries are inclined to adopt. What we agreed in São Paulo was to have common accounting standards, so we have to work a bit for that. Even if there are two accounting standards, we can still arrive at a common standard.