P Chidambaram’s optimism appears misplaced
Union Minister for Finance P Chidambaram has assured us that his Government will be able to keep the fiscal and the current account deficits within targeted limits. Given the gloomy economic circumstance, the promise will be taken with a pinch of salt. A commitment had been made during the previous year as well, and breached, with economic growth plummeting. Considering that growth, at the very optimistic estimate, is unlikely to cross six per cent of the Gross Domestic Product during the current fiscal year, the Government will need a miracle to keep the deficits in check. In the last fiscal, current account deficit had touched a very worrisome 4.8 per cent of the GDP and the Government had struggled to keep fiscal deficit under 5.5 per cent. Things haven't changed much since those months; they have in fact worsened. The rupee has depreciated, foreign exchange reserves have gone down, employment figures have taken a downturn and investments are fleeing the country because of a host of reasons, not least due to the policy paralysis that the Government suffers from. The situation has reached a point where piecemeal measures like tightening the grip on gold imports and attracting Non-Resident Indian deposits are not going to work. After all, despite the Government's initiative, gold imports went up in July to 45 million tonnes, from 31 million tonnes the previous month. Mr Chidambaram must be having some really strong reason to believe that NRIs would want to park their money in India at a time when investors and depositors are turning away from the country. The Union Finance Minister is back from a trip abroad and he cannot be unaware of the strong pessimistic sentiment that prevails over the state of the country's economy. If data put out by Bloomberg is to be believed, foreigners disposed of domestic debt worth two billion dollars last month, while the combined outflow for June and July reached $2.8 billion. In such a situation, how does Mr Chidambaram hope to attract NRI fundsIJ
The Minister has been appealing to Indian industry to invest more in the country, but that nationalist appeal appears to have had limited impact. Figures are available in the public domain of the enormous investments that the country's leading industrial houses have been making offshore, rather than in India. That is largely because they are uncomfortable with the business environment at home and see no immediate or short-term reversal of the grim situation. Neither Prime Minister Manmohan Singh nor his Finance Minister has been able to instil the requisite confidence in Indian industry. If Indian industrialists are shy of investing, it would be expecting the moon to think that foreign funds will flood the domestic economy. The economy is caught in a vicious circle, thanks to the fiscal mismanagement of the Congress-led UPA regime, especially during the past three years. Even the bountiful monsoon that we have had cannot revive it.