Failure to control retail inflation, which remained in double digits during the entire year, subsequently led to the Congress’ drubbing in the recent assembly elections in four crucial States and despite some tough fiscal measures undertaken by the UPA Government to rein in the economic stress like curbing gold imports, hiking diesel prices and capping subsidised lPG cylinders to nine per family annually, did not prove enough.
In a nutshell, the year 2013 was all about the Finance Ministry’s inability to cure the country’s economic woes under the stewardship of P Chidambaram and to top it all, the rupee’s abysmal performance in the global market did not help its cause any further.
Prices of essential commodities like onion and potatoes almost touched the Rs 100 per kg mark, which took food inflation to double digits and this may well become a crucial agenda for the 2014 lok Sabha elections.
Exactly how significant is price rise an issue for the Congress-led UPA Government, could be gauged from the fact that UPA Chairperson Sonia Gandhi attributed it as a reason for the party’s drubbing in the assembly polls held in Delhi, Rajasthan, Madhya Pradesh and Chhattisgarh earlier this month.
The retail inflation, which is an indicator of price rise and measured by Consumer Price Index (CPI), remained in double digits for most months of the year with the latest November 2013 figures touching 11.24 per cent.
Though the Reserve Bank of India (RBI) tried taming inflation by increasing key lending rates, it was quite evident that this was not enough.
Finance Minister P Chidambaram’s helplessnes could be gauged from his own words, when he recently said that “there is no easy solution to taming food inflation... There are no quick fixes for taming inflation. I am afraid it will take some time to contain this inflation. We are paying a political price for that and I acknowledge that but those are the facts”.
If retail inflation remained a headache for the Finance Ministry, the Wholesale Price Index (WPI) based inflation rose to 7.52 per cent in November 2013, the highest level seen in 14 months. Also this was much higher than the March-end inflation projection of the RBI at 5.5 per cent and also higher than the central bank’s comfort level of 4-5 per cent.
Chidambaram tried to contain fiscal deficit by controlling expenditure through a monthly 50 paise hike in diesel prices and capping the subsidised lPG cylinders to nine per family in a year. However, the mayhem faced by the rupee in the global market, which even saw it touching an abysmal 68 level against the US dollar, put paid to all his efforts.
The year 2013 also witnessed D Subbarao’s tenure as RBI Governor coming to an end. His supposedly hawkish stand though saw the apex bank hiking repo rates to contain inflation, a move, which did not find much favour with the industry and there were indications that all was not well between Subbarao and Chidambaram.
This was evident from the fact when Subbarao said that “there are hundreds of millions of people in the country, who are affected by inflation. For poor people, inflation is a regressive tax, as it hurts poor people more than it hurts people like us. And we need to hear that silent voices”. Chidambaram was quick to react to this by saying that if the Government has to walk the path of growth alone, it was prepared to do so.
Subsequently, when former Chief Economic Advisor Raghuram Rajan took over as the RBI Governor in September, there were expectations of a rate cut to propel growth.
Rajan, however, hiked the repo rate by 0.25 per cent in each of the two monetary policies soon after he assumed office. In his third policy review in December, however, he kept the rates unchanged citing the reason that inflation was showing signs of decline, which as was evident from November CPI and WPI numbers, was not the case.
On the legislation front, despite repeated assurances by Chidambaram, the ambitious tax reforms - the Direct Taxes Code (DTC) and the Goods and Services Tax (GST) - failed to see the light of the day and with the UPA’s tenure coming to an end, the future of these two legislations seems bleak.
Dubbed as “game changers” by Chidambaram, these two bills, if they had been implemented, would have changed the entire tax collection system, both direct and indirect.
On the controversies front, the Finance Ministry’s Rs 11,200 crore-tax dispute with British telecom giant Vodafone also continued to linger for yet another year.
Besides Vodafone, several other major MNCs like Nokia and Shell too were locked in tax dispute with the revenue department. Vodafone had offered to settle the dispute through conciliation to which the Government agreed, but there has been no significant forward movement.