Chidambaram’s fiscal recipe has lost flavour
On Tuesday, Union Minister for Finance P Chidambaram told Parliament that more reforms were the answer to the country's economic downslide. It would appear from his statement that the Congress-led UPA Government has been unleashing reform after reform and that the process must be sustained. The fact is to the contrary. The regime has been hit by a policy paralysis for years now, as a result of which there has been hardly any forward movement in economic growth. Deficits have grown to become unmanageable and inflation remains a worrying issue. Big businesses are fleeing the country and investors are pulling out. The rupee has been on a free fall since May and the stock markets are crashing. Mr Chidambaram's list of 10 steps — which he proudly presented to Parliament — that could stem the decline is a case of too little too late. His Government cannot undo in months the damage that it has caused over years. The wounds inflicted on the economy are not superficial to go away with the magic wand of a ten-point plan, at least not as soon as in the next few months before the lok Sabha election. Mr Chidambaram realises that his Government's economic mismanagement is going to leave a terrible mess for the next regime to grapple with, and he doesn't seem too worried by that. The few half-baked measures he has taken over the last months have done nothing to boost sentiments. Reports that the Government had cleared investments worth more than Rs 1.80 lakh crore or that it does not plan to proceed with more capital controls or that it will not keep shifting goalposts in economic policies (like it did with the ill-conceived retrospective taxation decision), have not impressed industry. It is difficult to believe Mr Chidambaram when he claims that the Government will be able to contain the current account deficit to Rs 4.62 lakh crore because the collapsing rupee and the rising import bill on account of fuel (it has got dearer by 10 per cent in rupee terms, although international prices are well below their previous highs) and fertiliser purchases, will dash the Finance Minister's hopes. The costs of import are too large to be offset by temporary gains that may be had through exports as a result of the declining value of the rupee.
While the collapse of the stock markets on Tuesday is partly a reflection of the pessimism that pervades industry, the immediate cause which triggered the bloodbath was the UPA regime's ill-timed food security Bill which the lok Sabha has passed. At a time when the economy is in doldrums and the Government is struggling to bridge deficits and promising to cut costs, the UPA2's flagship programme will burden the state with humongous subsidies that it cannot fund. The purpose of the food Bill may be laudable but the timing is not; nor are some of the Bill’s provisions. But the Government couldn't care less because it is concerned with attracting votes at the cost of ruining the economy further.