Standing Guard: A Year in Opposition by P Chidambaram

Author:P Chidambaram [Chidambaram, P]
Language: eng
Format: epub
Publisher: Rupa Publications
Published: 2016-02-25T18:30:00+00:00

RHETORIC OR REFORM

Mr Narendra Modi and his ministers started by believing their election rhetoric that the Indian economy was in the doldrums. They hold the belief that the key to lifting economic growth is more ‘capitalist’ reforms. Examples: the ordinance to amend the Land Acquisition, Rehabilitation and Resettlement Act, the constant talk of ‘tax terrorism’, and the insidious dilution of environmental standards.

It is possible that the government believes that it is on a reformist course and will plough ahead with more public expenditure (fiscal deficit be damned), more tax sops and benign rules of tax collection (revenue deficit be damned), and a liberal import regime for defence equipment and gold (current account deficit be damned). If all of these and more find a place in Mr Jaitley’s budget, he will be hailed as a hero and the Confederation of Indian Industry can be expected to publish another unabashed full page political advertisement.

I sincerely wish Mr Jaitley will resist the temptation of being hailed as a hero. Here is my unsolicited advice.

Temper expectations: The economy has been on the mend since 2013–14, when the growth rate jumped from 5.1 per cent in the previous year to 6.9 per cent, but there is still some distance to go. The Central Statistical Office has estimated that growth in 2014–15 will be 7.4 per cent. Accept the estimate and don’t aim for a higher growth rate. Given the current situation, a growth rate of between 7 and 8 per cent will be satisfactory and non-inflationary.

Stick to fiscal consolidation: UPA II lost its way when it prolonged the policy of fiscal stimulus. I requested Mr Vijay Kelkar to suggest a path of fiscal consolidation. He did, we adopted it, and it has paid rich dividends. Inflation has moderated, the exchange rate is reasonably stable, and the credit rating is intact. If the Chief Economic Adviser or the Vice Chairman of NITI Aayog demurs, invite Mr Kelkar for a one-week tutorial that will keep the two gentlemen occupied until budget day. The first numbers that analysts will look for is whether the government has achieved the targeted fiscal deficit of 4.1 per cent in the current year and has set a target of 3.6 per cent for 2015–16.

Increase public sector investment, not government expenditure: Public sector enterprises (PSEs) are woefully reluctant to invest. In 2012, we told them ‘Use it or Lose it’. We told them that their profits have to be invested, failing which they should give the government more in the form of dividend. The diktat worked. In 2012–13, the capital expenditure of central PSEs was Rs 1,93,737 crore and in 2013–14 it was Rs 2,57,641 crore. Public sector investment stimulates demand for goods and services, creates jobs, and has a ‘drag’ effect on private sector investment.

On the other hand, government departments are happy to spend. Departments will ask for more money to spend on buildings, travel, seminars, outsourcing studies, and forming monitoring committees. They will propose ‘new and better’ schemes and promise to name them after BJP icons.

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