October 29, 2020
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FM: Making Music

Was Finance Minister P Chidambaram's spirited and confident address at the Economic Editors' conference just an optimistic marketing spiel? Or was it designed to give the Left sleepless nights and some more fodder for articles in People's Democrac

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FM: Making Music
FM: Making Music

"We are all music lovers"

-- P. Chidambaram,
when asked how he likes facing the music from the Left

Was Finance Minister P Chidambaram’s spirited and confident address at the Economic Editors’ conference just an optimistic marketing spiel? Or was it designed to give the Left sleepless nights and some more fodder for articles in People’s Democracy? Going by the FM’s statements during the conference, the country’s reform programme might just start off full steam, and this time with the blessings of the niggardly Left.

In particular, it seems, there is a broad consensus with the Left parties on minority stake sale in some 12 profit-making non-Navaratnas (no progress on navaratnas obviously) and he’s also hoping for them to clear a paper on banking sector liberalisation. Of course, in no case will government stake go down below 51 per cent. Since discussions will begin shortly, expect a lot of fireworks in the papers, since the Left may give up its bite eventually but definitely not its bark.

Is this just another red herring meant to appease media-persons? Likely not. This particular reform step might just go through because of two reasons. One, the government is worried on the inflation (and petro-prices) front. Two, it needs money for the host of social sector schemes, especially since the deficits are also not on track. The proceeds of this stake sale, if it happens, would help jumpstart the new National Investment Fund, three-fourths of which will go to the big social sector projects like Bharat Nirman and NREGP.

In fact, the only thing where we are on track is growth, which too, according to the FM, we have got thanks to Leftist cooperation - and our love of music! What the FM said is that the Left is not a stumbling block to reforms, else we wouldn’t have had seven per cent growth. Implicit in this generous statement is obviously the mistaken notion that the seven per cent growth is due to reforms. When, in reality, it has almost nothing to do with government policies.

On the contrary, Chidambaram’s worries on inflation are logical. The huge influx of cash that the Indian economy has been experiencing, thanks to the forex influx from abroad, will not last forever. The signs are already there in the hardening of the interest rates. Instead of a small surplus in the current account till one year ago, we now have a huge deficit that many fear may touch Rs 1 lakh crore by March. The rupee has been under pressure - in fact, the RBI has been quietly allowing t to drop - and with US rates going up steadily, who can blame people for chasing the dollar again?

Meanwhile, the government continues to be unable to handle the deficits, and planning further more grand expenditure, which will be financed, guess what, with more borrowings. Allowing a further legup to the interest rates. In such a situation, the government must come up with some plausible revenue-raising efforts fast and keep feeding the markets at the same time. This stoking of the divestment fire will also give the foreign fund managers a reason to keep putting money on India as well as convince their subscribers. NRIs for instance have sent us $22 billion so far. A masterstroke, yes, from Chidambaram. Now he has to play close to the ground.

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