Time for Chidambaram to quit

It is surprising how power can distort your vision. Consider the case of Palaniappan Chidambaram. For the last four years he has been making compromise after compromise on economic policy.

The only conclusion one can draw from this is that the title of finance minister is important enough for him to do the opposite of what he believes in. Otherwise, he would have resigned long ago.

During his tenure, the finance minister has presided over successive years of high growth. But the economy would have grown at close to this rate even if comrades Gurudas Dasgupta or AB Bardhan were finance minister instead of Chidambaram.

The growth is the result of a general upturn in the global business cycle (till recently), cheap credit, rising incomes and rising consumption; it has little to do with Chidambaram’s stewardship of the economy. Every major country has seen a boom, and only a complete fool could have managed to ruin the Indian economy’s fortunes in this scenario.

But, on the negative side of the ledger, Chidambaram’s reformist credentials are in tatters. He has shot the country’s fiscal balance to pieces; he was an accomplice in destroying the viability of the oil companies; he has squandered hundreds of crores of taxpayers’ money on wasteful public spending programmes and loan waivers without putting in place a mechanism to check where the money is going (mostly down the drain); he has made housing unaffordable to all but the extremely rich by forcing interest rates up (when the rest of the world is bringing it down); and, above all, he has made the poor suffer by allowing inflation to rear its ugly head after so many years.

In short, Chidambaram’s economy now faces a nightmare scenario of rising prices, slowing growth and middle-class anger — almost similar to what happened when he presented a “dream” budget in the 1990s.

Chidambaram’s folly is not that he claimed success too soon — all politicians do that — but that he did precious little to seed long-term growth.

In four short years, he has managed to take India back to where it was in 1991, especially in terms of fiscal profligacy. Columnist Swaminathan Anklesaria Aiyar estimates that the real fiscal deficit of the centre and the states — the gap between tax revenues and government expenditure before borrowings — could be as high as 10 per cent.

In 1991, that figure had brought the government to its knees. In 2008, when the country’s foreign exchange coffers are overflowing, no external bankruptcy looms. But profligacy always extracts a price. This time, it’s through inflation. The official number talks of 7 per cent plus inflation, but the real number is much higher.

His last budget was an exercise in denial. After claiming that he had brought the fiscal deficit down to 2.5 per cent, he conceded that the real number may be higher because oil, food and fertiliser subsidies were not included in his numbers.

Nor, for that matter, was the true impact of the Sixth Pay Commission payouts. But he didn’t carry this burst of honesty too far by actually disclosing the underlying fiscal deficit.

That figure is huge not only because of the subsidies, but, as Aiyar pointed out in his column, because of the uncounted subsidy burdens borne by hapless public sector oil companies.

For the last few years, the oil companies have been subsidising consumers by absorbing the losses on their balance-sheets. In effect, Chidambaram is party to the destruction of the viability of the oil companies.

Today, most oil companies (barring ONGC) are virtually sick companies. The only thing keeping them afloat is the presumption that the government will not allow them to go bust.
These ruinous policies may be dictated by the Left, but an honest finance minister has to stand up and be counted as a reformer. It’s time for Chidambaram to resign to prove he is one.
Email: r_jagannathan@dnaindia.net