This too shall pass but can the damage be undone?
Despite the various scams and the slowdown in the India economy, P Chidambaram feels that the Indian government is focused on economic growth as was 20 years ago when the country was faced with stock market scam, yet had one of the best economic reforms.
Unlike many of his colleagues, P Chidambaram is a man of few words and chooses them with utmost care. So, when he spoke the other day about his days in the Narasimaha Rao government, he took many by surprise. Without being direct, he complimented Rao but raised a question mark over political management skills of his current boss.
Chidambaram dropped the bombshell when he told a stunned gathering of businessmen, academia and media at FICCI that although the stock market scam in 1992 was bigger both in scale and impact than the current 2G scam yet the then minority government had not taken its focus away from the growth agenda.
“Later in the same year, the demolition of Babri Masjid happened, but the government did not distract itself from the main agenda of growth, reform and change”, he proclaimed in response to a question on governance deficit in UPA 2 regime. He recounted how the government then had used the limited legislative power in combination with the executive action to unleash some sweeping changes.
Chidambaram, who was commerce minister in Rao’s government, incidentally made these remarks at a recent private function to mark 20 years of reforms, an event the government of the day chose to give a complete miss. For the record, however, he put the comments in context, as he made a fervent pitch for putting growth agenda back on the table. “Security and corruption are important issues but we should not allow them to occupy centre stage. Growth should be centre stage for faster economic expansion to reduce massive poverty and unemployment,” he argued strongly.
Asked as to why the government ignored the historic event of India’s economic journey since 1991, he said, “I want to celebrate 20 years of reforms. I do not think there is anything to be apologetic.” But his reference twice to successful management of the twin upset of the stock scam and the Babri demolition during Rao government was indeed the key message. And this was not at all lost on C Rangarajan, chairman, Prime Minister’s Economic Advisory Council (PMEAC), who shared the dais with him.
Less than a week after Chidambaram’s remarks, Rangarajan came up with his own prescription, which came through an SOS to his boss to act fast before it was too late. The Council did not for a change mince any words as it read the riot act straight and upfront: “Some of the momentum has gone out of the economy. It is true many economies are still embroiled in hard conditions but that is not good enough reason why we have not been able so far to do better than we have.” Rangarajan identified the way forward as bringing inflation under control and pursue fiscal consolidation apart from offering strong evidence of taking reforms process forward.
Chidambaram and Rangarajan are not alone to reflect on the need to put reform agenda back on the agenda for the UPA government besieged by ever mounting corruption charges. Hard evidence of the political management of the country in wake of the corruption scandals being poor came about around the same time that Rangarajan must have been giving final touches to his SOS appeal.
According to the latest NCAER (National Council of Applied Economic Research), Political Confidence Index (PCI) fell further this July end. The latest survey results show that the PCI had further fallen in the latest round. The index declined by 26 points, from 103.6 in April 2011 to 77.6 in July 2011. This is the biggest fall in PCI since July 2008 when PCI fell from 106 in April 2009 to 71.5 in July 2009. High inflation rate, slower industrial growth and a politically turbulent period appeared to have led to a perception of weakness in political management of economic policies by the business sector.
Another piece of evidence that strongly points to falling confidence level in political management is the flight of Indian capital abroad with outward investment from India recording a 150 per cent rise to USD 44 billion as against a 25 per cent decline in foreign direct investment at USD 25 billion in 2010-11.
But is someone really bothered? There indeed is a philosophical way out as suggested by Chidambaram: In his concluding remarks at FICCI he said he was not despondent and was quite optimistic that this stage too would pass.
(The write is Editor, Zee Research Group.)