As political parties gear up for an all-out war to win the 2014 general elections, the ugly game of one-upmanship in economic populism has commenced in right earnest. Vice-President of the Congress Party Rahul Gandhi stepped on the gas on Friday last at the AICC (All-India Congress Committee) session, forcing Petroleum Minister Veerappa Moily to hurriedly announce an increase in the quota of subsidised cooking gas cylinders to 12 per household per year from the current 9.
With elections nearing , the Finance Minister, P. Chidambaram, appears caught in a pincer-like situation. On countless occasions, Mr. Chidambaram has reiterated the sanctity of the fiscal deficit target of 4.8 per cent of the GDP (gross domestic product). Often times, he asserted: “It is the red line, and will not be breached”. With just a couple of months to go before the current fiscal ends, the Rs.40,000 crore targeted from disinvestment appears a distant dream. So far, the Centre has managed to garner a measly Rs.1,325 crore alone through the disinvestment process. So much so, the Government has gone on a pinch-hitting exercise.
Disinvestment process The proposal to sell the 13 per cent stake held by the Specified Undertaking of the Unit Trust of India (SUUTI) in Axis Bank reveals the anxiety of the Government to step up the pace of disinvestment process. The move to sell equity stake in IOC to a ONGC and OIL shows a sense of desperation. After all, the fiscal deficit in April-November period was estimated at nearly Rs.5.1 lakh crore, or 94 per cent of the full-year estimate of Rs.5.42 lakh crore, as revenues remained sluggish and total spending touched 61 per cent of the budget estimate of Rs.16.6 lakh crore.
The urgency to paint a perfect picture is palpable. Suddenly, one finds right noises and healthy numbers sprouting all over. The Finance Minister has indicated that CAD (current account deficit) could be in the vicinity of $50 billion this fiscal, down from $88 billion last fiscal. With oil and gold figuring high on the import list of the country, the government came down heavily to curb gold imports especially. While imports have contracted, export growth has considerably slowed down in the last two months of 2013. The CAD number has indeed calmed the nerves of an embattled government. What is buried inside the better CAD number though is a deep malaise — weakening demand in the economy. This is bound to have serious repercussions for the economy, which has to live with election-eve misadventures on the part of political bosses, who administer the fiscal side.
The recently-released numbers on the price front are sure to boost the confidence of a distraught Congress, which has suffered heavily in the recently-held state elections. Headline inflation (measured by wholesale price index) has dropped to a five-month low of 6.16 per cent in December from a high of 7.52 per cent in November. Retail inflation, too, plummeted to a three-month low of 9.87 per cent in December from 11.16 per cent in November. The drop in retail inflation is primarily due to the easing of vegetable prices in December to 38.8 per cent compared to 61.6 per cent in November. While these macro numbers could help economists, intellectuals, politicians and others to engage in fierce poll-eve debates on the status of the Indian economy, the common man on the street, nevertheless, finds the cost of living only getting more expensive.
While a majority of key macro numbers is shown to be relatively healthier, the IIP (index of industrial production) number continues to cause serious concern. Factory output growth (IIP index) declined by 2.1 per cent in November. This decline must be seen in the context of a negative base in the year-ago period.
Reports now suggest that the GDP growth rate for 2011-12 could be scaled upward to 7 per cent from 6.2 per cent when the revised figures are released later this month. It is argued that this would right a wrong caused by underestimation of industrial output. The Reserve Bank of India often times in the past voiced serious concerns over the quality of data. The question now is: how effective will any policy decision be when it is based on such data?
The apex bank will be under pressure yet again to cut the key policy rates. The pressure will be much more this time around especially since the country is poll-bound. The Reserve Bank has an onerous job on hand now. It is the responsibility of institutions such as the RBI to steady the ship, and shore up the economy. After all, the poll-hit fiscal bosses will have little patience to have a perspective view of the economy at this point in time. Raghuram Rajan’s is no easy job at the moment.
jagannathan.kt@thehindu.co.in
