When the going gets tough, the blame game begins. As the deceleration of the economy happens at a faster phase, a sense of drift is sinking deeper. Caught in a pincer-like situation, an unusually aggressive Prime Minister Manmohan Singh took head on an angry Opposition which put the blame squarely on the government for the economic crisis facing the country.

Asserting that a non-cooperative Opposition bent on disrupting Parliament hurt the country’s cause, he said “building consensus is the responsibility of the Government and the principal Opposition.’’ Even as he let his frustration out on the Opposition, Dr. Singh admitted to difficult times ahead. “Easy reforms of the past have been done. We have the more difficult reforms to do,” he said. The Prime Minister also admitted that domestic factors, especially the unsustainable current account deficit, also contributed to the free fall of the Indian currency, which went beyond 68 a dollar intra-day in the week to close at 65.70 on Friday. As the political masters cross sword accusing each other for the current mess, the economic drift is getting worse each passing quarter.

At 4.4 per cent in the first quarter of this fiscal, GDP (gross domestic product) growth has hit a four-year low. The news on the fiscal deficit front is scarier still. The fiscal deficit in the first four months has already reached 63 per cent of budget estimate for the whole year! Well, what will happen to Finance Minister P. Chidambaram’s assertion these days to keep the current account deficit (CAD) within the budget 4.8 per cent of the GDP? We need a magician Finance Minister, it appears.

This three-letter acronym is giving nightmares to the policy-planners, as India’s CAD is the highest among the emerging economies. The monster called CAD has split the policy planners down the line, it seems . Inflation-focussed monetary managers (read Reserve Bank of India), refused to give in to incessant pressures from across multiple quarters and also subtle suggestions from political bosses to reduce key policy rates. Even as this hawkish stand drew wide criticism, things turned topsy-turvy in the wake of the Federal Reserve indicating a likely tapering of its stimulus package.

Since then, foreign exchange markets have gone into a tailspin, triggering a continuous slide in the rupee. This new factor — rupee volatility — has sent the RBI into further liquidity-draining initiatives. Oil, gold and coal — the three principal import items — have proved to be a big puzzle for policy planners. With the rupee sliding and CAD swelling, assorted suggestions — some bordering on controversy — have come up. Why not buy gold from citizens? Why not tap the gold holdings of major religious institutions? D. Subbarao, the outgoing Governor of RBI, put it succinctly when he said, “Had the fiscal consolidation been faster, it is possible that monetary policy calibration could have been less tight.” Well, if only the fiscal and monetary bosses walked together…

jagannathan.kt@thehindu.co.in

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