Much of what Finance Minister P. Chidambaram and RBI Governor Raghuram Rajan said at the Economic Conclave 2013 is not new. There is, however, a special contextual significance. It is for the first time after the recent State Assembly elections that top policymakers of the UPA government are seen reiterating the broad contours of the government’s economic agenda and policy goals. Considering that the Congress party heading the UPA lost heavily in the elections and faces an equally grim challenge in the general elections barely six months away, the purpose of such reiteration is not quite clear. At one level, it could be an appeal to the next government to maintain continuity in certain core areas of economic policy. That, however, assumes a certain degree of consensus among the leading political parties on key economic areas — which is not evident even now and is even less likely to be so after the elections. Mr. Chidambaram’s focus on achieving fiscal consolidation within a specified time-frame involves a number of difficult steps to cut expenditure and boost revenue. The former involves, among others, pruning subsidies and freeing controlled prices in the energy sector. These have always been politically difficult decisions and it is facile to assume that the next Finance Minister will find it any easier to undertake a course- correction. The level of economic growth is a crucial determinant of revenue collection. Unfortunately, GDP growth has been at a low ebb, struggling to reach a modest 5 per cent annual level.
Inflation has remained a big worry over a long period. The governments of the day have paid a heavy political price on account of inflation — a point so very evident from the recent election results. Both the Centre and the States need to act in unison to check negative trends. The UPA government’s track record in these crucial areas has not been particularly striking. The reason for articulating policy measures now is to reassure financial markets and overseas investors, who over the past few weeks have given their own verdicts on the Indian political situation. At least three major brokerages and a rating agency have given out the assessment that the present government will press ahead with populist policies. The stock markets zoomed to record highs after the election results were announced. Although the benchmark indices have since come down, the feeling in the markets remains to be that a BJP-led coalition will be good for them. Never mind that as on date the situation is very fluid and, equally relevant, the BJP’s economic agenda is still fuzzy.