Austerity measures don’t help stagnating economies much, particularly economies where fiscal deficit is very close to six percent of the GDP, such as India. Such measures are largely inconsequential to the big picture economy and are at the best a knee-jerk action from governments clueless on better ways to bridge the gap between their meager earning and reckless spending.
Jairam Ramesh was being neither profound nor full of original insight while suggesting – in his letter to Congress president Sonia Gandhi and party general secretary Rahul Gandhi – that austerity measures were ‘meaningless’. The measures, including a ten percent cut in non-plan expenditure, were announced by the former Finance Minister Pranab Mukherjee.
Jairam also suggests decontrol of diesel price, hike in LPG rates, measures to attract FDI in the aviation and retail sectors and policy credibility to make India look investor-friendly among other measures to revive the economy. Nothing brilliantly innovative here too, one must say. Every economist worth his salt has identified the problems with the country’s economy and has been demanding these very measures from the government for a long time.
The importance of the letter is not so much in the content as in the intent. His concern about the economy is understandable but why the unsolicited missive to the party leadership at this specific juncture? As of now, Prime Minister Manmohan Singh has decided to manage the crucial Finance portfolio and oversee the recovery of the economy himself. It is clear that the move was pre-decided and has approval from the top.
The timing of the letter is a bit mystifying. Does the Rural Development Minister want to leverage his good equations with Sonia and Rahul to get a role in the finance ministry? To put it more bluntly, does Jairam want to be the finance minister? There is no other reason why he would suggest measures to fix the economy to the party bosses. As rural development minister he should be talking about plugging NREGA loopholes instead.
Well, it is not wrong for a politician to be ambitious. His intellectual credentials are impeccable – he is a mechanical graduate from IIT Mumbai and an alumnus of Massachusetts Institute of Technology — as is his commitment to genuine causes. And Jairam is known to brook no nonsense from any influential quarters.
But does he fit the bill as finance minister? Not many in the political and industry circles would agree. He is too inflexible in his convictions – he is more a politician-activist than a politician, they would argue. His two-year stint as environment minister was great for the country’s natural environment but disastrous for its economic environment. He refused clearance to multi-million dollar mining and industrial projects citing potential damage to the ecology. This dampened the investment climate with many potential big ticket investors holding back from engagement with the country.
He decided to divide coal-bearing regions into ‘go’, ‘no-go’ areas, which virtually left coal-rich areas off bounds for the players in the mining sector. If there’s a scarcity of fuel in the coal-fired power plants now, resulting in declining energy output, the blame should lie squarely on Jairam’s overdrive to protect the environment. No one ever questioned his good intent but it had to align some way with the greater interest of the economy.
The finance minister cannot be an activist and a politician at the same time. He has to be pragmatic and adept at taking unpopular decisions. That’s where Jairam falls short and Manmohan Singh scores – well, that’s when the prime minister is taking independent decisions.
With the economy in a mess and in need of the kiss of life, the Congress leadership is not likely to encourage someone like Jairam. However, one cannot fault him for not trying. He could have come up with more original solutions to the economy’s woes though.