Chidambaram's Google Hangout: Why does he think we are all fools?

The problem with intelligent people like P Chidambaram is that you think the rest of the world comprises only fools.

Yesterday on the Google hangout interaction , the finance minister made several controversial points and apparently went uncontradicted. Not only that, he got away with saying the opposite of what he had said a few days ago. And, of course, he was full of himself.

For starters, sample just a few of his “I, me, aur main” moments:

“How many people spoke of the current account deficit till I spoke of it?” (In case the FM is genuinely looking for an answer to this rhetorical question, he can read these Firstpost stories here and here on the CAD last year).

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“After I took over, every single disinvestment has been a success.”

“We did not go wrong anywhere. We did pretty well in 2008 to stem the slide.” (Then why are we in the current mess?)

“We have not gone so very wrong that we have to wear sack-cloth and ashes.” (Then why is he deferring GAAR for two more years, and bending over backwards to propitiate investors from Mauritius?)

But there were contradictions, bombast and red herrings, too.

Exhibit 1: On 2 March, Chidambaram imperiously told The Economic Times that his budget was not aimed at impressing the rating agencies. “I respect the view of a rating agency but I do not make a budget for the rating agency. I make a budget for the people of India. They may rate us high or low but all that we are doing certainly should disabuse anyone that India is a candidate for down rating.”

[caption id=“attachment_648629” align=“alignleft” width=“380”]  P Chidambaram during yesterday’s Google Hangout. PTI[/caption]

But at the Google hangout yesterday, Chidambaram seemed to be saying the opposite. He said: “We were at a point that if we did not declare our commitment and did not take credible steps, there would have been serious consequences.” And further: “The basic message of the budget was to give a signal to the country and world that India was on the path of fiscal consolidation and to investors worldwide that they can invest in the country.”

He didn’t say he was out to impress the rating agencies, but that was the implication. Could he have gotten foreigners to invest here if the rating agencies were unhappy with what his budget attempted? Chidambaram, in fact, went further and claimed India needed “copious flows” of foreign capital. So does his claim that he was making a budget for the “people of India” really hold?

Exhibit 2: At the hangout, Chidambaram was asked what had gone wrong with economic policy in the past. He replied: “I don’t think anything has gone terribly wrong” but “there are some matters which have to be fixed. First is the fiscal deficit, second is the current account deficit.”

Question: if nothing had gone “terribly wrong”, why was he building a sense of crisis and why was the PM telling us that “money does not grow on trees?”

In fact, the Economic Survey prepared by his ministry’s Chief Economic Advisor clearly mentions that the government’s failure to withdraw the post-Lehman stimulus had entrenched inflation - which is why Chidambaram had to begin fire-fighting the minute he got into the ministry. The Survey said the main reason for the economy’s woes was “the boost to demand given by monetary and fiscal stimulus following the (global financial) crisis was large. Final consumption grew at an average of over 8 percent annually between 2009-10 and 2011-12. The result was strong inflation and a powerful monetary response that also slowed consumption demand.”

Both the fiscal deficit and the current account deficit were the result of this gross mistake. But Chidambaram wants us to believe nothing has “gone terribly wrong.”

Exhibit 3: Asked why he had raised excise on sports utility vehicles (SUVs) in his budget, he seemed to suggest that cheap diesel was resulting in more SUVs being bought. He also claimed that the 3 percent additional duty would not dampen demand for SUVs.

But he managed to half-contradict himself in the very next statement on the slump in auto sector demand. While observing that the auto sector needed help, he alleged that high interest rates were the main reason.

Clearly, he uses opposite arguments to get his way. When he raises duties on SUVs, demand will not go down; but when it is shown that auto demand in general is going down, it is because of interest rates, where Chidambaram has an axe to grind with the Reserve Bank of India (RBI). In sum, what he does to consolidate the fiscal situation will not hit demand, but what the RBI does to dampen inflation will. Heads I win, tails you lose.

Exhibit 4: Chidambaram is supposed to be a reformer, someone who believes in autonomy and economic freedom. To get investment started, his budget offered a 15 percent investment allowance for manufacturing companies investing more than Rs 100 crore in the next financial year.

But when it comes to results, he has no faith in economic agents. He showed himself to be no better than the worst tinkerers of India’s pre-liberalisation economy. He has threatened public sector units not investing their cash with confiscation of profits, and private sector companies have been told that big brother will be watching.

He said: “People are sitting on piles of cash. Each public sector unit needs to announce the next year’s capital expenditure plan in a proforma I will be sending out to them. I have made it very clear that those not meeting their investment targets will have to pay the government a higher dividend. I will also ask the business houses about their capital expenditure plans.”

Quite apart from the fact that public sector cash belongs to all investors and not the government alone, and hence it is their autonomous boards that must decide on how to use the cash, who is Chidambaram to decide what private sector companies do with their surpluses?

What Chidambaram should be doing is focusing his efforts on improving the investment climate - and the results will follow.

But what do we have instead? Business is rapidly losing confidence in India. Today’s morning papers quote Kumar Mangalam Birla as saying: “Country risk for India just now is pretty elevated and chances are that for deployment of capital you would look to see if there is an asset overseas rather than in India. We are in 36 countries around the world. We haven’t seen such uncertainty and lack of transparency in policy anywhere,” he told Bloomberg TV in an interview.

Earlier, Cipla chief Yusuf Hamied said it was time to say goodbye to India - just two weeks before Chidambaram’s budget. “The tax policies and lack of basic infrastructure are huge problems in India. Because of lack of prudent tax and stable policies, all big Indian companies are going abroad. The time has now come for us to say goodbye to India,” he told Business Standard.

Before him Ratan Tata told Financial Times that he was frustrated with the investment climate in India.

It is no one’s case that Chidambaram cannot improve things. If anyone can in this government, it is him.

But maybe, just maybe, he can be more humble and honest about what went wrong. There is no need to pretend that the UPA did everything right with the kind of hauteur that only the FM can muster.

The full Google Hangout video