Rupee fall: Chidambaram ends denial, puts onus on UPA

For a while P Chidambaram’s latest press conference, in New Delhi today, on the state of the economy seemed to follow a familiar script. The minister began his statement with the usual “There is no need for excessive or unwarranted pessimism,” an assertion that has been repeated so often by the UPA that it carries no credibility. It was an equally familiar terrain to find the Finance Minister blaming a combination of international and domestic factors (note that international always comes first) for the economic mess.

Chidambaram then rattled off a series of statistics on how the government had reduced the fiscal deficit, committed to a reduction of the current account deficit and contained debt, both domestic and foreign. He also signaled a rise in FDI flows in the first quarter of 2013-14, and exports in June and July.

[caption id=“attachment_1053635” align=“alignleft” width=“380”] P Chidambaram. PTI[/caption]

Chidambaram assured investors that the capital controls introduced by the RBI were temporary and that there was no plan to impose further capital controls including on repatriation of profits. In short, he was conveying an “All is well” scenario, distorted by careless currency speculators.

What was more interesting than the predictable prepared text was the Q&A session. When asked what domestic factors he was referring to, Chidambaram ended the UPA’s long denial on its terrible macroeconomic management record. He admitted to domestic problems that had been building over “the last 2-3 years.” He admitted that the Government had allowed the FRBM targets to be breached. He admitted that the UPA had let inflation remain in double digits for too long. Of course, Chidambaram’s confession was made easy by the fact that Pranab Mukherjee, and not he, was the Finance Minister when the mismanagement peaked.

But Chidambaram went beyond targeting just his predecessor at the Finance Ministry. When asked what kind of structural reforms he had vaguely alluded to in his prepared text (as measures to solve the rupee crisis), Chidambaram gave his colleagues in the UPA a harsh reality check. He spoke about “unnecessary coal imports” and the need to restart coal mining, a self-inflicted wound caused by his colleagues in the Ministry of Environment Jairam Ramesh and Jayanthi Natarajan.

The Finance Minister emphasised the need to restart iron-ore mining (a Supreme Court-inflicted wound), and to export iron-ore that was already lying at pitheads. Now he was talking on the ground logistics of the kind the UPA has ignored at its own peril. He also addressed the need to ramp up the capacity of fertilizer plants, where again the supply of inputs has been a problem. Chidambaram knows he cannot solve these problems alone, but by laying the blame at the doors of his own Government - rather than the US Fed or Europe - he may just have laid the ground for some action.

Today’s press conference should inspire more confidence than others not because the Finance Minister tried to reassure investors and citizens that “All is Well”, but because he acknowledged in no uncertain terms “All that is not well” in India, not abroad.

The usually haughty Chidambaram even admitted that the government had failed to communicate properly the intention behind its recent measures. All of this is good news because a real solution to the current economic malaise will only be forthcoming after the government has admitted the real root causes of the problem.