Pranab's real reason for retail FDI: "I need the money"

Yes, that's the reason India Today gave for Finance Minister Pranab Mukherjee's eagerness to push through 51 percent foreign direct investment in multi-brand retail.

"I need the money," he is reported to have said, according to the latest issue of the news magazine, referring to the financially impotent position of the government.

The finance minister was worried over the state of the economy - sliding growth, falling stock markets, slumping rupee, dwindling foreign equity investments - and wanted something to "reverse the slide", the magazine said.

On Wednesday, the finance minister tried to downplay the slowdown in the economy by arguing that growth used to be much lower in the early 1990s. Reuters

According to India Today, at one stage, he angrily told dissenting colleagues, including A K Antony and Jairam Ramesh, that a failure to approve FDI in retail would send the Sensex crashing by 400 points the next day.

Mukherjee's comments vividly highlight just how much of a mess the economy is in, and how much the government depends on foreign inflows to come to its rescue.

Unfortunately, the government's rout over retail FDI will make foreign investors extremely wary of investing in India, especially since the government will now be seen as no longer having the appetite - or political determination - to introduce big-bang economic reforms.

The government itself is no position to prop up the economy, because it's staring at a yawning fiscal deficit (the gap between government revenues and expenditure). It too needs to borrow and this year, borrowings are estimated to hit their highest-ever level of Rs 4.7 trillion.

Worse, its subsidy bill might exceed previous estimates by a whopping Rs 1 lakh crore, according to The Economic Times.

Poor equity markets - among the world's worst performing, according to a recent report by Bank of America Merrill Lynch- have hindered the government from going ahead with divesting stakes in state-run companies as well.

Yet, the government is still trying to put on a brace face. On Wednesday, the finance minister tried to downplay the slowdown in the economy by arguing that growth used to be much lower in the early 1990s.

"In the second quarter ofthis fiscal year, Turkey grew 10 percent, China and Mexico grew 9 percent each while India made a growth of 7.3 percent," he told Parliament on Wednesday. "But we have to remember that this growth is against a growth of 9 percent we have witnessed since 2004 prior to the global meltdown.In the '80s, the growth was at 5 percent, in 90s and first half of the last decade, it was at 5.6 percent."

With some more bad luck (and governance), who knows, we could yet head back to the early 1990s.

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Updated Date: Dec 20, 2014 05:35:37 IST

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