Sibal on UPA and the economy: Done well, could have been better

Finance Minister P Chidambaram presented the interim budget for the next fiscal on Monday saying the Indian economy is more stable today than it was two years ago. The minister, tabling India’s 83rd national budget and the 9th such personal exercise for him, said India’s growth will be 4.9 percent this fiscal, against 4.5 percent in 2012-13. [caption id=“attachment_1395167” align=“alignleft” width=“380”]  P Chidambaram. PTI[/caption] During a debate on CNN-IBN, Leader of Opposition in the Rajya Sabha Arun Jaitley said, “I would be glad if we grow at more than 5%. Right now it looks difficult. The manufacturing sector is collecting much less than what it was before. The situation is similar in the service sector. However agriculture seems to be stable. With a cumulative effect of all three, it will be very challenging to push up the growth in the later part of this year.” CPI-M leader Sitaram Yechury was of the opinion that the budget was more of an election statement with the Lok Sabha elections knocking on the door. “Agriculture has grown rather well. You cannot expect any further growth there. But the service sector has not seen growth. Even if investments were to come in there would be need for growing domestic demand. And in fact domestic demand is shrinking further. There is a contraction of the economy is taking place. I would be delighted if we continued with the current pace. But I can foresee a greater contraction of our economy,” he said. However, Union Minister Kapil Sibal defending his government said that since the global market was improving, it would reflect in India as well. “We are seeing an upturn. There is a 3 percent growth in the US economy and even the Eurozone is turning around. And we will grow along with them to 4.9 percent and then to 5.2 percent,” Sibal said. Giving specific numbers, Chidambaram said fiscal deficit for 2013-14 would be contained at 4.6 percent of GDP, against the target of 4.8 percent, and the current account deficit was lower at $45 billion, compared to $88 billion for the previous fiscal. But was containing fiscal deficit at 4.6 percent of GDP an achievement? Jaitley wasn’t impressed. “I would have called it a real achievement if it was on the revenue buoyancy and expansion of economy. Quite on the contrary you cut down on capital expenditure. You roll down part of your subsidies to you successor and they have a nightmare. He has shrunken the economy. Roll over of subsidies of 35,000 crore is a huge burden on next the government,” he said. He added, “My experience of Chidambaram’s budget is that the devil is in the details.” However, experts have argued that the fiscal deficit number seems unreal. “The fiscal deficit number of 4.6 percent is better than the red line of 4.8 percent that was promised, but it is unreal, since it involves rolling over Rs 35,000 crore of fuel subsidies to the next year. And there could be more such accounting surprises once we read the fineprint,” writes Firstpost Editor R Jagannathan. Sitaram Yechury thought it was not attainable. “Roll over of subsidies is one part of it. My fear is this will be the excuse to curtail subsidies in future. Look at the gross figure. what has happened is that shows massive contraction of expenditures. In Q3 and Q4 the revenue will be much less.” Meanwhile Jaitley believes we need radical things for the economy to improve according to Chidambaram’s predictions. “You will have to find reverse movement of investment, manufacturing sector has to pick up. If all these positives happen then it will improve upon the current state of affairs,” he said. Now that the UPA II’s tenure is coming to an end, what are the steps that the new government will have to take to ensure growth? “First is to recognise that it is not policy paralysis but the policy itself that is the issue. Whatever is invested will produce something that has to be purchased by the domestic market. It will work only if the purchasing power is increased. What India needs is a massive dose of public investments. Fiscal deficit will not rise with greater economic activities, there will be greater revenue,” Yechury said. If the NDA comes to power, Jaitley said, they would want to increase investor confidence in the Indian economy. “Investors have started losing faith. International investment has declined. Domestic investigators have also lost faith as well. We need to revive the investment cycle. We need to bring stability in terms of taxation. We need a policy that will inspire confidence among investors,” Jaitley said. “We need to revive the manufacturing sector and rationalise interest rates. We need trade facilitation that cuts down red tapism. We will also have to draw the country out of the coal block mess,” Jaitley added, taking a jibe at the UPA government. When asked how the UPA fared in its past 10 years at handling the economy, Yechury said, “It has grossly under utilised or misutilised the potential India has. It has further divided the two Indias. It is a shame that we rank behind Bangladesh in some human development indicators.” Jaitley too was critical of the UPA saying, “The UPA did have the man power potential and could have suggest a road map for the economy. However it was loaded with contradiction of what path of economy management to chose. Whether it should choose populist or prude policies. The UPA got caught between two stools and will go out with much disappointment.” Sibal, of course defended UPA’s performance and said, “The biggest achievement has been that 140 million people have come out of poverty in this country. Therefore our policies have succeeded. It is the two global crisis that stalled growth. Chidambaram and Pranab Mukherjee managed the economy pretty well. We could have done even better. That doesn’t mean it did not perform well.”