The only certainty about luck is that it will
change. Nothing better describes the fate of Finance
Minister Palaniappan Chidambaram.
When Chidambaram re-entered the North Block in May
2004 to serve his second term as the FM, his legacy
was the NDA government’s record of GDP growth which
averaged 5.5 per cent in the previous five years. It
could have reached 6.5 per cent had there not been
two nasty blips in 2000-01 and then 2003-04. It was
an average growth record, despite a late rally in
2003-04, when it spurted to 8.5 per cent — which
prompted the ill-fated ‘India Shining’ electoral
campaign that still remains the butt-end of many
The NDA government’s performance on the fiscal front
was quite poor. The centre’s fiscal deficit rose
from 4.8 per cent of GDP in 1997-98 — Chidambaram’s
second year as the Finance Minister in his first
stint — to 6.2 per cent in 2001-02, when the
combined deficit of the centre and states was over
9.6 per cent.
The NDA, however, was lucky on the inflation front.
Between 1998 and 2004, average WPI inflation was 4.8
per cent, with fairly long periods when it ruled
below 4 per cent. In fact, between January and June
2002, inflation was under 2 per cent.
Chidambaram’s inheritance, therefore, was average
growth, benign inflation and poor fiscal management.
There was one more legacy. It was the groundswell of
an entrepreneurial spirit across India which,
nurtured by the pro-investment climate of the NDA
government, matured to adulthood with the growth in
domestic demand from 2004.
So, how did Chidambaram do? Let’s start with the
clear positive — his excellent management of the
nation’s exchequer up to 2007-08. By controlling
inessential expenditure and with serious efforts at
tax collection, the present government has raised
the direct tax to GDP ratio to a far more
respectable level than ever before and, in the
process, has created a far more sustainable
environment for public finance. To be sure, it has
been helped by phenomenal growth in corporate and
personal incomes, especially from 2005-06 right up
to the present. Equally, there have been some
irritating taxes imposed by Chidambaram, such as the
banking transaction tax (now thankfully withdrawn)
and the fringe benefit tax. Even so, there is no
doubt that until the current year, the government
has done an excellent job in raising tax revenues
and reducing both the fiscal and revenue deficits.
So, kudos to Chidambaram on that score.
The finance minister likes to credit for growth that
has averaged at 8.8 per cent over the four years of
the UPA’s reign. This is the highest growth rate in
post-1991 India —something that few could dream of
when reforms began 17 years ago. It is entirely due
to Indian entrepreneurship and business across all
manufacturing and service sectors throughout India.
Lack of needless government interference in
business, soft interest rates right up to last year
and easy availability of funding have helped. I
would say that the government has enjoyed this
growth; not necessarily created it.
Where this government has failed is in physical
infrastructure. Despite sufficient funds, the
National Highway Development Programme is way behind
schedule — indeed, embarrassingly so. Village road
programmes are also lagging badly. Bharat Nirman is
more of a slogan than a reality. At 16.6 per cent,
the peak power deficit in 2007-08 is much worse than
the 11.2 per cent shortfall in 2003-04, the last
year of NDA’s rule. The actual power generation
achieved each year has been much lower than the Plan
targets. Large tracts of India live in darkness.
Vessel turnaround time at ports has increased. Poor
infrastructure implementation has been a blot on
UPA’s economic governance.
Contrary to popular opinion, however, neither
Chidambaram nor the government has failed in the
price front. Yes, we are looking at 12 per cent WPI
inflation. But that is not the government’s fault.
Never in the history of the 20th. century has four
major commodity classes — hydrocarbons, minerals,
metals and food — risen the way these have and in
synch. Nobody can blame the finance minister for
crude at over $140 per barrel. It is just his real
bad luck — especially for it to have come in an
election year. And there is precious little that
anyone can do. You cannot control inflation through
administrative diktats. Like a tornado, you batten
the hatches and wait for it to pass.
So let’s commiserate with Chidambaram. He had the
luck of the devil in his first four years. Now the
devil’s taken over. And since the only certainty
about luck is that it will change, times will get
better. But maybe not under Chidambaram’s current
Published: Business Standard, July 2008