Chidambaram: Looking ahead

New Delhi, Feb. 27: Palaniappan Chidambaram has a neat balancing trick to perform this year: He has to knead populism with prudence and serve up a sop-filled soufflé that doesn’t wreck his carefully-crafted strategy to cap inflation while ensuring go-go growth.

After railway minister Lalu Prasad showed great dexterity yesterday in dealing with the priorities thrown up by a looming election, Chidambaram — who has been extolled as the man behind the Indian growth saga — must now walk the talk.

After the Indian economy expanded 9.6 per cent in the last financial year, the fastest since 1989, and the second fastest since Independence, most global bankers and economic pundits doubted its ability to turn in a repeat performance. Naysayers predicted a growth burnout because of severe infrastructure bottlenecks, high inflation and global financial risks and a fall in GDP growth to a more predictable 7 to 7.5 per cent.

However, the Harvard trained lawyer turned politician, helped by an old school bureaucrat turned central banker Y.V. Reddy, managed to check an embarrassing price spiral early this financial year.

The duo also managed to control an unprecedented 17 per cent surge in the value of the rupee that has threatened to poop the party for Indian BPOs and throw Tirupur textile units out of business.

The duo’s formula of using a mix of fiscal and monetary measures to check the rise of the rupee and beat down inflation won them admirers among large global funds and investors who poured money into the country, taking India’s foreign exchange reserves to an unprecedented $293 billion.

Investments in new businesses pushed demand for skilled professionals to such levels that Indians saw the highest salary increase of 15.1 per cent for the fifth year in a row. Chidambaram has been trying to strike a balance between his party bosses’ agenda for a feel- good budget for the common man with industry’s demand for growth-inducing measures.

A budget is as much a political document of the government’s intentions as a statement of fiscal policy. With elections to 11 states just round the corner and a general election to follow next year, the ruling party naturally wishes the budget to be populist in large measure, without upsetting the fiscal applecart.

By all accounts Chidambaram will oblige. He has already hinted as much with promises of a farm loan write off and help for “stressed sectors” along with words of concern for senior citizens. He is under strict instructions to expand the Congress party’s pet projects such as the National Rural Employment Guarantee Scheme and rural infrastructure (Bharat Nirman) programmes. The challenge for him really will be to stay on the path of fiscal consolidation while shovelling more funds into these grandiose plans.