New Delhi, Nov. 1: Prime Minister Manmohan Singh read a “hard times” lecture to his reconstituted council of ministers today and tasked finance minister P. Chidambaram with spelling out the imperatives of the rough road ahead.
“Our growth has decelerated, our exports have fallen and our fiscal deficits are expanding. Of particular concern is the fiscal deficit, which is too high and acts as a deterrent for domestic and foreign investment. These issues have a ripple effect across the economy,” the Prime Minister told his team. “While we need not be unduly gloomy about our prospects, we certainly need to redouble our resolve to meet the challenges before us and rise to the task of governance.”
The housekeeping exercise, probably the first of its kind in Singh’s nearly nine-year-old PMO, came on the eve of what the government recognises to be a stormy political ride for economic reform measures it has determined to push.
Spearheaded by Mamata Banerjee’s Trinamul Congress, the Opposition is set to raise a ruckus on FDI in multi-brand retail during the winter session of Parliament slated for the third week of November. Legislation to open up the pension and insurance sectors to the markets will also face obstruction.
The land acquisition bill, viewed as a key enabler of investment inflows, will also most likely become an issue of deadlock between the government and the Opposition. The Prime Minister called the bill a “priority” during his meeting with ministers today and Chidambaram is reported to have said that the “unnecessary delay” in passing the bill was costing the economy dear.
The Prime Minister said the UPA had “reason to take pride” in its performance over the last nine years and flagged several programmes and initiatives as successes — the Mahatma Gandhi National Rural Employment Guarantee Scheme, the Unique Identification Authority of India to provide every resident with an “Aadhaar” number to access social support services, the Right to Education, the Right to Information, the Rural Health Mission and the Jawaharlal Nehru National Urban Renewal Mission among others.
But future worries rather than past achievement seemed uppermost on the Prime Minister’s mind today.
“It is important to recognise that we are now also experiencing the fallout of difficult economic conditions worldwide…. One area that is at the top of our agenda and will require particular attention and effort at multiple levels across government is infrastructure. During the Twelfth Plan, we have set ourselves a target of realising nearly $1 trillion of investment in infrastructure sectors. To do so, we will have to overcome the constraints that currently deter or slow down this investment…. It is imperative that we come to a common understanding on these issues,” the Prime Minister said.
He made particular reference to the energy and oil sector — currently the subject of much speculation, especially with regard to the removal of Jaipal Reddy from the petroleum ministry — and said: “Fuel supply arrangements, security and environmental clearances and financing difficulties are among these constraints. The growing gap between demand and supply of energy has emerged as a major constraint on our development. It is a major factor in widening the deficit on current account of our balance of payments as well as the fiscal deficit.”
The Prime Minister was probably also sending out an appeal beyond his council of ministers and reaching out to the Opposition when he said “we can achieve the targets we have set for ourselves, provided we approach the task with courage and with conviction. I am aware that we are working against the political calendar, but we should not lose sight of the fact that we are also involved in the task of nation-building. Our responsibilities and our commitment therefore need to transcend other considerations.”
Chidambaram, who made the core presentation, stressed the need to continue with reforms in order to beat the global recessionary trends, in a slide show to new ministers made at the Prime Minister’s Office. “Without reforms, India risks a sharp and continuing slowdown of the economy, which we cannot afford given the imperative need to generate jobs and incomes for a large population,” Chidambaram told his colleagues.
The finance minister’s slide show was in line with similar presentations made by him earlier at the economic editors’ conference and a meeting of the plan panel. “India’s economy is challenged…. No one will have confidence in the Indian economy if there is uncertainty about the fiscal stability of the country,” Chidambaram had earlier said.
Finance ministry officials said “a credible and feasible path of fiscal correction, beginning this year and ending in the fifth year of the 12th plan which ends in March 2017, has already been presented” and that the finance minister had stressed that he would stick to this.
This implies the government will continue to take steps to cut spending on subsidies and ease investment flows.
The government will also try to build a consensus with states and Opposition parties to pass the much awaited nation-wide goods and services tax that will replace a large number of vexatious local duties.
The minister underlined that economic recovery globally remained slow. He particularly mentioned the threat from chronic debt problems in Europe to the global financial system. The rate of growth of advanced economies halved from 3.2 per cent in 2010 to 1.6 per cent in 2011 and is expected to decline further to 1.4 per cent in 2012.
Officials said Chidambaram pointed out that the economic uncertainty in Europe and the US was affecting market sentiments everywhere and dampening the prospects of an upturn in the global economy.
However, sources said, Chidambaram made it clear subsidies as a principle of governance would stay — for food, fertilisers and to an extent auto fuels. He said these would be re-targeted and payment systems put in place to reduce leaks.
Chidambaram said the UPA government had done a far better job with the economy compared with the NDA. He is reported to have said that for the first time the Indian economy had been able to sustain a growth rate of 9 per cent or more over two years, from 2007 to 2009.
Per-capita income during the last four-year period increased at an average rate of 7.2 per cent — leading to higher savings and higher investment.