India's crisis within a crisis: FM Chidambaram fights on two fronts

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P Chidambaram has been grappling with the economic emergency since he became Finance Minister for a third time 13 months ago. P Chidambaram has been grappling with the economic emergency since he became Finance Minister for a third time 13 months ago.
SummaryFM must stop investors heading for the hills as growth skids to its slowest pace in a decade.

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An almost comic spectacle of the country's policy deadlock played out in parliament last month as the monsoon session of the legislature got under way.

MPs were so busy bawling at each other over issues that might sway voters - a corruption scandal, the partition of Andhra Pradesh and communal violence - that over its first seven days the Lok Sabha spent just 12 minutes on legislative work and there were 11 sittings before a single bill was passed.

While New Delhi appeared nonchalant at the economy's bind, investors were not: they fled. The rupee has tumbled more than 20 percent since May and the fall in August was the biggest for any month on record.

In a matter of a few years, India has turned economic expansion of 8-9 percent into growth now struggling to reach 5 percent. The current account, the broadest measure of a country's international trade, has a record deficit, the manufacturing sector is shrinking, and credit ratings agencies are hovering.

"Our primary concern is that the policy authorities still don't 'get it' - thinking this is a fairly minor squall which will simmer down relatively quickly with fairly minor actions," said Robert Prior-Wandesforde, head of Asia economics research at Credit Suisse.

For sure, India is one of several emerging markets from Brazil to Indonesia hit by a flight of capital due to rising U.S. interest rates ahead of an expected tapering of the Federal Reserve's massive bond-buying programme that unleashed liquidity across the world. It is doubtful that any policy action in New Delhi could do much to turn the tide.

Nevertheless, India's response has been less decisive than other emerging market economies. Most steps taken so far to address the problem have been small, such as lowering the cap on transfers of money abroad and slapping import duties on flat-screen TVs, measures aimed at reining in the world's third-largest current account deficit that is approaching $90 billion.

Some proposals have smacked of desperation. One minister last week suggested curbing diesel consumption by the railways, a bigger economic lifeline than in most countries, and the armed forces to cut import costs, an idea that got no traction.

There were reports on a business daily on Saturday that the Reserve Bank of India (RBI) wants Hindu temples to deposit their hoards of idle jewellery for conversion into bullion to meet demand for gold in the world's biggest consumer of the precious metal. The idea

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