Chidambaram plays Sonia’s Shikhandi, but it won’t save the rupee
The term “Shikhandi” aptly describes the role being played by P Chidambaram in this UPA dispensation. In the Mahabharata, Arjuna fights Bhishma using Shikhandi as his shield in the full knowledge that Bhishma will not fight Shikhandi, who, in an earlier birth, was a woman. She was Princess Amba, who had vowed revenge against Bhishma for scorning her love, and was reborn as Shikhandi.
To protect itself against the charge that it is anti-reform and will do only things to damage the economy, the UPA has put Chidambaram in front to play Shikhandi and ward off attacks from the markets and rating agencies.
Unfortunately for the UPA, the market is not Bhishma. And Chidambaram has compromised himself so badly in the service of the UPA that the market does not believe him too much. Trying to pretend to be both reformer and social spender with the milk of human kindness inside him, Chidambaram is a split personality.
No less a person Jagdish Bhagwati caught Chidambaram out on this in the context of his clash with Amartya Sen over the food security bill. Chidambaram claimed he liked Bhagwati’s growth focus and Sen’s compassion for the poor, but Bhagwati punctured him. “Surprisingly, the Finance Minister, Mr Chidambaram, who is a brilliant man…has fallen victim to this fallacy. He is seduced by his (own) clever phrasing, saying that Bhagwati has a passion for growth whereas Sen has compassion for the poor. But that is precisely where he goes wrong and where we must focus to put Mr Sen in his place, which is certainly not on a pedestal. Since the 1960s, when I worked on poverty eradication in the Planning Commission when Mr Sen was hardly active in this cause, I was for growth, not per se, but because I have compassion for the poor. Growth was a strategy; poverty eradication was the objective,” Bhagwati wrote in
Business Standard.![Reuters]()
Why does Chidambaram want to “stabilise the rupee” and where does he want the rupee to stabilise?
Reuters
He began with a half-truth. “Last year, at this time, the foremost challenge to the Indian economy was the growing fiscal deficit.” Is this so? The fiscal deficit has been deteriorating for more than four years now, so the problem did not date back to last year when he took over.
Then came more red herrings. “Since the world economy is challenged, India’s economy also faces challenges.”
If the world is in greater trouble, should Indian business be heading there or staying back for growth? This is what Kumar Birla had to say: “We are in 36 countries around the world. We haven’t seen such uncertainty and lack of transparency in policy anywhere,” he toldBloomberg TV earlier this year.
The world economy may be challenged, but the Indian economy has been even more challenged, thanks to sheer economic mismanagement over several years.
In fact, in a rare moment of candour in an interview to Business Standardlast week, Chidambaram indirectly admitted that the fault lay as much with his government. He said: “We have delayed taking decisions. We’ve paid a price for it.” Then why is he blaming the world for his troubles?
Next, consider what Chidambaram considers his crowning achievement of last year: containment of the fiscal deficit. He said: “In August 6, 2012, I made a statement on the path of fiscal consolidation that we intended to take…we promised to contain the fiscal deficit at 5.3 percent of GDP for 2012-13…Actual numbers are even better, and the fiscal deficit for 2012-13 stood at 4.9 percent.”
But how did he achieve this? By stamping on productive spending, not unproductive subsidies, thus worsening the economic slowdown. And were even these numbers genuine? The final fiscal deficit figure was lower in part because Chidambaram
rolled over oil subsidy payments of over Rs 45,000 crore due in 2012-13 to this year, thanks to the government’s failure to adopt an accrual-based system of accounting. If he had done so, the deficit numbers would not have been so flattering.
Listen to what he thinks is his real achievement on the CAD front. He said in his speech yesterday: In 2011-12, while financing the CAD, we had to draw upon reserves to the extent of USD 12.8 billion. Last year, we had a larger CAD at USD 88.2 billion. Nevertheless, we were able to fully and safely finance the CAD, and do even better. We added USD 3.8 billion to the reserves. We contained the CAD at 4.8 percent of the GDP.”
The subtext is simple: blame
Pranab Mukherjee for the CAD, not me. As for his “achievement” of financing the CAD and even increasing reserves by $3.8 billion, this is laughable. These reserves are not really reserves, but money raised from borrowing abroad. Anyone can raise reserves by borrowing money. It’s like borrowing money from the bank and putting it in a fixed deposit at a lower interest rate. This money came in by liberalising external commercial borrowings, allowing foreigners to invest in Indian debt, and increasing interest rates for NRI deposits. The country’s external debt is now topping $400 billion, against reserves of $277 billion (including gold), down nearly $15 billion since March 2013. The country’s reserves are just about two-thirds of its debts abroad – not exactly a brilliant achievement. The real reason why the rupee has been crashing is the rapid exit of such hot money flows – invited by Chidambaram and his predecessor – after the US Fed indicated a gradual tapering down of its quantitative easing programme.
And then, consider how he
plans to deal with the problem of CAD and bring it down to 3.7 percent of GDP this year. The steps announced include import compression (gold and silver – $4 billion), raising oil prices ($1.5 billion) and raising duties on certain non-essential goods. $5.5 billion in all.
This piddly saving is, of course, not enough, so how is he going to raise more dollars? $11 billion will come in by allowing public sector companies, including oil companies, to raise quasi-sovereign dollar bonds, and easing external commercial borrowings and liberalising NRI deposit schemes.
Now, we come to the Shikhandi part. The real giveaway in Chidambaram’s statement was not only about CAD, but about his efforts to rein in the falling rupee. He said: “However, we believe that we have to do more to contain the CAD, to reduce volatility in the currency market and to stabilise the rupee.”
Most free-market economists will question the wisdom of trying to target the rupee. In fact, by letting the rupee fall, exports have begun to revive and imports are starting to come down – which is the right way to bring down the CAD, naturally. In July, exports surged by nearly 12 percent and imports fell 6 percent – which is testimony to the fact that allowing the rupee to find its own level is good for the economy and the CAD.
So why does Chidambaram want to “stabilise the rupee” and where does he want the rupee to stabilise?
The answer can only be guessed. A sharp fall in the rupee does not suit the UPA precisely because it forces the government to raise oil prices or let the subsidies rip. The subsidies are going to rip anyway because of
Sonia Gandhi’s food security bill, and so Chidambaram does not want another item on the import menu to add to his woes.
He is playing Shikhandi to Sonia who wants to worsen the economic crisis for the sake of short-term electoral gains.
Chidambaram is merely trying to postpone the economy’s day of reckoning by pretending to be reformist while really enabling
Sonia Gandhi to play ducks and drakes with the budget.
This sarkar is being run as a service industry for the benefit of the pseudo royals.And there are many fall guys to take the blame if things go wrong as they are going horribly wrong just now.Juggling with figures apparently is no use now, begging the US sarkar and industry to please please bring FDI into INdia is also proving futile.The so called 'social security' measures prescribed by Nobelist Amartya Sen are going to take their toll well before 2014 rolls along.And might have the opposite effect on the mango electorate.There will be hell to pay and fall guys are being lined up with Dr MMS and Chidambaram heading the line-up.
REER will take its course .... hope he is aware that India need to bring down inflation .. which is expected by Oct/Nov '13 figures ,[ due to base effect ] ; unless GoI do something more stupid.
and in such situation INR will touch 66 if not 67.
This government has many Shikandis to fight for them and to shield their supreme leader from any critisism though the leader takes all the credits for any achivements(?). Having IMF parented robot at the helm they want to show the world that they are pro-reformist and throwing the tax payer's money to the hollow schemes like food security. Hence we are neither here nor there and economy in shambles. Had corrupt politician brought to books at least 10% we would not to be in such a mess.
Sonia Gandhi's spending is going to destroy the Indian economy. EVen a child knows that you cannot remove poverty by printing notes and distributing it. It will destroy the value of what you are printing. But why would an Italian care wht happens to India's economy.
mr jaganathan , when ben bernanke speaks markets react ; when mario monti speaks markets react;when pc speaks "sab thanda" .is he really a warrior that u project him to be or is he the best available person to give statements which nobody believes or cares or accepts . i mean why was he in the usa to talk to investors ????????? the superpower fm of an economic superpower should have people running to him , don't u think ??
Precisely. A very good point. It is shameful that we ( as a nation ) are getting subjected to such despicability.
Nobody believes Bernanke or Monti either.
They (CONGI ministers) will crash the Rupee, then bring in their $$$ from offshore accounts to buy up even more of the country on the CHEAP. They will sell those assets and repatriate the funds before the next crisis and then do the same thing again. Rinse, repeat, rinse, repeat. We know what the CONGI model of "development" is.
Gem of a sentence: "It’s like borrowing money from the bank and putting it in a fixed deposit at a lower interest rate".
And a wonderful conclusion, wonderful because it has the austere beauty of unvarnished truth :
" Chidambaram is merely trying to postpone the economy’s day of reckoning by pretending to be reformist while really enabling Sonia Gandhi to play ducks and drakes with the budget. ".
Pity we can only appreciate the incisive analysis of compatriots like Jagannathan, not the dastardly acts of our bl**dy government.
The whole problem is the term ECONOMIC GROWTH. We are overtly concerned with the growth what ever may the cost. Every company should have more sales, and more profits every year and the companies should not only have growth, but also beat the analyst forecast. Every person get more salary than last year. The ultimate result of the growth is inflation, increase in rentals, increase in school fees etc etc. Cost of all things increase resulting that nobody is better off this year when compared to last year, except everybody is having an illusion of having more income, more assets as the house prices have increased etc etc. All of us fail to realise the growth is an illusion. If every company has to have increased sales, who is going to purchase the goods? If every person has to have increased income, the cost of all goods should increase. My salary increases and at the same time the cost of all inputs, cost of all goods consumed etc increases. At the end of the day if you remove the inflation, all are at square one. Nobody is better off. All the economists are real fools. They talk about things which they do not know, but pretend to know. USA is having the maximum number of economists who are Nobel Prize winners, but Americans have not found a solution to their economic problems. China which is the Factory of the World will also face the same problem. There are so many Airports where only a handful flights take off, so many shopping malls without any shoppers, so many apartments without any residents and so on. Economists equate growth with consumption. If you consume more you grow. If you have a three bed roomed flat, buy furniture and fill up all the rooms, whether you require or not. But nobody thinks, whether we as human beings create a tree or a litre of crudeoil. By this so called GROWTH we are destroying the irreplaceable natural resources, whether it is water, forests, crude oil, coal, or land. We should consume what is necessary for our survival and we should aim at sustainable growth. Otherwise the growth is only an ILLUSION.
Whilst I agree with the essence of your comment, the growth and its impacts are not entirely illusional. Some do gain . And many loose( primarily because population is increasing ) The inequities increase . Earth gets exploited further . There is also increase in stress and struggle due to inflation .
We are too preoccupied with supply side economics as espoused by west and totally ignoring the demand side . The world population is now nearing 8 billion. There can be only more chaos ahead ( unless we export billions of humans to moon or other planets ) . With the level of human avarice , arrogance coupled with narrow-mindedness and mediocrity - there can be no other alternative.
Well said sir. My thoughts exactly. But who is listening? Nobody.
Trying to target the Rupee is addressing the symptom ignoring the disease. Jaggi, you are being either naive or too liberal - I think the latter - to describe Chidu . If Chidu is an economist, I am an Astronaut. Chidu is just a political animal, trying to secure his place in the unfolding power play should UPA come to power. Sonia is the worst thing to have happened to India, since the Emergency. People of India are yet to realise the enormity of the problem that UPA is. Hope they would realise in 2014. Every financial thinker worth his salt must have realised by now that depending upon the FIIs to shore up our forex reserves was the biggest folly. Therefore, the soon-to-be BJP government must focus its energy on FDI including attracting wealthy NRIs back (like Arcelor Mittal) to India to stabilise its forex reserves. For that we have to end the policy paralysis, initiate labour reforms and land reforms, getting away from subsidy mania, etc. Even the current UPA government could do it. But it has a credibility crisis now and all the decisions that it is taking are with an eye on the elections . The earlier we get rid of this government, the better for the economy. Like he was honest to declare it in 1997 when he failed to lift the economy despite his attempts, Chidu should declare now also "if the people have do not have faith in the govt to lift the economy, they should call for elections". Hope he does that before 2014.
Adam Smith the father of economics is with the youngsters, as todays
youngsters PERHAPS no longer look to the state for handouts. He says in
economics Man Proposes and God Disposes. If every body in a nation
become do-gooders -- God disposes -- and we will have hell on earth. if
man proposes to be selfish -- God again disposes -- and we will have
prosperity and peace. The elder do-gooders , Gandhi, Jayaprakash Narayan
etc forgot that a strong socialist state is required to do good. And it
will demand its pound of flesh closest to the heart. Any socialist
state will NOT destroy the reason for its existence which is shortages. 24 hour water
supply will reduce water required to be released by 30%. No Government
Engineer in India will accept this. Scarcity, distress is required for
the reason for its existence. If no scarcity exists it will manufacture
it. Mysore had water scarcity even though it had KRS dam beside it. It
is a question of power.
Extremely clever article Sir!
What was the government doing last four years... If CAD and deficit would have been under control, this election year UPA would have had the luxury to loosen purse strings for electoral gains.... Sonia really got arrogant with the second term of power
fantastic article jaggi, as usual. you have only revealed the bare truth of the performance of this govt.
Chidambaram thinks too much of himself, too intelligent even for his own colleagues
we should make Mr Jagannathan as Finance Minister or RBI Governer who seems to know all solutions to curb Rupee value and improve financial condition of India.
I agree. Our Jaggu has so much wisdom that was handed out to him by his grandma and which he distributes freely to all through FP.
I think so he will turn out a far better bet. Acceptance of the problem is the first condition. Atleast he calls spade a spade. We dont want superb intellectuals to be finance ministers. If you think you can control and steer forward the economy - you are mistaken. It that would be true, than why would developed world with so may noble prize winners (paul krugmen) languish with negative and low growth even after 5 years (since 2007). The fact is government should provide enabling policies with least government interference. It should be responsible for providing best of the law and order situation and basic amenities like water, sanitation, health care, etc. Rest all should be left to market forces. If you pretend that you can control and put the economy on track, you are mistaken. Let the market dynamics work. If the rupee is going down because we import more and export less, let it fall to make imports costlier and exports competitive. Please do not manage. Eventually if rupee is having lower value it is bound to go low - please do not interfere - you are inflicting long term pain by medlling.
And yes one last word - the ghost of loose economic policies with excessive money printing after 2008 has come to haunt UPA. They are now paying for their misdeeds. They killed the savers and middle class. The crony capitalism of theirs benefited themselves and business man and their political largesse in form of various policies is appeasement for poor who vote (aka corruption). Now I am happy that they are forced to pay the price of their policies even before their term comes to end.
Did anyone expect an ethical performance from Chidambaram - a person who "won" the election by paying off his rival - it is puzzling how long the Chennai High Court is "considering" the case - it is time someone told the court the time is up for next elections!!! - and due to their in-activeness this person has wrecked the economy of the nation - the rich will no doubt survive - it will be the poor and middle class who have to face the brunt of the half baked decisions - and no dole is going to solve the problem - after dishing out all the money - where will they find for the next round - how long is this program going to last?
Absolutely. How can the Chennai High Court sit on the case for years and years ??##@!! Blistering blue barnacles.
India is a banana republic,
When Jayalalitha raised the issue PC's wonderful response was, "Why is the issue being raised after so many years!!" Ha ha. Harvard my ass.
India's misfortune to have a Finance Minister like Chidambaram, the haughty guy.
And in spite of doing all this, Congress is not going to win the elections. They should understand what people want, if they want to win the elections. They are not making that effort and relying on age-old populist methods.
Good article RJ.
I disagree . Congress / UPA could still win the elections or have a significant role in next government . I hate to say this - but populism , rigging , manipulation ( inception of confusion in the minds of masses thru mainstream media ) still works in india . Congress still won in Himachal, Uttaranchal and Karnataka . Justice Katju was right in one aspect . 90% of Indians are indeed clueless . 2014 elections could prove me wrong. Let us see.
I find it offensive that Mr. Chidambaram is compared to a Shikhandi in the title and the article. Sad that even senior journalists like Mr. Jagannathan are stooping low to come up with controversial titles to gather eye balls.
Wonder if there are any classy Indian journos left..
Yes. Atleast shikandi did not hide his motives and was honest. it is offensive to compare them both
Jaggi explained in what context he is using the word 'sikhandi'. Please read the article carefully, Sir.
Classy and that too in FP? Most of these FP reporters are on deputation from RSS mouthpiece Organiser, Pioneer etc. They always have personal hate figures and for Jaggu it is Chidambaram. .
Did you actually read the article? Did you comprehend it? What was so offensive? If you cannot articulate that, it just shows your own poor comprehension skills and hypersensitive nature. If you are a 'right winger', you give a bad name to other right-wingers!
Okay, if you'd indulge me for a minute here...
Let us say that a politician calls another politician "shikandhi" - a whole lot of controversy would erupt and there'd a tamasha happening (which the media would happily be flogging) all over...
In fact, it's not exactly the same word, but when Sitaram Kesri called Gowda a "nikkama", there was a ruckus.
Now, if a politician calls an editor "shikandi", then you'd have all the media lecturing us on decorum and what not...
In that sense, why is it that the media can get away with it?
Well, you can keep pointing to the analogy and how apt it may be, but shikhandi (at least in our parts of India) is primarily related to be ing irregularly constructed - if you get the drift. So, that's my case for it being offensive.
A simple test, the commenters here can honestly ask themselves if they'd be offended when they're called a "shikhandi".
There you have the answer...
In that case you are clearly taking the analogy out of context. The analogy here is that of a human shield that the opponent may have reservations about attacking. It does not have anything even remotely to do with physical construction.
Seems you didn't understand the analogy. Its not your fault. It depends on ones IQ.
Most likely you're trolling but I will reply anyway... It's not that I am not familiar with the Bhishma / Shikhandi story or their backstory from the Mahabharata.
My point is there are better ways of making the same point that Mr. Jagannathan wanted to make without having to resort to a below-the-belt type example.
Is Shikhandi a bad word or abusing? Do you want specially able people to protest in front of your house.
Okay, let us hypothetically say that some one calls you Shikhandi (when there is an apt analogy to describe the work you're doing on a project). Would you nod your head in agreement or get angry?
That's my simple point - not getting into the ideology or otherwise of left-wing/right-wing.
Bobby please also add that Shikhandhi was not a traitor, Gadaar and definitely not a slave like Chidu of Sonia
Well, your comment too misses the point. In your opinion, Chidambaram may not be most upstanding politician around, but that does not mean that this article writer's analogy is acceptable.
The fall in the rupee is also hurting some corporates who have borrowed large sums abroad and not taken the trouble to hedge their currency exposure. Unka bhi khayal rakhna padta hai.
When corrupt and inept rule the country , it goes to dogs , 2G , PNotes, CWG, CoalG, RailG, VadraG and countless other scams.Rupee Devaluation, Inflation, Black Money etc.
Comparing Chidambaram with Shikhandi is, in fact, an insult to Shikhandi.
Jaggu will be the next Finance Minister of the Union under Sri Modi!
By Jaggu, do you mean Jagannathan or Jagdish Bhagwati? Both are fine by me ;-)
In short, Sonia is the real VILLAIN. If IMPORTED QUEEN Sonia along with Gandhi family's looted wealth is brought to books and investigation is done in all their assets and deeds and their involvement with foreign institutions and governments, Congi-beehive and its members from Chidu to diggy all will automatically get destroyed.
