Niew Delh: If there is one feeling the government fears most it is the sense of despondency, both outside as well as within some sections of the government, that seems to be rapidly gaining ground. Part of the problem, government insiders argue, is that the media highlights the negatives and glosses over the good parts.
First, Prime Minister Manmohan Singh tried to break the cycle, but did not make much headway with his meeting with a group of select editors. Worse, he suffered collateral damage thanks to a clerical mix up that made public his uncomplimentary off-the-record remarks on Bangladesh. Then, the United Progressive Alliance (UPA) sought an image makeover by effecting a cosmetic shuffle of ministerial portfolios, but the airwaves were hijacked the same evening by news of one of the appointed ministers rejecting the job—to head the portfolio of drinking water and sanitation—as it did not match his expectations.
And now it is the turn of finance minister Pranab Mukherjee, the UPA’s main troubleshooter. The veteran Congressman—he was groomed by Indira Gandhi—is up against what is probably his biggest professional challenge: reviving the UPA’s mojo.
At a select briefing held in North Block on Wednesday, Mukherjee was the picture of optimism. In a nearly two-hour-long interaction, laced with moments of candidness, he claimed that the overall air of doom and gloom was unwarranted. “Somehow or other I have a feeling there is some sort of cynicism, things are getting depressed. I do not find why there should be cynicism.”
His belief is that the cup is half full and not half empty as most people tend to see it.
Four months into what is evidently a difficult and unpredictable year, Mukherjee is confident of sticking to his projection of a growth rate of 9%, plus or minus 25 basis points, and a year-end inflation of 6%. It is another matter that the background note compiled by the finance ministry and circulated at the meeting projects the growth rate for the current fiscal year lower, at 8.6%. “By (the) end of(the) monsoon (season in September), the moderation will begin. By March, I do hope we will have 6-7% (inflation),” he said. For the record, headline inflation is dangerously close to double digits, recording 9.44% in June, and this time it is led by an increase in prices of manufactured products and not food.
To be sure, as Mukherjee pointed out, agriculture has been a happy story so far. Neglected by policymakers and analysts alike, it is one sector that has shined: 2010-11 turned out to be a record year with foodgrain production aggregating 241.56 million tonnes. The sub-text, as the minister said, is that India is all but self-reliant in pulses—the comfort food of the nation.
Similarly, Mukherjee, despite candidly conceding that the government had lost Rs40,000 crore in tax revenue from petroleum products (part of a grand strategy to politically soften the hike in prices of petroleum products for retail consumers), was confident that he would make good the shortfall and stick to the daunting year-end fiscal deficit target of 4.7% of gross domestic product.
“Don’t worry, we will mop up additional resources, but let us keep it to ourselves how we will get it and from where we will get it,” he said, while admitting that he had taken some fiscal “risks”, particularly with the petroleum tax giveaway. He added that revenue receipts to the exchequer continued to be buoyant.
If nothing, Mukherjee’s heart is in the right place. Like his mentor, Gandhi (she didn’t hesitate to pass on the impact of the first oil shock in the 1970s to customers), Mukherjee is a fiscal conservative. On Wednesday, he reaffirmed this: “I do believe that we cannot sustain a high fiscal deficit. Modern economists speak of how you borrow more. I am a bit (of a) conservative and do not subscribe to that view. It will be a difficult task for me no doubt.”
Revealing the politician within, he cleverly side-stepped a question on a disinvestment blueprint (the target is to raise Rs40,000 crore from this avenue this year) by saying it would be tantamount to disclosing his hand to the market. “I will always like to have some expectation from the market on which companies are coming at what point of time so that we can take the best market condition to mop up the additional resources... Therefore, as and when we shall have to, we will calibrate it…looking (at) the market conditions at that point of time.”
According to Mukherjee, the government has been incrementally taking policy initiatives that have moved the reform process forward or facilitated its revival. As examples, he cited the recent forward movement on the Mines and Minerals (Development and Regulation) Bill (which seeks to revamp the way mining leases are issued and expedite the process looking at the urgent need to boost mineral resources in the country) and a food security legislation. Several financial sector reform legislations, he added, are pending before Parliament as is the constitutional amendment for facilitating the biggest tax reform promise: a single goods and services tax.
Once again, Mukherjee very candidly conceded that he cannot predict how many legislations will see the light of the day; the prospects for the forthcoming monsoon session seem bleak, especially since it will have to deal with belligerent members of Parliament from Telangana.
The other positive story the minister flagged was the pickup in private consumption.
“It (private consumption) has increased substantially in the last two months. Purchasing power in the rural economy is increasing and that would be a great stimulus to generate demand. Our economic recovery process (after the global economic shock in 2008) succeeded substantially, not so much on foreign direct investment or support of the external sector. During those 11 months, exports were steadily going down. It happened mainly due to generation of the domestic demand. That is one good signal that private consumption is increasing.”
Finance ministers, by habit, always talk up the economy. It is part of the job profile. Mukherjee’s view from North Block is that while things are tough, they are not as insurmountable as they are made out to be. With eight months of the current fiscal year left, he may turn out to be right, especially given the twists and turns the global economy has seen since 2008. The Indian economy has not been spared this unpredictability either. In fact, Mukherjee has had to present his last three budgets in widely varying macroeconomic conditions.
Mukherjee’s optimism may yet be borne out by reality. Or it may not be. Still, it’s hard to escape the feeling that it isn’t about looking at a glass as being half full or half empty, but looking at two different glasses.
With contributions from Moulishree Srivastava and Remya Nair.