Back in the FM’s seat

Back in the FM’s seat

Indian Prime Minister Manmohan Singh has told a group of scientists that he is an accidental politician. The years he had spent as a university teacher were the most enjoyable of his life.

The Prime Minister has been under severe attack these past few months for the way his government lost control over the economy and its lifeless response to the recent terrorist attacks in Mumbai.

But Singh is still remembered as the man who helped Narasimha Rao liberate the economy in the heady early 1990s. He is the country’s finance minister once again and, thus, has one last chance to regain some of the lost glory.

Both businessmen and the markets are eagerly looking forward to a sharp reduction in interest rates as well as a huge government spending plan to fire up investment and consumption.

Such a stimulus package comes with significant risks: both inflation and the fiscal deficit are way too high for comfort. There could be a risk to economic stability if the plan backfires. It would be a cruel irony if the man widely credited to have led India out of the 1991 mess leads us into a new one. Big bang reforms would be a better option.