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A safe pair of hands

When Finance Minister P Chidambaram asserts that the budget will be a responsible one, you can be reasonably assured it will be, writes Chanakya.

columns Updated: Feb 09, 2013 22:05 IST

It is that time of the year when newspaper editors start thinking about the budget. Dummies of the budget-day edition are ready, lists of contributors drawn up and the odd exclusive story on what the taxman has in store for you is beginning to find its way into print. Budget season is well and truly here.

You would normally expect the finance minister to be closeted with officials, knee deep in files, scouring for that extra rupee to be wrung out of every citizen who works, buys stuff or saves money. Or figuring out how to get some of the country's rotting mountain of grain into stomachs that need them. That's what finance ministers do. At least, at this time of the year.

So what is Palaniappan Chidambaram up to, jet-setting all over Asia and Europe just a month before he rises to present what the United Progressive Alliance hopes will be its most progressive budget? This is a time when finance ministers make the Sphinx look positively garrulous, why then is he shooting the breeze with fat cats from Singapore to Frankfurt?

What they teach you at Harvard is finance ministers can - and do - print money to pull the economy out of a jam. What they do not teach you is how to print dollars in New Delhi. That is Chidambaram's big worry now. He knows he can tame the horribly swollen fiscal deficit, but he needs to get a fix on the equally horribly swollen trade deficit first. More dollars must keep flowing in than out if the economy is not to run out of steam.

He's been on the job ever since he moved into the finance ministry last year. India spends most of its dollars on oil. And the government keeps picking up a big piece of the tab every time you and I tank up our diesel SUVs. Well, not any longer, if Chidambaram has his way. Fuel prices will now creep up to international rates - bulk buyers are already paying market prices - the subsidy is being whittled down and the government is pulling itself out of debt on this score.

The next big dollar purchase by Indians is gold. We buy half the stuff mined across the planet. Since we don't mine any, that makes for a lot of dollars. Again, not if Chidambaram can help it. The import duty on gold has been raised even before the budget is presented, exotic financial instruments are being designed to feed Indians' insatiable craving for the metal and strenuous efforts are on to make ret-urns from other avenues like stocks more appealing.

That brings us back to the matter of Chidambaram's travels. He has been working on investors at home by talking up the animal spirits. Along the way, he has pushed financial sector deregulation through in the previous session of Parliament. Now he has something to show the world: a renewed thrust on reforms by the government and data suggesting the economy may have bottomed out in the first half of the year. It's time to hit the road.

India has been feeding its appetite for oil and gold without dipping into its foreign exchange reserves because there is a sizeable bunch of people around the world willing to bet on it. Of late the mob has thinned out as the bogey of the taxman loomed and credit rating agencies warned of possible downgrades. Chidambaram has laid these ghosts to rest too.

Yet there are dollars sitting on the fence. These are not sure if the government will be a responsible spender in an election year, if the reforms will work their way into the system in time and if the economy is indeed on the mend. Official statisticians are more pessimistic than Chidambaram's ministry. Latest projections show the economy could grow more slowly in the last six months of the fiscal year than it did in the first six, which in itself was a dismal performance.

Chidambaram started making his budget the moment he stepped into his ministry. He has been chipping away at the current account deficit from every side. And if it involves making India's case as an investment destination at international financial capitals, the lawyer in him is up to the task. Chidambaram has a simple message: there's a safe pair of hands on the rudder, all aboard!

When he asserts that the budget will be a responsible one, you can be reasonably assured it will be. Tame the current account deficit and the fiscal deficit learns to behave. Keep the dollars moving and there is no need to print rupees. What remains of budget making is routine. Tweak income tax rates to make people spend more. Tax the purchases at higher rates to shore up the exchequer. And let industries invest a bigger slice of their top line.

A travelling finance minister is an exceptional sight. But extraordinary circumstances call for a Chidambaram response.