Time to junk the status quo

P Chidambaram has to kickstart second generation economic reforms now. He returns as the finance minister acutely aware that, like cricket, policy-making in India is also a glorious game of timing.

P Chidambaram returns as the finance minister acutely aware that, like cricket, policy-making in India is also a glorious game of timing. The change of guard at the finance ministry has raised expectations that stalled policies will now get a push as economic administrators fret for options to halt an embarrassing slowdown in an economy, which, until recently, was an engine of global growth. The immediate to-do list for Mr Chidambaram, a 66-year-old Harvard-educated lawyer and a two-time finance minister, involves tackling the most serious problem since reforms began in 1991-weather political storms and take tough decisions for an economy nursing multiple wounds inflicted by high prices and a shaky world environment. Only two days ago, Reserve Bank of India governor Duvvuri Subbarao withstood mounting pressure to cut interest rates from local businesses who had been arguing that the steep cost of raising loans had upset their capacity expansion plans.

A status quo on interest rates, however, isn't good news for millions of families caught in a pincer attack of rising prices and high borrowing costs. Surging food costs have shrunk household incomes, as consumers have to pay more for the same goods. Such high inflation has meant average middle-income Indians are making expenditure adjustments to keep afloat. In the last three years, home loan equated monthly installments (EMIs) have only gone up. Home EMIs cannot be compromised, so the budget is squeezed by cutting down on usual monthly expenses and even on items such as clothing and consumer durables. In other words, higher prices and the need to find additional money for EMIs have forced a cut down on purchases of televisions and cars. The resultant fall in demand has hit companies and hurt job prospects as firms defer hiring plans.