BJP leader Yashwant Sinha had last week criticised Union Finance Minister P Chidambaram for “running to the ground” a well-run economy and being “a spoiler”. Chidambaram passionately responded. If his response were to be reworded in appropriate places it would read thus: ‘When I was the Finance Minister from 2004 till October 2008, the economy was roaring with 8.5 per cent growth, touching a historic high of 9.3 per cent.
‘One, of every parameter, 2007-8 was the most outstanding year in India’s history– forex reserves crossed $309 billion, fiscal deficit limited at 2.9 per cent, savings was the highest at 36.8 per cent and GDP growth was the highest at 9.3 per cent. Then Pranab Mukherjee took over. The global downturn occurred in 2008-9 and 2009-10 when he gave tax concessions. The concessions should have been pulled back in 2011 itself but not done, which was Pranab’s mistake. I became the Finance Minister again in 2012 and I began doing it. Had it been done earlier by Pranab the results would have been visible last year, instead of now. The economy is now stable, the fundamentals have strengthened– the fiscal deficit is 4.6 per cent, forex reserves $300 billion, with an expected addition of another $25 billion and current account deficit originally estimated at $60 billion would be lower, $35 billion.’
Far from defending the UPA, Chidambaram merely explained how well he had done as Finance Minister and how badly Pranab had fared. Chidambaram has been Finance Minister for three-fourths of the 10-year UPA rule and Pranab, for only a quarter of the UPA regime.
But Pranab, occupying the Rashtrapathi Bhavan, is disabled from defending himself. But then is Chidambaram matchless in economic performance and faultless in crisis management, as he claims? First take the external sector, which dented the economy with current account deficit, knocked down the rupee value and caused the crisis.
Chidambaram gloats over the forex reserves touching $300 billion and projected to rise to $325 billion before the UPA term ends. But he would not utter a word about almost the four-fold rise in foreign debt from $112.6 billion in 2004 to $426 billion by December 2013. Nor utter a word about the rise in the short-term debt by 26 times from $5 billion to $106 billion – from 4 per cent to a quarter of the debt. Or about the rise in external commercial borrowings by six times from $22 billion in 2004 to $121 billion by 2013 or trade credit by 22 times from $4 billion to $87 billion. Or about the foreign debt to GDP ratio from 18 per cent in 2004 to 21 per cent in December 2013.
Despite all this, the secret behind the reduction in the current account deficit that Chidambaram gloats over is not the rise in exports or in foreign investment, but additional deposits of $23 billion [read borrowings] from Non Resident Indians, at high interest. But this is just half the external sector story. The other half brings out how the UPA decade was not just a lost decade but a decade of destruction.
During the UPA tenure, the current account deficit topped $360 billion– approximately half of which occurred when Chidambaram was the Finance Minister and the other half when Pranab headed the Ministry of Finance(MoF). But Chidambaram’s entry as Finance Minister signalled the start of the current account deficit from 2004-5.
The earlier two years under the NDA yielded current account surplus of $22 billion after almost 25 years of continuous current account deficits. Chidambaram had praised the NDA for leaving a robust external balance. But the UPA inflicted a current account deficit of $360 billion in 10 years. Sinha is right.
Chidambaram started the UPA work of spoiling the external sector. When he left as Finance Minister in October 2008, the country had incurred a current account deficit of over $60 billion.
When he came back he added another $125 billion. It is the current account deficit, which knocked off the rupee value by almost half. The rupee was 45 to a dollar and it fell to almost Rs 68 to a dollar by August 2013. Just eight months earlier The Economist magazine [2.1.2013] had said that the real value of the rupee was 19.75 to the dollar! The fall of the rupee coincided with the return of Chidambaram as Finance Minister in 2012.
Every additional rupee paid for a dollar means higher oil price of `10,000 crore annually. The fall of 23 rupees to the dollar would have cost the country `2.3 lakh crore extra oil bill.
Chidambaram launched a broadside against oil and gold imports as the culprit for the high current account deficit. But net oil imports for the UPA’s nine years ended 2014 was $515 billion and net gold imports was $161 billion. It was capital goods import which vaulted to $587 billion– out of which over $400 billion imports occurred when Chidambaram was the Finance Minister and the balance $181 billion under Pranab.
Instead of making the economy rise, capital goods import knocked down the domestic capital goods sector by 10 per cent and brought down manufacturing growth from 11.5 per cent to 2.9 per cent in 2012-13. The current account deficit of $360 billion also meant that much reductionin the nominal GDP growth as that much prosperity moved out of the country.
To make it worse, more than half this deficit became China’s trade surplus from India– equal to three years of China’s defence spending. Now come to employment. The Planning Commission Data Book dated March 10, 2014 shows [p110] that the NDA rule between 1999-2004 had generated 60.7 million jobs in five years. But the UPA, in the six years from 2004 to 2010 generated– believe it– just 2.7 million jobs. A mere 37,500 jobs per month! The NDA had added 21.25 million jobs in agriculture in five years. In six years, the UPA reduced 15.7 million jobs in agriculture. In manufacturing, the NDA had added 11.7 million jobs in five years. In six years, the UPA brought down the manufacturing jobs by 7.23 million. Most of the destruction of jobs occurred in Chidambaram’s period.