Shifting tack from his usual theme of blaming the global environment, Chidambaram admitted domestic problems had also contributed to the economy's travails. These domestic problems, the minister told the Rajya Sabha, originated, at least in part, during the tenure of his predecessor.
"There are not just external factors, there are also domestic factors. One of the domestic factors is that we allowed fiscal deficit to be breached and we allowed current account deficit to swell because of certain decisions that we took during the period 2009 to 2011," the FM said in the Rajya Sabha.
Chidambaram Lists Economic Ills
Chidambaram spoke in the Rajya Sabha during question hour even as the rupee posted its steepest fall in 18 years. It ended at 66.24 to the dollar - a 3% fall. Chidambaram, who was switched from home to the finance ministry in August last year after Pranab Mukherjee became the President, appeared to criticise his predecessor's stewardship in the three years between 2009 and 2012, during which the country came perilously close to losing its barely-investment-grade rating.
"It (fiscal stimulus) brought us growth, it stabilised the economy. We swayed off the very serious consequences of the 2008 collapse of the US economy. But it cost us in terms of fiscal deficit and current account deficit," he said. The reference to fiscal stimulus was to the tax cuts and higher spending in late 2008 as the government attempted to deal with the global financial crisis.
"Fiscal overstretch and the high current account deficit is a legacy of the previous regime. We are not being punished for any recent policy lapses, but those of the past. Things can't be done overnight. I think global influences are also significant," said Abheek Barua, chief economist, HDFC Bank.
Later, speaking in the Lok Sabha during the debate on the state of economy, Chidambaram said, "When I took over on August 1, I knew that I was returning to a very difficult pitch. The fiscal deficit limits had been breached. In fact, the budget estimates were awry. The current account deficit had swelled."
This is not the first time Chidambaram has appeared to criticise his predecessor. Earlier, while briefing reporters on August 22, he had said: "We did allow the FRBM (Fiscal Responsibility and Budget Management Act) targets to be breached. We allowed WPI (Wholesale Price Index) and retail inflation to cross 10%. And now much of it is trying to retrieve ground."
The fiscal deficit rose to 5.9% of GDP in 2011-12 from the budgeted 4.6% after the government failed to rein in spending and subsidies, resulting in the ratings agencies putting India's sovereign rating on watch.
A sharp cut in spending ensured a lower deficit of 4.9% of GDP in 2012-13, which seemed to satisfy the ratings agencies. However, there was a price paid in terms of growth that fell to a decade-low of 5% in the year. One of the reasons cited by economists for the slump in growth is the cut in spending.
The relationship between the two men has always been marked by an undercurrent of rivalry. Chidambaram, the finance minister since May 2004 when the Congress-led UPA came to power, was shifted to the home ministry in late 2008 in the wake of the terrorist attacks in Mumbai on November 26, 2008. Mukherjee, who moved to finance, was initially praised for his stewardship of the economy which recovered rapidly to pre-crisis growth levels in 2009-10 and 2010-11.
But Mukherjee has since faced flak for failing to prevent a sharp deterioration in the investment climate. The 2012 budget, which included the famous retrospective tax provision that overturned a Supreme Court verdict in favour of Vodafone, was universally panned by the markets.
The alleged differences between Chidambaram and Mukherjee became a theme for the first 3 years of UPA-2. One flash point came in September 2011, when the Mukherjee-led ministry appeared to partly blame Chidambaram for not insisting on auction of airwaves by A Raja, the telecom minister in 2007-08. The two men eventually had to address a joint press conference in late September 2011 to clarify the matter.
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