It requires a braveheart like Union finance minister P. Chidambaram to reiterate his assurance that the current account deficit will be held at 3.7 per cent of GDP, amid declining industrial production figures, high consumer inflation and a persistently weakening rupee.
He said the CAD will be fully financed through various measures designed to bring in dollar inflows of $11 billion, and this would lessen the rupee’s volatility and bring stability. The rupee, regardless of Mr Chidambaram’s announcements, however, closed above the 61-to-the-dollar mark on Monday and Tuesday.
This underscores the underlying weakness in the Indian economy, and the need to treat problems holistically, not piecemeal. For instance, while talking of reducing CAD, there should have been simultaneous announcements of duties proposed on luxury imports; how exports would be given a further boost and, most important of all, how the manufacturing sector would be revived. At present 30 per cent of small and medium industries, that run into millions and are the backbone of manufacturing and exports, are either sick or shut down.
Despite several decisions taken since August last year, the manufacturing sector, the fulcrum around which jobs, production and exports depend, saw 13 of 22 industries in manufacturing contract in figures released on Monday.
The faint silver lining on a day when the industrial slowdown seemed to be deepening was the pickup in exports by 11.6 per cent in July. The government must announce immediate plans on how it can build on this trend, considering that its own Export-Import Bank has already done tremendous work not only on the countries to which Indian companies can export, but also what products can be exported and the finance available.
It is obviously unfair that Mr Chidambaram should alone have to shoulder the responsibility for reducing CAD. Every ministry needs to be as committed as he is to reviving the economy, but it is hard to see evidence of this. The squabbling mining and environment ministers should have resolved their differences so that mines can start operations and the export of iron ore, a big foreign exchange earner, can be resumed. Similarly, the coal minister should be burning the midnight oil to find ways to increase coal output and reduce expensive imports. But each minister sees his ministry simply as a fiefdom for his selfish ends, and Mr Chidambaram has to fight a lonely battle to contain the CAD at sustainable levels.