Market-friendly Chidambaram toes socialist line with fiscal plan

October 29, 2012

The usually crisp and precise P. Chidambaram was uncharacteristically vague on Monday while announcing the government’s fiscal consolidation plan. While pledging to bring the fiscal deficit down to 3 percent in 2016-17 from around 5.3 this fiscal, the Harvard-educated minister gave no details on how the government would achieve this feat.

Perhaps the finance minister should remember that uncertainty and lack of clarity can spook markets and investors. We saw that when the government took months to clarify the controversial GAAR norms which made foreign investors jittery.

Chidambaram’s announcement is unlikely to impress investors, rating agencies and lenders like the IMF, who want the government to slash subsidies and cut spending.

Trying to shore up market confidence, the minister relied on adjectives like ‚Äúimperative‚ÄĚ and ‚Äúno alternative‚ÄĚ to sell his fiscal plan. But he couldn‚Äôt escape the socialist slant of his Congress party, mentioning¬†how ‚Äúthe poor must be protected and the others must bear their fair share of the burden‚ÄĚ.

As the Sensex pared gains after Chidambaram’s comments and briefly turned red later in the day, it shows the announcement of mere intent did not excite markets.

Monday’s impromptu presser is unlikely to impress the RBI enough to cut interest rates, as inflation remains a big concern. This would, in a way, defeat Chidambaram’s purpose of making the announcement a day before the central bank’s quarterly review.

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