P Chidambaram likens Budget to flop movie; suggests steps for growth revival

Former Finance Minister P Chidambaram stated that the Union Budget was one that lacked a narrative similar to a movie which bombed after its first show. He said that the news on Budget had disappeared from media discussions just after two days of it having been tabled.

Speaking to industry leaders at an event hosted by the Southern India Chamber of Commerce and Industry, Chidambaram shared his explanation that the two major reasons for the slowdown were demand constraint and the economy being investment starved.

The former finance minister began by stating that he would speak for 160 minutes, in an apparent dig at Finance Minister Nirmala Sitaraman’s marathon Budget speech, that lasted as long and was also the longest Budget speech.

Making a mention of the six quarters of growth decline and rising inflation rates, he referred to the economy as a patient who required radical surgery and a doctor (the government) who wasn’t ready to acknowledge how bad the situation was.

“None of the growth engines are firing and we have a 0.1 per cent decline in mining, negative growth of 5.3 per cent in coal, 3.1 per cent in gas and 1.1 per cent in refining. Imports are on the decline for 8 months in a row while exports are on the downward slide for 5 months in a row. Every sector is facing this including leather, agriculture, handicrafts et cetera. In the auto sector alone 296 workshops have shut and 2 lakh people lost their jobs. The finance minister must ask her team for an economic explanation for what’s happening,” Chidambaram said.

Sharing his reading of the situation, Chidambaram said that there is a demand constraint where people are not buying, don't have an inclination to buy and nobody is willing to invest be it domestic or foreign.

"The natural reaction of the government should be what shall we do to make people buy and invest, how to stimulate demand and promote investment," he added.

On the decline in investments, he said, “Nobody is investing as their inventory piling up, as the production capacity utilization is 49 per cent. When one has nearly 50 per cent idle capacity why would they invest?”

Solutions and the way ahead

Chidambaram said that the best way to stimulate demand is by putting more money in the hands of the common man and ensure that they buy everything ranging from eggs to shoes, clothes and toothpaste. He stated that only mass consumption drives demand and that it isn’t enough to give corporate tax cuts that benefit 200 rich people, whereas growth can be driven only when there is money in the hands of crores of people.

“The Government doesn't need to go too far to understand that if the demand picks up, people will start buying more”, he said.

Chidambaram recommended that the government must consider reviving the 4 engines of growth - government expenditure, private investment, private consumption and exports. He added that the engines can't be fired at full speed from their current stuttering state. Chidambaram furthered that the government redraw its expenditure pattern and spend in ways that can take money directly to the people.

“I am with the government on cleaning the rivers, but it gets polluted as it is getting cleaned and it is a long gestation project. They expect to open 100 more airports under Udaan, but 50 per cent of airports opened in the last year have no flights and no passengers. Instead, the government must take money from long-gestation projects and fund MNREGA and the PM Kisan scheme as money would be available in people’s hands in around 3 months and they can spend it," Chidambaram reasoned.

The former finance minister added that the other solution would be to revive exports as the goods produced in India can be pushed out and higher volume of exports can generate jobs.

He urged associations and industry bodies to speak up and express their concerns to the government. “We believe that they will take our advice, not all of the opposition's advice is ill-meaning. We hope they will do something to revive our economy. It is possible to touch six or even seven per cent growth,” Chidambaram stated.