What may have complicated and, as a consequence, delayed the selection process is a rather unusual set of views. It is argued that if the finance ministry could do without a chief economic advisor for a little more than a month, if the economy appears to be in better shape and if there isn't going to be a full Budget next February, there should be no urgency in filling up the CEA slot in a hurry. In any case, Economic Affairs Secretary Arvind Mayaram has been valiantly doubling up as the CEA since Rajan's departure from the finance ministry. And if you believe some North Block insiders, not many in the government are missing Rajan either. In other words, they appear to be arguing that let the show be run by those who are there in the economic division under Mayaram's supervision.
That view unfortunately is a reflection of an all-pervasive sense of complacency in the finance ministry. Why get a chief economic advisor in a hurry? Is there a crisis? Of course, there is no crisis. The rupee has recovered and stabilised at below 62 to a dollar. Well, the current account deficit may still be hovering at around 4.9 per cent of gross domestic product. But don't you know that without gold imports the deficit level is quite benign? And why do you worry about the fiscal deficit figure for April-August 2013-14, which has ballooned to an amount equivalent to 75 per cent of the annual limit? Remember there is a red line on the annual fiscal deficit level of 4.8 per cent. We did better than projected last year and we will keep the promise this year as well. Such are the views that keep coming out of North Block.
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Needless to say such smugness about the state of the economy is deeply disconcerting.
It is important to understand how, why and when such complacency influences the government's response to what is clearly a macroeconomic crisis that is far from over. Crisis management demands that policy makers must acknowledge that there is a problem that needs to be tackled. Denial of its existence can create an illusion of comfort and complacency. Indeed, complacency for a long period of time can aggravate the crisis.
Take a close look at the current state of the economy and you would soon realise that no policy maker in his right senses would conclude that there is no crisis. The US tapering of the monthly liquidity infusion has only been postponed. That threat still looms large. Analysts are talking about a renewed pressure on the Indian rupee once that tapering starts perhaps from January 2014. The so-called Rajan magic might not work as well then, unless the government and the RBI takes concrete steps to address the country''s fundamental economic problems. There is a short window of opportunity available for the next couple of months. The government and the RBI can use that to first limit the damages of the crisis and then take the necessary steps to come out of it.
There are, however, problems for the government to follow that path. For the next two months, the country would be witness to preparations for elections in five states. Only one of them, Mizoram, is small in terms of its political significance. The remaining four - Rajasthan, Madhya Pradesh, Chattisgarh and New Delhi - are politically significant since they would have a bearing on the general elections that are scheduled to be held in May 2014. So, for the next eight months, decision-making would come to a virtual halt. Even the tough policy moves that the government had initiated may have to be put on the back burner. For instance, there would be a pause to the periodic rise in diesel prices.
Remember that there would be no full Budget this year. For that, the country may have to wait till July 2014. The new government at the centre, likely to be in place by end-May 2014 would need at least six to eight weeks to prepare and present a full Budget. That is a long gap before concrete measures can be taken to attend to the fundamental problems of the economy. This thought must have surely dawned on policy makers in North Block. And is that why they are in denial mode and, therefore, want to delude themselves into believing that there is no crisis to be tackled? Has the complacency arisen from this factor? Or is the finance ministry planning a slew of fiscal and non-fiscal measures in January, like what the National Democratic Alliance government's finance minister, Jaswant Singh, did in early 2004 before the general elections that year?