Was it Chidu Who Messed Up the Economy?

Pranab took over as FM when the situation had reached its saturation point and the credit bubble burst. He inherited an economy that was riding on a bubble. The first thing expected from him was to provide stimulus to the economy that floundered to below 7 percent growth in 2008-09. However, that stimulus cost the government 1, 80,000 crore. He took up the fiscal deficit by 350 bps (3.5 percent) in 2008-09 to flood the country with borrowed money. He was urged by corporate India to provide stimulus as they saw a threat to their profits due to an economic bubble bursting.

Inflation that has been trending at over 9 percent for almost past two years is the result of these entire fiscal stimuli. While bidding good bye to his position as the Finance Minister, Pranab must be thinking, had he received a economy that was built to withstand bubbles, he may not have come in for such criticism from the same corporate India that urged the government to push capital flows and provide stimulus. To conclude, Chidambaram’s actions may have been provoked partly by pressures from the party’s populist chief, but then the same holds for Pranab as well. It is no more doubtful that the rot began in Chidu’s watch.