Was PM's speech more politics than economics? Experts react

The Prime Minister Manmohan Singh today spoke in the Parliamnet about the current economic situation. An assertive PM admitted that rupee has been hurt due to domestic factors and a high current account deficit. He also hinted that the government will cut fuel and other subsidies to tame the twin deficits.

In a discussion with CNBC-TV18’s Shereen Bhan, Rajdeep Sardesai, editor-in-chief, CNN-IBN said that the speech by the PM reflected the most unusual behaviour by him. According to Sardesai, somewhere this relentless campaign of the opposition as fallout of the coal scam has been getting to Manmohan Singh and he realised that because his personal reputation is at stake, for self-preservation he needed to strike out.
“The speech was more politics than economics,” he added.
However, R Jagannathan, editor-in-chief, Network 18 Group believed the PM acknowledged his mistakes today which will bring greater credibility to what he says including the fact that current account deficit (CAD) and the fiscal deficit is something that the government needs to fix. “The one give away statement that I found interesting was that he (PM) said that he must cut subsidies except those for the poor, which means he might be justifying the Food Security Bill but he is hinting at some other subsidies that might need to be cut,” Jagannathan added. Below is the verbatim transcript of the discussion on CNBC-TV18 Q: According to general news channels the speech today by the PM looks like an angry outburst on his part. The manner in which PM spoke, there was no written speech this time around the aggression, the assertiveness that he seemed to portray today. What did you make of it? Sardesai: This was a Prime Minister who showed yet again that while his economics may not be in place, his political judgement is certainly better at times than his economics. He realises that he is under pressure not just from outside but from within his own party.
Many of his party MPs have been questioning his continuance in office and his prolonged silences, so he spoke out in a manner that not only was he trying to send out a message to the opposition, but he was also sending out a message to his own party as if to suggest that he is not going anywhere just yet. That really reflected the kind of theatrics that we saw from the Prime Minister, most uncharacteristic.
But clearly somewhere this relentless campaign of the opposition as fallout of the coal scam has been getting to Manmohan Singh and somewhere he realised that because his personal reputation is at stake almost for self-preservation he needed to strike out. So that is really what comes out from the manner in which the PM appeared to speak and therefore, it was more politics than economics.

_PAGEBREAK_ Q: Not once did Prime Minister talk about the Food Security Bill or the Land Bill that was passed by parliament late last night. Do you believe the Prime Minister is distancing himself from taking ownership of what is being seen as being fiscally reckless economic policy? Sardesai: I do not think so. At the end of the day Prime Minister was prioritising the issues that the government is going to look at in the weeks and months ahead. CAD, getting the fiscal deficit in shape, these were the priorities that the Prime Minister laid out. He does not want to get into the politically contentious decisions like land acquisition and food security, but that does not mean he can really distance himself any longer.
There is now a mood within the government and in the last week of this session, to try and push through investment friendly bills, pension bill has been the top priority. There will be an attempt this weekend once again to talk to the opposition and see if that can be pushed through next week. There is also some talk of goods and services tax (GST) in some form in the next couple of months before the winter session of Parliament, so those will be the priorities.
The fact that the Food Security Bill and Land Acquisition Bill have got a broad political consensus now is given. They are Sonia Gandhi schemes. They will be taken up before the elections. The Prime Minister realises that his challenge is to get this economy back in some shape before the elections if not of November then certainly the general elections. Q: Today, there was a PM who didn’t blame just the external factors, who said the rupee has done because of our own domestic problems, economy is facing shocks and we will have to face the reality of dealing with those shocks. So, here was an honest Prime Minister for the first time today admitting that the problems were also of our own making and not just because of what was happening externally, what do you think? Jagannathan: This is an acknowledgment and even Chidamabram has been doing the same kind of acknowledgements in recent press conferences that some of these problems or atleast a large portion of it are home grown in terms of the factors that caused this problem and the rupee to tank recently.
In fact the problem is when you do not acknowledge that you are partly responsible for the crisis the markets tend to believe you less and this realisation has sunk in the government that look if we don’t say that we are partly responsible for it, the market will not believe that you are going to fix it. That acknowledgement was important from the PM and that is necessitated by the circumstance that the market doesn’t believe you.
So, now he has brought greater credibility to what he says including the fact that current account deficit (CAD) and the fiscal deficit is something that they have to fix. The one give away statement which I found interesting was that he said that he must cut subsidies except those for the poor which means he might be justifying the Food Security Bill but he is hinting at some other subsidies that might need to be cut.

Q: Does UPA believes that with the passage of the Food Security Bill and the Land Acquisition Bill they have safe guarded their political interests and it will now be easier for them to go after tough decisions? A Rs 5 per litre hike as far as diesel is concerned because there seems to be no option and the finance minister has committed several times as far as those two red lines are concerned. Do you believe that now is the time when this government may in fact pull through? Jagannathan: Given the fact that they have now covered their political flanks on the aam admi side, they have a very small window of opportunity where they can push all the tough decisions. Given the political situation where you have Narendra Modi on the other side, it is very difficult for even the government's supporters to withdraw support on any tough decisions because it will seem like they are going to help the BJP or Modi.
So, in this kind of a situation you have small window of opportunity where you can actually push through very tough decisions and the government might still survive after that. So, immediately after this session they have a window of opportunity to push through a Rs 5 hike in diesel or whatever else that they are planning and that is the way to go.