With Pranab set for Rashtrapati Bhavan, PM may play FM

With the economy facing strong headwinds and doomsayers likening the current economic situation to that of the early 1990s, Prime Minister Manmohan Singh is widely expected to take charge of the finance ministry after Pranab Mukherjee steps into the race for the Rashtrapati Bhavan.

"The PM may take additional charge of the finance ministry to steer the economy out of this mess," a highly placed source told The Indian Express. While a number of other permutations and combinations are doing the rounds, the PM-led charge of the finance portfolio is seen as the most practical solution at a time when the macroeconomic situation, both internal and external, have nosedived.

Some commentators have been warning that the country's fiscal position is approaching the crisis levels reached in 1990-91. While the fiscal deficit for 1990-91 was well above that for 2011-12. The current account deficit for 2011-12, estimated at around 4 per cent of the gross domestic product (GDP), is also higher than the 3 per cent of GDP it was at in 1990-91, but then foreign exchange reserves are several folds higher currently.

The numbers show that while India is nowhere close to the stage of having to pledge its gold to cover the current account deficit, it needs to be noted that some of the fiscal measures are in worse shape today than they were during the 1990-91 crisis. Subsidies are predicted to keep the fiscal deficit bloated in the current low GDP growth situation. Coincidentally, in 1990-91, India had a GDP growth rate of 5.3 per cent, precisely the number clocked in the fourth quarter of 2011-12.

In recent months, the PM has been taking regular meetings over various macro-economic issues such as rupee depreciation and over all liquidity in the economy. If he steps into the role fully, he is likely to be assisted by his two key deputies — Planning Commission deputy chairman Montek Singh Ahluwalia and PMEAC chairman C Rangarajan, who had also stepped in to assist the PM during the international crisis of 2008-09. The PM had taken over additional charge of the finance portfolio in late 2008, when the global financial crisis was at its peak, the person pointed out. This was when then finance minister P Chidambaram had been moved to the ministry of home affairs in the wake of the November 26 Mumbai terror attacks.

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