File photo of Former Union Finance Minister P Chidambaram. (Photographer: Amit Bhargava/Bloomberg News)

IL&FS Crisis, Rupee Plunge Indicate Government Unable To Manage Economy: Chidambaram

Former Union Finance Minister P Chidambaram said India’s macro economy is in poor shape due to mismanagement by the NDA government that is “overwhelmed by economic events”.

The former minister said that India missed a “huge opportunity” when crude oil prices were at record lows a few years ago. “Today, current account deficit is out of control and fiscal deficit is under pressure,” he said. “It will be luck if they can contain it at 3.3 percent.” With fund outflows and crude prices surging to new highs, Chidambaram said the government is unable to grasp crisis management.

Brent crude prices nearly doubled to a four-year high of $85 per barrel early this month from $40 around three years ago, straining the nation’s economy as well the rupee. India’s trade deficit—the gap between exports and imports—rose to a five-year high of $16.6 billion in June, according to government data, as oil prices jumped. The local unit has weakened this year and, in its longest rout since 2000, ended at 73.57 per U.S. dollar on Friday.

The senior Congress leader said defaults in the shadow-banking sector has cast a shadow on the nation’s markets.

The debt crisis in the insolvent infrastructure company, Infrastructure Leasing and Financial Services Ltd., came to light in September, resulting in a bear ride in the markets that wiped out all their gains made year-to-date. “When we demitted office, IL&FS was healthy. Today, if IL&FS is virtually sinking, it’s because of poor oversight and regulatory supervision by the government and the RBI.”

He said that the government cannot wish the crisis away by calling IL&FS a private company. “If it’s a private company, with which the government has nothing to do, why are they bailing it out through Life Insurance Corporation of India?”

Chidambaram said that the UPA governments headed by Manmohan Singh haven’t had to bail out banks unlike their predecessor. “Show me one case where we had asked LIC to bailout a bank like IDBI or an NBFC like IL&FS.” He said that Uday Kotak’s appointment to the IL&FS board can’t bring in money for the company.

Watch the full interaction here