With Lok Sabha elections barely 15 months away, it is quite on the cards that Union Finance Minister P. Chidambaram would be mulling on the best method of running with the aam aadmi hare and hunting with domestic and global investing and rating hounds!

He has been saying, somewhat cryptically, that the 2013 Budget will be ‘responsible’. I was surprised to see, on dipping into the Merriam Webster Dictionary, that the word, which Chidambaram has been repeating at various forums, has an array of seven meanings, of which the ones that come nearest to a possible understanding of what he has in mind are these: Able to answer for one’s conduct and obligations; able to choose for oneself between right and wrong; marked by, or involving, accountability; and (here is the trump – gotcha, I involuntarily cried when I saw it!) politically answerable, especially required to submit to the electorate…..

In tune with the inference arising from the above, he has been very transparent during the roadshows that he undertook recently at Frankfurt, Singapore, Hong Kong and London for global investors: He has assured them that he would keep the tax regime stable by not raising taxes, and still somehow bring down the fiscal deficit to 4.8 per cent of the GDP from the 5.9 per cent to which it had peaked in 2011-12. No wonder, the foreign institutional investors (FIIs) came out of the shows chortling with happiness and relief about the ‘decidedly …positive’ approach of the Finance Minister.

NO TRIAL BALLOONS

However, some other signals coming from other quarters are in a contrary direction. In the beginning of last month, C.Rangarajan, Chairman of the Prime Minister’s Economic Advisory Council, told a forum in Delhi: “We need to raise more revenues and the people with larger incomes must be willing to contribute more”, hinting at loading the existing income tax rate of 30 per cent with a possible surcharge of 10 per cent. In the last week of the same month, the Planning Commission Deputy Chairman Montek Singh Ahluwalia echoed the idea that “The rich should indeed pay more tax.”

These cannot be just trial balloons. One can be sure that they are by way of preparing the country for a possible jacking of the direct tax regime, either by a surcharge or by an outright increase, covering persons within specified income brackets. Both Rangarajan and Ahluwalia could have made such explicit statements only with Chidambaram’s knowledge, if not on a cue from him, and only if it reflected the Government’s current thinking.

Some financial analysts are also mooting the possibility of imposition of inheritance tax, citing the examples of several countries in which it is already in vogue. The arguments in its favour are that it touches unearned income, and brings within its catchment area the most affluent sections which are fair game for any government to flaunt its pro-poor policies.

Chidambaram himself as the Home Minister at the time and as a member of the Planning Commission, had pointed to its attractiveness at its meeting in May 2011, reiterating the suggestion while delivering the Raja J.Chelliah Memorial Lecture organised by the National Institute of Public Finance and Policy at Delhi on November 8, 2012. Indeed, he expressed the view that observance of moderation in taxes had gone too far, and become “a passport to accumulation of wealth” in the hands of a few.

The confusion thus caused has been further confounded by Chidambaram also declaring on various other occasions that he was keeping all options open. Meanwhile, the RBI, as per the latest tweaking of rates, has released Rs 18,000 crore into the system, presaging a rise in inflation. The current account deficit has vaulted to a record high of 5.4 per cent in July-September and is likely to go up further in the December quarter, according to the RBI. India is also facing the threat of a downgrade of sovereign debt credit rating to junk status.

So, how is Chidambaram going to achieve fiscal consolidation and some semblance of financial solvency? Long many years ago, he had a study made on the phasing out of subsidies. Will he have the courage to grasp that political nettle?

How will he generate enough revenues to push for accelerated development through higher investments, especially in infrastructure, and still keep prices within the earning capacity of the aam aadmi ?

In short, how is he going to square the circle? Don’t ask me!

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