The Congress on Saturday attacked the Reserve Bank of India for being behind the curve in reining in inflation and preventing outflow of funds from the country, and charged the government with not letting the central bank do so.
The party also termed the government's decision to ban wheat exports as anti-farmer.
The Congress also demanded extension of compensation period for the states by three more years to make up for the losses due to introduction of the goods and services tax (GST). The compensation mechanism expires on June 30 this year.
“A large number of people believe that the RBI was behind the curve. And why was the RBI behind the curve? Because we believe the government nudged it in that direction. We cannot use the Ukraine war to explain high WPI and CPI inflation,” former Finance Minister P Chidambaram told a press conference at Nav Sankalp Chintan Shivir here.
Had the RBI taken timely action and raised the policy rate, outflow of funds could have been prevented, he said.
The RBI's monetary policy committee (MPC) raised the repo rate by 40 basis points last week outside its scheduled meeting, besides raising cash reserve ratio by 50 basis points to suck excess liquidity in the system in its fight against inflation. However, the CPI inflation had already touched 6.95 per cent for March, the third consecutive month to have more than 6 per cent inflation, which is an upper tolerance limit set for MPC. The latest data showed that inflation further rose to 7.79 per cent in April.
Chidambaram said the ban on wheat exports showed the lack of preparedness and planning on the part of the government. On one hand, procurement had dropped, while on the other the government had imposed a ban on wheat exports, which was an “anti farmer’ move.
Using the Ukraine war to impose a ban on exports was wrong and reflected lack of planning, he said.
The former union finance minister also said, “We strongly oppose the 30 June end of GST compensation to states. We demand that the government extend this measure for another three years.”
Compensation cess was imposed on certain items including cigarettes, cold drinks, automobiles, under a separate legislation for the first five years of the GST roll out from July one, 2017. However, the states are demanding extension of compensation periods since their revenues have taken a hit. The GST Council in its last meeting in September, 2021 had decided to extend compensation cess till 2026. However, that fund will be used for repaying back the borrowings done by the Centre on behalf of the states for meeting their GST losses due to Covid-induced lockdowns.
Chidambaram said there is a complete breakdown of trust between the central government and the state government.
"It’s not just non-BJP state governments that have complained about this but also privately many BJP finance ministers have told us that where GST compensation is concerned there is complete breakdown of trust.” he said.
There must be a comprehensive review of Centre-State fiscal relations, he said, adding, "The consequences of the poorly drafted and unfairly implemented GST laws brought in by the Modi government in 2017 are there for everyone to see."
The states’ fiscal position is fragile as never before and needs urgent remedial measures” Chidambaram said.
He said Rs 78,704 crore are pending from the central government to the state governments as the compensation.
"This is the figure in the middle of May. And the compensation period will come to an end at the end of June” he said, asking the government to extend the compensation period which was the unanimous demand of all the state governments.
Generally, the Centre pays compensation till January in a financial year. The one for February and March are rolled over to the next financial year. But the government paid compensation to the states till only November during 2021-22.
Chidambaram also criticised the government for diverting the real issues of the people.
“For the people of India, what is more important? Is it an issue like whether someone should eat halal meat or Jhatka meat? Is it whether bulldozers should be run and what the decibel level of loudspeakers should be? These issues can be addressed in normal administrative courses," he said.
"In our view, the more important issues are hunger, growth deficiencies among children, anemia in women, learning outcomes…These should be the issues of concern. What kind of learning outcomes does our country have in the 75th year of our independence? These things hit you, as a sensitive citizen of this country,” the veteran Congress leader said.
Chidambaram said the Congress was advocating moving 'forward' on liberalisation, not moving backwards. He said it was the Congress that launched liberalised economic policies 30 years ago and it was seeking a ‘reset’ in this to move further faster, not retreating from them.
He said the government was the biggest employer in India. And while the private sector might be creating jobs, the recruitment freeze by government agencies was “anti youth, anti scheduled tribe and scheduled caste, anti-women. it robbed young people of hope”.
He said both the Congress and the BP had, in their 2019 manifestos, pledged to fill the shortfall in government recruitment. This had to re-start immediately, he said.