Chidambaran is likely to focus on getting more investment,
both public and private, domestic and foreign, in manufacturing
and agriculture because he believes that this will help
generate more employment and growth
With
an idealist liberal economist at the helm, there''s a strong
chance that the country will finally see the sort of policies
that can put it on a sustainable path to genuine development
and poverty elimination. The one thing that could hold
them back is pressure from allies to slide back into old
strategies that haven''t worked very well, if at all. A
lot hinges on how Manmohan Singh and the Congress Party
manage coalition politics.
P
Chidambaram, elected as an MP from the Sivaganga constituency
of Tamil Nadu and known as someone who was able to introduce
some bold measures as part of a previous left-leaning
coalition government, is a good choice for the finance
minister''s post. As a pro-market reformer, but also someone
who was strongly left leaning in his youth and understands
the need for economic policy to keep the interests of
the poor in focus, Chidambaram has the credentials to
take forward the UPA''s agenda of taking the benefits of
economic reforms to those who haven''t felt them adequately
yet.
Faced
with the pressures of coalition politics, the finance
minister needs to show resolve. If his own life is anything
to go by, Chidambaram has the requisite independence of
mind and determination. He resisted pressure from his
family to join the family business, the well-diversified
MA Chidambaram group, and instead chose to study law at
Madras University before doing a stint at Harvard Business
School in the US.
After
Harvard, he came back to India and chose to enter politics
rather than slip into the more comfortable life of the
family business. Standing up to strong opposition from
his family, he married Nalini, a classmate from another
caste.
There
is also evidence of steadfastness in his political career.
In 1996, after having worked on the Congress manifesto,
he split with the party after PV Narasimha Rao decided
to ally with Jayalalitha''s ADMK in Tamil Nadu. That''s
when he helped G Moopanar establish the Tamil Maanila
Congress that swept the Lok Sabha elections that year,
allowing Chidambaram to become finance minister in the
United Front coalition government.
Management
of a coalition also requires the ability to reach intelligent
compromises. His tenure as finance minister in the UF
coalition would have given him some training in that art.
It was only because he compromised in some areas that
he was able to introduce bold measure in other areas.
It''s obvious that he will have to perform a similar balancing
act this time as well.
Known
for his dislike of bureaucratic obstructionism and his
ability to find ways around it, he is a good administrator
and innovative policymaker. People close to him say he
has a sharp mind that can cut through layers of complexity
to see underlying issues clearly.
He
gained fame as the reform-minded commerce minister who
teamed up with then finance minister Manmohan Singh to
launch India''s historic process of economic liberalisation
in 1991.
However,
his first budget, presented in 1996, was a disappointing
one. It was clear that the compulsions of coalition politics
were holding him back from major reform. Chidambaram said
then what he is saying now: that the government would
remain committed to continued economic reforms and ensuring
growth and fiscal prudence, but would "address the
concerns of the poor".
It
was expected that the insurance sector would be opened
to foreign investment, but it was not to be. He did, however,
introduce new schemes for the finance of rural development
and social spending by the states. The most lasting contribution
of that budget was probably the minimum alternate tax
on companies, an attempt to gain revenue from Indian companies
that were taking advantage of the numerous depreciation
allowances and investment exemptions.
His
next budget, presented the following year, in contrast
to the first, was popularly dubbed a ''dream budget''. It
was a ''supply-side'' budget that made deep cuts in income
and corporate tax rates but hoped to increase tax revenues
(and reduce the fiscal deficit) through the positive effect
the tax cuts would have on the growth of the economy.
Chidambaram
also allowed foreign institutional investors and non-resident
Indians to invest up to 30 per cent in Indian companies.
The financial markets were extremely happy, even though
there was disappointment that Chidambaram only allowed
minority foreign participation in private health insurance
joint ventures. He also allocated more money for rural
credit and basic services and food and fertiliser subsidies
for farmers.
One
of that budget''s major achievements was tax reform. In
order to improve tax revenues, he introduced the innovative
''voluntary income disclosure scheme'' or VIDS, that promised
tax-avoiders a limited tax amnesty, provided they registered
themselves as taxpayers before the end of the year.
With
the 2004-2005 budget looming large, he finds himself in
a similar position needing to effect reform while
facing pressures from his leftist allies to go easy on
liberalising and privatising measures. He also needs to
keep within the parameters set by the common minimum programme
and its laudable aim of taking reform to the poor. The
difference is that this time he has a reform-minded economist
for prime minister. A man who is not only likely to support
efforts to introduce innovative reform, but will also
have his own well thought out prescriptions for the economy.
If
the new finance minister''s first presentation to the press
is anything to go by, he is likely to focus on getting
more investment, both public and private, domestic and
foreign, in manufacturing and agriculture because he believes
that this will help generate more employment and growth.
Let''s
hope we will continue to see his resolve and creativity
at work during this tenure.
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