Backing a reformer

No one in the Manmohan Singh Cabinet has better reformist credentials than P Chidambaram. So it was predictable that the stock market would respond positively to the announcement that the prime minister has made Mr Chidambaram his finance minister.

After all, in the United Front (UF) government where the Left was a major partner, Mr Chidambaram did manage to push the reform process forward by dramatically cutting taxes, and promising to lower, over a short period of time, India’s import duties to those prevailing in East Asia.

It is true, of course, that Mr Chidambaram’s “dream budget” didn’t go entirely according to plan — against a projected 4.5 per cent fiscal deficit, he ended with a figure of 6.1 per cent. But that was because excise and customs revenues fell short owing to the economic slump.

The finance minister met his corporation tax target comfortably and overshot his personal income target by around a third, thanks partly to a successful tax amnesty scheme.

Indeed, while the number of individual tax payers rose from 9.4 million in 1991-92 to 16 million in 1997-98, they more than doubled to 34.4 million in 2002-03 — thanks to the process Mr Chidambaram set in motion.

Interestingly, he was almost on target as far as expenditure projections were concerned. The country now expects more such achievements and the implementation of the Kelkar reports’ main recommendations.

Apart from being one of the most articulate and credible voices on reforms, the new finance minister’s biggest plus is his attention to detail.

During a press conference on the newly drafted Fema, for instance, careless senior tax officials gave the impression that many Fera offenders would get away scot free — within hours of this, the finance ministry had issued appropriate clarifications.

Implementing VAT is one of the challenges ahead, and it is obvious that the main reason for the NDA’s failure to implement it was the lack of detailed groundwork. Hopefully, Mr Chidambaram will succeed where his predecessor failed.

In his maiden press conference, Mr Chidambaram has done well to outline his tasks. One is to continue with fiscal consolidation and end the days of revenue deficits. This is helped along by the buoyant economic conditions, which will help revenue collection.

But there are also large spending demands, and the minister has mentioned the need for public investment. Spending on social infrastructure, which had been cut back over the years, will also be required if the new government’s goals are to be achieved. Subsidies, which have been shooting skyward, will have to be reined in — and the Left might protest.

As the finance minister in the UF government, Mr Chidambaram was a helpless bystander when his ministerial colleagues decided to implement the disastrous fifth pay commission’s recommendations.

This time round, the Left parties seem intent on hiking tax rates-which can be justified only if it can be shown that the money is well spent. In the past, Mr Chidambaram’s refusal to trim his sails has cost him — his refusal to accept the BJP’s suggestions on the insurance bill that he was piloting, led to the bill not getting passed.