In 2011, Business Standard, in an interview, asked P Chidambaram what aspect of the economy kept him awake at night. “The interplay of high inflation and slow growth,” he replied without hesitation. “Our goal must be high growth with moderate inflation. So, in a situation in which inflation is high and growth may be slowing, we should worry”.
How could this be set right ? There is no magic bullet, he said. “It has to be done through appropriate fiscal and monetary policies, which the government is trying to do.”
He provided a bit of history. “The fact is low growth and high inflation are not problems new to India. In 1991, Manmohan Singh had the same problem. We had to bring in investment. He slashed expenditure sharply and cut the Budget brutally. While that may not apply in 2011, the problem is the same.”
|CHANGES IN FINANCE MINISTRY
|Economic affairs secretary: Arvind Mayaram to join from August 1 in place of R Gopalan
|Chief economic advisor: Raghuram Rajan tipped to become the new CEA; Kaushik Basu’s term ends on July 31
|CBDT chairman: Laxman Das retires on July 31; additional charge to CBDT member Poonam Kishore Saxena likely
|CBEC chairman: S K Goel retires on July 31; additional charge to CBEC member Praveen Mahajan likely
|Finance secretary: R S Gujral may be shifted to another ministry; expenditure secretary Sumit Bose likely to be appointed in his place
|Joint secretary, multilateral institutions: Venu Rajamony moving as press secretary to the President. Another Indian foreign services officer may come in his place
Nothing has changed. In 2012, as Chidambaram returns to the finance ministry, he has to grapple the same demons, and a few more.
Chidambaram understands the challenge better than anyone else. He revels in tackling these. But he also knows the perils of venturing out to slay dragons without being prepared. So, before he was named finance minister, he met Prime Minister Manmohan Singh and told him he didn’t want the job unless he was empowered to take tough decisions. This meant treading on political toes on the sensitive issue of cutting subsidies and ending some gravy trains. When the PM’s Economic Advisory Council chief, C Rangarajan, told the PM Chidambaram would be the best person for the finance minister’s job, Singh replied he was preaching to the converted. “We think alike. We are on the same wavelength,” he said about Chidambaram.
|DEALING WITH THE NEW FINANCE MINISTER: PECULIARITIES SURROUND CHIDAMBARAM
|As finance minister earlier, Chidambaram was least conscious about hierarchy. When he wanted to discuss an issue, the file noting in his neat, tiny handwriting would read: “Pl speak; Pl discuss”. His staff would put a time when bureaucrats were supposed to discuss. It would always be some outlandish time – like 3.19 pm or 2.05 pm. When any official met him, Chidambaram never had to refresh his memory. He would briefly discuss and clarify his doubts, and usually sign the file then and there. There was no waffling.
|Chidambaram is not parochial. Occasionally, when he wants to clarify something he may not want others in the room to know, he would speak to a Tamil-understanding officer in Tamil. But he always speaks in English with his daughter-in-law Sreenidhi and granddaughter Aditi. That said, his Tamil is flawless and he’s known as an orator who speaks with depth and clarity.
|Chidambaram is a systems man and respects institutions. Unlike any dispensation that relies on “show me the face and I’ll show you the rule”, he understands the larger architecture where international regimes and regulators play a role. He is at ease with international audience and is also familiar with new thinking in business.
How will he handle the problems arising out of the retro tax issue? Will he go for negotiation? Or, will he say: ‘Pay up or else…’
The consensus among bureaucrats who have worked with him is he would be open to negotiation to the extent that he might agree to waive penalties. “But, these are hard times” exclaimed a bureaucrat.
|Chidambaram does no moral grand-standing, nor does he strike attitudes. He has little time for those who do. He has a low-fog index and gets to the heart of the matter instantly.
That said, there is a tendency to want to win arguments. For instance, during the first tenure of the UPA, the government lost out on FDI proposals to the Left, because Chidambaram argued on broader principles instead of negotiating from a mutually acceptable lower threshold.
|He may appear to be cerebral, remote and brusque, but few know that he is a deeply emotional man. When a collection of his newspaper articles was published in a book, he choked a little at the book launch as he described his relationship with his mother who was among the audience. He was in his room in North Block when he got the news that a young nephew had died in a car accident (2006). He crumpled on his table with a wail and sobbed inconsolably. You can see the clenched jaw when he is trying to console the widows of young jawans who died in Maoist or militant violence. He has apologised publicly, not once but several times, when civilians have lost their lives in collateral damage.
|Chidambaram’s human side is a sense of humour that is sadly, only rarely evident these days. Once, an MP from the Left asked him a long, involved question about labour issues in the banking sector. The question rambled on and Chidambaram heard patiently. The MP sat down and might have begun congratulating himself on a job well done, when Chidambaram got up to reply. His answer was: “No, Sir.” Somnath Chatterjee, who was in the chair, did not allow any supplementaries on the grounds that the question had covered all possible supplementaries and no further clarifications were needed.
|The two things that Chidambaram loves are chocolates and children. He once asked a friend what was the most important thing in life. The friend tried to guess - music ? literature ?
“Wrong !” Chidambaram said triumphantly. “Children ! From 0 to 17 years old. They are such a discovery”.
All his Budget speeches are written by him – every word. He never forgets a piece of paper he’s seen. Instant recall is his greatest gift.
|Compiled by Aditi Phadnis
Manmohan Singh desperately needs a finance minister on the same wavelength, because the previous one wasn’t. A finance minister typically meets the prime minister at least twice before presenting the Budget, to run key proposals past him. When Pranab Mukherjee, primed by his bureaucrats, took the Budget papers to the PMO, he was ready to do battle over two potentially controversial issues: The retrospective tax on foreign companies that acquired assets in India; and on General Anti-Avoidance Rules (GAAR) that would give extraordinary powers to tax department officials.
If the PM was horrified, he tried not to show his feelings. He tried to tell the finance minister this was not the time to introduce such measures. “I have made up my mind,” Mukherjee said with an air of finality, and days later, unveiled a Budget that had the same effect on investors as the Indian nuclear tests of 1998 had on the world.
Will Chidambaram reverse some of his predecessor’s Budget provisions ? Probably not, though judging by his earlier statements, he would very much like to. In 2011, in the context of trade, for example, he said: “We must always be on guard against creeping controls. Some controls tend to find their way through the back door.
|WHAT HE DID DURING HIS TWO TENURES AS FINANCE MINISTER
|First tenure (June 1996-March 1998)
- First stint as finance minister in June 1996.
- Presented the full year’s Budget in 1997 – termed by many as the ‘Dream Budget’.
- Reduced income tax rates. The three rates which he introduced then – 10, 20 and 30% – have survived till date.
- Started the practice of showing the Budget speech to the RBI governor before it was delivered, and each paragraph pertaining to a ministry to the secretary of the ministry concerned before it went to print.
- Cut duties, launched the voluntary disclosure of income scheme (VDIS) that garnered about about Rs 10,000 crore, liberalised FII investment limits, opened up insurance.
- Dream Budget set the road map for the second generation of reforms in India.
- General Budget and Demands for Grants were presented by Chidambaram on February 28, 1997, under the government headed by then Prime Minister H D Deve Gowda, which resigned on April 11, 1997. Thereafter, the new government headed by I K Gujral assumed office and Chidambaram retained his portfolio. Demand for Grants (general) presented by the previous government was taken up under the subsequent government and passed by the House on May 6, 1997.
|Second tenure (May 2004 - Nov 2008)
(In 2004, the Congress returned to power and formed the UPA-I government. Chidambaram got a second stint as FM)
- As finance minister from 2004-2008, he presided over annual growth rates of nine per cent on an average in the three years before the global financial crisis.
- The average for those four years was 8.8 per cent, against the NDA government’s 5.8 per cent, including the last good year under Jaswant Singh.
- Tax-GDP ratio moved up sharply till 2008, before falling a bit due to the recession .
- Aimed to lower tax rates further in the Direct Taxes Code.
- Managed a massive agricultural loan waiver programme, expanded the education loan programme, and rolled out the rural employment guarantee scheme, now called MGNREGA.
- The FRBM (Fiscal Responsibility and Budget Management) Act was passed by the NDA government, but it was not notified. One of the first things Chidambaram did after taking over as finance minister in May 2004 was notify the FRBM Act.
- Introduction of VAT, which was started during NDA’s tenure, was completed by him. He told state governments, “Yes, I will compensate you for the VAT losses, go ahead.” That clinched the deal and he was able to introduce VAT.
- A good part of the GST work was done during this period, though not entirely.
- The entire DTC Bill was drafted before he shifted to the home ministry.
- Undertook reforms in tax administration. Made scrutiny computer-based, abolishing discretion.
- Chidambaram proposed several new taxes—Minimum Alternate Tax (MAT) on zero-tax profit-making companies, Fringe Benefit Tax (FBT), Cash Withdrawal Tax (CWT) and Commodities Transaction Tax (CTT). FBT and CWT became controversial and were later withdrawn. CTT is yet to be introduced. MAT faced no such controversy and is part of the current tax laws.
- Lately, his name figured in a controversy after opposition parties alleged he misused official powers and had a role in the 2G telecom scam. Chidambaram denied the allegations, and so far, the government has fully backed him.
|Compiled by Santosh Tiwari
The control mindset will always try to smuggle in something that would ostensibly ‘help exporters’. The idea must be to prepare the country for freer trade. The restrictions still exist in the shape of anti-dumping duties, safeguard duties, non tariff barriers. Not just India, every country in the world has those. But the battle is for freer trade. All countries must dismantle barriers. As an economy matures, it must become more competitive, more efficient, and it must shed the last barrier to freer trade”.