Finance minister Mukherjee's quest for fiscal consolidation

Pranab Mukherjee first became finance minister on January 15, 1982. Indira Gandhi, then prime minister, asked him whether he would be able to present the Union Budget on February 27. This was because though Union Budgets were typically announced on February 28, this time, this would be a Sunday.

In November-December 1981, Mukherjee’s predecessor R Venkataraman had signed an agreement with the International Monetary Fund (IMF) for special drawing rights (SDR) of $5 billion. However, this had to be implemented during Mukherjee’s term as finance minister. The final instalment of the SDR, worth $1.1 billion, would not be required.

“I wrote to the IMF, stating we didn't need the money and instead, paid back the entire loan in due course. This was perhaps the first time in the history of the IMF that a borrowing country didn't take the full amount of the loan. My Budget speech of 1984 reflected this proud moment," Mukherjee said.

His term began with an allegation that the Budget for 1982-83 had been leaked to the IMF. According to Mukherjee, this perturbed Indira Gandhi. Reassuring her, he had said, “Don't worry. I'll reply tomorrow. We have done no wrong.” In Parliament, Pranab responded to Ravindra Varma, a minister in the Janata Party government, and the one who had made the allegation. “The text and the data you have mentioned are correct. But you've made a small mistake. What you are reading is not the Budget for 1982-83, but the Budget for 1981-82. We had given last year's Budget documents to the IMF. This is, in any case, public property," he had said.

In his first year as finance minister in the Indira Gandhi government, he had introduced two instruments to channelise public savings---the social security certificate that would treble investments in three years and the Capital Investment Fund to attract private savings for public sector investments. This had a 10-year maturity period and an interest rate of with 17 per cent a year, free of income tax.

In his stint as finance minister in the United Progressive Alliance regime, too, Mukherjee has been focusing on channelising savings to finance the needs of the growing economy. The Rajiv Vikas Yojna, a scheme to encourage retail investors into equity markets, is one such measure.

During both his stints, Mukherjee stressed on fiscal consolidation. With fiscal deficit rising to 5.9 per cent of the gross domestic product (GDP) in 2011-12, against the projection of 4.6 per cent, he has been busy devising strategies to revert to the fiscal consolidation story. For 2012-13, he has set a target of reining in fiscal deficit at 5.1 per cent of GDP.

When he was finance minister in the 80s, duties were high, compared to the moderate rates now. The proposed Direct Taxes Code and the Goods and Services Tax may further rationalise these, reducing their overall cascading effect.

Pranab Mukherjee's first Union Budget in 1982 announced that non-resident Indians would now be able to buy shares of Indian companies listed on Indian stock exchanges, up to a certain limit.

However,within a few days of the announcement, UK-based NRI, Swraj Paul started buying shares of DCM and Escorts from Indian stock exchanges. Paul went on to make a hostile takeover bid over the two companies. The promoters of DCM and Escorts went into a political lobbying overdrive and Paul's takeover bid was averted only after political intervention of Prime Minister Indira Gandhi.