A mixed record

Evaluating Mr Chidambaram's tenure as finance minister

Assessments of the United Progressive Alliance's (UPA's) performance in its two terms are flying thick and fast. It is important to evaluate, in particular, P Chidambaram's six and a half years as finance minister. In a recent public appearance, Mr Chidambaram was quite candid in saying that UPA-II misread the signals from its electoral performance in 2009. Hindsight now suggests that this was a massive endorsement from the beneficiaries of five years of rapid growth, which accrued significantly to the urban population. However, the Congress party interpreted it as a thumbs-up for its entitlements-based strategy, which, among other things, led to a sharp deterioration of the fiscal situation. This did not entirely happen during Mr Chidambaram's absence from the ministry; the high-water mark of such actions was, in fact, the 2008 Budget he presented.

Still, a balanced perspective would suggest that he experienced both triumphs and disasters. On the positive side of the scorecard during UPA-I was his commitment to fiscal consolidation through broad compliance with the Fiscal Responsibility and Budget Management Act, even though that had been enacted by the National Democratic Alliance government; as well as his push for the implementation of the value-added tax, again an initiative of his predecessors. During his most recent tenure, his re-entry into the ministry, followed by reassuring statements about foreign investments, helped stabilise a very volatile rupee. He championed a rapid narrowing of the exploding fiscal deficit, in particular, by successfully introducing a regular monthly increase in diesel prices. The under-recoveries were eventually reduced by about 70 per cent, before falling victim to further rupee depreciation. During the exceptional turmoil in global and domestic financial markets in mid-2013, he did succeed in gaining control of the situation, working in close co-ordination with the Reserve Bank of India (RBI) to aggressively fill in the gaping hole in the current account.

On the negative side, his throwing fiscal discipline to the winds in his 2008 Budget, with the loan waiver and other measures, sowed the seeds of the fiscal blowout that began in the following year. His confrontational attitude towards two successive governors of the RBI, often played out in public, served to undermine the perception of autonomy that that institution needs to fulfil its mandate effectively. In his 2013-14 Budget, he had a golden opportunity to regain credibility among foreign investors with some definitive statements on tax policies. He refrained from doing so, leaving the issue in a state of confusion. His constant pressure on the revenue departments to meet targets, despite sluggish economic conditions, contributed to growing antagonism between taxpayers and collectors. His own advisor, Parthasarathi Shome, recently went on record to say that absolute revenue targeting was an archaic approach. The public sector banks have suffered a huge build-up in bad assets under his watch, indicating both inefficient managements and governance failures. And, of course, he demits office with the economy enduring slow growth and high inflation. Certainly, he is not entirely responsible for the state of the economy. But even with a narrower focus on only the finance minister's bailiwick, his record is mixed indeed.