India's new finance minister comes out
fighting By Indrajit Basu
KOLKATA - The money markets love him, foreign
investors consider him to be "friendly", and, to Indian
business honchos, he is a darling who, as a votary of
free enterprise and unbridled economic reforms, can
perform the economic and political balancing act with
elan.
This is why the reinduction
of Palaniappan Chidambaram on Sunday as the new finance
minister under Manmohan Singh's Congress-led United
Progressive Alliance government came as welcome news for
India Inc and stock markets. They now believe that the
future of the Indian economy, which was perceived as
looking gloomy under the influence of the left-supported
government, is not going to be as bad as had been
feared.
Chidambaram's appointment alone took the
Bombay Stock Exchange's benchmark index, the Sensex, up by
162 points on Monday, and put a very wide smile on the
faces of corporate chiefs. "I'm very happy, especially
pleased with the economic ministries," said Rahul Bajaj,
a high-profile industrialist, while according to
heavyweight stockbroker Rakesh Jhunjhunwala: "Most
negative triggers have been nullified. There can't get a
better team than Singh and Chidambaram; this is an
experienced team that can provide stable and strong
governance."
Indeed, the choice of Chidambaram
as finance minister - it had been widely reported that
Singh himself would take the portfolio - is encouraging
for India's economy. "It is a firm declaration of the
new government's stand on reforms," said one political
analyst. And Chidambaram has already started talking
right. "I believe that policies [initiated by the
Congress government] adopted since 1991 have brought
huge benefits and strengths to the Indian economy," he
said at his first (very brief) press conference as
finance minister on Monday. "What the new government
will do and what I will do is to factor in the
experience gained during the last 13 years."
Under Manmohan Singh's leadership as finance
minister in the early 1990s, India's economy was dragged
from being centrally controlled into one driven by
market forces.
A scion of a prominent
industrialist family from Chennai, in southern India,
Harvard-educated Chidambaram - who is also a top lawyer
in the country - chose to stay away from the predictable
path of joining the family business and went into
politics. He joined the Congress after it lost power in
1967, and remained with Indira Gandhi when the party
split in 1969. He was Rajiv Gandhi's (the assassinated
ex-prime minister of India, who was the husband of
present Congress chief Sonia Gandhi) emissary to the
Tamil Nadu leadership during the crisis of Sri Lankan
Tamil refugees; after Rajiv Gandhi was assassinated in
1991, Chidambaram was out of power for a short while,
but came back as commerce minister in the new
government.
An old hand in the country's
Finance Ministry - Chidambaram, now 58, was finance
minister in the United Front government from 1997-98 - he
wrote the original "dream budget" for the country. He
became a darling of the salary earners as well as Indian
businessmen when in the 1997-98 budget he reduced peak
personal income tax rates from 40 to 30 percent, and
slashed the corporate tax slab from the peak rate of 40
percent to 35 percent for domestic companies and from 55
to 48 percent for foreign companies. That budget was
also the best-ever for the stock markets, which made the
Sensex leap a phenomenal 396 points in one day and by
517 points in three subsequent days of trading.
He fit in well with the new pro-reforms
lobby and his ministry was responsible for doing away
with several red tape regulations, which boosted
Indian exports. It was during Chidambaram's previous stint
as finance minister that the famous Voluntary
Disclosure Scheme was unveiled: the Finance Ministry made
a one-time concession, letting Indian citizens declare
all their unreported earnings and assets while paying a
flat tax rate, no questions asked. The scheme helped
collect more than US$2 billion in revenue for the government, and a
lot more money came out of the unreported (black) money
stream. He also candidly invited foreign capital to
India and loudly advocated that there should be no
barriers to their entry.
Chidambaram believes
the Indian economy is in a resilient mode in terms of
growth, inflation and balance of payments, which is why
the growth momentum "should be consolidated with special
emphasis on agriculture, the manufacturing sector and
employment".
"These three sectors along with
some other sectors require massive investments from both
the state and private investors," he says, and "it will
be my endeavor to promote investments, which I believe
is the key to growth and to jobs and to income. I am
conscious that there are some areas of concern and these
sectors will receive special and careful attention as
well."
Unlike many who feel that the
recently ousted government portrayed a false image of a
"Shining India", Chidambaram says that India is shining. "But
it is not shining for all the Indians. In fact, among
the young Indians with only a school education
and/or rudimentary technical skills, there is a sense
of bewilderment." Therefore, he says, creation of
employment will be the central issue in his job as the
new finance minister.
In line with the previous
government's beliefs, Chidambaram also thinks that India
requires massive amounts of capital investment in core
areas such as power and telecommunications. However, he
says that "the previous government muddied the wasters
somewhat and deficiencies there would be looked into".
In what
could be music to foreign investors, Chidambaram thinks
that declining foreign direct investment is a cause for
worry and "India should reject the phobia about foreign
money".
"I wish to make another
controversial suggestion," he adds. "Perhaps for a
certain period, we should be color blind to black money
too, if invested in certain sectors. Consider tourism.
This is one sector that has almost infinite potential.
Every additional tourist who comes here has the
potential to create at least two additional jobs. Can we
not agree on a policy that allows for a period of 10
years' new investment in the tourism sector - hotels,
luxury coaches, spas and treatment centers, sports
facilities for skiing, sailing, surfing, hiking,
mountaineering and golf - and promises that no questions
will be asked about the source of funds?"
Other growth imperatives, says Chidambaram, are
information technology (IT) in governance and
international trade. "The use of IT must find a place in
the minimum programs of the governments when they assume
office and the better course for India appears to be to
renew the faith in the WTO [World Trade Organization]
and work towards reaching global agreements," he says.
The new finance minister feels that "today is a
beautiful dawn for India and every day could be a
beautiful dawn since the new government will work very
hard to continue the promises made to the people made
during the elections".
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