New FM on test at a critical time

What Palaniappan Chidambaram will bring to the table, now that he has once again been made India’s finance minister after three-and-a-half years, remains to be seen. The new minister must necessarily seek to do what is feasible to restore expectations of growth rates that are higher than the relatively less enthusing results of the past year.

Poverty cannot be fought without higher growth. But Mr Chidambaram will have another responsibility as well.
He will need to align social spending with an increase in employment — along with output — so that his party has a leg to stand on when it goes to the country in two years’ time. This is plain common sense. It is also good economics, not just good politics, although neo-classical economics is resistant to the idea of social spending which it views as throwing money after undeserving goals. However, a country with a democratic form of government, and with at least a third of its population below the poverty line, cannot escape certain types of social spending that the comfortable classes frown upon. A good finance minister cannot but be mindful of the spectrum of agendas in his socio-political environment.
The trouble is that Mr Chidambaram will be laying out his wares — his bag of tricks — at a time when inflation is high and the world economic environment (which affects exports, imports and the rupee’s position in relation to the dollar, the global reserve currency) is not supportive. Such an experience will be new to Mr Chidambaram as finance minister. He will be on test. Anyone will be. It is to be hoped that Corporate India — which has applauded his second coming as he is known to be a reformer — shows the maturity to be cognisant of this. The finance minister will recognise that his political opponents are less likely to be supportive in the pre-election season. He will therefore be called upon to choose policy steps that provide the best traction — results in the short and medium term with as little political friction as possible in order to avoid embarrassment in Parliament.
Mr Chidambaram’s return to the finance ministry was widely expected once Pranab Mukherjee became the Congress’ nominee for President. Sushilkumar Shinde has been moved from power to replace Mr Chidambaram at the home ministry. A former chief minister, he has the experience for the job, though we don’t yet know if he also has the savvy. Being a dalit in that sensitive office is not without political resonance. The unprecedented power outages under his charge for two successive days earlier this week speaks of our creaky system, not necessarily of the minister’s abilities.