Debating India

PROFILE

Middle March

Sandipan DEB & Arindam MUKHERJEE

Monday 7 June 2004, by DEB*Sandipan , MUKHERJEE*Arindam

He presented the ’dream budget’ in ’97 but never really got the kudos. Is it encore time for P. Chidambaram?

The Path So Far

1960s Came back from the US as an avowed socialist who believed in the virtues of the command economy; joined Congress in 1967, stayed on with Indira Gandhi during the 1969 split and supported bank nationalisation as a means for rural prosperity.

1970s Took charge of party’s Tamil mouthpiece, Swadeshamitran, translated Indira Gandhi’s speeches, established Illaklya Chintanai (Literary Thought), and supported the Emergency Years.

1980s Became a key minister during Rajiv Gandhi’s regime with portfolios like commerce and internal security; became a supporter of economic reforms; faced flak as minister in charge of the Rajiv Gandhi assassination investigation.

Early 1990s Became the commerce minister in 1991, but quit because his family owned shares in a Harshad Mehta scam-tainted company; got the same portfolio again in 1995.

1996-2000 Left Congress, co-founded TMC in 1996 just weeks before the elections, after he wrote the Congress manifesto; became finance minister in the UF government; came up with his dream budget that unleashed a slew of reforms.

2004 Allied with Congress; when Manmohan Singh became prime minister, he became the natural choice for the FM’s post since had worked with Left parties earlier too.


"The story of the first 10 years of reforms is a sweet and sour story. To celebrate the shine that it has brought to the lives of 250 million and to throw a blanket over the struggles of 325 million people is a cruel joke."

- P. Chidambaram, in his newspaper column, March 14, 2004

How many pages would a standard history of the first 13 years of Indian economic reforms, from 1991 till Elections 2004, devote to Palaniappan Chidambaram? Less than he deserves, one suspects. Anyone interested in the economy should be hoping this preys on his mind as PC returns to Room 134, North Block, after six years.

What could also be on his mind is that hardly any other politician has seen more ups and downs in these 13 years.

As commerce minister in the Narasimha Rao government, Chidambaram began the reforms process even before Dr Manmohan Singh presented his first budget. Within a week of taking office, he had started the process of deregulation in trade. As CII director-general Tarun Das puts it, "He transformed the exim policy from an instrument of control to a driver of export growth." But then, post-Harshad Mehta scam, he had to resign because his family owned some shares in the scam-tainted firm, Fairgrowth. He was back as commerce minister three years later, but weeks before the 1996 elections quit the Congress and set up the Tamil Maanila Congress (TMC) with G.K. Moopanar, because Rao had decided to ally with Jayalalitha in Tamil Nadu. This, after having written the Congress’ election manifesto almost single-handedly!

But he had backed the winning side. Indian business, wary of the 13-party United Front (UF), with outside support from the Left, breathed a huge sigh of relief when Chidambaram became finance minister. Reforms, it appeared, would only be speeded up.

Not so. His first budget, more a political act than an economic one, gave with one hand and took back with the other to keep the creaky alliance intact. And he angered corporates by imposing a Minimum Alternate Tax (MAT) on profits. So no one expected much from his second budget. The politician had clearly eclipsed the reformer. February 28, 1997, saw one of the shortest budget speeches in recent memory-a mere 90 minutes-with the FM’s voice barely audible due to a bad throat. When he ended, India was in delirium. Chidambaram had done the unthinkable.

He had slashed taxes and duties across the board, launched an ambitious black money amnesty scheme, loosened FII investment limits, opened up insurance. "I couldn’t believe my ears," an ecstatic Rahul Bajaj told Outlook.

Within months, the UF government was gone, Chidambaram’s "dream budget" denied the time it needed to make a serious impact on the economy. Chidambaram won a fifth election from Sivaganga in 1998, but lost in ’99. Moopanar passed away, TMC crashed and burned, the BJP ruled for five years, and PC went back to being one of the country’s highest-paid lawyers (net worth as declared in Election 2004: Rs 17. 85 crore).

Now he’s back. "There are similarities between now and ’96 when he first became FM-a coalition government with the Left as an important constituent, and a Common Minimum Programme," says Das. "The experience will stand him in good stead now." But has the man himself changed in these six years away? After all, he’s never been hostage to any particular ideology. In his youth, he was a committed socialist, in spite of the MBA from Harvard Business School. And while Chidambaram the politician remained firmly left of centre, Chidambaram the lawyer’s clients were the bluest of blue-chip corporations.

By the time the 1990s rolled in, his economic thinking had changed, so much so that in the Rao government he was referred to as the "ultra-reformer". Perhaps why he became a hero of the middle and upper classes, the people who gained the most from liberalisation. Sneered at by detractors as a politician with no mass base, PC has still managed to garner substantial pan-Indian urban support.

But last week, he made it amply clear the next generation of reforms would have a rural face and that only by reforming the rural poor could the Indian economy achieve its targets of growth. The emphasis, he said, would be on agriculture, manufacturing and employment, areas that would benefit rural India.

Nothing wrong with that per se. But with the Left much more vociferous this time, there are many who fear the UPA government could run up huge welfare-state bills, bloating the deficit. Others disagree. Says Rahul Bajaj: "His commitment to liberalisation and reforms is unquestionable." Dittos Colette Mathur, director, World Economic Forum: "He’s a true reformer. And a courageous person, so he will push for his ideas on reforms with determination and persuasion."

Chidambaram’s economically right-wing support base often overlooks one critical aspect of his thinking. He has always supported massive direct government intervention to alleviate rural poverty. In 1996, he told Outlook: "I don’t believe the ’trickledown’ effect can work for the real poor in India. It can work for you and me, maybe even the urban poor, but it cannot reach Kalahandi. These people need direct aid." In his column in January, he wrote: "During the last 12 years, government, entrepreneurs and the middle class have arrived at a compact...the government will do things from time to time to keep these classes happy.... It is an urban and middle class-driven strategy of so-called ’growth’. The disquieting aspect is there is an unspoken consensus on this strategy.... Would the Congress have done anything different if it was in BJP’s position and heading a coalition on the eve of parliamentary elections? I doubt it, because the Congress is as much driven by the urban, middle classes as the BJP is."

Clearly, even Chidambaram did not expect that four months later, he would be FM in a Congress-led government. That said, he has to deliver now. At a time when the total fiscal deficit, taking into account borrowings by state governments, is close to 10 per cent of GDP. Last month, rating agency Standard & Poor’s expressed concern over the deficit, which prevented an upgrade of India’s sovereign BB+ rating, the highest non-investment grade.Prime Minister Manmohan Singh has already announced the government would seek to cut the Union budget deficit to 3 per cent of GDP in three years from an estimated 4.8 per cent in 2003-04. How do you meet that target, yet raise public investment in health, education, irrigation, infrastructure? Says Amit Mitra, secretary-general, FICCI: "Chidambaram’s trademark is to move on a market-driven reform agenda, tempered by the realities at the grassroots level."

Even his worst critics acknowledge PC’s razor-sharp mind, his ability to cut to the core of a problem instantly, and the pure dispassionateness of a mathematician which he brings to any issue. Says Shekhar Datta, who was CII president in 1997 and interacted regularly with Chidambaram: "While he is open to ideas from outside, he has a definitive economic mind of his own. One thing is clear, he can’t be bulldozed with unworkable ideas. If he’s decided on something, he will do it, political pressures do not affect him." This, after all, is the man who walked out on his family at 23 because he was not interested in the family textile business and wanted to marry a girl from outside his community, the Chettiars of Nattukotai.

Chidambaram will need to use all his abilities in his new job. It seems certain he’ll tax more services, the fastest-growing part of the economy. Taxes on services, which account for more than half the GDP, currently contribute just 5 per cent of total revenue. It is also certain that he will not be able to raise much money through disinvestment. And if the fifth Pay Commission put unnecessary strain on his budget in 1997, there is already talk of another Pay Commission to make matters worse. But he’s been there before. And he wants the number of pages in the history of India’s economic reforms that he deserves.

P.S.

in Outlook India, Monday, june 7, 2004.

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