India's crisis within a crisis: FM Chidambaram fights on two fronts

Sep 02 2013, 09:16 IST
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P Chidambaram has been grappling with the economic emergency since he became Finance Minister for a third time 13 months ago. P Chidambaram has been grappling with the economic emergency since he became Finance Minister for a third time 13 months ago.
SummaryFM must stop investors heading for the hills as growth skids to its slowest pace in a decade.

is that such a measure would reduce import demand for gold.


The last time Chidambaram was finance minister, in 2004-2008, growth was motoring at a near-double-digit clip: he used to call himself a "lucky finance minister" because of the neat timing. But fortune has hardly been on his side since returning to the job last year.

Aides say he has come under huge stress in recent weeks, but in public he has kept his cool, not surprising for the Harvard-educated lawyer who sharply told an interviewer earlier this year: "When did self-confidence become a vice?"

Financial markets have long had just as much faith in the smooth-talking politician as he has in himself. They remember his pro-business 'dream budget' of 1997 that brought taxes down, and when he returned to the finance ministry last year investors were thrilled, anticipating a new push for economic reform to end years of policy drift and an economic slowdown.

A short burst of reforms, including the opening up of retailing and aviation to foreign investors, followed. Chidambaram also succeeded in bringing down the fiscal deficit to 4.9 percent of GDP in fiscal 2012/13 from 5.8 percent, helping avert a sovereign credit rating downgrade.

However, the reform drive soon lost momentum, in part because of the main opposition party's recalcitrance in parliament.

But resistance within the Congress was as much to blame.

Two senior ministers leaned on Prime Minister Manmohan Singh earlier this year to reverse a decision allowing 100 percent foreign direct investment in domestic pharmaceutical companies, a finance ministry source said. But Chidambaram pushed back, saying that if they had objections they should take them to the cabinet rather than surreptitiously lobbying the prime minister.

At a meeting in July, three ministers got together to push through extra funding for roads in the far-flung northeast and Jammu and Kashmir, overriding cost concerns raised by the finance ministry.

And last month, Chidambaram wanted his colleagues to stick to the original version of the food security bill under which 18 out of 29 states would get less wheat and rice than allotted to them under an existing public distribution system because of a drop in the number of poor there.

But other members of the cabinet resisted him, warning that the opposition could block the landmark bill - which guarantees 810 million Indians grain at a fraction of market prices - when it got to parliament. Their argument carried the day, at an additional

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