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HindustanTimes Sun,20 Apr 2014

Chidambaram will help jumpstart economy: Analysts

Agencies  New Delhi, August 02, 2012
First Published: 16:02 IST(2/8/2012) | Last Updated: 21:00 IST(2/8/2012)

P Chidambaram took charge as finance minister on August 1 amid hopes that he will usher in a much-needed round of reforms to halt the slide in the economy.

Many expect Chidambaram, a 66-year-old, Harvard-educated, two-time finance minister, to steer India’s economy out of a web of economic mess, from a sharp slowdown in growth to a free-falling rupee, from industrial deceleration to rising prices.

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From a country-wide Goods and Services Tax (GST), to a direct taxes code (DTC), from allowing foreign direct investment (FDI) in pensions and opening up the insurance sector, Chidambaram is expected to carry out the unfinished reforms agenda, most of which he had unveiled in his stint as finance minister in UPA1 between 2004 and 2008.

Economists and analysts expect Chidambaram to announce a string of measures to signal that the government is responding to criticism that restrictive policy environment was hurting India’s image as an investment destination.

Analysts said that controlling the fiscal deficit, a measure of public borrowing, will be a big challenge for the government as an economic slide will hit tax revenues.

Time to junk the status quo

“We believe slower indirect tax collection growth combined with continued high growth in government spending will push the fiscal deficit higher than the budget estimate (of 5.1% of GDP),” said Chetan Ahya of Morgan Stanley in a research report.

New finance minister P Chidambaram speaks to officials after taking charge in New Delhi. PTI/Subhav Shukla

Business groups and financial analysts welcomed new finance minister P Chidambaram, saying the pro-market and reformist politician was a good candidate to help jumpstart the economy.

Chidambaram, now in his third stint as finance minister, has robustly defended the Congress-led government's commitment to implement reforms and its ability to revive the once-booming economy.

Chidambaram takes over as finance minister

"He has a lot of experience of the finance ministry," said Rajiv Kumar, secretary general of the Federation of Indian Chambers of Commerce and Industry.

"Industry expects that he will bring back the growth momentum by urgently implementing much-needed reforms."

Chidamabaram, who was home minister until a reshuffle on Tuesday, took over from political troubleshooter Pranab Mukherjee, who quit to become president and whose performance in the finance job was widely criticised.

President Pranab Mukherjee and new finance minister P Chidambaram at a meeting at Rashtrapati Bhavan in New Delhi. PTI/RB

The 66-year-old politician, who was at the helm when growth was near double-digits, has been keen on reforming India's heavily regulated and state-controlled economy, a legacy of socialist thinking in post-independence India.

"He's the best choice in current circumstances," said Sonam Udasi, research head at Mumbai investment house IDBI Capital, but added the wealthy south Indian politician faced a string of challenges.

Indian stocks were broadly unmoved by the appointment, inching up just 0.12% from the previous day.

The economy grew at just 5.3% between January and March -- its weakest quarterly pace in nine years -- and recent numbers have been discouraging.

Inflation is at a stubbornly high 7.25%, preventing any help by the central bank to cut interest rates to stimulate growth.

Chidambaram heading 7 GoMs, 2EGoMs

India's factory sector activity in July grew at its most sluggish in eight months, according to the HSBC India Manufacturing Purchasing Managers' Index, released Wednesday, underscoring the weakening of Asia's third-biggest economy.

And the monsoon rains, an economic lifeline for farmers who are leading producers of rice, sugar, wheat and cotton, have been weak. This threatens to further stoke inflation.

Premier Manmohan Singh's government also has made no significant strides toward scaling back hefty subsidies on food, fuel and fertilisers and cutting its swollen fiscal and current account deficits.

With the stumbling economy and truant rains, there are big divisions about spending cutbacks among the centre-left coalition's members who fear a voter backlash.

Hemen Kapadia, chief executive of investment advisors Chart Pundit, said Chidambaram needed to get the moribund reform process "on track".

But "there are few expectations" of the political veteran, who is known as an occasionally abrasive but energetic minister, he told AFP.

"This government is a failure on all fronts."

High expectations from Chidambaram

Chidambaram got some respite when ratings agency Moody's on Wednesday told Dow Jones News Wires India's Baa3 investment grade rating was safe for now even though it expected the economy to grow just six percent in this fiscal year.

Standard & Poor's in June warned India could be the first of the BRIC emerging economies to lose its investment grade unless it revives growth and spurs reforms.


Chidambaram has always been known for his practicable policies that take due cognisance of the interests of multiple stakeholders. The AIAI is of the firm opinion that the Finance Ministry, helmed by Mr Chidambaram would be able to usher in reforms with regards to the various laws pertaining to taxation, additionally clear the myriad roadblocks that at present have strangled economic growth.

 The need of the hour is to shed the perceived garb of 'policy paralysis', give impetus to the overall economic growth and amplify investors' confidence within India and overseas,he added.


P Chidambaram took charge as finance minister on August 1 amid hopes that he will usher in a much-needed round of reforms to halt the slide in the economy. Many expect Chidambaram, a 66-year-old, Harvard-educated, two-time finance minister, to steer India’s economy out of a web of economic mess, from a sharp slowdown in growth to a free-falling rupee, from industrial deceleration to rising prices.

From a country-wide Goods and Services Tax (GST), to a direct taxes code (DTC), from allowing foreign direct investment (FDI) in pensions and opening up the insurance sector, Chidambaram is expected to carry out the unfinished reforms agenda, most of which he had unveiled in his stint as finance minister in UPA1 between 2004 and 2008.

Economists and analysts expect Chidambaram to announce a string of measures to signal that the government is responding to criticism that restrictive policy environment was hurting India’s image as an investment destination.

Analysts said that controlling the fiscal deficit, a measure of public borrowing, will be a big challenge for the government as an economic slide will hit tax revenues.

“We believe slower indirect tax collection growth combined with continued high growth in government spending will push the fiscal deficit higher than the budget estimate (of 5.1% of GDP),” said Chetan Ahya of Morgan Stanley in a research report.

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(With inputs from HT, AFP)

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