The change of guard at the finance ministry has raised expectations that stalled policy will now get a push with Prime Minister Manmohan Singh and his core team of reformers, C Rangarajan and Montek Singh Ahluwalia, playing a bigger role in economic management. Such expectations are based on three assumptions. First, the economy is in the boondocks because former finance minister Pranab Mukherjee could not push through tough decisions. Second, Mr Singh will succeed where Mr Mukherjee failed. And three, the prime minister will take on the additional workload of the finance minister for the rest of his term. Or at least hand over a healthier economy to a full-time finance minister after a while. Let’s examine each of these.
Mr Mukherjee could not free diesel prices because the Congress does not want it. He could not push through pension reform because Congress ally Mamata Banerjee opposes it. He could not allow foreign supermarkets into the country because the main opposition Bharatiya Janata Party is against it. He could not get the goods and services tax off the ground because states want their pound of flesh. If Mr Singh has to make headway on stalled reform he will have to convince his party, allies, the opposition and restive states on the merits of each initiative. The UPA has lost its most persuasive interlocutor to the office of the president. That is not to take away from the enterprise of India’s original reformer. The prime minister could pull a few rabbits out of the hat in areas that do not face intense political resistance like reversing capital flows, reviving industry and containing the fiscal bloat. At his first review meeting of the finance ministry this week, Mr Singh said he wanted to revive business spirits.
Investors read in this a sign that the taxman might shed the unusual zeal he had acquired under Mr Mukherjee. However, climbing down from the retrospective tax imposed in the latest budget on foreign transactions involving Indian assets will be tricky as it could invite a political backlash.
Mr Mukherjee was, in a sense, India’s economic czar, heading most of the ministerial panels the Cabinet farms out its decision-making to. That was a lot of work for one man. These groups of ministers are now being carved out among his Cabinet colleagues and Mr Singh will have to assess whether he, as head of government, ought to be caught up in the nitty-gritty of running the finance ministry as well. Whoever fills in for Mr Mukherjee in North Block — be it the prime minister himself — must have a stomach for unpopular choices to revive the economy as the country approaches a general election.