Though RBI dampened spirits considerably on Tuesday morning by not cutting interest rates and by sharply lowering GDP forecasts while upping the inflation one, the appointment of P Chidambaram as the finance minister should excite the markets when they open for business today. In doing so, Prime Minister Manmohan Singh has taken a tough decision since, with the Opposition baying for Chidambaram’s blood, not appointing him was the easy thing to do. It is unfortunate that, while appointing Chidambaram, the Prime Minister decided to appoint power minister Sushil Kumar Shinde in his place as the home minister—not only has Shinde done precious little in his current job, he should have been taken to task for two massive cross-country grid failures on consecutive days under his watch, not promoted to the prestigious home ministry.
Given the speed with which Chidambaram has handled the EGoMs under him in recent weeks, it is obvious his moving back to the finance ministry will impart a dynamism it sorely needs. Some part of the damage done by the previous incumbent—in delaying the choosing of a new chief for UTI for 16 months by pushing for a finance ministry candidate, for instance—is already being undone as a new chairman is expected to be announced over the weekend; Chidambaram will push to undo some more. So, you can expect more action from the committee on GAAR and greater clarity on taxing issues like Vodafone. And given Chidambaram’s reputation as a tough taskmaster, it is unlikely the taxman will take him for a ride—remember how, just after the Prime Minister took over as the acting finance minister and said he would examine the GAAR issue, the finance ministry notified the GAAR rules; an embarrassed government then had to issue a press release saying the Prime Minister had not seen the rules before they were put up.
That, however, is just one part of the job. What’s ailing the government today is not just the inability to take policy decisions as on FDI in retail, but that even routine decisions get held up for no rhyme or reason. Coal India finally agreeing on Tuesday to sign fuel supply agreements (see editorial below) is a big relief, but something that needn’t have taken so long. Taking a decade to just demerge VSNL’s extra land is something that had no political opposition, nor any revenue implications, but it just kept getting stuck; there is, similarly, no political opposition to ISRO leasing transponder space for DTH firms—since ISRO clearly has been unable to build up the necessary satellites—but it has failed to do so for years.
The point is a simple one: the issues that are giving the government a bad name aren’t restricted to the finance ministry. So, tackling them cannot be the preserve of the finance minister alone. RBI has made it clear it isn’t going to cut rates till the government makes moves like raising diesel prices. With a drought staring us in the face, that’s a near-impossible decision to take. But unless decisions like that get taken, and that means Manmohan Singh backing Chidambaram in the manner Narasimha Rao backed Singh, the feel-good associated with Chidambaram coming back to finance may evaporate as fast as the one that accompanied the Prime Minister taking charge at the finance ministry.