2012
09/17

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Finance

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For India’s new finance minister, there is no time to waste

* Chidambaram focused on improving investor perceptions

* Pressing banks to lend more to boost manufacturing

* Culture change at finance ministry

By Manoj Kumar and Arup Roychoudhury

NEW DELHI, Sept 10 (Reuters) – P. Chidambaram has a simple
message for investors disillusioned by Indias policy drift: it
is no longer business as usual in the corridors of North
Block, the sandstone colonial building that houses the finance
ministry in New Delhi.

For months, critics have accused Prime Minister Manmohan
Singhs government of being asleep at the wheel. Frustrated
investors accuse it of both over-confidence and complacency in
the face of an economic slowdown that has shattered the
countrys reputation as Incredible India.

We have come to a stage where something concrete has to
happen, said Rupa Rege Nitsure, chief economist at Bank of
Baroda in Mumbai. The current period is very, very critical for
India.

But in the 41 days since his appointment as finance
minister – for a third time – Chidambaram has shaken up the
ministry and impressed analysts. He has sought to signal that
Asias third-largest economy finally has someone willing to take
tough decisions.

Indias economic policy-making has been blocked for months
by dithering and political gridlock. While the timing of
big-bang reforms remains uncertain, the Harvard-educated
Chidambaram is trying to work around bickering politicians and
is drawing up a package of smaller measures to stop the rot,
such as improving tax collection, fast-tracking stalled
infrastructure projects and asking state banks to ease lending
to small manufacturers.

His ministry is ratcheting up pressure on wayward coalition
allies of the ruling Congress party to agree on a long-overdue
increase in heavily subsidised fuel prices.

Ministry officials warned for the first time last week that
if the hikes did not take place soon, spending cuts might be
necessary to keep the budget deficit under control. The cabinet
may consider making a move on fuel prices this week.

Chidambarams appointment may have bought the government a
reprieve from international credit rating agencies, which have
threatened to downgrade India to junk status over New Delhis
policy paralysis, ministry officials said.

But he does not have much time. Investors, weary of empty
rhetoric and broken promises, are impatient for action now.

Chidambaram has made clear he understands the importance of
winning back investors confidence. That stands in stark
contrast with his predecessor, Pranab Mukherjee, now Indias
president, who scared off foreign investors with confusing tax
reform proposals and failed to drive through any major reforms
during his near four-year term.

PICKING UP THE PACE

Nowhere are the winds of change clearer than in North Block,
where officials are working longer hours and weekends, and with
a new sense of urgency and accountability.

His message is very clear. Either you have to perform or
find a way to move out of the ministry, said one official, who
attended Chidambarams first meeting with senior staff.

Reinforcing the message of change was the appointment of
Raghuram Rajan, the outspoken former chief economist to the
International Monetary Fund, as Chidambarams top adviser.
Earlier this year, Rajan offered a stinging critique of the
governments economic policies at an event attended by Singh.

Since Chidambarams arrival, senior ministry officials have
been logging their arrival and departure each day using
fingerprint scanners located at the buildings entrances.
Earlier, only junior staff were required to do so.

What he has done is put everyone on their toes and made
them accountable, the official said.

Interviews with a series of officials, who mostly asked to
remain anonymous, paint a picture of a no-nonsense man who is
constantly questioning, hands-on, meticulous and intolerant of
people who cannot manage their time.

Mukherjee typically arrived at his office around 11 am and
would then spend much of his day meeting constituents and
Congress party officials. He tended to read ministry documents
late in the day and would often leave around 10 in the evening.

Chidambaram comes in by 9 am, is very business-like, does
his work, does not meet people to make small talk, clears his
files fast and goes home by 6 pm, said an official.

The minister takes a dim view of officials who talk to
journalists roaming the ministrys corridors. He would rather
see them work, said one. Chidambaram underwent minor surgery
last week and was not available for an interview.

A former lawyer, he has a reputation for intellectual
prowess, and also arrogance that has won him enemies within the
ruling Congress party and on occasion alienated public opinion.
His eloquence, however, has made him arguably the most effective
spokesman for the troubled Congress party.

BETTER TIES WITH CENTRAL BANK

The last time Chidambaram was finance minister, in
2004-2008, growth was motoring at a near-double-digit clip,
fuelled by the transformational reforms that Singh introduced in
1991 to open up a state-stifled economy.

It will be no easy ride this time.

Growth was just 5.5 percent in the June fiscal quarter, its
slowest rate in three years, in large part due to the global
economic crunch. Investment has shrunk and the fiscal deficit
has also ballooned, fuelled by hefty subsidies on diesel,
kerosene and fertilisers.

Growth is slowing, there are lots of issues in the world
economy. Everybody else is slowing, said Dipak Dasgupta,
principal economic adviser in the ministry. We have to pick up
the pace with which we do things.

A key part of Chidambarams strategy to work around the
political gridlock has been to forge better ties with the
Reserve Bank of India (RBI), which frayed under Mukherjee. The
two were at odds over which should come first – fiscal reforms
or cutting high interest rates.

The ministry and the RBI are now working on a coordinated
plan that would see Chidambaram take the first step by unveiling
some fiscal reforms, possibly in September. That could give the
central bank room to ease interest rates.

Chidambarams strategy to improve investor perceptions may
already be paying some dividends. Deutsche Bank analysts
returned from a recent trip to Delhi encouraged by the moves to
boost infrastructure spending and private investment.

Its not all doom and gloom, Deutsche said in a research
note. Our recent trip … left us with the impression that
there may be an undue concentration of pessimism which may be
ripe for some upside surprise.

(Additional reporting By Ross Colvin and Nigam Prusty in NEW
DELHI and by Suvashree Dey Choudhury and Swati Bhat in MUMBAI;
Writing by Ross Colvin; Editing by John Chalmers and Raju
Gopalakrishnan)

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