MASTER OF THE BLEAK HOUSE
Being a political animal, there is no denying that Chidambaram
is malleable in convictions and knows politics is not about
the art of the impossible.
Before P. Chidambaram’s name was announced as finance minister, in speculative conjectures, several names did the rounds. The list included a couple described as non- political technocrats or specialists. If one does the right thing by reforms, how does it matter whether the person is political or non- political, as long as he possesses requisite expertise? Preference for politicians suggests the agenda, the objective function and the constraints will be driven by not economic rationale but what is politically proper. Political propriety is euphemism for perceived electoral dividends, where the ballot rather than the bullet is bitten and savoured. That effectively determines contours of 2013- 14 Budget, and 201415, if there is one. Chidambaram is perceived as one of the architects of 1991 reforms. That flows from his role as 1991- 96 commerce minister. Slashing QRs ( quantitative restrictions) and revamping export subsidies is chalk. The cheese of finance has many more holes. Think of the dream budget of 1996- 97. It turned into a nightmare because of the Fifth Pay Commission and it was the finance minister, rather than Left, who pushed Pay Commission implementation through. If one still recalls slashing of tax rates in a dream budget, one should be reminded of a statement issued by Chidambaram when he was home minister, just before 2012- 13 Budget was finalised. He advocated higher tax rates for the relatively rich.
Being a political animal, there is no denying that Chidambaram is malleable in convictions and knows politics is not about the art of the impossible. A budget is about reviving political spirits, not those of the animal variety. Consider Chidambaram’s track record as finance minister between 2004 and 2008. Whatever deficit indicator one takes ( fiscal, revenue, primary), the sharp worsening occurred in 2008- 09 and lest we forget, Chidambaram was then finance minister, not Pranab Mukherjee, though Mukherjee got the blame for profligacy. It was Chidambaram who first pushed back terminal year of Fiscal Responsibility and Budget Management ( FRBM) Act and then hit the ‘ pause’ button in 2005- 06. On most computers, the ‘ pause’ key is next to ‘ delete’ key. Ergo, Chidambaram buried FRBM and fiscal consolidation and it is presumptuous to believe he will resurrect either now. Widening public expenditure is a Chidambaram legacy, as is violation of promises on improving efficiency of public expenditure. ( Read 2004- 05 Budget speech on food stamps and targeting subsidies only towards poor.)
Conversely, there is tax reform. In part, say Goods and Services Tax, this involves talking to states and negotiating with them. Though one shouldn’t pre- judge, Chidambaram’s home minister persona doesn’t inspire a great deal of confidence in this case. There are also standardisation, harmonisation, removal of exemptions and taxing income. As finance minister in UPA 1, Chidambaram has exhibited tendencies towards taxing items that aren’t income— Fringe Benefit Tax for instance. A raid raj has also been associated with the earlier Chidambaram tenure. Higher public expenditure, higher tax rates, retrograde taxes, cesspools of cesses, raids to generate revenue, and legerdemain in window- dressing deficit numbers don’t inspire confidence. Realist industry and markets will factor these in and take solace from the truth that any other UPA finance minister would have damaged no less. However, those who still bask in the hype of 1991 reform credentials and believe that Chidambaram is innately businessand commerce- friendly, are in for a shock. This doesn’t mean nothing will get done. For a start, GAAR and retrospective tax laws ( especially penalty and interest) will hit a pause button, though not a delete. And there will be some reforms in financial sector to assuage investor confidence.
This leaves big- bang reforms, which concern both other Central ministries and states. There are two caveats. First, announcing big- bang reforms first and bothering about follow- up later, hasn’t been his predecessor’s style. With Chidambaram, any flashy announcement ( pensions, banking, insurance, FDI, petroleum product pricing) should be treated with scepticism, until institutional delivery is ensured. Reforms are never big- bang ( other than 1991). They are steady- state, even if they masquerade as big- bang, and the present state is somewhat unsteady. Second, reforms aren’t fashioned by ministers alone. There is a bureaucracy in finance ministry and there is a vacuum now, both in quantity and quality. Given the ‘ Hard Times’, it is best not to have ‘ Great Expectations’. In weaving ‘ A Tale of Two Cities’, Chidambaram will be constrained by the so- called inclusive agenda and cater more to Bharat than to India. Whether that serves the cause of either Bharat or India is a separate debate. However, that’s the compulsion he will operate under, which is why he is in finance ministry, and not a non- political technocrat, or a politician who doesn’t know the ins and outs of budget- making, and therefore lacks skills to get back on roundabouts what is apparently given away on swings. Sounds like a ‘ Bleak House’, but that’s the way it is.