Who Will Manage India’s Finance Portfolio?

The Congress today bid a farewell to Pranab Mukherjee, the Union Finance Minister who will file his nomination for the presidential poll on June 28. He is expected to resign from his current position tomorrow. He earlier said he would announce certain steps to help the economy which is currently affected by a depreciating currency, sticky inflation, sluggish industrial growth and low economic growth. He is likely to work on these issues mainly by working on encouraging and boosting foreign investments.

Earlier today, the Reserve Bank of India (RBI) hiked the limit of External Commercial Borrowings (ECB) and the limit of overseas investment in government bonds. This did not help improve overall market sentiment and the Sensex today declined by 0.53 per cent to 16882.16.

Allowing foreign supermarket chains to set up in India, announcing rules regarding the implementation of General Anti-Avoidance Rules (GAAR), taking remedial steps to work against the negative repercussions of the retrospective amendments to income tax laws are the changes that are likely to have a positive effect on foreign investors. If Pranab Mukherjee manages to bring into action the above steps, it would mark a respectable and impactful resignation and a powerful start in his race to becoming the President.

With Pranab Mukherjee resigning, the question of his replacement arises. Likely candidates according to media reports include current Prime Minister, Manmohan Singh, C Rangarajan, Chairman of the Economic Advisory Council to the Prime Minister, P Chidambaram, Home Minister and Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission.

A recent poll conducted by Economic Times revealed that 7 of the 20 brokers and fund managers polled think C Rangarajan will possibly take over the position while 6 said it could be P Chidambaram. Manmohan Singh got 2 votes while Montek Singh Ahluwalia and Anand Sharma received 1 each.

Of the candidates mentioned above, we at DSIJ think it would be beneficial for the current situation of the economy to have a finance minister like Manmohan Singh. He was the finance minister during India’s 1991 crisis. He brought about reforms that were revolutionary and that spurred growth in the economy for a very long time. Recently at the G20 summit, he mentioned his intentions to reverse the fiscal deficit and control subsidies. Looking at the current global and domestic situation, structural reforms are necessary for a turnaround. This coupled with RBI action on the monetary front has the capacity to put things back in place. Manmohan Singh has proved his ability to bring about major changes earlier. He is also in favour of foreign investments and the steps that are necessary to be taken at the moment would become more probable to be announced in case he takes over the finance portfolio. Bold reforms stimulated a long wave of growth by the steps taken in 1991 and the country is now in need for that kind of an impact and boost to the economy.

India is need of major structural reforms to bring in foreign investment and to improve its economic health. There is possibility of Pranab Mukjerjee announcing impactful changes and at the same time there is hope on the new finance minister making robust changes to favour a stronger economy. Whichever the case, the economy is in need of a catalyst in the form of bold steps to transform the finances of India.