Pranab Mukherjee resigned as India’s finance minister to vie for the presidency, prompting Prime Minister Manmohan Singh to take charge of the portfolio as he tries to revive a faltering economy.
Singh will head the ministry until Mukherjee’s successor is appointed, Pankaj Pachauri, communications adviser to the prime minister’s office, said in New Delhi yesterday. Singh was finance minister in the 1990s, sparking an economic turnaround that now faces one of its sternest tests. Mukherjee, the ruling Congress party’s nominee for the presidential poll in July, quit earlier yesterday.
Mukherjee departs with the government projecting record borrowing to plug its budget deficit and as political gridlock hampers efforts to spur investment and ease bottlenecks stoking elevated inflation. The veteran politician’s attempt on June 25 to halt a slump in the rupee by allowing foreigners to buy more bonds fizzled, leaving the currency close to its weakest level against the dollar as his three-year tenure ends.
The immediate emphasis of the government “is to manage balance of payment” and implementing policies that boost institutional flows to India, Singh said in comments posted on his Twitter Inc. account today, after meeting Chief Economic Adviser Kaushik Basu and finance ministry officials. Singh said there is a need to revive investor sentiment and “reverse the climate of pessimism.”
The rupee, which touched a record low of 57.3275 per dollar on June 22, declined 0.2 percent to 57.1350 today. It is down 21 percent in the past year, the worst slide among major Asian currencies. Aside from India’s deteriorating outlook, the rupee has also been hurt by Europe’s debt crisis, which has sapped demand for emerging-market assets.
Singh’s decision to refrain from appointing a successor immediately implies he “wants to keep the portfolio with himself for some time to push stalled reforms and lift the slowing economy in order to boost confidence” said Satish Misra, an analyst at the New Delhi-based Observer Research Foundation.
Singh Steps In
Singh, 79, was finance minister for five years from 1991, when India was on the brink of defaulting on some of its overseas debt. In his first two months in the job, he devalued the rupee, tackled government monopolies, cut import tariffs and tax rates, and let foreign companies take majority stakes in sectors including automobiles and pharmaceuticals.
Liberalization spurred faster growth, including an 8.4 percent expansion in the 12 months ended March 2011, before a paralysis in policy making contributed to a slowdown to 5.3 percent last quarter from a year earlier, a nine-year low.
The government’s recent setbacks include the suspension in December of plans to allow foreign companies such as Wal-Mart Stores Inc. (WMT:US) to open supermarkets after an ally of the ruling coalition objected. India has also foregone investment in the pension and insurance industries in recent months.
Swedish furniture retailer IKEA last week eased some of the gloom, saying it wants to open stores in India and may invest as much as 1.5 billion euros ($1.9 billion). Coca-Cola Co. said yesterday the company and its local partners plan to spend $5 billion in the country by 2020.
Mukherjee, 76, entered parliament in 1969 after working as a teacher and journalist. He had stints in charge of India’s foreign, defense, commerce and steel ministries and ran a closed economy as finance minister from 1982 to 1984.
“Given the challenging global environment during his tenure, Mukherjee has done a decent job,” said Vishnu Varathan, an economist at Mizuho Corporate Bank Ltd. in Singapore. “A lot more could have been done, but one has to be mindful of political processes involved which make ground-breaking changes a lot tougher.”
Mukherjee’s resignation may lead to a cabinet reshuffle as Singh tries to revitalize his development agenda to cut poverty.
Home Minister Palaniappan Chidambaram, Commerce Minister Anand Sharma, Deputy Chairman of the Planning Commission Montek Singh Ahluwalia, Chairman of the Prime Minister’s Economic Advisory Council Chakravarthy Rangarajan and Rural Development Minister Jairam Ramesh are all probable candidates to replace Mukherjee, Business Standard newspaper reported June 15.
The government projects record borrowing of 5.69 trillion rupees ($100 billion) in the year through March 2013. It aims to narrow the budget gap to 5.1 percent of gross domestic product this fiscal year, from 5.76 percent in 2011-2012.
Inflation accelerated to 7.55 percent in May, and the central bank signaled this month that price pressures are crimping scope to cut interest rates.
Fitch Ratings and Standard & Poor’s have said they may strip Asia’s third-largest economy of its investment-grade rating. The nation has struggled to pare spending on a subsidy program ranging from diesel to fertilizers.
“It’s a very messy combination of things that is going on in the economy,” said Robert Prior-Wandesforde, Singapore-based director of Asian economics at Credit Suisse Group AG. The next finance minister will need to improve public finances by raising fuel prices and push forward with other reforms, such as introducing a goods and services tax, he said.
The finance ministry and Reserve Bank of India two days ago boosted the amount of government bonds foreign investors can purchase by $5 billion to $20 billion to support the rupee.
The poll for president, India’s highest constitutional office, is due July 19. Elected legislators of state assemblies and the federal parliament will vote to select the successor to Pratibha Devisingh Patil.
While largely a ceremonial post, the president is the supreme commander of the armed forces and oversees the creation of a government after general elections, which are due by 2014.
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