Indian finance minister Palaniappan Chidambaram is an unashamed champion of the private sector and foreign direct investment (FDI) but he is up against strong resistance. The ruling coalition, an unwieldy alliance between the Congress Party and a constellation of communist and left-leaning parties, keeps his reformist designs firmly in check. Privatisation and labour reform have already been thwarted; limits on FDI are popular.
In many ways, Mr Chidambaram is acknowledged not so much for fresh reform momentum but more for holding on to past progress. But that understates the minister of finance’s ongoing efforts to liberalise investment laws, cut bureaucracy and improve the business environment.
The stakes are high. Like China, India is viewed as an engine of future global growth. Two decades ago both economies were in similar shape; today China’s economy is more than double the size, per capita income is more than twice India’s, and the proportion of people living in absolute poverty is almost a third the figure in India.
Mr Chidambaram does not miss an opportunity to stress the fact that China achieved this development by attracting more FDI – as much as 12 times more than India.
“FDI has worked wonders in China, so why not in India?” he says, laying down a marker for more liberal investment policies.
Unlike China, Mr Chidambaram knows he cannot reform by decree. He is unapologetic for the fact that democracy – coalition partners, the opposition and a free press that all have to be listened to and carried along – is the main reason why reform has not been swifter. In India, successfully making the case for reform is far more of a skill than knowing what reform to seek.
It was not just determined pursuit of reform, however, that earned Mr Chidambaram his award. As if his campaign for reform was not a full-time preoccupation, his plate is already full reining in the country’s ominous fiscal deficit, which is likely to end the last fiscal year on target at 4.5% of GDP, down from 6% in 2006.
Given the coalition government’s left-leaning outlook, limiting scope for any cuts to social welfare spending, Mr Chidambaram is to be applauded for tightening controls on spending under the circumstances, promising to close the deficit in five years.
