Indias 28th Finance Minister made his preferences clear from the moment he stepped inside in January 2009,first as an interim arrangement to steer the economy out of the impact of the 2008 global financial meltdown and then later in the full-blown mould after the 2009 general elections. New arrangements did not sit pretty with him as he grappled with an economy which had matured in his absence,since 1984.
In his virtually last active week as Finance Minister,the Reserve Bank of India made a candid presentation to acknowledge that the banking correspondent model has developed problems. This model is one of the UPA governments pet projects to bring banking services to the remotest part of the country. Yet,the RBI says,there are nearly a lakh banking correspondents now with five million no-frills account holders,but no bank is clear how to use these numbers to make a business model. It is a new-age banking problem for Mukherjee,the UPA governments perennial problem-solver. The problem requires financial experts to sit down with each bank to craft opportunities to market the products,all the while working out the technological glitches with the service providers. The spin-offs are immense for the economy,but Mukherjee,saddled with almost every sort of economic problem of the UPA government,did not have the time for it.
As one officer who has closely worked with the minister almost every day for the past few years says,Finance ministers need to do some work in isolation if they have to succeed in large economies like India. The Micro-Finance Institutions Bill drafted in his time to reinvigorate the sector is still to go through Parliament.
It was again because the minister,short of time and accustomed to the big-brush picture, could not peruse the details,that the revenue department came up with some of the bloomers which have cost the economy badly. The rushed-through amendments to the General Anti-Avoidance Rules and the retrospective amendments to tax cross-country deals in Budget 2012-13 are only the latest in this list. The Central Board of Excise and Customs too has brought in changes to service tax that hugely raises compliance costs for small industries.
As a result,Mukherjee will be the first post-reform finance minister who will leave without possibly having created any legacy institution. The Goods and Services Tax and the Direct Tax Code are works in progress and pre-date his entry. Pension and insurance reforms bill have not moved and there is no clarity when new bank licences will be issued.
Some of these problems have to do with the unwieldy Financial Stability and Development Council that he has created to replace the high-level committee of financial sector regulators. The Council is headed by the Finance Minister who has rarely found time to attend it,but in the process has emasculated the balance of authority among the regulators by removing the RBI Governor from the chairmanship of the regulatory committee,instead making him only a member. His successor will have to move rapidly to restore the trust deficit among the regulators that has been one of the worst-kept secrets in the finance ministry during this term.
An immediate casualty is Indias response to the euro zone crisis. Since the minister was not available as Indias forex position deteriorated,coordinated regulatory decisions on how to work out a response have gone missing. A minister in whose watch the four parameters of the economyfiscal deficit,current account,inflation and growthflounder cannot expect to leave on a high note.