Reform,subsidies,growth: Lot on successors plate

Pranab leaves behind an economy in crisis with GDP growth down to a nine-year low of 5.3%.

As Finance Minister Pranab Mukherjee readies to move out of North Block to go further up Raisina Hill,he leaves behind an economy in crisis with GDP growth down to a nine-year low of 5.3 per cent in the last quarter of 2011-12,key policy decisions stuck,stubbornly high inflation and deteriorating macroeconomic indicators.

The first challenge for Mukherjees successor will be to rev up growth while keeping inflation at bay especially because the eurozone crisis is likely to continue,and a delayed or deficient monsoon in India could harden prices further. The person at the helm would also have to push decisions that might woo back foreign investors who have left in recent months,having tired of UPA 2s policy inertia.

Reforms to cut the subsidy burden in particular,freeing up or at least increasing diesel prices would have to top the priority list if the government wants to demonstrate to global rating agencies such as S&P its commitment to fiscal consolidation. The new incumbent will have to build the UPAs political will for this step,essential to reducing fiscal deficit to the budgeted 5.1 per cent in 2012-13.

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Breaking the stalemate over allowing foreign direct investment in multibrand retail and letting foreign airlines buy stake in domestic carriers will also fall to the new minister. Financial sector reforms such as those in pension,and raising FDI in insurance are pending too.

Two important tax reforms are waiting at the threshold. A constitutional amendment Bill for the introduction of the Goods and Services Tax (GST) is pending with the standing committee on Finance. It needs to be pushed through in Parliaments coming session; the Centre must also build consensus among states for the tax.

On the direct tax front,the Direct Taxes Code Bill,which seeks to replace the half-a-century-old Income-Tax Act,1961,needs to be re-introduced in Parliament to meet its April 2013 deadline for implementation.

Mukherjee has been the UPAs favourite troubleshooter,and heads 20 Groups of Ministers,including Empowered Groups of Ministers panels,on issues as diverse as norms for vacating and auctioning of 3G spectrum to deciding on the appropriate location for a National War Memorial. A high-profile replacement for all of these panels would be required.

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Significantly,two key officials in the finance ministry too will leave soon after Mukherjee demits office. Economic Affairs Secretary R Gopalan,who is on a three-month extension,will retire on July 31. And the finance ministrys chief economic adviser,Kaushik Basu,is set to leave in August.