As Mr P. Chidambaram returns to North Block as Finance Minister, he would do well to introspect as to why India’s finances and economic performance have taken a beating in the last four years.

While it would be tempting to blame the situation on developments abroad, a lot of the problems and their solutions lie within the country. The key expectation from Mr Chidambaram therefore will be to kick-start the stalled economic reform process.

The benchmark Sensex, which has been sombre and range-bound, is likely to cheer his return to the Finance Ministry.

Unlike his previous stint as Finance Minister in the UPA-1 regime, when the economy was in the pink of health, the economic situation now is certainly not that “fit and proper”, if one were to use regulatory language.

India had recorded over nine per cent growth in three successive years to March 31, 2008.

This time round, several challenges have already piled up before Mr Chidambaram including restoring investor confidence in the economy, tackling ballooning fiscal deficit, reviving the ‘animal spirits’ in the economy.

Mr Chidambaram, who has always been a votary of stable and moderate tax rates, will in his new role be required to push through two major tax reforms — new direct taxes code and introduce goods and services tax (GST) system.

For this, several crucial legislations including a constitutional amendment Bill have to be passed in Parliament.

It is the area of taxation that has been the spoilsport for UPA-II. Many of its tax policy choices have paid good dividends for the exchequer, but they have left foreign investors fuming.

The common man who has faced the brunt of multiple taxation is yet to recover and has opted for reduced consumption.

His predecessor — Mr Pranab Mukherjee — had a tough time building political consensus on the legislative amendments required to push through economic reforms in areas such as insurance and pension. The last three years have seen very little progress on the financial sector reforms front.

The feel good factor that the middle class saw in Mr Chidambaram’s earlier stint – 2004-08 — has to return if UPA has to make some lost ground, point out economy watchers.

So will Mr Chidambaram deliver the goods for a faltering economy that is reeling under high inflation and moderating economic growth? Only time will tell.

srivats.kr@thehindu.co.in

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