Chidambaram back as finance minister, Shinde gets home

New Delhi: P. Chidambaram was named India’s finance minister following the departure of Pranab Mukherjee to become the country’s President, boosting expectations that stalled reforms may get a push, ending the policy paralysis that has gripped the government.

In his first communique after becoming president, Mukherjee appointed power minister Sushil Kumar Shinde as home minister on Tuesday, taking over from Chidambaram. Corporate affairs minister M. Veerappa Moily got additional charge of power.

Shinde was made home minister in the face of objections by the Nationalist Congress Party (NCP), ally of the Congress party in the United Progressive Alliance (UPA) that it heads. The new power minister takes over amid blackouts across half the country caused by grid collapses on Monday and Tuesday.

The reshuffle assumes importance ahead of the monsoon session of Parliament scheduled to begin on 8 August.

Known for his technocratic style of functioning and pro-reform views, Chidambaram was last India’s finance minister between May 2004 and November 2008. Average economic growth between the 2004-5 and 2008-9 fiscal years was 8.4% while average inflation stood at 5.96%. Citing global and domestic risks, the Indian central bank on Tuesday pared its growth projection for fiscal 2013 to 6.5% from 7.3%, and raised the year-end inflation forecast to 7% from 6.5%.

A rain-deficient monsoon is expected to undermine growth while adding to inflationary pressure. Chidambaram was also finance minister in the United Front government under prime minister H. D. Deve Gowda for less than a year between June 1996 and April 1997.

Chidambaram’s advantage is his earlier experience in the finance ministry, said Sudipto Mundle, honorary professor at the National Institute of Public Finance and Policy.

“The finance ministry needs a man who can take urgent and decisive action on key legislative issues,” he said. “Somebody like Chidambaram with prior experience can take tough action.”

Another high-profile economic appointment is expected shortly, with Raghuram Rajan likely to join the finance ministry as the new chief economic adviser after Kaushik Basu’s term ended Tuesday. Rajan is former chief economist at the International Monetary Fund and currently serves as professor of finance at the University of Chicago’s Booth School of Business.

Rajan, 49, may take a couple of months to join the government, said a government official on condition of anonymity. Rajan was earlier honorary adviser to Prime Minister Manmohan Singh and also headed India’s committee on financial sector reforms. He is also author of the book, Fault Lines: How Hidden Fractures Still Threaten the World Economy.

Rajan is young and has already established a formidable global reputation, Mundle said.

“I would see him as an asset,” he said. His prior engagement with the government ensures that he’s familiar with the Indian situation.

Speculation had been rife about a cabinet reshuffle to revive the economy and instill fresh energy into the Congress party, which has been hit by a series of corruption charges against its leaders. Allies have been blocking reforms that the UPA had promised. The coalition has also been crippled by its slender majority in the Lok Sabha, where the Congress relies on allies and issue-based support for the passage of every legislation. The UPA does not have a majority in the upper house.

Shinde is also likely to be nominated as leader of the Lok Sabha, a post Mukherjee held. Prime Minister Singh is a member of the Rajya Sabha, the upper house.

A bigger reshuffle may take place after the monsoon session is concluded on 7 September, said Congress party leaders who didn’t want to be named. This may include cabinet expansion, they said.

The ruling Congress and the UPA have been working on an image-building plan ahead of state elections this year and next, and before the 2014 general elections.

The announcement that Congress general secretary Rahul Gandhi, considered the ruling party’s future prime ministerial candidate, will take a more “active role” in the party and the government had once again triggered rumours that he would be made a minister. However, Congress leaders indicated the Gandhi scion still prefers to play a more active role in the organisation to revamp and re-energize the party. Several Congress leaders said the image makeover the government will get from the shuffling of portfolios and the induction of fresh faces apart from Gandhi’s greater involvement in the party’s workings will help improve its prospects. Gujarat and Himachal Pradesh go to the polls later this year and Karnataka, Madhya Pradesh and Rajasthan next year.

A Congress general secretary, who did not want to be identified, said the cabinet expansion is expected to be followed by a sweeping revamp in the party organization, inducting fresh faces. The leadership is convinced there is not much time left for the party and the government ahead of next general election. The focus will be on key states such as Andhra Pradesh, Madhya Pradesh, Maharashtra and Karnataka.

liz.m@livemint.com