Pragmatism: Common strand in Chidambaram`s eight budgets

Siddharth Tak and Rohit Joshi / Zee Research Group

Having just presented his eighth budget, P Chidambaram has become the only second finance minister in the country to do so. Presented in varying circumstances and under diverse political leadership, Chidambaram’s eight budgets read together tell an interesting story about the man, his economics and politics.

While his latest budget has been paned by some for being neither reformist nor populist, a study of his all budgets sums him up as simply being pragmatist. Most importantly, he has always stuck to a few common favourite themes that have defined his role as the finance minister.

Agriculture, banking and insurance, capital markets, and taxation have emerged as the top priorities across his budgets. “He is a reformist as well as pragmatist. He understands the ground situation very well. He won’t go for any reform which doesn’t have political backing and pragmatism is evident above all,” said old time market watcher Sudip Bandopadhyay, now President at Destimoney Securities.

Experts believe that Chidambaram’s budgets present an overall balance between sectors, regions and sections of the society under the given constraints. Given his penchant for the agriculture sector, the FM raised agricultural credit target this time to Rs 700,000 crore that is nearly 21.7 percent higher than the target for 2012-13.

He also proposed continuation for the farm loan interest subvention plan. Farmers will now be able to access this credit facility from private banks as well. Chidambaram almost came to be identified with the sector when in 2008-09 he waived off Rs 60,000 crore agriculture loans.

With regards to the insurance sector, he proposed on February 28 that insurance companies can open branches in Tier II cities and below without IRDA nod. Furthermore, he announced that all towns with 10,000 people population would have access to state life and non life insurance facility.

Similarly, he stuck as always to make some important provisions in domestic savings and taxation. On taxation he did as bit of tinkering but it was indeed a part of his action plan: he proposed a levy of 10 per cent surcharge on individuals having income greater than Rs 1 crore. Other tax proposals include tax credit of Rs 2,000 to every person whose total income up to Rs 5 lakh.

Explaining the rationale behind Chidambaram’s focus on these four common areas, Brinda Jagirdar, consulting economist (former chief economist at SBI), averred, “Most of them are finance related areas and the financial sector is doing well in the country. It is expected to grow along with the economic growth of the nation. The penetration of insurance and banking sector is low in the country. Moreover, all these segments have a pull factor in terms of investment and revenues.”

Bandopadhyay of Destimoney Securities, opined, “As a finance minister Chidambaram has been trying to project the India’s growth story. That is why his focus has been on the capital markets to lure foreign investors. To meet his other regular challenge to curb fiscal deficit he has concentrated on taxation.” Furthermore, Chidambaram belongs to Congress party which needs to win the elections so by default his orientation is towards agriculture, he added.

Banking and Insurance go hand in hand for financial inclusion. ‘Aam Aadmi’ angle is being covered by focusing on sectors like Bank and Insurance, Agriculture.

As part of G K Moopnar’s Tamil Manila Congress in the 1996-97 National Front-Left Front government led by H D Deve Gowda, Chidambaram’s first budget imposed a Minimum Alternate Tax (MAT) on profits invoking the wrath of the corporate world.

But his subsequent budget delivered in front of a national audience (thanks to expanding live television coverage) in 1997-98 got him the dream budget presenter title. By hacking taxes and duties across the board, relaxing FII investment limits and opening up insurance sector along with a black money amnesty scheme, Chidambaram became corporate India’s darling.

Although it is not always possible to present a dream budget, yet each of Chidambaram’s budgets has been a story of maturity and growth for the politician.