For Chidambaram, there is no time to waste

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P. Chidambaram has a simple message for investors disillusioned by India's policy drift: it is no longer 'business as usual' in the corridors of North Block, the sandstone colonial building that houses the finance ministry in New Delhi.

For months, critics have accused Prime Minister Manmohan Singh's government of being asleep at the wheel.

Frustrated investors accuse it of both over-confidence and complacency in the face of an economic slowdown that has shattered the country's reputation as 'Incredible India'.

"We have come to a stage where something concrete has to happen," said Rupa Rege Nitsure, chief economist at Bank of Baroda in Mumbai. "The current period is very, very critical for India."

But in the 41 days since his appointment as finance minister - for a third time - Chidambaram has shaken up the ministry and impressed analysts.

He has sought to signal that Asia's third-largest economy finally has someone willing to take tough decisions.

Several officials, who asked to remain anonymous, said there had been considerable change in the finance ministry, where Chidambaram was working to shake off the dithering seeping down from policy-makers.

In a series of interviews, they described him as a no-nonsense man who is constantly questioning, hands-on, meticulous and intolerant of people who could not manage their time.

India's economic policy-making has been blocked for months by confusion, mis-steps and political gridlock.

While the timing of big-bang reforms remains uncertain, the Harvard-educated Chidambaram is trying to work around bickering politicians and is drawing up a package of smaller measures to stop the rot, such as improving tax collection, fast-tracking stalled infrastructure projects and asking state banks to ease lending to small manufacturers.

His ministry is ratcheting up pressure on wayward coalition allies of the ruling Congress party to agree on a long-overdue increase in heavily subsidised fuel prices.

Ministry officials warned for the first time last week that if the hikes did not take place soon, spending cuts might be necessary to keep the budget deficit under control. The cabinet may consider making a move on fuel prices this week.

Chidambaram's appointment may have bought the government a reprieve from international credit rating agencies, which have threatened to downgrade India to junk status over New Delhi's policy paralysis, ministry officials said.

But he does not have much time. Investors, weary of empty rhetoric and broken promises, are impatient for action now.

Chidambaram has made clear he understands the importance of winning back investors' confidence.

That stands in stark contrast with his predecessor Pranab Mukherjee, now India's president, who scared off foreign investors with confusing tax reform proposals and failed to drive through any major reforms during his near four-year term.

PICKING UP THE PACE

Nowhere are the winds of change clearer than in North Block, where officials are working longer hours and weekends, and with a new sense of urgency and accountability.

"His message is very clear. Either you have to perform or find a way to move out of the ministry," said one official, who attended Chidambaram's first meeting with senior staff.

Reinforcing the message of change was the appointment of Raghuram Rajan, the outspoken former chief economist to the International Monetary Fund, as Chidambaram's top adviser.

Earlier in 2012, Rajan offered a stinging critique of the government's economic policies at an event attended by Singh.

Since Chidambaram's arrival, senior ministry officials have been logging their arrival and departure each day using fingerprint scanners located at the building's entrances. Earlier, only junior staff were required to do so.

"What he has done is put everyone on their toes and made them accountable," the official said.

Mukherjee typically arrived at his office around 11 a.m. and would then spend much of his day meeting constituents and Congress party officials. He tended to read ministry documents late in the day and would often leave around 10 in the evening.

"Chidambaram comes in by 9 am, is very business-like, does his work, does not meet people to make small talk, clears his files fast and goes home by 6 pm," said an official.

The minister takes a dim view of officials who talk to journalists roaming the ministry's corridors. "He would rather see them work," said one. Chidambaram underwent minor surgery last week and was not available for an interview.

A former lawyer, he has a reputation for intellectual prowess, and also arrogance that has won him enemies within the ruling Congress party and on occasion alienated public opinion.

His eloquence, however, has made him arguably the most effective spokesman for the troubled Congress party.

BETTER TIES WITH CENTRAL BANK

The last time Chidambaram was finance minister, in 2004-2008, growth was motoring at a near-double-digit clip, fuelled by the transformational reforms that Singh introduced in 1991 to open up a state-stifled economy.

It will be no easy ride this time.

Growth was just 5.5 per cent in the June fiscal quarter, near its slowest rate in three years, in large part due to the global economic crunch.

Investment has shrunk and the fiscal deficit has also ballooned, fuelled by hefty subsidies on diesel, kerosene and fertilisers.

"Growth is slowing, there are lots of issues in the world economy. Everybody else is slowing," said Dipak Dasgupta, principal economic adviser in the ministry. "We have to pick up the pace with which we do things."

A key part of Chidambaram's strategy to work around the political gridlock has been to forge better ties with the Reserve Bank of India (RBI), which frayed under Mukherjee.

The two were at odds over which should come first - fiscal reforms or cutting high interest rates.

The ministry and the RBI are now working on a coordinated plan that would see Chidambaram take the first step by unveiling some fiscal reforms, possibly in September. That could give the central bank room to ease interest rates.

Chidambaram's strategy to improve investor perceptions may already be paying some dividends.

Deutsche Bank analysts returned from a recent trip to Delhi encouraged by the moves to boost infrastructure spending and private investment.

"It's not all doom and gloom," Deutsche said in a research note. "Our recent trip ... left us with the impression that there may be an undue concentration of pessimism which may be ripe for some upside surprise."