As he leaves North Block for Parliament this morning to present his eighth Union Budget, Palaniappan Chidambaram has many stakeholders to please: Global investors, domestic corporates, rating agencies and about a third of the country that lives in abject poverty. But he is a man known to surprise everyone, often pleasantly. History is witness.
As part of the United Front Front government led by HD Deve Gowda in 1996-97, Chidambaram presented his first Budget, which imposed a minimum alternate tax on profits, a move that invited the wrath of the corporate sector.
Despite that poor start, he went on to present one of the best budgets of all time. In 1997-98, Chidambaram presented what has since been called his “Dream Budget” in which he hacked taxes and duties across the board, relaxed FII investment limits, opened up insurance and introduced a black money amnesty scheme. This Budget moderated tax rates for individuals and corporates alike. He reduced the maximum marginal income tax rate for individuals from 40% to 30%, and cut the corporate tax rate drastically.
Chidambaram is also responsible for bringing the fringe benefit tax (later revoked), the securities transactions tax and the banking cash transaction tax during his stint as finance minister in UPA-I.
In Budget 2005-06, he announced that all states had agreed to introduce the value-added tax (VAT) with effect from April 1, 2005. The national rural employment guarantee programme was introduced the same year.
In a move which conflicted with his reformist image, he announced a farm loan waiver in 2006-07, which ended up benefitting 36.8 million farmers and cost the government around Rs 60,000 crore. He also proposed the goods and services tax (GST).
Chidambaram’s policy prescription in the 10th annual financial statement of the UPA government will be a tight balance between the need for fiscal discipline, improving investor sentiment, raising tax receipts and some populist steps ahead of general elections in 2014.
He is often praised for presiding over India’s high-growth years. His previous tenure saw average annual growth touching 8.5%.
While presenting his last Budget in 2008-09, he credited revenue buoyancy to “moderate and stable tax rates, coupled with a tax administration that shows no fear or favour.” A sparkle of wit was to follow: “Having a lucky finance minister may have also helped!” Under his watch, the Indian economy achieved 9.3% growth in 2007-08.
The luck didn’t last. As the economic mood turned sour, Chidambaram’s successor Pranab Mukherjee argued that when everything goes well, everyone share the joy but when things go wrong, it is the finance minister who is called upon to administer the medicine. Mukherjee’s tenure was dampened by the global financial crisis and a slowing Indian economy with average annual growth dropping to around 7%.