If a week is a long time in politics, then 25 years must be a lifetime. Life has finally completed a full circle for the 73-year old Pranab Mukherjee who takes over the reins of the finance ministry on a full time basis after a 25-year interim, which to those who have lived through that period may seem more like many lifetimes in one. In fact, the India of 1982-84 (and the world of 1982-84)?the period in which Mukherjee was last finance minister?were vastly different from the present in terms of both politics and economics. What has perhaps remained constant is minister Mukherjee?s instinct for reform.

It is important to note that when Mukherjee took charge as FM in 1982, the world was just beginning its tryst with the power of free markets and globalisation led by the governments of Ronald Reagan in the US and Margaret Thatcher in the UK. To the credit of the then Congress government led by the instinctively left-wing Indira Gandhi?with Mukherjee as FM?India too took its first baby steps towards a free market economy and away from a rapidly failing socialist economy. This policy change may seem minute now, but in a world in which the Soviet Union still thrived and the supremacy of markets was still uncertain, the policy changes were bold. Mukherjee was, in fact, rated among the top five FMs in the world by Euromoney, a title normally bestowed on a reformer.

Also, there is now considerable academic research?Rodrik and Subramanian?s thesis* being the most famous?which argues that

India actually got on to a higher growth trajectory (of 6% plus) with the reforms?and the accompanying attitudinal shift in favour of business?in the 1980s, a process Pranab Muhkerjee played an important part in. Unlike the more celebrated reforms of 1991, which liberalised the external sector (trade, forex controls and FDI), the equally important reforms of the 1980s were aimed mostly at the domestic economy?the beginning of delicensing and deregulation of private industry and the first signs of a competitive market economy. Perhaps the most visible symbol of advance of this period was the launch of Maruti-Suzuki and the transformation of the Indian automobile industry.

Interestingly, globalisation, which was at its early rise when Mukherjee first became FM, is now facing a near existential crisis and perhaps even rollback as he takes office in 2009. How should the new finance minister respond? There will be clamour from various influential quarters, not least in the Congress party, to abandon economic reform in light of the crisis. However, that would be unwise. Just as India was very different from both the West and the USSR in the early 1980s, and chose its own distinct path, it still remains very different from the crisis-ridden West and must therefore choose its own distinct path again, even if in small steps like the early 1980s. The new minister will undoubtedly be helped by the fact that the momentum for radical liberalisation (especially of finance which would face the maximum opposition) will be tempered by the crisis. And it makes eminent sense to think about the appropriate structures of deeper financial liberalisation before we move forward.

At the same time, the mandate that the Congress has received, and the decimation of the Left, will present an opportunity to further reform in other spheres?rethinking labour laws, liberalising FDI norms in non-financial sectors, disinvestment and reining in the fiscal deficit, all of which are unrelated to the crisis and must proceed to boost growth. These are critical for the financing and success of the UPA?s admirable social sector schemes.

Even in the financial sector, not all efforts to reform need be abandoned. There is still a strong case for a federal deposit insurance scheme, an independent debt management office and more competition in the banking sector. The lethargy of public sector banks cannot be allowed to continue just because some foreign banks took excessive risks. It is in the consumer interest to have a more responsive banking system.

So, Mukherjee still has a large agenda of reform that needs attention. There is no reason to doubt his commitment to this agenda of reform?remember that even in the 1990s, even though Rao and Singh got most of the credit, Mukherjee too played an important role in reform. As commerce minister, he signed the Marrakesh agreement that created the WTO and liberalised trade significantly. And as deputy chairman of the Planning Commission, he backed the government?s thinking on restructuring the economy.

Many arguments were being bandied about in favour of a politician, and not a technocrat, as FM. The one advantage that Mukherjee has as a battle-scarred veteran politician is the possession of the necessary skills and the political reach to push reform through what will continue to be a divided polity?the UPA does not have a majority in the Rajya Sabha, and has an ally in the Trinamool Congress (with whom Mukherjee has a good working relationship) which is at best lukewarm to reformist ideas.

Most importantly, only a politician can sell to his own party and to the people of India the idea that economic reform is actually pro-people (pro-poor). Few finance ministers have been able to sell this idea convincingly. Pranab Mukherjee has the ability and opportunity to change that.

*From ?Hindu growth? to productivity surge: The mystery of the Indian growth transition (2004)

?dhiraj.nayyar@expressindia.com