Pranab Mukherjee's term as Finance Minister: 5 things to remember

The United Progressive Alliance said that finance Minister Pranab Mukherjee would be their nominee for presidential polls. Mr. Mukherjee will likely resign on June 24, sources said. He is expected to file his nomination for the top executive job a day later on June 25. The move will close the chapter on Mr Mukherjee’s term at the helm of the Indian economy, in which India weathered the global financial meltdown, saw tax laws that spooked investor sentiment, and announced reforms that were rapidly renounced due to political pressure. Here are the top 5 things that marked Mr Mukherjee’s term as Finance Minister.

The United Progressive Alliance said that finance Minister Pranab Mukherjee would be their nominee for presidential polls. Mr. Mukherjee will likely resign on June 24, sources said. He is expected to file his nomination for the top executive job a day later on June 25. The move will close the chapter on Mr Mukherjee’s term at the helm of the Indian economy, in which India weathered the global financial meltdown, saw tax laws that spooked investor sentiment, and announced reforms that were rapidly renounced due to political pressure. Here are the top 5 things that marked Mr Mukherjee’s term as Finance Minister.

DEFICIT DISASTER

Mr Mukherjee started off on a strong note on the fiscal consolidation front. In the first year of UPA-II, the fiscal deficit for FY2010 came in at 6.8 per cent, almost one percent less than the 7.8 per cent in fiscal 2009. Since then, it has been steadily downhill. The single largest blow to the country’s finances has been the burgeoning fiscal deficit. In FY2012, it bloated to 5.9 per cent of gross domestic product, largely because of subsidy bills and welfare spending. The deficit targe for FY13 has been set at 5.1 per cent of GDP.

WHAT FINANCIAL CRISIS?

India’s handling of its economy in the aftermath of the global financial crisis came in for widespread praise. Working in tandem with the Reserve Bank of India, Mr Mukherjee effectively ring-fenced the Indian economy and banking system from the financial crisis that sent Western economies crashing. Instead, India recovered to post over 8 per cent GDP growth in fiscal 2010 and 2011.

REFORMS AT STANDSTILL

To say that the UPA government has been slow in implementing reforms will be a gross understatement. Many key reforms, some of which were conceptualized in the first term of the UPA government are still hanging fire. FDI in insurance and pension, 100% FDI in multi-brand retail, deregulation of fuel prices, the Goods and Services Tax, the Direct Taxes Code and FDI in aviation are some of the key reforms that have seen little progress, either because of opposition from state governments, within the Congress itself, or from UPA allies.

VODAFONE AND RETROSPECTIVE TAX

Vodafone’s 2007 acquisition of Hutchison Essar quickly snowballed into an investor sentiment problem after Finance Minister Pranab Mukherjee introduced a retrospective tax amendment that would require all overseas deals involving Indian assets to pay capital gains tax. While Vodafone claims paying about Rs 20,000 crore in taxes, interest and penalty will increase costs for subscribers, the move has left global investors wary of investing in India through such routes for fear of such large tax payouts.

FII FLIGHT

Mr. Mukherjee has also announced his intention to curb black money, which often is repatriated to India disguised as investment by foreign institutional investors (FIIs). However, given the lack of regulatory clarity as to how this will done, legitimate FIIs and holders of P-notes have started to pull out their money, fearing harassment by tax authorities.