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The UPA government has brought back P. Chidambaram as the finance minister. He is expected to be a hands-on, competent minister, one who would manage the economy and push reforms. But the problems with the Indian economy and the government's policies are much wider. It seems the finance minister is expected to play a much bigger role than just framing policies for the financial sector. This cannot be done without the wholehearted support of his party and government. Cutting fiscal deficits, reducing inflation, bringing back investor confidence, raising the investment and savings rate and putting India back on a high growth path will need much more than what lies within the finance minister's domain.
When the economic situation worsened — even before Pranab Mukherjee's retrograde tax proposals in the budget of 2012 — it seemed no one in the government was monitoring the investment slowdown. No one seemed to be in charge of solving the problems related to the functioning of various ministries that were damaging the business environment, and creating bottlenecks for investment and growth. Businessmen who met the finance minister were often disappointed with the lack of follow-up on their late-night meetings with him.
In addition, another important function of the ministry, as the champion of market-friendly reforms, was no longer being performed. Earlier, even when no fundamental reforms were taking place in other spheres of the economy, a dedicated team at the finance ministry kept pushing India's financial sector towards liberalisation and globalisation. This stream of initiatives, both on solving obstacles to investment, and in liberalising financial markets, played an important role in keeping optimism about India high. Even after the world economy and financial markets plunged into disarray after the global financial crisis, the finance ministry's initiatives helped prevent a bigger crisis in India. But the slow reversal to the old philosophy of socialism and control in the ministry of finance under Pranab Mukherjee undermined the confidence that the government was committed to making India a liberal and open-market economy. The tax proposals in the Union budget of this year provoked even the most loyal to protest.