NEW DELHI, 25 May 2004 — After weeks of chaos and volatility in financial markets, investors cheered India’s new reformist finance minister yesterday, but a key ally refused to take over ministries it was allocated, demanding more powerful posts.
The differences, which came up on the first day Prime Minister Manmohan Singh’s Communist-backed coalition government opened for business, are not seen as a major threat, but underline the difficulties in bringing cohesion to the alliance.
But Bombay’s benchmark stock market index was not deterred. Hit by some of the biggest plunges and recoveries in its history in the chaos that followed India’s election, it closed up 3.26 percent yesterday.
Manmohan, the father of India’s reforms, named Harvard-educated lawyer Palaniappan Chidambaram to the critical post of finance minister on Sunday in a bid to calm battered markets. Chidambaram was commerce minister when Manmohan, then finance minister, began dismantling India’s socialist controls in the early 1990s.
In his first news conference since taking over, Chidambaram said the reforms critical for growth in Asia’s third-largest economy would be continued, and they would be enhanced by the experience he had gained in the past 13 years. “It will be my endeavor to promote investment which I believe is the key to growth, jobs and to income,” Chidambaram said. “I have come back with very valuable experience.”
Economists said the signs were promising. “Chidambaram has proved himself and the markets have accepted him in the past. But how much will he be able to deliver under a coalition government is to be seen,” said Paras Adenwala, head of equity funds at Birla Sun Life Mutual Fund. “Overall, I am happy that things are moving. We have a government in place.”
But one of the key questions still remaining for the economy as the government began its first working day was the coalition’s economic agenda and the pulls and pressures from allies.
The seven ministers of the Dravida Munnetra Kazhagam (DMK) party refused to report for their jobs yesterday, a day after portfolios for the 67-member council of ministers were announced.
DMK President M. Karunanidhi alleged that a coterie around Sonia Gandhi and Manmohan deprived the DMK ministers of the portfolios originally allocated, and said that its continuance in the government depended on Manomhan Singh resolving the issue.
“It is not good for Sonia Gandhi as well as Manmohan Singh to be surrounded by a coterie of people. They have to be protected from that coterie,’’ he told mediapersons at Anna Arivalayam in Madras.
Karunanidhi made it clear that DMK ministers would not assume office until they were allocated the porfolios promised earlier. The high-level strategic committee of the DMK would meet today to discuss the issue. He also displayed to the media the copy agreement signed by him and Congress leader Janardhana Reddy listing out portfolios to be allotted to the DMK ministers.
“These things happen in a coalition,” said Kamal Nath, a senior Congress party official who held talks with some DMK members. “It’s a small matter which we will solve soon. It’s not serious.”
Manmohan and his allies, including a pivotal bloc of Communists and leftists, are also still drawing up their economic blueprint, the Common Minimum Program.
After voters punished the ousted Bharatiya Janata Party for failing to share the benefits of reform, Manmohan is promising modernization with “a human face”, balancing change with the need to tackle poverty and raising living standards.
A draft of the pledges shows the new government will aim for 7 to 8 percent annual economic growth, spur foreign investment but slow privatization of state firms, party officials said. “The underlying message is that reforms can be people-oriented without compromising on the credo of the market as primary allocator of resources,” the Economic Times newspaper said.
