I once came to know P. Chidambaram briefly. He was the most intelligent minister I came across in the government of P.V. Narasimha Rao. I found him open, curious and willing to learn. In these respects he was the antithesis of an average minister, who was vain, ignorant and rude. Amongst the civil servants, Chidambaram was also judged to be arrogant and abrupt. The contradiction between his public image and my personal impression puzzled me. I explained it to myself by saying that he did not suffer fools gladly. But it was not an entirely satisfactory explanation.

It was Chidambaram’s bad luck that his wife had placed some money with Fairgrowth Investments for him. Manmohan Singh expropriated this financial company because it was somehow associated with Harshad Mehta. Although a succession of custodians that the finance ministry appointed to administer the expropriated assets managed them honestly, they could not manage them as well as Harshad Mehta, and the assets fell short of his liabilities. The custodian eventually paid off investors and creditors, but only in part. So I suppose Chidambaram lost some money.

But much before that, he lost his job. He wrote to Narasimha Rao and told him he had invested with Fairgrowth. Narasimha Rao dismissed him. I personally think that Harshad Mehta had done nothing wrong. As the Janakiraman Committee brought out, he had invested banks’ funds in the stock market at their request, and if that was against the Reserve Bank’s regulations, it was the banks that were at fault, not he. But Manmohan Singh expropriated Harshad Mehta’s assets by ordinance, and he was harassed day in and out by the government until he died.

Embittered, Chidambaram joined the United Front and became finance minister in 1997. The United Front government did not last. When it fell, Narasimha Rao had been deposed, and Sonia Gandhi had taken over the Congress. Chidambaram returned to it — and became the finance minister again in 2004. That is how, as he said in his budget speech yesterday, he and Manmohan Singh are the only finance ministers to have presented five successive budgets. Add the two in the United Front government; I cannot think of any Indian finance minister other than C.D. Deshmukh who has presented more budgets.

I have watched Chidambaram’s budgets with consternation. I cannot believe for a moment that he is mischievous or malicious; he must have made budgets that he thought were good for the economy. But I have felt that many of his fiscal innovations were grievously ill-considered. The newfangled taxes he has imposed in the current term — fringe benefits tax, securities transactions tax and dividend distribution tax — are examples of this irresponsible precocity. In my view, an ideal tax system would have three taxes at most — on income, on value added, and on value of assets. Income tax may be progressive, but the other two should be proportional. Other innovations of Chidambaram were also designed to gouge taxpayers without any consideration of fairness. So I waited for this budget too with trepidation.

And he surprised me. He did not come up with any more unpleasant surprises. On the contrary, he corrected some of his previous mistakes. He promised to abolish banking cash transactions tax, which was one of his less judicious taxes. He promised to modify the fringe benefits tax, though he did not say how. He made the securities transactions tax a deductible expense against business income; repeal would have been better, but this is small relief. He promised to remove the double taxation involved in the dividend distribution tax. It is just as well he stopped at these changes; if he had gone further, he might have shocked me to death.

One thing that disappointed me in Chidambaram’s budgets — though it did not shock me — is that they have been broadly revenue-neutral. Sometimes they have been slightly revenue-positive; but that has not been intentional. Economics suggests that the budget balance should move anti-cyclically. When the economy is booming and demand is rising faster than supply, a finance minister should increase revenue more than expenditure and thereby reduce total expenditure; when the economy is slack and output can respond to demand, a finance minister should raise expenditure faster than revenue and thereby increase total expenditure.

Ever since Chidambaram took over in 2004, the economy has been booming; he should have raised revenue faster than expenditure. He might have found it difficult to rein in expenditure. The Congress is a spendthrift party. It replenishes the coffers of its party cadre by letting it siphon off what the government spends; and its thirst is insatiable. But if that is what drove Chidambaram, he should have raised taxes. A party of big government expenditure should be a party of high taxes — which is what Indians understand by socialism. So I would have preferred him to have raised taxes — not by inventing new ones, but by just adding a couple of per cent to the existing tax rates.

Well, he did not do it in all these years. But he has done something right macroeconomically this time: he has reduced the Central value added tax from 16 per cent to 14 per cent generally, and more on vehicles, drugs and a few other goods. He did so to spur manufacturing, whose growth plummeted from 16.4 per cent a year in March 2007 to 5.2 per cent in November according to the index of industrial production. The collapse of manufacturing was too precipitate to miss. But government economists suffer from an occupational hazard: they are prone to take too bright a view of economic performance — for, after all, it is their government — and to downplay bad news.

The news is worse than Chidambaram was told. It is not just industry that is heading for a slump; between the first quarter of 2006 and the third quarter of 2007, gross domestic product figures show growth to have come down from 14.8 per cent to 10.4 per cent in trade and transport and from 12.9 to 10.7 per cent in construction. The figures can be read differently by taking different sources and periods; and that is what official economists are perhaps doing. But they are only postponing the shock. This financial year may see 8.7 per cent growth; in the coming year, growth may be closer to 7 per cent than nine. And the year after? Five per cent? In 2000-03, the average growth was 4.7 per cent. Let us dream, but economies cannot be built of dreams alone. A solid sense of reality is what an observer of the economy needs.

By the time of the next budget, the United Progressive Alliance government would be counting days if it has not fallen; so it is understandable if Chidambaram does not lose sleep over the coming slump. And his bureaucrats would be waiting for a new government; whatever they told Chidambaram would be forgotten. It would be another budget, and another day. But meanwhile, Chidambaram gave me a pleasant surprise — by making a good budget within the limits placed by the expertise of his team and the interests of his party. May he give us many more nice surprises.