Congress finance ministers in the past five years followed what in my view were unwise macroeconomic policies. P. Chidambaram ruled the ministry at a time when the economy was booming; so, therefore, was government revenue. If only he had kept expenditure growth slightly below revenue growth, he would have rapidly reduced the fiscal deficit. Instead, he made broadly revenue-neutral budgets, and threw away a chance to put central finances on a sounder basis.

But compared to his successor, he was a paragon of virtue. Pranab Mukherjee, who succeeded him in 2008, spent as if there was no tomorrow and winning the general election was all that mattered. He told farmers they did not have to repay loans. He funded the rural employment guarantee programme under which any one person from a rural family could go to a collector and ask for a hundred days’ work every year; if he was given work — and even if he was not — he could get Rs 100 a day. In other words, Mukherjee showered money on villagers who had votes. And they gave his party votes; that is why he is back as finance minister.

But that electoral bargain cost the country dear. According to the finance minister’s figures, the fiscal deficit ratio in the past two fiscal years was 7.8 and 6.9 per cent. But yesterday, he promised to mend his ways, and to bring down the ratio to 5.5, 4.8 and 4.1 per cent in the coming three years. He promised to revert to fiscal sanity, though not too fast.

If he keeps this promise, he will do an enormous favour to the economy. For to bridge the fiscal deficit, he borrows chiefly from banks. Being owned by the government and risk-averse, they lap up government debt; they just love it. If it becomes less abundant, however, they will start financing farmers, traders and industrialists. Instead of financing the government’s wasteful consumption, they will begin to fund productive investment. That would be an important step towards the eight per cent growth all Congress finance ministers dream about.

The finance minister did not have to sweat to achieve the 5.5 per cent deficit. If he had done nothing at all, it would have come down to 5.7 per cent, because the gross domestic product keeps growing and thereby increasing government revenue. If he had only raised the taxes on goods and services that he did, he could have taken the ratio down to less than five per cent. But then he thought that would be going too far; he wanted to become good, but not too fast. To convince us that he was serious, he promised to table a status paper on public debt, and to follow it up with annual statements. He also promised to forsake the tricks he and his predecessor used to try to hide debt, like making oil companies pay subsidy on diesel, kerosene and liquid petroleum gas, and fertilizer companies on fertilizer. He did not promise reforms; as he put it, tax reforms are a process — as slow a process as possible. But meanwhile he promised to reform himself.

But why give people hope when you can make them happy? The finance minister raised the income tax brackets to give taxpayers a bit of relief. He reduced the surcharge on corporation tax that companies have to pay, and raised the deductions they earn on research and development — but increased the minimum alternative tax, which should have be abolished. Since the prime minister was once a social scientist, the finance minister gave tax refunds to those who would give money to social science institutions. He exempted charities from tax as long as they remained tiny. He exempted renewable energy equipment from customs duty, and agricultural equipment, as long as it did not compete with home-produced machines.

He bailed out Mamata Banerjee. She had commissioned a white paper which showed how old and shoddy the railways’ assets were and how much investment was required to repair and renew them. But she did not have the courage to raise fares and rates and earn some money to invest. Instead she went and cried on his shoulder. They are not quite buddies; in the battlefields of Bengal politics they have often fought. Still, Mukherjee gave her Rs 167 billion.

The finance ministry is clearly concerned about the financial sector. All its efforts to spread banking into villages have come to nought; banks are simply not interested in chasing borrowers whose debts the government will eventually write off anyway. Now Mukherjee has come up with the idea of having a bank branch in every village with more than 2,000 people; but those branches will be mere shells. The domestic capital market is also not raising much capital for companies. Big companies prefer to raise money abroad, and have to be stopped by the Reserve Bank of India. The small enterprises are perpetually short of capital. So the finance minister announced a financial sector legislative reforms commission, and also a stability and development council, which he called a super-regulator for finance. Why two bodies? It seems that the finance ministry thinks it has a problem, but has no idea how to go about solving it. It has a tried and tested regulator in the RBI, but does not have the confidence to merge all the little financial regulators it has set up into the RBI. It does not know its own mind, and it is doubtful that two more bodies will help it do so.

Perhaps the most promising initiative mentioned by the finance minister is one that has nothing to do with his ministry: it is a plan to spread the green revolution to eastern India. The thought behind it is a good one; the states of the east and the Northeast have abundant rainfall and do not require investment in irrigation. Their yields are low and capable of being raised. So the next 100 million tonnes of grain should come from them. They cannot grow oilseeds and pulses; these will be promoted in 60,000 dryland villages. The government has spent so much time and energy giving jobs in villages without thinking about whether there is any work for people to do; all it can think of for them is to dig holes and repair roads — work which will all be erased in the next monsoon. If, instead of trying to give jobs, the government thought of creating a market for what villages can produce, it will do much more good at a lower cost.

Pranab Mukherjee had the tax code all ready; he had the report of the 13th Finance Commission on his table. He ignored both of them. He could have done so much; he did not. But he did not do any harm either. Admittedly, he faced a benign economic environment and did not have to take any hard decisions. Still, people will be grateful that he left them alone, and even made some smile. He will not be quicker or bolder in the future; but it is still to be hoped that he will last long enough to implement some of the good ideas he is sitting on.