Mukherjee takes charge of slowing Indian economy

NEW DELHI (Reuters) - Indian Congress Party veteran Pranab Mukherjee takes over the job of managing Asia's third-largest economy at a time when it faces slowing growth, worsening public finances, falling exports and huge job losses.

Mukherjee, 73, has decades of experience in government and was the foreign minister in the previous administration. He also held temporary charge of the finance ministry when Prime Minister Manmohan Singh underwent heart surgery in January.

During a speech to present the interim budget in February, Mukherjee called for raising spending to shield the economy from the global slump and stem job losses.

"Conditions in the year ahead are not likely to be normal and therefore the high fiscal deficit," Mukherjee had said, referring to a jump in government spending.

Analysts said the overriding challenge was to revive growth, getting it back on track for the 8-9 percent authorities see as a plausible economic speed limit in the 2010/11 fiscal year.

Growth is expected to have slowed to less than 7 percent in 2008/09 from rates of 9 percent or more in the previous three fiscal years with the fiscal deficit running at the highest since the early 1990's.

Expectations for fresh stimulus to protect growth and jobs have grown since the Congress-led coalition won a decisive mandate last week.

"He has a stiff challenge of reviving the economy while maintaining fiscal balance," said D.K. Joshi, principal economist at domestic credit ratings agency Crisil.

"We look forward to economic reforms and a medium-term fiscal strategy from the finance minister," he said.

Another analyst said it was not clear how well Mukherjee would be able to handle complex financial issues in the midst of a global meltdown and a ballooning fiscal deficit at home.

"But there is a problem now. Financial issues are very complex. One doesn't know whether he has studied it all. I don't know how he will address it," said D.H. Pai Panandikar, economist at RPG Foundation.

India's consolidated fiscal deficit is estimated at 9 percent of the gross domestic product and a fresh stimulus to spur growth would widen the deficit and raise the already bloated borrowing program.

"Right now he does not have any room he needs. In the immediate future, the government may not have any control over the fiscal deficit situation," N.R. Bhanumurthy, economist with Institute of Economic Growth (IEG).

HEAVYWEIGHT

A former finance and trade minister, Mukherjee is a heavyweight in the Congress party and a confidant of Congress party chief Sonia Gandhi, which should hold him in good stead as he charts the way ahead in a slowing economy.

In its five budgets since 2004, the Congress party-led coalition has raised spending on health, education and rural employment but analysts say the economy has suffered due to a lack of economic reforms.

Mukherjee, who has a degree in law, history and political science, was the finance minister when Singh was appointed as governor of the Reserve Bank of India in the early 1980's.

EuroMoney magazine in 1984 named him as one of the world's best finance ministers.

"He will have to bring to bear both his experience and ability to deal with the problem so that the government is able to make the best job of a comparatively complicated economic and fiscal situation," Saumitra Chaudhuri, economic adviser with credit ratings agency ICRA.

(Additional reporting by Krittivas Mukherjee and Manoj Kumar)

(Editing by Sanjeev Miglani and Jon Hemming)