India PM's step into financial role laudable but risky

By Surojit Gupta - Analysis

NEW DELHI (Reuters) - A decision by India's prime minister to add the finance portfolio to his workload in the wake of the Mumbai attacks risks undermining the country's ability to respond to the global credit crisis.

Analysts don't doubt the prime minister's qualifications for running the finance ministry. He is a former finance minister who led India out of a balance of payments crisis in 1991 and then opened the country up to foreign investment.

But they question how much time he can devote to the economy now that domestic security and relations with neighbor Pakistan are top of the political agenda following the attacks last week that killed more than 180 people.

That risks blunting India's reaction to the world's biggest financial storm in decades and puts greater emphasis on the central bank to lead the policy charge.

"The focus will be on security, money comes after that," said Saumitra Chaudhuri, a member of the prime minister's economic advisory council.

The prime minister, Manmohan Singh, took on the extra portfolio so that the finance minister can take over the home ministry, where the incumbent resigned to take responsibility for the response to the Mumbai attacks.

But Singh's decision is being criticized because of the risks the economy faces from a global financial downturn that has already knocked a fifth off the value of the rupee against the dollar and more than half off the main Mumbai stock market.

"An economy the size of India needs a full-time finance minister, more so because of the health of the economy now," said Yashwant Sinha, a former finance minister and an opposition lawmaker.

An editorial in the Business Standard, a leading financial newspaper, raised similar concerns:

"As laudable as Dr. Singh's willingness to extend himself is, the economy would be better off with a full-time finance minister," it said.

RISKS TO GROWTH

Economic growth is expected to slow this fiscal year to 7 percent from an average of 9 percent over the last three years as the global downturn bites.

Such an outcome would still keep growth for this year above the 6 percent level widely regarded as the minimum rate needed to absorb millions of people entering the workforce.

But, underlining the risks posed by the global downturn, many private economists say growth could fall below 6 percent in 2009/10, slowing down the rate of job creation.

That makes the finance minister's key role of organizing India's notoriously sluggish bureaucracy on economic issues even more critical now, said former finance minister Sinha.