The Reimagining India Man : Arvind Subramanian

The man who told the world `Why China’s dominance is a sure thing’ and rated the Modi Government with 3 straight As along with a dismal D, Arvind Subramanian, Senior Fellow at the Peterson Institute for International Economics, will be India's new Chief Economic Advisor.

Arvind Subramanian & his book `Eclipse'

Report Card For Modi

A year before the Indian elections which swept Modi to power, Subramanian in an essay `Precious Experiment’ written in a book `Reimagining India', said “strong leaders, who will deliver good governance and reforms, like Gujarat chief minister Narendra Modi” were part of the reason to maintain faith in India’s economic possibilities.  He also pointed out that at that point of time, in comparison to neighbor China, India suffered from relative less effective state capacity, an indirect but easily understood criticism of the Manmohan Singh regime.

Not surprisingly, just about 45 days after Modi took over, Subramanian published a `Provisional Scorecard for Recent Modi Government Measures’, where he gave three straight As to the Modi regime for tackling inflation, encouraging states to liberalise free movement of fruits and vegetables, and partially rolling back restrictive labour laws. He however gave the Government a poor `D’ rating for raising sugar subsidies and increasing duty on sugar imports in a bid to appease the powerful Uttar Pradesh and Maharashtra based sugar lobby.

The Government’s decision to raise duty on imported sugar to 25 per cent announced on Friday 22 August coincided with news leaking out that he will be the new Chief. One wonders how the economist reacted to the cause of his `D' grade rating becoming a reality.

The Inevitable Superpower

Subramanian, whom the influential Foreign Policy magazine included in its annual global list of `Top 100 Thinkers’ for 2011, is considered an unconventional yet brilliant economist whose seminal book `Eclipse: Living in the Shadows of China’s Economic Dominance’ which challenged the conventional belief that US would remain the global leader well into the rest of the century at best and at worst share the power-play with China at worst. He did this by coming up with an index of dominance based on GDP, trade and the extent to which a country is a net creditor to the rest of the world, to figure out relative standing of the largest economies between 1870 and 2030.

His startling finding was that even on a conservative estimate, the world was going to be a unipolar one, dominated not by the US, but by China, whose relative rise would fuelled partly by American decline and partly by its own economic ascendancy. The US debt to GDP ratio, for instance, would have crossed 100 per cent, while China which already holds 50 per cent of US paper, would have accumulated far greater credit holdings. In an interview he gave to the magazine wired, Subramanian said: “I see China’s Renminbi replacing the dollar as a global reserve currency in 10 to 15 years.”



 

`China's Star Over Africa'

The Stephanian, who had gone on to study at IIM Ahmedabad, before doing his doctorate in economics from Oxford, pointed out in a preview piece in the influential Council for Foreign Affairs’s publication – Foreign Affairs - that it was control over the levers of credit, which allowed the US to use the IMF, in the words of Mickey Kantor, US Trade Representative under Bill Clinton, as "a battering ram," to open up Asian markets, including India, which in time would give China global dominance.

Even before that, the USA had used the threat to hold back credit to get the ageing Super-power of that time - Great Britain - to withdraw troops from the Suez canal in 1956. A bitter Harold Macmillan, who, as the British chancellor of the exchequer, presided over humiliating stages of the crisis, would later recall that it was "the last gasp of a declining power." Macmillan has been quoted as having said then "perhaps in 200 years the United States would know how we felt."

Subramanian's contention is that despite having a fairly low per capita income, China had already started using credit and trade to influence global power-play. Among other things by convincing African countries where it invests heavily to shut down Taiwanese embassies. It has similarly forced European and US firms to part with technology to allow them to access to its market and America's time feel the hurt was coming sooner than Macmillan had predicted. 

His controversial book won him many detractors, but also admirers among the best brains in the world. Legendary former US Secretary Henry Kissinger, Stanford professor and influential author of `End of World’, Francis Fukuyama and Pulitzer prize winner  Liaquat Ahamed  are among those who gushed about his thesis.

Indian Perestroika

Subramanian who has worked for the GATT and IMF in previous incarnations, in another startling paper, vindicated what many of President Pranab Mukherjee aides when he was finance minister in the Indira Gandhi Government,  have long touted - the real  `Indian perestroika’  happened in the 1980s and not in the 1990s.

He pointed out in a paper, "Hindu Growth" to Productivity Surge: The Mystery of the Indian Growth Transition’, co-authored with Princeton economist Dani Rodrik, that it was India’s decision to cut corporate tax rates, lift price controls and opening up the market to imports, which spurred firms to become more competitive.

His implicit argument was that the `pro-market’ reforms brought about Dr Manmohan Singh which brought in a surge of foreign investment would not have been possible without the `pro-business’ steps of the 1980s which made domestic business competitive, in effect ran counter to current economic wisdom.

It is now to be seen whether he continues with the 1990s pro-market reforms or strives to bring back some of the 1980s pro-business measures to prop up Indian manufacturing which has been tottering in the wake of the global meltdown and greater ascendance of Chinese manufacturing muscle.  

 

Bugdet Surprises !

Surprise, Surprise !

Finance Minister P Chidambaram

India’s Finance Minister P Chidambaram is a past master of surprises and he certainly lived up to his reputation with his Monday morning interim budget even if it was at the cost of a smart piece of statistical jugglery.

Ignoring MPs trying to shout him down as he read out his 17-page speech, a page shorter than that read out by President Pranab Mukherjee in his interim budget of 2009,   Chidambaram announced he had managed to squeeze Government’s fiscal deficit to 4.6 per cent against a target of 4.8 per cent of GDP, on the back of a successful auction of telecom airwaves and huge spending cuts. “Well below the red line I had drawn last year,” as he glibly told Parliamentarians.

Critics however, point out that what was left unsaid was that the Government would roll-over the fourth quarter oil subsidy bill of around Rs 35,000 crore to the next financial year, in a sleigh of hand described as `routine’ for the past few years, to keep the deficit for this year under a lid. The petroleum subsidy being paid out in 2013-14 is Rs 85,480 crore. If the Rs 35,000 crore bill which has been rolled over to the next financial year is added, the real fuel subsidy bill would have been  Rs 1,20,000 crore !

However, at the same time the finance minister has set a tough target for his successor, of pruning the deficit to 4.1 per cent of GDP for the next fiscal, while drastically reducing the amount of money available as fuel subsidy. In effect, the next Government if it tries to live up to his targets will have to run against popular opinion and cut fuel subsidy drastically or else live beyond its means. The petroleum subsidy allocated for 2014-15 stands at Rs 63,426.95 crore, of which Rs 35,000 crore will be spent on paying back subsidy due this fiscal ! In reality, this will leave the Government with just over Rs 28,000 crore to pay for the fuel subsidy for the whole financial year or about a fourth of what Chidambaram spent in a year on this count.

Stimulus : His and Mine

President Pranab Mukherjee

The finance minister’s other big announcement was of slashing of excise duty or ex-factory taxes on automobiles by a fifth to a third, which could make cars, motorcycles and sports utilities, cheaper. As well as duty cuts on capital and consumer goods from 12 per cent to 10 per cent and a slashing of duty on mobile phones from 6 to 1 per cent, if tax credit for inputs are not sought or 6 per cent with tax credits, was hailed by India’s industrial barons as  a `visionary stimulus’. The duty cuts will be available for a short period till end-June this year, possibly because a new full year budget will have to be presented by a new Government in June this year.

A number of media analysts are now gleefully pointing out that Chidambaram is replicating what his predecessor Pranab Mukherjee, now India’s President, did in 2009 when he cut excise by 4 per cent across the board. Uncomfortable for the finance minister who in the past had slammed “certain decisions that we took during the period 2009 to 2011,” (when Mukherjee was at the helm of affairs in the finance ministry) which he felt pushed the fiscal deficit upwards.

Both were gifting tax-give-aways, in the hope that it would reduce prices, revive demand and in turn bail out a faltering manufacturing sector which has been consistently shrinking for the last eight months.

Populism : Tough to Live Down

Budgets are always as much political statements as they are financial. Chidambaram tried to live up to that maxim with the few sops he announced. But more than that, he also announced sops which may prove to be financial booby-traps for his successor. Chidambaram promised a Rs 2,600 crore interest relief for 9 lakh students who took loans before end-March 2009, with the Government paying interest till end-December 2013. He also promised to to let old soldiers enjoy the benefit of a scheme which calls for `one rank, one pension’.  Some 2.4 million retired defence personnel were paid pension at differing rates depending on when they left service, creating heartburn among older soldiers.  

While this will cost him chicken feed in this financial year (an estimated Rs 500 crore), in coming years this will be a big ticket item in the defence expenditure budget and a source of headaches for Mandarins trying to balance books.

Right-drive Vision

However, the minister did more than lay out fiscal booby-traps for incoming ministers, he also laid out a long term vision for economic development with which his right-wing opponents in the BJP may have few or no quarrels. (Of course India’s Communist parties as well as regional parties would find this vision absolutely unacceptable on many grounds).

Among others, he sought reduction in fiscal deficit to 3 per cent by 2016-2017 obviously through deep subsidy cuts; a policy to encourage foreign investment without too many constraints; a balance in monetary and fiscal policies between price rise-busting and economic growth, which may mean that inflation which hits the poor more should be tolerated to let India grow faster; a slew of fiscal sector reforms which could open up banking and finance to more domestic and foreign investors; a stress on manufacturing and exports with state and central taxes on all exported goods either waived or slashed and tariff walls to incentivise domestic manufactures and most controversially - more centre-state sharing of spending on flagship programmes like job guarantee schemes and literacy. Currently these schemes are almost entirely under-written by the Centre. This move would certainly not win him any brownie points with the likes of Mamata Bannerjee or Nitish Kumar or for that matter even Karunanidhi.

Whether Chidambaram gets a chance to live through with his agenda for the future is however, something which the country would decide in the coming summer. But then the pointers will remain for the next finance minister to wade through.

Pranab Boss Again

Vintage Pranab Mukherjee

In 1974, when a 39-year-old Pranab Mukherjee was appointed minister of state in the key ministry of finance, he met a studious-looking economist who was three years older than him and then the ministry’s chief economic adviser.

Mukherjee and Manmohan Singh worked together on the first tentative revenue reforms in the late ’70s after the former was made junior minister with independent charge of revenue and banking and Singh appointed finance secretary.

In 1982, when Mukherjee came back to North Block as finance minister at the young age of 48, he remembered Singh who had by then shifted to Yojana Bhavan as member-secretary. Mukherjee recommended Singh for the job of Reserve Bank of India governor.

The recommendation from Mukherjee, who counted then Prime Minister Indira Gandhi as his mentor, was accepted. Singh got the job.

Decades later, in 2004, Mukherjee joined Prime Minister Singh’s cabinet as minister, first for defence and then for external affairs before eventually returning to his old portfolio of finance in 2009.

From tackling the Telangana crisis to the spectrum scandal, Mukherjee became his party’s man for all seasons — so much so that by 2012, he headed some 25 Groups of Ministers and Empowered Groups of Ministers.

However, by 2012, Singh had probably started getting a little wary of his former boss, who had a different take on some issues. Sources said Singh often felt cramped by Mukherjee.

Mukherjee is now set to depart his North Block office to try and take up residence in the house atop Raisina Hill, giving Singh, widely regarded as the father of India’s reforms programme, a chance to retake his original ministry and try to shape the economy in his own way.

Mukherjee said as much to reporters, who wanted to know how the government would tackle the economic slowdown, after the announcement of his candidature for President.

“The Prime Minister himself is an eminent economist and under his leadership we will overcome this crisis,” Mukherjee said.

India’s Constitution is vaguely worded on the powers of the President, which has often led to tiffs between Prime Ministers and politically driven Presidents (such as the ones between Jawaharlal Nehru and Rajendra Prasad and between Rajiv Gandhi and Zail Singh).

However, many analysts believe that perhaps this very vagueness may lend Mukherjee more powers than usual to solve India’s myriad problems, in working together with Singh.

Becoming President at a time the country is going through a period of crisis could also give Mukherjee more influence than he would have had in an earlier decade. An added advantage is that he could use the prestige of his office to draft Opposition parties’ support.

With the economy in slowdown, he could play a lead role in resolving the deadlock between the government and the Opposition on key pieces of legislation such as the land acquisition, insurance and pension bills, the goods and services tax and the value-added tax.

Usually, the President’s office does not get down to resolving legislative imbroglios. But with the economy in the doldrums and Parliament numbers often proving elusive for the ruling alliance, a pro-active President may well be the answer to the frustrating wait for reforms to unfold.

Constitutional experts say that the rules of business do not preclude the President from acting as an elder statesman.

They cite how the Supreme Court had ruled that the President is not a mere figurehead but a moral authority who may stay in touch with the Prime Minister on matters of national importance and policy.

Plugging the Mauritius Route

The Stock Markets are not exactly with this googly. In fact the free fall on the BSE despite a reduction in the securities transactions tax soon after the budget, was mainly on this count, regardless of what your television analysts are telling you.
Finance Minister Pranab Mukherjee has finally done what everybody has been demanding should be done for a long time but never had the guts to do – plug the Mauritius route for round tripping.
Mukherjee managed to slip it through, by a simple amendment to section 90 and Section 90A  of  the income tax law, a clause which says that an entity cannot claim benefits of a tax avoidance treaty signed with a tax haven, just by “submission of a tax Residency Certificate containing prescribed particulars”. The firm or individual has to prove that it does really do most of its business there.
India for long, was trying to plug a loophole in its tax laws by which firms used to round trip through Mauritius to buy and sell shares here while avoiding paying capital gains. By declaring they were Mauritan residents they could avoid payiong any tax all as India has Direct Tax Avoidance Agreement with the zero tax island nation.
Mauritius consequently has been a funnel for pouring investments into India, some of which were perhaps shady. India had started talks with the island country on renegotiating the treaty but Mauritius officials were not exactly happy about anyamendment to the tax treaty which could affect investments into the island country, and were for long dragging their feet over it. 
Mukherjee simply circumvented these long drawn out negotiations and attacked the opportunist money which was often being routed through these islands, avoiding Indian taxes. The legal tweak is expected to address concerns that investments into Indian stock market are often routed through Mauritius to avoid short term capital gains tax of 10 per cent. About 40 per cent of all foreign institutional investments coming to Indian bourse are routed through this tiny Indian Ocean island.
Finance ministry officials point out that foreign institutional investors who have kept shares with them for more than a year will not be affected by the changes in rules as there is zero tax on any share sold on bourses after being kept for a year. Short term capital gains stand at 15 per cent, while off-market deals which is the preferred route when one company acquires another such as the Hutch-Vodafone deal, attracts 10 per cent tax.
Pranab babu's move to plug the tax haven loophole also addresses concerns that Indian firms are often bought or sold outside the country, simply to avoid paying taxes here. Remember the Vodafone tax case which the government lost? Hutch sold its mobile phone operations through a complex overseas tax free deal to Vodafone and both sides refused to pay income tax to the government.
Even in Cairn India’s case, initial reports suggested the deal to sell the Rajasthan oil and gas fields could be offshored, where again the Indian government would lose out on taxes.  Other transactions over which the finance ministry is anxious to get its `pound of flesh’ include the Idea Cellular-AT&T deal worth $150 million, SABMiller's purchase of  100 per cent shares in Foster's India and General Electric (GE) sale of its majority stake in Genpact in a $500 million deal.
What tax authorities want is that firms who want to benefit from Mauritius’ and other tax havens’ zero tax status should show two things – that they are genuine residents of these tax havens and do not do earn most of their revenues in India, which means they are not shell firms registered in tax free isles.
The Mauritius route for investment is an important one for India too and it too does not want to kill the golden goose altogether, though it is to be seen how the move will impact this. Foreign direct investment flows into India from the island nation totalled $55.2 billion, about 42 percent of the total $133 billion during that period.
A General anti-avoidance rule, which allows tax authorities to declare any business deal to be an ‘impermissible avoidance arrangement’ if part or whole of the deal has been crafted with the intention of obtaining ‘tax benefits’, too has been brought in along with these amendment. In essence it becomes an adjunct to amendment to Section 90 and 90A to plug tax leaks by routing investment through tax havens.
It speaks of four tests by which taxmen would determine whether any business deal through tax havens has been done just to avoid paying tax or whether they were bonafide ones.
The four tests are: the arrangement creates rights and obligations which are not normally created between parties; it results in ab use or misuse of tax laws, it lacks commercial substance and is done in a manner which is not normally employed for bonafide purposes. These tests make it virtually impossible for firms to use tax havens to buy or sell Indian assets.
Politically, it was important for the Congress-led government to go forward with this move to scotch opposition accusations that its soft on black money generation. Last year, not only did activists like Ramdev and Anna Hazare target the government over black money, the BJP started a nationwide campaign on the same issue.

India, Britain and the Aid Row

Rafale fighter jet

Little noticed, last Thursday, India tried to undo the damage which its order for French made warplanes did to David Cameron’s government in London, with finance minister Pranab Mukerjeree calling UK’s Secretary of State for International Development, Andrew Mitchell to soothe ruffled feathers.

Labour party MPs and London dailies had torn into Cameron’s Conservative party led coalition government attacking it of giving 1.4 billion pounds in aid over 5 years to India while being unable to get an order for fighter aircraft.

What started out as agnst against not getting a lucrative multi-billion dollar aircraft order turned into a media war over why Britain should or should not aid India's impoverished millions. That it has poor millions is of course not in doubt, despite its boast of being the seventh largest economy in the world.

British newspapers pointed out quite appropriately that India has its own aid programme for African and Asian nations which is far larger than what it is recieving from abroad and had on many a occassion made it clear that it did not need aid.

Jingoistic Indian coloumnists also said basically the same thing: "We don't need aid." with many privately and impolitely adding "Britain can stuff its money ...."

Before we review the issue, lets recap for those who came in late on the news as it played out :

• India had preferred the French Rafale jet fighter over Typhoon, manufactured by a British led European consortium in selections made earlier this month. The French aircraft was preferred as it was cheaper and considered more versatile than Typhoon, whose upgrades have been long delayed.
• A London based daily had then highlighted how Mukherjee had in answer to a Parliamentary question said foreign aid was not needed to buttress its case that Britain’s development assistance to India should be discontinued. Others editorialised that the money given to India could have built hospitals in the UK.
• That Mukherjee’s comments in Parliament had been generic and not specifically aimed at British aid was lost in the din of the media battle. What all this did was to make Britain's India engagement politically extremely `hot’ for the Cameron government, which is credited with having brought the two governments closer in economic and strategic terms, after years of bilateral relations being in a state of mild freeze, not improved by Labour's younger Miliband trying to lecture India on Kashmir on one relationship building visit!
• “We felt a call at this juncture was needed to scotch unnecessary and wrong press reports and to undo any damage to our otherwise close bilateral relations,” said North Block officials, explaining Mukherjee's call.

Britain has been continuing the aid programme by arguing at home that it strengthens its influence in India, a key market while also  helping lift people in poorer parts of the country out of poverty.

The problem for Britain is that besides being unable to get the Typhoon order; last year, India pledged $ 5 billion in development assistance to Africa, besides another $ 1 billion in direct aid - $ 700 million in insitution building and $ 300 million in building the Ethiopia-Djibouti railway. A year bafore, India had announced a $ 1 billion aid package for Bangladesh to help build roads, ports and railways. In war-torn Afghanistan India has already spent some $ 1.5 billion in rebuilding roads, power stations, telecom networks, a new Parliament building and last year added a pledge of another half a billion dollars to top it up.

If a country can go around spreading largese to other poor nations, can it also ask for or recieve aid? Thats what the British tax-payer may well ask.

Related to this is the question - Why do countries give aid to each other - simply on humanitarian grounds?

Humanitarian considerations plays a role. Aid flowed to Haiti when disaster struck it. Even though the West supported Pakistan's brutal regime in 1971, individual contributions flowed to refugees from its Eastern wing living in miserable refugee camps in India.

But aid is also a way of winning friends abroad. Which is why the Cameron government is keen to fund drinking water programmes and more in India. Which is why India wants to build railways, ports abroad, supply rice to neighbours even when its own millions have little to go around.

The benefits for those doling out aid or help, are sometimes immediate - China managed to get contracts to gas fields in Africa almost at the same time as it offered roads there. It was almost like a barter deal. Sometimes it takes time, but far outweighs the help recieved in the first place. India has been saying thank you to Russia for standing by it in 1971 for decades, despite the dissolution of Soviet Union. It continued with an artificial rupee-rouble rate to protect Russian interests, even when the rouble had become worth pennies. There is an element of thank you when India orders none too great Russian fighter jets, grossly over-priced aircraft carriers and outdated nuclear power plants.

Its contracts to France - Mirage, again nuclear power plants and Rafale - have similar elements of thank you for the support France gave to India's quest for nuclear parity with China besides other things.

As one former British MP whom I met soon after the aid row surfaced, said: "If you are in it for the long haul, you disregard short term losses." Britain has in the past drawn much benefit from its `special relationship' with India. It sold helicopters in the 1980s which were described by the then Indian Prime Minister as “white elephants”. Earlier in the 1950s, it sold outdated fighter aircraft, whose parts cost more than the aircraft !

Where does that leave the question of whether India should or should not get aid or even more importantly from the Indian point of view - accept or not accept aid? Soon after Pokhran -II, when many countries came rushing with pious condemnation of nuclear India with added threats of withdrawing aid, the Vajpayee government quite rightly told them to a) shut up and b) to keep their aid to themselves.

The Congress government when it came to power, endorsed Vajpayee's or rather his National security advisor Brijesh Mishra's views and continued the aid ban imposed on minor European powers. Quite a few countries whose aid programme were stopped, still regret the loss of what they now see as a lever with a rising power.

Foreign aid is a miniscule fraction of India's GDP or for that matter even of total government sector spending. India as a nation could do without it. But can those dreadfully poor people who are getting something out of it, do without it? Can they wait till New Delhi or lets say in a specific case – Orissa – wait till Bhubaneshwar, finds time to look their way?

To tell those who are benefitting from what little foreign aid is coming in, that the programme is being stopped because some upper middle class urban Indians feel their ego, inflated by India's rising GDP and nuclear power status, has been punctured by news that Mother India still takes aid, may not exactly be acceptable to those poor people.

In any case, like good baniyas, which Indians have been for centuries, our motto on aid should be "let it flow, if it’s without strings attached." Its for those who are buying a good consience or better relations to decide whether their millions should be spent here or somewhere else.

Footnote:

Baniya  : Merchant

Today's Chanakya

New Delhi, June 17, 2010: Its 10.40 AM and I am  on the airport tarmac with an air force officer waiting for India's finance minister Pranab Mukherjee to arrive. I am supposed to accompany the man who heads more ministerial groups than he can remember, on a trip to diamond city Surat and Gujarat's capital Ahmedabad.
His car screeches to a halt. Petroleum minister Murli Deora has driven down with him, perhaps to brief him on the need to raise petrol prices to save state run oil firms from bankruptcy. A move which their cabinet colleague from Bengal, Mamata Banerjee successfully stalled last week.
Pranab starts walking briskly towards a waiting Embraer jet. I just about manage to catch up with the man who is 75 years old. "Your direct tax code changes are being talked about." The finance minister on Tuesday released a set of changes to a planned direct tax code which saves pension savings from being taxed.
"Yes, people seem to have liked it ... lets see how it goes in Parliament," Pranab says smiling slightly. The man who troubleshoots on almost all issues for the government and the Congress party seems a little tired, despite his surprisingly young gait.
His aides say he works most nights, poring over files. But still manages a grueling 12-hour schedule the next day perked up by about 10 to a dozen cups of black tea and coffee at intervals.
Once inside the aircraft, sure enough Pranab orders hot beverage for all and tries to catch up on his newspaper reading. He has been a newspaper addict since the age of 10.
Surat arrives almost before breakfast is over. We have to rush to catch up with Pranab, He has finished with tarmac greetings, bouquet exchanges and pleasantries and is in a waiting sports utility vehicle, even before his aides can get into their cars.
His hosts are his companion in his vehicle. The idea, someone explains to me, is that in case of a terror attack others who can rally around and get help should not be in the same vehicle!
The cavalcade swings onto a highway and winds through rich sugarcane fields  into a modern conference center. A huge congregation of diamond traders and textile mill owners are waiting for the man who they hope will help give them tax breathers to recoup losses they ran up in the last two years of global downturn.
Eight out of ten diamonds cut and polished in the world are worked upon in the port town of Surat. But the problem is that with western economies spinning into a nightmarish recession over the last two years, diamonds, celebrated in songs and films as a `woman's best friend' have found fewer buyers in the last two years.
Textile and garment mills in Surat too have had to lay off tens of thousands of workers as global orders plummeted. Businessmen say the city which boasts of the highest annual household income in the country - Rs 4.57 lakh - lost out some Rs 3,600 crore of business in 2009 out of the Rs 12,000 crore of garments business it does in a normal year.
The finance minister talks of growth, promises help, assuages hurt by calling Surat a victim of the global downturn and asks entrepreneurs not to lose heart but work to create more wealth and jobs. "We want more growth and more jobs" is met with thunderous applause.
The man who has represented Gujarat for six years in the upper house during the 1980s, has a surprisingly strong fan following here, despite not speaking any Gujarati. Businessmen and women are nodding in agreement with his appraisal. A textile trader who is sitting next to me whispers "He is really running the country, you know after all the economy is the country ... after Manmohan (Singh) he is the best man for this job (Finance Minister)."
A short flight takes us to Ahmedabad. A meeting is slated with Narendra Modi, Gujarat's chief minister, in the city's circuit house. Pranab wants Modi to agree to a nation-wide Goods and Services Tax which will replace the current system of VAT taxes. And the BJP leader has been playing hardball.
Pranab's motorcade is treated like a visiting head of state's. Streets have been cleared of traffic. Saluting policemen dot the route. Even pedestrians aren't allowed on the road.
A beaming Modi comes out to greet Pranab at the circuit house: "instead of a bouquet, I would like to offer my `buk' (heart) to you." Pranab smiles cautiously. After all this is a political rival with whom his party will have to contend in the  years ahead.
Pranab promisses he will take care of any losses states run up in implementing GST, a simpler taxation model which businessmen feel will reduce taxes and the government believes will boost revenues for states. But Modi, a seasoned politician, is ambivalent and wants a test pilot project before agreeing. The Gujarat chief minister is the key to a cabal of BJP chief ministers running Chattisgarh, Madhya Pradesh, Uttarakhand and Himachal, coming on board.
Modi uses the example of a successful bus corridor in Ahmedabad compared to an unpopular bus corridor in Congress ruled Delhi. "I accept new things after testing them out." North Block believes the BJP ruled states will ultimately agree but will try stalling as long as long as possible.
"You are not just the finance minister ... you have a lot of influence in all ministries," Modi says as the meeting is coming to an end, presenting a list which seeks arrears in sales tax rebate, money for a notional `loss' on crude royalty because the royalty formula was changed, lower price for natural gas and more gas among other things.
A Pradesh (State) Congress Committee delegation walks in as Modi strides out towards waiting flashlights and TV cameras. Congressmen want to complain to Pranab about Modi's verbal attacks on the Congress and the central government.
Its 6 O'clock. But the day is not yet over for the finance minister. The last job of the day is to unveil a bust of Third century BC Indian master-statesman Chanakya, at the local income tax office. Its a lovely piece of sculpture in black stone. As Pranab, who is known to have studied Chanakya's treatise on statecraft `Arthshastra' and quote him in budget speeches, pulls the veil of the bust, a young officer whispers to another "It's this century's Chanakya paying homage to an earlier one."