As Pranab Mukherjee heads for Rashtrapathi Bhavan, Manmohan Singh must retain the Finance portfolio, repeat his performance of 1991-96 and salvage pride for himself and the nation, which has seen enough of stinging criticism.
His past track record counts for nothing and the best way he can silence the media, the opposition and those sitting on a "judgement throne" is to repeat his performance of 1991-96 as an astute Finance Minister.
What did Manmohan Singh do in 1991-96?
MMS as Finance Minister ably supported by Narasimha Rao averted an economic collapse. He resurrected the economy from the brink by opening it to foreign investors, killing the license raj, making the rupee convertible and simplifying and rationalising taxes.
Over the years, this ensured that as many 80 agencies which were once being satisfied for a license have been done away with. This has also ensured that billions of dollars have flown into India (Rs 44,000 crores foreign money in 2012 in stock markets only), creating millions of jobs in the process. Today, we do not have to go with a begging bowl to any international agency, like we did in 1991, since our foreign currency reserves are a staggering $290 billion, as against a few billion dollars in 1991. We no longer have to airlift our gold and pledge it with the IMF for money.
MMS' track record as Finance Minister in the 1991-1996 period remains impeccable and thus far unparalleled. No doubt he is called the "Father of Economic Reforms".
Economic fundamentals in 2012 close to 1991 levels
India's economic fundamentals have deteriorated dramatically in the last few quarters and in some indicators we are worse than we were in 1991. The GDP rates have touched a nine year low, while the current account deficit at 4.2% of GDP is significantly higher than in 1991.
The fiscal deficit at 5.9% of GDP (as against 8.4% in 1990-1991) suggests that we are inching closer to the 1991 levels.
The rupee is touching lifetime lows and has to get back its recent status of being the best performing Asian currency.
Inflation remains sticky and just does not go away while reforms are in a pause mode. Sentiments keep hitting a new low, while the fury amongst industrialists and economists is unimaginable. The RBI has become helpless in lowering inflation and fuelling growth, and seems to be the "lone man standing".
MMS must take the Finance Portfolio and silence his critics
If Manmohan Singh retains Finance, he needs to begin with fiscal consolidation. He needs to lower subsidies and reduce fiscal profligacy. MMS has done that in 1991 and the fiscal deficit he is staring at is much lower currently, making his job easier.
He needs to get the trade deficit back on track, which would ensure current account deficit is reduced. Something that he has once again successfully managed in the past. Once the fiscal and current account deficits are reduced the free run on the rupee would end. If he can address supply side issues, MMS can surely reign in inflation, which would of course bring down interest rates, so necessary to spur growth.
MMS would need to push through crucial reforms including the Goods and Services Tax, which would replace the various tax levies such as excise duty, service tax and value-added tax (VAT) and is likely to be a landmark reform.
Foreign direct investment in multi-brand retail is another crucial reform pending with the government. FDI in multi-brand retail will create jobs, reduce wastage and offer better prices to consumers.
Manmohan Singh also needs to push the Direct Tax Code (DTC), which if implemented would bring about dramatic changes in the taxation systems of the country. It would replace the old Income Tax Act of India and is again a landmark reform.
Clearly, if MMS retains finance he has a difficult and dirty job for sure, but it's extremely crucial to propel India's growth story.
Singh has an impeccable track record as Finance Minister and is one person in Government capable of handling an economy going wonky. He needs to do a repeat of 1991-1996 in 2012 and silence critics.
Whether he has the same drive, the same inclination, the same compulsions and the same energy like he had in 1991, is the big question.