Now that Palaniappan Chidambaram is back where he belongs - in the finance ministry - the big question is whether he can deliver what Pranab Mukherjee couldn't: sensible fiscal consolidation that does not crimp growth and which revives business confidence.
The answer to this question depends on two factors: his equation with Manmohan Singh, which in the past has been strained, especially in the wake of the 2G scam, and the level of political backing he will get from Sonia Gandhi.
Pranab Mukherjee's problem was that he was not on the same wavelength with both of them. Sonia didn't trust him fully even though she needed him for his political management skills. And Manmohan Singh had no say in how the finance ministry was run - since Pranab wanted to keep it that away. Despite being Pranab's boss as PM, Singh was handicapped by the fact that Pranab was his boss in the 1980s, when Singh was RBI Governor and Mukherjee the finance minister.
In the case of Chidambaram, as a former trusted colleague of Rajiv Gandhi, Sonia has greater faith in him that Pranab. Moreover, luck was on his side during UPA-1, when high growth and buoyant tax revenues allowed Chidambaram to finance all of Sonia's public spending wish-lists - from NREGA to farm loan waivers and petroleum subsidies.
Chidambaram's problem, though, related to Manmohan Singh. The two have not shared a comfortable relationship, given their completely different attitudes - one a picture of arrogant efficiency, and the other a unassertive personality with no stomach for argument or confrontation.
In 2004, Chidambaram was not Manmohan Singh's first choice for FM. In 2008, when 26/11 offered Manmohan his first opportunity to have someone competent to run the home ministry, he was happy to move Chidambaram - despite the latter's reluctance - when he could arguably have done better job in finance after the Lehman crisis.
Last year, relations between PM and Chidambaram could not but have worsened after it was discovered that a crucial post-mortem note emanating from Pranab Mukherjee's ministry (dated 25 March 2011) on the 2G spectrum scam was prompted by the Prime Minister's Office. The note effectively said that even through A Raja issued licences to 122 applicants, the allotment of spectrum at 2001 prices could have been stopped by Chidambaram if he had wanted it.
Apparently, the original note prepared by the department of economic affairs (DEA) had only 12 paras giving the "Chronology of basic facts related to pricing and allocation of 2G spectrum," but when the draft went to the PMO it came back with 32 paragraphs - with some of the additions pointing to Chidambaram's lapses.
Mukherjee, who suddenly found himself being accused of trying to frame Chidambaram, then put the record straight through another note which explained what happened. According to The Times of India, the new note said: "DEA was not in favour of sending the (25 March) note, after its finalisation through a formal OM (office memorandum). It was upon the insistence of the JS (joint secretary), PMO, through her phone calls to secretary, DEA, that the communication was sent through a formal OM on 25 March 2011."
Hopefully, this episode has now been given a decent burial.
But we don't know that. Even after Pranab Mukherjee's exit, the appointment of Chidambaram came after more than 40 days of deliberation at the party level. In fact, the PM moved with alacrity to get things moving in finance soon after Mukherjee bid goodbye. The general assumption was that he would get some things done and then induct a full-time FM.
However, the PM has done little more than appoint a few committees, and Chidambaram is back in his old job. Does this mean he was appointed despite Singh wanting control of the finance ministry, or because Singh has changed his mind on Chidambaram?
A Business Standard report on Wednesday suggested that the PM-Chidambaram relationship is now headed for better days. According to the paper, Chidambaram agreed to return to the ministry only after he met Singh to clarify his doubts. "Before he was named finance minister, he met Prime Minister Manmohan Singh and told him he didn't want the job unless he was empowered to take tough decisions. This meant treading on political toes on the sensitive issue of cutting subsidies and ending some gravy trains."
The newspaper also quoted Singh as having told C Rangarajan, the PM's Economic Advisory Council chief, that he was fine with Chidambaram. "We think alike. We are on the same wavelength," Singh is said to have remarked about Chidambaram.
If this is true, at least one side of the equation - the one between PM and FM - is on the right track while tackling the economic crisis. Under Mukherjee, the vibes were simply terrible. Apparently, Mukherjee, when he met Manmohan Singh with the budget papers, was told that introducing measures like GAAR and the retrospective tax may not be wise at this juncture, but Mukherjee simply brushed the PM's views aside and said, "I have made up my mind," writes Aditi Phadnis in Business Standard.
Chidambaram, in his third coming as FM (he was FM in the United Front government from 1996-98 and UPA-1 2004-08), appears to have begun with backing from both Manmohan Singh and Sonia Gandhi.
But good intent and political backing will be tested soon enough. On the day his name was announced for the finance ministry, two bits of bad news hit the headlines: the Reserve Bank said it won't cut rates till the government acts on its fiscal problems, and the first quarter budget numbers turned out to be a shocker. The fiscal deficit number had hit Rs 1,90.460 crore - swallowing up 37 percent of the entire year's project in the first three months.
Since this is a drought year, and growth is likely to stagnate at 6.5 percent or even taper down to 6 percent, the fiscal deficit is likely to cross the target of 5.1 percent of GDP. Chidambaram will have to pull off a miracle on cost-cutting or find new revenues quickly.
He can only hope that Sonia Gandhi, with her eyes on 2014, will give him at least one year to fix the finances before she asks him to open up the election-eve spending spigots again. With Manmohan Singh now assured of remaining PM at least till 2014, Chidambaram can also hope to have some backing from him.
Both their reputations are at stake this time. Both have similar interests in banding together to keep Sonia Gandhi's populist instincts in check. Their ambitions are no longer in conflict - at least till 2014.
The signs are propitious - but Chidambaram needs lots of luck to deliver this time. He has to get Third Time Lucky.