By Surojit Gupta
NEW DELHI, Nov 30 (Reuters) - Former finance minister Palaniappan Chidambaram, who led efforts to fend off the global financial crisis, now faces an even stiffer test -- rescuing India's government from the wreckage of the Mumbai attacks.
The Harvard-educated Chidambaram was named on Sunday as the new home minister after the much-derided incumbent resigned following a year of militant violence which culminated in the three-day rampage through India's financial and cultural heart.
With criticism mounting over his government's failure to prevent the bombings and gun attacks, Prime Minister Manmohan Singh accepted Shivraj Patil's resignation.
Chidambaram's four-year tenure as finance minister saw growth averaging about 9 percent, but high borrowing costs following a spurt in inflation and the impact of the global economic crisis are expected to trim it this fiscal year to near 7 percent.
Analysts welcomed his appointment to head the interior ministry, which overseas security along India's borders and the fight against Maoist guerrillas and separatist insurgents in more than a dozen states.
"He should have been appointed long time back. I think he is very hard working and diligent," said Saumitra Chaudhuri, a member of Singh's Economic Advisory Council.
"The economy has now taken a back seat. First you have to ensure that these terror attacks don't take place."
During his stint as junior home minister in a centre-left coalition in the 1990s, Chidambaram modernised the outdated security agencies and forged a stronger policy towards domestic insurgents.
As Home Ministr, he will have to perform fast, analysts said, with a general election due by next May and the government under immense pressure following the carnage in Mumbai.
"All economic issues will be now on the backburner. Till now you were looking at inflation, economic growth so far as the vote bank was concerned. Now only one issue will be most crucial," Indranil Pan, chief economist at Kotak Mahindra Bank.
TOUGH YEAR
In an earlier stint as finance minister in the mid-1990s, Chidambaram, carried forward the reforms started by Manmohan Singh in 1991, scrapping controls and restrictions across sectors of a then-insular economy.
He delighted economists with his 1997 budget, which lowered import tariffs and slashed tax rates to boost revenues in a country were avoidance was the norm and hundreds of millions live in desperate poverty.
A former lawyer, Chidambaram tried hard to curb government spending and keep a huge deficit within limits imposed by a special law piloted by him.
He was given another run in charge of India's finances when the Congress party-led coalition unexpectedly dumped its main Hindu nationalist challenger from power in 2004, and ran up an impressive growth record.
For most of his latest stay at the finance ministry, 63-year-old Chidambaram, who hails from the southern state of Tamil Nadu, and usually wears a starched white shirt and sarong, faced stiff opposition to reforms from communist allies.
Policies to open the banking and insurance sectors and sell stakes in state-run firms were abandoned, but growth remained robust and India's corporate giants took to the world stage.
The last 12 months have not been so glowing as he faced a oil-fuelled spurt in inflation to nearly 13 percent, its highest since at least 1995, subsequent higher borrowing costs and then frozen lending markets as the credit crisis spilled into India. Growth has slowed.
Huge populist spending before state polls and next year's national election means he is unlikely to meet a fiscal deficit target of 2.5 percent of gross domestic product for the fiscal year to end March.
Critics say he is arrogant and overly focused on growth at the expense of fiscal stability. Admirers say he is a tough administrator and handles challenges in a calm and methodical manner.
"He leaves behind a rich legacy in the finance ministry," said M. Govinda Rao, director of the National Institute of Public Finance and Policy. (Editing by Mark Williams and Angus MacSwan)