BREAKINGVIEWS - Pranab Mukherjee goes out with a flop

Pranab Mukherjee speaks to the media in Kolkota May 28, 2004.

MUMBAI (Reuters Breakingviews) - Talk about over promising and under-delivering. Pranab Mukherjee inflated the market's hopes that he'd take bold measures to boost investor confidence, but came up with a few small tweaks - on his last day as finance minister. Hopefully his successor will talk less and act more.

At the end of last week the rupee hit another all time low against the dollar. Over the weekend, the Prime Minister, Manmohan Singh, returned to India from the G20 summit and outgoing Finance Minister, Mukherjee, began his election campaign for the ceremonial role of President. Both men briefed the press about the bold steps that they were preparing which would raise India out of its present slump.

Investors salivated at the prospect of substantial change, but on Monday afternoon they received only thin gruel - the highlight of which was a $5 billion increase in the limit of foreign ownership of Indian government bonds. The rupee and the SENSEX fell slightly on the announcement.

It's a measure of the appetite for economic reform in India that people allowed themselves to get carried away. In fact, political U-turns are now more likely than follow-through. Remember flip-flops over foreign direct investment in retail and the ban on cotton exports? There's the long list of pending but yet-to-materialise initiatives: reduction of fuel subsides, a more efficient tax system, increasing FDI in insurance and aviation, and land and mining reforms. The best hope now is that eventually the government may do the right thing, after all other options have failed.

While waiting, loose talk creates unnecessary market volatility. It's too late for Pranab Mukherjee to learn the lesson. He's retiring on Tuesday. Manmohan Singh will take on the role - with a lot of unfinished business - until a full-time successor can be found. Singh, the notoriously tight-lipped architect of India's first economic revival, is likely to realise that actions will count more than words.

CONTEXT NEWS

- India has increased the limit on foreign investment in government bonds by $5 billion to $20 billion, the Reserve Bank of India said on June 25. The rupee and SENSEX trimmed gains after the Reserve Bank of India's announcement, which disappointed investors who had expected bolder measures.

- At 2:39 pm Mumbai time, the rupee was at 56.96/97 to the dollar, weakening from 56.55 levels before the announcement. India's benchmark indexes erased earlier mild gains to fall, with BSE Sensex down 0.2 percent.

- The rupee posted its worst weekly fall in nine months last week, having slumped to a record low of 57.32 against the U.S. dollar on June 23, hurt by dollar demand from oil firms and gold importers.

(Editing by Edward Hadas and David Evans)