Sushil Kumar Shinde takes over as Home Minister, the portfolio Mr Chidambaram held. And Veerappa Moily, Corporate Affairs Minister, will also handle the power ministry, which Mr Shinde held.
A notification on the reallocation of ministries has been signed by the President.
This comes on a day when the government described inflation levels in the country as unacceptable; Mr Chidambaram has been finance minister before, and his appointment will be seen by many as being in consonance with the shift that Dr Singh signalled when he took charge in June. The biggest criticism of the UPA 2 government, and the finance ministry under Mr Mukherjee, was what is called its policy paralysis. Dr Singh immediately indicated that the government would attempt to address issues that have rattled industry and foreign investors. .
Mr Chidambaram is seen pro-reforms and market-friendly. His performance as finance minister in the UPA 1 government is considered good, particularly his deft handling of the situation during the global financial crisis in 2008, which helped India avoid the worst of the downturn. His task this time too is cut out - he has to address concern over the rising fiscal deficit first.
Reserve Bank of India governor D Subbarao has clearly stated in his monetary policy statement today that the government has to address the fiscal deficit situation and cut expenditure by putting a cap on subsidies.
Much noise, however, can be expected from the opposition benches. The BJP-led opposition has targeted Mr Chidambaram, even boycotting him in Parliament, for what it alleges is his role in the 2G scam. That dates back to 2008, when Mr Chidambaram was finance minister. But in giving him the crucial finance ministry back, the Congress, which leads the UPA government, is also sending out the signal that it backs its man to the hilt.
Parliament sits next week for the monsoon session and the government had indicated that before the session began, that it would fill the important Finance Ministry. The Prime Minister held interim charge for a little over a month, but was clear that the job needed a full-time minister with the economy struggling with slow growth and high inflation.
The Congress also needs to decide and announce, before Parliament meets, who will replace Mr Mukherjee as Leader of the Lok Sabha. There has been a demand from some Congressmen that two-term MP Rahul Gandhi be elevated to that role. Congress president Sonia Gandhi is expected to take a decision soon; Mr Shinde is said to be a front-runner.
The veteran Congressman, who was once a sub-inspector, will now head all law and order in the country as Home Minister. Mr Shinde is a prominent Dalit leader from Maharashtra and enjoys the confidence of Congress leadership. He has been handed the very crucial Home portfolio despite the Adarsh Housing Society scam cloud and a rather lack lustre performance as power minister. His two big days in the news, were also his last in that office. Monday and Tuesday saw Mr Shinde having to make detailed explanations after the a total breakdown in the country's power situation.
On Monday, the Northern Grid collapsed yesterday, plunging 300 million people in darkness. Tuesday was worse. Three grids - first the Northern, and then the Eastern and the North Eastern grids collapsed in a cascade effect leaving 19 states and 600 million people without power for many hours. Overdrawing of power by three states led to the massive failure and the power ministry is now under huge pressure to take action against the errant states.
Veerappa Moily, who takes over from Mr Shinde, is sanguine he will do his job well. "There are no bad days to take over a job. People need to manage power better. Power shortage is known...a minister can't do all," he said. He also pointed out that he had written a book on power - electricity, not politics.