India’s New Finance Minister Nirmala Sitharaman Has Her Work Cut Out
Nirmala Sitharaman will be India’s new finance minister, the second woman to hold the portfolio and a surprise choice by Prime Minister Narendra Modi. She will also be the minister for corporate affairs.
She was the minister of state for finance and corporate affairs and the minister for commerce and industry with independent charge before being named the defence minister in Modi’s first cabinet. She is a Bharatiya Janata Party’s member of the Rajya Sabha from Karnataka. She is member of the party’s national executive since 2008 and was a national Spokesperson from 2010-2014.
Sitharaman holds a master’s in economics from Seethalakshmi Ramaswamy College, Tiruchirapalli, Tamil Nadu and M.Phil in the subject from Jawaharlal Nehru University, New Delhi.
“She was the commerce and industries minister, has the international diplomatic experience and that works well,” said Sanjaya Baru, adviser to former Prime Minister Manmohan Singh in his first term. “But right now the finance minister's job is at home and Nirmala is the kind of person who would get down to it very quickly.”
Does she have the political heft to broker deals with state finance ministers? Baru said the main issues are continued implementation of the goods and services tax, management of the central bank, banking and financial sector reform, and the states are secondary.
Sitharaman takes charge at a time of agrarian distress, falling investments and consumption, all of which has slowed down the economy. In the third quarter of financial year 2018-19, India’s GDP expanded by 6.6 percent, compared with 8 and 7 percent in the first two quarters respectively. The fourth quarter print is expected at 6.3 percent, according to a Bloomberg poll of 30 economists.
The decline in economic growth is “emanating largely from agriculture, and more modestly, from industrial activity, offsetting a slight rise in services,” said Saugata Bhattacharya, chief economist at Axis Bank Ltd., in this story reported earlier.
The country’s financial sector has also witnessed stress, first on account of record non-performing assets at banks and more recently due to the financial failure of the IL&FS Group and liquidity as well as asset quality issues in non banking financial companies.
“The first issue Sitharaman and the Finance Ministry should address is how to supercharge domestic consumption,” said, Vikram Kirloskar, president of Confederation of Indian Industry. “This means clearing up retail finance, perhaps better liquidity in the NBFC space.”
The second issue is simplification of tax, he said. “We certainly are looking at lower corporate taxes without exemptions. Remove all exemptions and lower tax, we prefer that,” he said. “As far as GST is concerned, the experience of the auto industry has been extremely good but how to take that across the board will also be work for her.”
Arun Jaitley was the finance minister in the first term of the Modi government (2014-2019) but recent illness has incapacitated him. Earlier this week, he requested Modi to permit him to opt out of an official role in the government.
“Regardless of whether it is Jaitley or Sitharaman, I don't think we should be under any illusion that the finance portfolio is entirely managed by the Finance Ministry,” R Jagannathan, editorial director at the Swarajya magazine, said. “The PM has a huge, huge agenda through finance and budget, and I think that’s one thing that will always come through.”