Finance Minister Nirmala Sitharaman Steers Modi 3.0's Economic Agenda
Finance Minister Nirmala Sitharaman finds herself on solid ground as the Modi 3.0 government gears up to unveil the full budget, signaling continuity in economic policy. Prime Minister Narendra Modi's reaffirmation of Sitharaman's role underscores the government's commitment to its economic agenda.
Sitharaman's return follows a period of commendable economic performance, with India recording a robust 8.2% growth in 2023-24, outpacing major global economies, while inflation dipped below 5%. Her tenure witnessed a commendable reduction in fiscal deficit from over 9% of GDP in 2020-21 to the targeted 5.1% for 2024-25, bolstering the economy's macroeconomic fundamentals. S&P Global Rating's decision to elevate India's sovereign rating outlook to 'positive' further validates the nation's improving financial health and robust growth trajectory.
Having previously presented an interim budget, Sitharaman now faces the task of crafting a comprehensive budget that sustains economic momentum and fosters job creation, all while accommodating the expectations of Modi 3.0's coalition partners.
There are concerns that the fiscal demands of coalition partners could divert economic resources from growth-driving infrastructure projects to social welfare schemes and increased state allocations. Nonetheless, with a low fiscal deficit, a substantial Rs 2.11 lakh crore dividend from the RBI, and buoyant tax revenues, Sitharaman has ample leeway to pursue growth-oriented policies.
The government's plans for next-generation economic reforms, including GST rationalization by reducing tax slabs from four to three, aimed at streamlining revenue collection and compliance, may face delays. This is due to the potential risk of additional tax burdens on essential items, currently taxed at a lower 5% rate, if rates on semi-essential items at 12% or 18% are adjusted.
Crucial economic reforms, such as facilitating easier hiring and firing of labor to enhance productivity and drive long-term job creation, may also be deferred. However, these reforms remain critical for sustaining growth momentum and fostering job generation in the future.
Finance Minister Sitharaman's reappointment reflects the government's confidence in her stewardship of the economy, with India's impressive growth and improved fiscal metrics bolstering her credentials. As she navigates the complexities of coalition politics and economic imperatives, Sitharaman is poised to deliver a budget that reinforces India's economic resilience and accelerates its journey towards prosperity.
