Nirmala Sitharaman 2.0: Top tasks, from taming inflation to generating jobs

With Prime Minister Narendra Modi reposing faith once again in Nirmala Sitharaman while allocating the finance portfolio in his new regime, the minister is expected to hit the ground running.

The decision to retain Sitharaman as the Finance Minister is seen as a clear indication that Modi is looking at policy continuity in his third term.

Sitharaman has her task cut out in her second stint as the country’s Finance Minister – to strengthen the economy and steer it through challenges and global uncertainty. However, she may need to tweak policies like lowering taxes for individuals and extending aid to the poor. This will ensure that benefits of high growth trickle down more widely across the country’s population.

Top priorities

Her priorities may include sustaining economic growth, ensuring price stability, generating jobs and boosting private sector investment amid a challenging geopolitical landscape. Moreover, another critical issue that needs urgent attention is managing India’s energy transition, a critical issue for Asia's third-largest economy amid escalating climate challenges.

Another challenge will be to address the issue of lopsided growth as urban centres are growing much faster than rural parts. Being the fifth largest economy in the world, the country is forecast to grow by 7.2% during the financial year ending March 2025, after a rapid 8.2% expansion the previous year.

Inflation continues to remain a concern despite the country’s projected growth rate of more than 7%. RBI Governor Shaktikanta Das has also warned that reducing inflation to 4% will be tough. Stabilising the agricultural sector against climate-induced disruptions is essential for maintaining a steady supply chain.

Taking along allies

Unlike the previous two terms at the Centre when the BJP had a majority on its own in the Lok Sabha, this time the finance minister will have to address the concerns of NDA partners as well. Major among these are the demand for special status for their respective states and setting up of the 8th pay commission for government salary revision due in 2026.

Amid the chorus for switching to old pension scheme among the government employees, there is also a pending demand to ensure that the pension under the National Pension System (NPS) is at least half of the last salary drawn. In her previous stint, Sitharaman had set up a committee led by Expenditure Secretary TV Somanathan to address this, but the panel’s recommendations are still awaited.

Resource mobilisation while ensuring fiscal prudence will be essential. The government may need to revive asset monetisation and disinvestment efforts paused before the elections, ensuring support from its allies.

Another issue on the FM’s agenda is revising the seven-year-old GST regime with its multiple slabs, which often lead to classification issues.

Focus on investment

Meanwhile, a key area of focus for Sitharaman will be investment, particularly from the private sector, which was evident from her interim budget, when she underlined the significance of investing not only in traditional sectors but also in emerging fields like global capability centers, space, and artificial intelligence.

However, experts and industry leaders contend that manufacturing and factory jobs are irreplaceable, particularly with employment emerging as a key issue in the recently concluded Lok Sabha elections. This may necessitate government incentives, which Indian industry typically welcomes.

While the government has introduced production-linked incentives (PLIs), ensuring these schemes lead to actual payouts is crucial. The private sector must not be burdened with bureaucratic hurdles to access promised funds.

Overall, it is expected that economic growth and private investment will be the central themes in the upcoming budget and the initial 100-day agenda of PM Modi’s third term.