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Nirmala Sitharaman, lauded for steering India’s economic success over the past five years, will continue as finance minister in Prime Minister Narendra Modi‘s third term. Her reappointment comes with the daunting task of ensuring more equitable growth across the world’s most populous nation.
Sitharaman, 64, became India’s first full-time female finance minister in 2019. Under her stewardship, the Indian economy has experienced high growth and fiscal prudence. Despite these achievements, rural discontent due to a lack of jobs and high inflation hindered Modi’s Bharatiya Janata Party (BJP) from securing a majority, making the government reliant on alliance partners.
Madhavi Arora, lead economist at brokerage Emkay Global, noted that retaining Sitharaman signals Modi’s intent for policy continuity in his third term. “With Sitharaman returning to the ministry, it will be business as usual for the markets,” Arora said. However, to ensure India’s high growth benefits reach a broader population, Sitharaman might need to adjust policies, potentially lowering taxes for individuals and increasing support for the poor.
According to Capital Economics, some of the previous government’s capital expenditure plans may shift towards more welfare and subsidy spending. The Indian economy, the world’s fifth-largest, is projected to grow by 7.2% in the fiscal year ending March 2025, following an 8.2% expansion the previous year. However, this growth has been uneven, with urban centers outpacing rural areas.
In her first term, Sitharaman lowered corporate tax rates to spur private investment and job creation, a goal that remains unmet. Independent economist Govinda Rao highlighted the challenges of implementing fundamental reforms under a coalition government. “The fact that they have to depend on coalition partners constrains the government’s ability to take fundamental reforms,” Rao said, pointing to necessary changes in land and labor laws critical for boosting manufacturing.
Despite these challenges, Sitharaman’s tenure has seen significant achievements in macroeconomic stability. The budget deficit was reduced from over 9% of GDP in 2020-21 to a targeted 5.1% for 2024-25. Rao praised her ability to navigate fiscal consolidation and increase transparency in India’s accounting processes.
In May, S&P Global Ratings upgraded India’s sovereign rating outlook to ‘positive’ from ‘stable,’ citing the country’s improving finances and robust economic expansion. Under Sitharaman’s leadership, India’s benchmark equity indices have doubled, and Indian government bonds have been included in the prestigious JPMorgan Global Emerging Market Index and Bloomberg Index.
Investors are expected to find stability in Sitharaman’s continuation as finance minister. “Sitharaman is not prone to making dramatic changes and in that sense there is comfort that broad policy direction will continue,” said Arora.
As Sitharaman embarks on her second term, the focus will be on balancing high growth with equitable distribution, ensuring that the benefits of economic progress reach every corner of the nation.
