Nirmala Sitharaman’s biggest economic challenge as she helms the Finance Ministry will be to find ways to arrest the declining growth and retain the tag of the world’s fastest growing economy, boosting consumption and investment.
Gross Domestic Product (GDP) numbers which were released on Friday are the first reality check for the former Commerce and Defence Minister.
The GDP numbers for the fourth quarter and for the whole year ending March 2019 have slipped.
Sitharaman inherits a slowing economy. She will also have to ensure that the Budget is presented on time addressing the slowdown concerns, expected tax revenue shortfalls and stepping up of public expenditures while maintaining fiscal deficit.
If rating agencies downgrade the Indian market, it will drive away foreign investors and make it costlier for Indian companies to raise money abroad.
The economy grew 6.6 per cent in the three months to December – the slowest pace in five quarters. The bigger worry was that domestic consumption was not growing fast enough to offset a weakening global economic environment.
The Minister will also have to prop up the four engines of consumption, investment, government spending and exports.
“The recent signs of slowdown in the economy stem not only from slow growth in investments and subdued exports but also from weakening growth in consumption demand,” industry chamber Ficci has told the Finance Ministry.
The economy needs far faster growth if it is to generate enough jobs for the millions of young people entering the labour market each month.
Sitharaman will also have to ensure that the agriculture sector is given a boost to improve the lot of the farmer and help them double their income by 2022 as promised by the previous Modi government.
For this, two mega schemes worth billions of dollars are in place — raising MSP by 1.5 times over and above the cost of production for 24 crops and the Rs 75,000 crore Kisan Yojana where Rs 6,000 is paid as direct income support to farmers.
On the financial sectors challenges, Sitharaman will have to ensure PSU bank consolidation, capital infusion into weak and strong banks, provide liquidity to NBFCs, further strengthen the insolvency laws for faster and better resolutions.
On taxation, the biggest worry at the moment, Sitharaman will have to ensure fewer GST rate slabs, inclusion of petroleum products in the GST fold. Implementation of the new direct tax code and cutting corporate tax rate are going to be key focus areas.