Reviving optimism in Indian economy is Sitharaman’s biggest challenge

By: |
Published: June 3, 2019 9:43:31 PM

Nirmala Sitharaman has started her inning as the new finance minister at a time when the country's economy is grappling with multiple challenges.

Newly-appointed Finance Minister Nirmala Sitharaman arrives to take charge of the Finance Ministry at North Block, in New Delhi. 

Prime Minister Narendra Modi’s surprise pick Nirmala Sitharaman for the post of finance minister is facing a tough challenge to script a turn around in the economy. She already has a hot landing in the office as three different data sets released on the day she took charge of the ministry paint a gloomy picture and enormity of the challenges before her.

Official numbers released on the day of her taking charge of the ministry revealed that GDP growth in January-March this year has hit a five year low. Another official data about the performance of 8 core sectors of economy also paint a disappointing picture as y-o-y growth of these 8 sectors was 2.6% in April in comparison with 4.6% during the same month last year.

And to top it all was the official confirmation by the government that unemployment rate in the country was indeed at a 45 year high in 2017-18 as per a survey conducted by National Sample Survey Organisation (NSSO), which was a matter of intense controversy before the election.

READ ALSO: RBI seen taking pro-growth stand, experts expect sharp rate cut

“She has inherited a weak economy. The first major major challenge for her is to provide some kind of optimism in the overall economy while balancing the expectations of the market,” said NR Bhanumurthy, a professor of economics at National Institute of Public Finance and Policy.

According to the advance estimates of GDP growth released by the central statistical organisation (CSO), economic growth slowed down to 5.8% in January-March this year, much lower than the GDP growth of 6.1% recorded in the immediate wake of note ban announced on November 8, 2016.

Nirmala Sitharaman is facing the double whammy of increasing the public expenditure at a time when the net revenues collected by the Centre fell short of the budget estimates.

In the interim budget, then finance minister Piyush Goyal had projected a marginal increase of Rs 4,000 crore over the budget estimate of Rs 14.80 lakh crore projected by finance minister Arun Jaitley. However, the actual collection has been estimated at Rs 13.2 lakh crore, a shortfall of over 11% or Rs 1.64 lakh crore.

READ ALSO: Union Budget 2019-20: Modi government to present maiden budget of its second term on July 5

A sharp shortfall in the net tax collected to the Centre has created a precarious situation for the new finance minister. While on the one hand revenue collection fell short of budget expectations by a huge margin of over Rs 1.64 lakh crore, on the other hand the overall borrowing of Centre went up from revised estimate of Rs 6.24 lakh crore to Rs 6.45 lakh crore during the same period.

“She has very less space on the fiscal side. She needs to follow the fiscal road map as suggested in the FRBM Act, while at the same time she has to accommodate the Prime Minister’s PM-Kisan and other social measures, including the decision taken in the recent cabinet meeting like pension for traders,” professor Bhanumurthy told Financial Express Online.

READ ALSO: A fair share? Centre’s transfers to states decline below half of its budgeted expenditure

Do you know What is Centrally Sponsored Scheme, Non Tax Revenue, Non Debt Capital Receipts, Consolidated Fund of India, Disinvestment? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Next Stories
1Higher education means more unemployment: These 2 surprising factors are pushing joblessness
2US decision to withdraw GSP incentives taken in haste, will hurt exporters: CII
3Consumer slowdown not just in India, growth slowed worldwide; real reasons revealed