Why is Nirmala Sitharaman being replaced, and will a new Finance Minister change India's economy?
Rumours that Finance Minister Nirmala Sitharaman may be replaced have revived debate over India's economic direction. The discussion reaches beyond a Cabinet reshuffle to the government's handling of inflation, jobs, investment, and growth.
After presenting more Union Budgets in a row than any other Finance Minister in India—a total of nine—rumour has it that Finance MinisterNirmala Sitharamanmay be replaced. For many, the question that is top of mind will be where she moves to, assuming she continues to hold a post in the Cabinet, and who replaces her. While those are certainly the more newsy questions to answer, the more telling question to ask would be why. Why is the Finance Minister, who has now overseen apandemic, a GST overhaul, and tax cuts for both corporate India in 2019 and income tax in 2026, under fire? After all, in the past, Cabinet colleagues from the Union government have rushed to deem each one of thoseUnion Budgets“historic, visionary, inclusive, and growth-oriented”. The answer may lie in the criticism that the Modi government has not been able to shake in its 12-year run—sloppy handling of the economy. Let us step away from the rumours for a moment. In the last few months, the different worlds inhabited by the Finance Minister and the larger financial community have become increasingly apparent. In May this year, banker and founder of Kotak Mahindra Bank Uday Kotak warned that the impact of the West Asia conflict on global energy prices was going to be sizeable and hard on Indian consumers and businesses. In his words, “Shock is coming and it’s coming big”. Contrast that with the Finance Minister who, in March, in reply to a written question in the Lok Sabha, said the rise in oil prices was not expected to have a substantial impact on inflation. Through the course of the conflict in West Asia, oil prices surged all the way to $120 per barrel. Prices may have eased, but the collateral damage to inflation will remain in the system. The Reserve Bank has now pencilled in an average inflation rate of 5. 1 per cent for this financial year against a reading below 3. 5 per cent in April. In fact, it has also trimmed economic growth forecasts to 6. 6 per cent from 7. 7 per cent in the previous year. Was the Finance Minister simply not across all the data, or did it not matter? And should it not be expected that a critical part of this leadership role is about being both transparent and realistic with the public?Inflation is one thing and can be more patchy in how it plays out. There is, as things stand, a real and palpable concern around food production itself. Rains have been deficient so far, and the Indian fertilizer sector has seen severe shortages of raw materials as shipments through the Strait of Hormuz were halted. The hope—and that is all it is right now—is that rains will improve in July and rural India will once again prove more resilient. The jobs crisis that will not go awayThis is a more recent turn of events. The fundamental running challenge for India, which has only recently been grudgingly conceded by the Finance Minister, is thejobs crisis that the country has been facing for over a decade now. And if, as Sitharaman has often accused, this is simply a figment of the opposition’s imagination, she has only to look to the streets and the youth protest movement spearheaded by the Cockroach Janta Party—itself a scathing indictment of a broken education system and a deep, enduring jobs crisis. Every year, the Budget speech has systematically denied that either of these is a problem, choosing instead to talk up programmes like the Prime Minister’s Internship Scheme. Allocations for the scheme were slashed by more than half in the recent Union Budget, a clear reflection of how poorly the programme did in its pilot phase. Capital outflow from the equity market, 13 years of flatline investment by corporate India, a currency struggling to get off its knees, and a job pipeline that has all but dried up—let us not kid ourselves about the realities of India’s economic challenges, even if we continue to celebrate the next data centre being built by global technology companies, sucking both power and water from the country. Over the years, Nirmala Sitharaman has been less than popular as a ministerial face. The middle class, retail traders, and small business owners have often expressed frustration over the lack of imagination and generosity the Finance Minister could have shown by way of tax relief or other sops. In 2019, as Indian households buckled under the weight of soaring onion prices, Sitharaman notably scoffed at the concern, saying: “I don’t eat much of onion-garlic. I come from such a family which doesn’t have much to do with onion. ”All of the challenges faced by India’s economy are the Finance Minister’s responsibility and remit. But none of this has been her decision alone. Major economic announcements have always come from Prime Minister Modi first. There have been photo-ops aplenty of him meeting corporates and startup founders, an awkward holding of hands on stage with AI leaders, and let us not forget the decimation that demonetisation wrought on India’s informal economy—also fronted by the Prime Minister. Rumours are just that until they are proven to be fact. Perhaps the Finance Minister is up for a change in role, and the reasons behind that change could be a recognition of her inability to address them. Or she could merely be collateral damage of a collapsing order. The problem for India’s economic future is that changing individuals will not change the approach which has consistently been, first, to refuse that there is a problem and, second, to deny how serious it is. If there is to be a change in economic leadership, it may not matter. And just like the missing rain, we may be left watching the sky. Mitali Mukherjee is Director of the Journalist Programmes at the Reuters Institute for the Study of Journalism, University of Oxford.