When Nirmala Sitharaman took over as India’s finance minister in May 2019, India’s growth was being squeezed by a slowdown in domestic demand and private investment. The country’s GDP had been falling in consecutive quarters since the third quarter of 2016-17. The arrival of the Covid-19 pandemic only compounded India’s woes as the country went into a stringent lockdown from March 25, 2020. India saw two successive quarters of negative GDP growth, with FY21 ending with growth contraction of 7.3 per cent. India’s health infrastructure stood overwhelmed, and millions of Indians employed in its informal economy faced a crisis of livelihood. The FM was in an unenviable position. Across the world, governments were loosening their purse strings to put money in people’s hands. Sitharaman, too, was expected to give a direct stimulus to the economy. Her team, however, chose a different, multi-pronged strategy—multiple relief packages for weaker sections of society; help businesses, especially smaller ones, sustain themselves through the crisis; and focus heavily on infrastructure development to create jobs.
To this end, Prime Minister Narendra Modi announced a Rs 20 lakh crore stimulus package in May 2020. Part of the Aatmanirbhar Bharat Abhiyan, it gave small businesses tax breaks, a Rs 1.7 lakh crore package for free foodgrains to the poor and cash to poor women and the elderly, and a focus on infrastructure spending. The government launched an Emergency Credit Line Guarantee Scheme over and above the Credit Guarantee Trust to give additional credit to MSMEs (micro, small and medium enterprises). The scheme has now been extended up to March 2023. What Sitharaman did not relent on was the pressure from MSMEs to waive loans. The ambitious National Infrastructure Pipeline, which was originally announced in 2019, received renewed impetus, including 9,335 projects and envisaging an investment of Rs 108 lakh crore between 2019-20 and 2024-25. As part of its Make in India initiative, the Centre also announced production-linked incentive schemes targeting 13 key manufacturing sectors.
In August 2021, the Centre announced an aggressive divestment and asset monetisation push aimed to raise Rs 6 lakh crore. A new Public Sector Enterprises (PSE) policy was announced as part of the Aatmanirbhar package to privatise PSEs except for the ones in four strategic sectors. Air India was finally sold to the Tata Group and Life Insurance Corporation launched its initial public offering to raise Rs 21,000 crore.
“Without spending money, she gave confidence to the economy and achieved the same objective,” says Nilesh Shah, MD, Kotak Mahindra Asset Management. Bank credit to micro and small enterprises (MSEs) in February 2022 jumped 8.4 per cent to Rs 13.12 lakh crore from Rs 12.11 lakh crore in February 2021, indicating minimal impact on businesses and trade. The economy climbed back up from its precipitous fall, rebounding to 8.5 per cent growth in Q2 of FY22. However, since the growth came upon the low base of the previous year, reality struck very soon. Growth slowed to 5.4 per cent in Q3, and is likely to fall to 3.2 per cent in Q4, as per estimates by rating agency ICRA.
The FM’s troubles are also unlikely to end anytime soon. The ongoing Ukraine war, and the consequent supply chain disruption, the ballooning prices of crude oil and food items like wheat have released inflationary impulses across the world. Inflation in India has breached the RBI’s upper target of 6 per cent four months in a row till April, when consumer price inflation hovered at 7.8 per cent. The RBI, which had kept interest rates low through the pandemic, was compelled to raise them by 40 basis points in May, and another rise is imminent in June. On May 21, Sitharaman announced a slew of measures to cool inflation, which included a reduction in excise duty on petrol by Rs 8 per litre and on diesel by Rs 6 (entailing a Rs 1 lakh crore loss to the exchequer), a cut in customs duty on raw material for plastics and steel, and an increase in export duty on iron ore and steel intermediaries. These measures are expected to cool inflation, but if the European Union decides to ban oil and gas imports from Russia, oil prices may escalate up to $150 a barrel or higher, say experts, sending all calculations awry. S&P Global Ratings has already scaled down India’s growth prospects for the current fiscal to 7.3 per cent from 7.8 per cent. It is Sitharaman’s job to navigate the Indian economy through the turbulent economic seas, and not announce any major policy moves that could further rock the boat.