Here is Why the Road Ahead is Bumpy for the New Finance Minister Nirmala Sitharaman
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Last week, when Prime Minister Narendra Modi and his cabinet ministers swore-in, there was one major question among the masses – who will be the next finance minister of the country?
While the media anticipated Modi’s closest comrade, Amit Shah, to take up the role, which according to market experts would not be have been a good choice, the Prime Minister choose Nirmala Sitharaman for the task. While former is India’s new Home Minister now.
The ex-defence minister is the first full-time woman finance minister of the country. Even though her appointment came in as a surprise, Garima Kapoor, Economist, Elara Capital feels Sitharaman has done a fairly good job as defence minister and she has proved her acumen.
“I think she fits the bill better than anyone else. After Jaitley, she's the best bet that Modi could have had as she has worked under the commerce ministry as MoS, has domain knowledge as she is an economics postgraduate and has also worked in the sector, so all the main boxes are ticked,” Kapoor said while adding that, “Sitharaman also did a fantastic job defending the Rafale deal in parliament and did a good a job in whatever little time she was handling defence, so this may also be kind of a reward for a job well done.”
Task in Hand
Unlike 2014, when NDA came into power, the government main agenda’s was to implement GST, 2019 is different.
In this term, the government needs to address key issues. For instance, the GDP growth rate for the fourth quarter of 2018-’19 hit a four-year low of 5.8 per cent as compared to 8.1 per cent in the corresponding period last year. This is a red flag for the economy.
While on the other hand, according to the Ministry of Statistics and Implementation’s Periodic Labour Force Survey (PLFS) data for 2017-18 and the December quarter unemployment among urban youth in the age group of 20-29 years is consistently rising for three quarters and was at 23.7 per cent in the quarter.
Furthermore, the liquidity crisis in the country is yet to be addressed, consumption in the country has come down, the country probably might be staring at least below than average rainfall, there is distress among the agriculture community, exports are slowing down, NPAs are still a nightmare and the list can go on and on.
Is Sitharaman the Key to India’s Economic Revival?
Well, this is something we have to wait and watch for. However, considering the fact Sitharaman is an economist by qualification, the expectations are high. Arindam Chanda, CEO, IIFL Securities Ltd says one of the major challenges for her would be kick-starting the economy.
“This would require a multi-pronged approach, but ensuring MSME focus to create more jobs and tax reforms which in turn would revive demands will be key. Quick changes in IBC processes and faster divestment can release capital. In more than one way, the government need to work out innovative schemes to revive investment in the economy, with a favourable image of the central leader, FDI flow should be the low hanging fruit to focus on,” Chanda pointed out
Additionally, banking and NBFC sector are reeling under severe liquidity crisis which is threatening to permanently derail growth and capex expansion in India, Sitharaman needs to work with the RBI to pump in liquidity financial institutions.
Amit Goenka, MD and CEO of Nisus Finance says that the finance ministry should look at introducing schemes and programs to help NBFCs recapitalise and easing of norms for NBFCs will bode well for this time. The spate of NPAs needs to be curtailed by providing restructuring options to banks in case of assets that have significant intrinsic value.
They should also look at allowing the banks to focus on the possibility of revival and turnaround, rather than spend time and energy on going through the NCLT process alone. “Urgent intervention in the housing sector is required by allowing the flow of ECBs and the availability of cheaper capital through NHB for the development of affordable housing projects. Also through the NIIF and similar federal financial institutions, the dedicated corpus of at least USD 10 billion for rescue financing of stuck housing projects must be created," he added.
This move, Goenka says will release at least USD 50 billion of housing assets into the economy. and close to 60k-70k home buyers in NCR alone can be benefited by the employment of such corpus in viable projects.