GDP growth touches 5 year low, unemployment continuously rises: Challenges for New FM Nirmala Sitharaman
Nirmala Sitharaman on Friday was elevated to the post of Union Finance Minister under Narendra Modi’s NDA 2.0 cabinet. She will also head the Corporate Affairs ministry in the new government apart from her primary role as the finance minister.
Nirmala Sitharaman, who became the first woman in 48 years to hold the top post after Indira Gandhi, faces a multitude of economic challenges as she takes the top post at North Block.
On Thursday, GDP growth data released for the last quarter of 2018-19 came in at 5.8 per cent, the lowest in at least 20 quarters. With the sharp slowdown in growth, India has lost its fastest growing economy tag to China after two years.
Meanwhile, India’s overall GDP growth has touched a five year low as well at 6.8 per cent. This is in stark contrast from the 8 per cent growth rate recorded a year ago.
Since the last financial year, GDP growth has sequentially dipped from over 8 per cent to 7 per cent in the second quarter while further coming down to 6.6 per cent in the third quarter.
However, economists have raised several structural concerns after growth fell below 5.8 per cent for the last quarter of 2018-19.
A slowdown in GDP growth in the last quarter has been attributed by economists to slow rural consumption demand, lapses in the manufacturing sector, agricultural distress, and unemployment. Key sectors including FMCG and automobile have also fallen sharply due to lowering rural demand.
While these are some of the top challenges for the new finance minister, she will also have to maintain a balance between growth and fiscal consolidation, as recommended by most economists.
Sitharaman will also have her work cut out in planning new sectoral reforms to iron out issues that have led to a slowdown in growth in a number of sectors.
The former defence minister will also have to look closely at the shadow-banking sector which has been under pressure since the defaults at IL&FS, which triggered a liquidity crisis in the economy.
Noted economists including Raghuram Rajan have said India has the potential to breach 10 per cent GDP growth but added that it has to be supported by chiseled reforms.
Unemployment at 45-year-high
While, of all the challenges she faces, fixing the job crisis is likely to be on top of the agenda.
Unemployment in the country is at a 45-year high at 6.1 per cent, according to latest figures released by the Ministry of Statistics and Program Implementation (MoSPI).
Earlier, an unreleased periodic labour force survey by the NSSO had shown a spike in unemployment in the country but was rejected by the government, which termed it as a draft report.
This is yet another concern for Nirmala Sitharaman and what makes her job tougher is the fact that the country offers limited fiscal room to boost growth through higher government expenditure.
Sitharaman will have to carefully work with the Reserve Bank of India (RBI) to tackle the dual-ended issue of balancing growth.
Among other challenges, Sitharaman will also have her hands full in solving the distress faced by farmers in the country. Farmers in the country have once again started protesting against weaker prices and burgeoning debt.
The average agricultural growth under NDA’s first term has not been low at just 2.5 per cent. This is another area where Sitharaman needs to focus in order to prevent a further slump in the economy.
But the trickiest challenge for the new finance minister will be to balance growth and expenditure perfectly to ensure the speedy economic revival and fiscal consolidation.