MPW Icon: Nirmala Sitharaman, the sentinel of fiscal prudence

NIRMALA SITHARAMAN is perhaps the only finance minister in the history of the country to have faced back-to-back macroeconomic onslaughts during her tenure — a pandemic, two major ongoing wars (Russia-Ukraine and U.S.-Iran) and a belligerent as well as unjust tariff regime. In fact, the past year has been especially tough in the wake of the double whammy of U.S. President Donald Trump’s liberation day tariffs and the U.S.-Israel war against Iran. The former threatened to stymie domestic exports, while the West Asia crisis posed a serious challenge to India’s energy security and the overall macroeconomic fabric, with far-reaching implications on growth, inflation, and current account deficit. But even in the face of these challenges, Sitharaman managed to deliver a goldilocks moment in the economy on the back of structural reforms and a sustained capital expenditure push over the years. That said, for now, the gains stand the risk of receding into the horizon, due to the aftershocks of the West Asia crisis. Yet, one of the differentiating factors for the Indian economy is that it is on strong footing — GDP grew 7.8% in Q4FY26 compared to 7% in the same quarter of the previous fiscal. Also, the Indian economy grew 7.7% in FY26, against 7.1% in the previous fiscal, marginally exceeding the 7.6% growth projected in the second advance estimates. It is in sharp contrast to the economic backdrop during the 2013 taper tantrum and the general economic slowdown of 2019. In 2013, India’s policy paralysis, low growth and high inflation earned it the sobriquet of the “fragile five”, alongside Brazil, Indonesia, South Africa, and Turkey. In 2019, too, GDP touched the 3% range amid a slowing economy. A strong macro backdrop is the saving grace this time around. The ministry, too, has been nimble-footed in its response. According to a government official, policy agility, bundling industry feedback, and a calibrated response have been some defining features of finance minister Nirmala Sitharaman’s work style. In Sitharaman’s own words, the macroeconomic management philosophy has undergone a sea change over the past decade and has helped India “stand out”. These are anchored in several key pillars. “Budgetary discipline, thrust towards infrastructure and public debt management, and preference for productive investment-led fiscal management over the erstwhile focus on consumption-led deficits has helped India stand out as the world is moving from the state of shocks to one of permanent volatility,” Sitharaman said at the Golden Jubilee celebrations of the National Institute of Public Finance and Policy in New Delhi in April. The decadal fiscal prudence, a policy imperative, provides room for monetary easing, and India is on the right path to achieve the developed economy goals of 2047, Sitharaman added. “The year 2025 was monumental in more ways than we initially thought. Trade fragmentation has introduced severe uncertainty in global supply chains. This led to sharp downward revisions in global growth forecasts, but the year ended more optimistically than previously perceived, particularly for India.” She also pointed out that amid the current West Asia crisis, India draws both fiscal and monetary strength from the decadal macro management of the economy. “This current year is even more challenging as we move from a landscape of shocks to one of permanent volatility. The escalation of the Middle East conflict has evolved from a regional security concern into a systemic tremor, threatening the vital arteries of global energy and hardening the lines of a new, multipolar world order.” “India has fiscal space — room to maintain our capex programme, room for the RBI to cut rates, room to offer targeted support to affected sectors. This is the dividend of a decade of fiscal discipline, the strategic value of fiscal prudence that pays dividends across decades,” she added. The government, Sitharaman had said earlier, was closely monitoring the impact of the West Asia crisis, with a focus on the ‘3Fs’ — fuel, fertiliser, and foreign exchange reserves. Stressing that the country’s economic fundamentals remain strong, she said the Centre’s policy response has been calibrated to safeguard growth while managing external pressures. That said, under Sitharaman, the ministry has kept its sights firmly on the challenges at hand. In March, the ministry said there would be a “considerable downside” to the GDP growth projection of 7-7.4% for FY27 due to the West Asia crisis. “On February 27, we upgraded India’s growth estimate (at constant prices) for FY27 to a range of 7.0% to 7.4%. Clearly, there is considerable downside to this number,” Chief Economic Advisor V. Anantha Nageswaran said in March. In fact, multiple agencies have warned that India’s FY27 growth will remain muted in the wake of the West Asian crisis. Both S&P Global and Standard Chartered have lowered their growth projections for India citing disruption in trade and energy flows and higher inflation due to the U.S.-Iran conflict. While S&P Global has cut its FY27 GDP growth forecast to 6.6% from its earlier estimate of 7.1%, StanChart has lowered it to 6.4% from 7%. According to StanChart, there are three channels through which high energy prices could hit the Indian economy — erosion of purchasing power due to higher retail fuel prices, a widening current account deficit amid weak exports (the Middle East accounts for 14% of India’s exports), and supply-side disruptions, especially of critical inputs like cooking gas, affecting manufacturing and services such as restaurants. The partial closure of the Strait of Hormuz has raised concerns over possible disruptions in supplies of petroleum products and urea, both critical imports for India. Crisis control Despite the downward revisions, the Indian economy is expected to remain the fastest growing globally. According to sources, the Ministry of Finance is expediting the disinvestment targets for the current fiscal. Sitharaman has held several rounds of reviews with both the Department of Investment and Public Asset Management and Department of Public Enterprises to ensure disinvestment and asset monetisation are on track. “The ministry would like the department to better the FY27 disinvestment and monetisation target of ₹80,000 crore,” sources say. The finance ministry has also taken major steps to address the crisis, aimed at ensuring that the energy supply is adequately maintained in the economy, while keeping consumers insulated from the oil price shock. Firstly, in order to ensure that the common citizen does not bear the brunt of rising global crude oil prices, the Centre initially reduced the excise duty on both petrol and diesel by ₹10 per litre, resulting in a revenue impact of ₹1.5-1.75 lakh crore for the exchequer. To date, the government has supported PSU oil marketing companies (OMCs) with ₹1.23 lakh crore to offset under-recoveries caused due to no increase in bunk prices for a period of 78 days despite high crude oil prices. However, since May 15, OMCs have raised petrol and diesel prices by a cumulative ₹7.50 per litre. “The daily losses for OMCs are still quite high. Before the price hike, OMCs were incurring losses worth ₹1,000 crore per day. Certain measures like excise duty reduction, etc., were taken. Still, per day losses are around ₹500-550 crore,” Minister of Petroleum and Natural Gas Hardeep Singh Puri said on the sidelines of an event in the Capital last month. Secondly, the Centre brought back the windfall tax on the export of diesel and aviation turbine fuel (ATF) to manage domestic supply and suppress windfall gains by refiners. A Special Additional Excise Duty on fuel exports — ₹21.5 per litre on diesel and ₹29.5 per litre on ATF or jet fuel — was levied. The rates were later relaxed. Thirdly, to curb forex outgo on gold imports, the ministry increased the import duty on gold, silver and other precious metals to 15%, from 6%. According to sources, the move is aimed at safeguarding macro stability and foreign exchange reserves. To provide reprieve across sectors amid the conflict, the government had earlier granted full customs duty exemption on critical petrochemical products, benefiting sectors like pharma, textiles, and plastics among others. India never lost sight of reforms, despite the government facing a retaliatory and penal tariff worth 50%. In fact, Sitharaman pulled off GST reforms last year, including tax cuts on essential items to 5% from 12%, and 18% from 28%, along with measures pertaining to structural reforms, rate rationalisation, and ease of living. On the direct tax front, the minister is credited with the overhaul of the Income Tax Act, 1961, and the introduction of the Direct Taxes Code (DTC) in its place. Besides, the ministry also implemented IBC 2.0 to fast-track resolutions, and allowed 100% FDI in insurance companies, intermediaries, and brokers to attract capital, technology, and global expertise in the sector. Sitharaman did not mince words while retaliating against Trump on his “dead economy” jibe against India. The finance minister said India was moving fast on multiple economic parameters, and was capable of standing up, speaking and defending itself globally because of its strong macroeconomic fundamentals. “Who can tell this population of 140 crore people, who are pushing from tenth to fifth to third-largest economy soon, that you are dead,” she said at an event in November last year. However, she also acknowledges that the road to Viksit Bharat 2047 is long. The challenges ahead include climate finance, debt management, the fiscal implications of demographic change, technology-led disruption, etc. “But I have no doubt that we have the intellectual resources, the institutional capacity, and the national ambition to complete it... India is on the right path. India is all set to scale new heights that were hitherto unseen.”

MPW Icon: Nirmala Sitharaman, the sentinel of fiscal prudence

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