Almost one and a half years ago, when the Modi government came to power with an even bigger majority, Nirmala Sitharaman was chosen as the Finance Minister of India. Given the fact that people have voted for the Modi government’s reformist agenda, it was expected that the government would embrace privatisation and spend big on infrastructure creation.
However, instead of going for reformist agenda, the Modi government took some regressive steps like increasing surcharge on wealthy, mandatory minority shareholder increase, and an exponential increase in estimated tax collection in the first budget – introduced by Finance Minister Sitharaman a few weeks after the election results. There was a 3% increase in a surcharge of individuals with income of 2-5 crore rupees, 7% increase in a surcharge of individuals with income above 5 crore rupees.
The government did not increase surcharge only on super-rich but the trusts were also included in this. The decision of adding a surcharge on FPIs had a disastrous impact on Indian stock markets with a massive outflow of foreign portfolio investment.
Although the government took many corrective steps after that, this led to a very bad reputation of Finance Minister Nirmala Sitharaman in the public domain as well as among the business and entrepreneurial community.
Sitharaman was accused of being leftist (some went even to the extent of accusing her of being a Marxist) and used her education at Jawaharlal Nehru University (JNU) to prove their point.
After the forgettable first budget, even the second budget by Nirmala Sitharaman didn’t have any remarkable features, although it made a pitch for a private sector-led economy.
But, contrary to the first two budgets, Nirmala Sitharaman took a radically different approach to the Union Budget of 2021. Despite repeated calls from US-based leftist economists like Abhijit Banerjee and Kaushika Basu for a massive increase of taxes on the rich and a large scale redistribution, the government kept the tax rates stable and even announced new exemptions for senior citizens.
Moreover, Sitharaman’s new even reduced revenue expenditure on many items and took capital expenditure above 5 lakh crore rupees, the highest ever. Most of the capital expenditures would go to massive infrastructure creation from large-scale ones like roads, railways, and ports (airport and seaport) to small-scaled ones like housing, water, and sanitation. Given the fact that infrastructure creation is a sure-shot method of economic growth and job creation, the massive spending on these projects would make India the fastest developing economy in the world in the ongoing year.
It took a pandemic to bring the best out of Finance Minister Nirmala Sitharaman. Right after the government started announcing Aatmanirbhar Bharat packages, the Finance Minister took a sharp turn towards the right as far as the economy is concerned.
In the announcement of the Aatmanirbhar Bharat package, Sitharaman declared that India will now be a private sector-led economy and public sector companies would be restricted to a few strategic sectors only – that too not more than four companies.
“We would like to announce a PSE policy (as) a self-reliant India needs a coherent policy. All sectors will be opened to private sectors also,” Sitharaman said on May 18, last year.
“PSEs will continue to play an important role in defined areas. We need a coherent policy because sometimes you open up some sectors in piecemeal… Now we shall define the areas… where their presence will be impactfully felt,” Sitharaman added.
And since then to this date, her commitment to the private sector and India’s entrepreneurs has only increased despite repeated allegations from the opposition about sell of the family silver. “Our belief in Indian businesses has been consistent from Jana Sangh to BJP… respecting wealth creators, taxpayers and honest citizens is something we consistently follow,” Finance Minister Sitharaman said in her reply to the Budget debate in the Lok Sabha recently.
“It started denigrating Indian businesses and made it difficult for businesses to perform. Too many regulations ended up stifling these businesses. Poverty reduction has happened when public and private enterprises were freed from licence quota raj,” she added.
In India, it takes hard times to bring the best out of the Finance Ministers, be it, Manmohan Singh, in 1991, or Nirmala Sitharaman in 2020-21. The economic reforms initiated by the then Finance Minister Manmohan Singh set the stage for India to become a newly industrialised country and, three decades later, the economic reforms implemented by Finance Minister Nirmala Sitharaman would set the stage for India to become a global economic powerhouse in the upcoming years.