President of India Droupadi Murmu administers the oath as Cabinet Minister to Nirmala Sitharaman at the swearing-in ceremony at Rashtrapati Bhavan, in New Delhi, on June 9, 2024. Sitharaman has returned as Finance Minister in the Modi 3.0 Cabinet. Photo: PIB

Back in the saddle in signs of Prime Minister Narendra Modi preferring continuity in policy, Finance Minister Nirmala Sitharaman is likely to lay out the government’s economic agenda when she presents the first annual budget of Modi 3.0 next month.

Her task is cut out as she will have to look at measures to boost growth without hurting inflation as well as look for resources to meet the coalition government’s compulsion.

The Modi 3.0 economic agenda would include steps to fast-track reforms to make India a USD 5 trillion economy in near future, and turn the country into ‘Viksit Bharat’ by 2047.

Last week, the Reserve Bank of India (RBI) projected that the economy would grow 7.2 per cent in the current fiscal on the back of improving rural demand and moderating inflation.

Indian Finance Minister Nirmala Sitharaman
Indian Finance Minister Nirmala Sitharaman has to balance economic growth with inflation control. Photo courtesy: X/ @nsitharamanoffc

The new government inherits a strong economy with fiscal prudence in place. Icing on the cake is a bonanza from RBI, which has announced the highest-ever dividend of INR 2.11 lakh crore (USD 25.19 billion) for the financial year 2023-24.

The key policy priorities for the Modi 3.0 government would include dealing with stress in the agriculture sector, job creation, sustaining capex momentum and pushing revenue growth to stay on the fiscal consolidation path.

Rating agency S&P has already given a thumbs up to economic policies followed by the Modi regime in the past 10 years by upgrading the sovereign rating outlook to positive. It also hinted at a possible rating upgrade in the next 1-2 years, provided the government sticks to its fiscal deficit roadmap.

While tax revenues seem to be buoyant, non-tax revenue remains a challenge as strategic disinvestment has almost been a non-starter, with no big-ticket strategic sale, except Air India.

Strategic sale of a host of CPSEs (central public sector enterprises), including Shipping Corporation, NMDC Steel Ltd, BEML, PDIL and HLL Lifecare, are in the pipeline.

Banking sector reforms is another area where the government is facing a lot of resistance. It has not been able to carry forward the policy of privatising a few public sector banks as well as insurance companies.

On the tax revenue side, while monthly GST mop-ups have been comfortable, the GST Council, chaired by the Union Finance Minister and comprising state counterparts, will have to bite the bullet with tax rate and slab rationalisation to usher in GST 2.0.

Sitharaman was given charge of the Finance portfolio in the second stint of the Modi government after the 2019 general elections, becoming the first full-time woman finance minister in independent India.

Under her leadership of the Finance Ministry, India weathered the COVID-19 pandemic with an array of policy measures announced for the poor, and retained its tag of “fastest growing major economy” and a “bright spot” in the global economy.