The new National Democratic Alliance government has done the right thing by retaining Nirmala Sitharaman as the finance minister. This might be an unpopular opinion, but it’s borne out by facts. Her tenure, since taking office in 2019, has been strong, and that’s not even counting the post-pandemic recovery of the Indian economy.
If corporate India and the stock markets want stability, and Prime Minister Narendra Modi wants someone who unquestioningly follows his directions, then she is the right person for the job.
It’s easy — and unfair — to judge a finance minister by the performance of the overall economy. Yes, the finance ministry is the nodal ministry when it comes to economic policy because it is the one that doles out the money. But the fact is that implementation lies with the relevant ministry. If this falls short, it’s hardly the finance minister’s fault. That blame lies with the minister of that lagging ministry and, ultimately, with the Prime Minister.
A better way to judge the performance of the finance minister would be to measure how the ministry itself has performed in the responsibilities directly within its ambit. This means looking at the performance of the various departments within the ministry — revenue, expenditure, economic affairs, financial services, asset management, and public enterprises.
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Revenue report card
Let’s start with revenue, since this is where most of the complaints against Sitharaman have emerged. The main functions of this department have to do with the collection of direct and indirect taxes, as well as the investigation of economic offences and enforcement of economic laws.
Regarding direct taxes, Sitharaman, in 2019, lowered the corporate tax rate to levels comparable with those around the world. That this did not eventually yield the kind of private sector investment the economy needs is a different matter. Those tax rates needed to be revised downwards if there was to even be a chance of attracting private investment.
Income tax rates have not changed under her tenure. This could be seen as a missed opportunity, and may be something that will be addressed under this new government. The fact that they were also not raised, however, is to be appreciated.
Even without raising rates, income tax collections have grown by an average 0f 16.7 percent every year since Sitharaman took over as finance minister in 2019. This is marginally faster than the 16.3 percent growth in the first term of the Modi government, made all the more notable by the impact of Covid-19 on incomes.
Similarly, revenue from the Goods and Services Tax (GST) has been growing strongly without rates being increased. Average monthly GST collections have grown from less than Rs 1 lakh crore before Sitharaman took over to Rs 1.7 lakh crore in 2023-24.
A lot of this increase in collections, both in direct and indirect taxes, has come from the widening of the tax base. That is, more people have been brought into the tax net, creating room for a future cut in tax rates.
However, the other reason for the increase in collections has been a significant increase in harassment by the tax man. Small companies, chartered accountants, and professionals all complain bitterly about cases from years ago being reopened, bribes demanded, and an overall sharp rise in the cost of tax compliance.
This is one of the primary reasons why Sitharaman has been so unpopular as a finance minister. The other, in my view, is simply sexist and doesn’t deserve to be engaged with.
Tax harassment is undoubtedly an area that needs to be worked on. But given that collecting more taxes is government policy, it’s not ‘what’ Sitharaman has been doing that needs to change; it’s the ‘how’.
The method of encouraging tax payments should move from coercion and bribe-taking to lowering rates and easing compliances. That said, from the government’s perspective, Sitharaman has done a splendid job of raising revenues. Now, if she can also prevent debacles like the TCS on LRS payments, that would be great.
Another area of responsibility for the Department of Revenue is the enforcement of economic laws, with the Enforcement Directorate (ED) coming under its purview. Harassment has undoubtedly become an issue on this front as well. But here, too, it’s something the government clearly wants done. Sitharaman is doing what she must. It’s not as if some other BJP leader would suddenly ask the ED to back off.
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High scores on expenditure, efficiency
Coming to the Department of Expenditure, a lot has already been said about the improving quality of government expenditure, but it bears repeating. The share of capital expenditure in total spending by the government has increased from a little more than one-tenth to nearly one-fifth during Sitharaman’s tenure. This has meant a falling share of revenue expenditure on salaries, pensions, and subsidies.
This is the way to go, and it’s not just me saying it. The global ratings agency S&P upgraded its outlook for India to ‘positive’ in May this year and said a “pronounced improvement in the quality of government spending, and political commitment to fiscal consolidation” were among the reasons for this.
Fiscal consolidation is a result of the interplay between the revenue and expenditure departments, and is overseen by the Department of Economic Affairs. The fact that the fiscal deficit has been trending downwards ever since the pandemic spike is a good sign.
It’s improvements here that could lead to an actual ratings upgrade following the recent outlook upgrade, the first in a decade or so.
The cleanup of bank balance sheets from the non-performing assets mess seen in the last decade should itself be reason for applause. But add to that record levels of profits seen in the banking sector now and the Department of Financial Services becomes a worthy candidate for the best-performing department in the finance ministry, and maybe even the government.
The performance of the Department of Investment and Public Asset Management (DIPAM) has been quite nondescript over the last few years. DIPAM was expected to be at the centre of a lot of activity following the announcement of the government’s ambitious Public Sector Enterprises Policy, or rather its privatisation policy. But nothing has come of it, except for the sale of Air India.
Relying on dividends from public sector companies instead of selling them off is more a political decision than a financial one. A coalition government will likely mean this won’t change in the next five years either. But, overall, one can’t say this department has ‘failed’ in any way.
The mission statement of the Department of Public Enterprises is “formulating policies, fostering transparency, and promoting responsible governance to enhance the competitiveness and social impact of public sector enterprises”. If ever there was a Sisyphean task, it is this.
Yet, the profit after tax of the listed PSEs surged by nearly 50 per cent in 2023-24, which is quite an achievement.
All in all, the boss of the finance ministry has done a commendable job during her term. There are, of course, areas for improvement, and some of those are real pain points, but Sitharaman’s return as the finance minister bodes well for the ministry, the government, and, dare I say it, even the economy.
TCA Sharad Raghavan is Deputy Editor – Economy at ThePrint. He worked in Nirmala Sitharaman’s office between January 2020 and August 2022. He tweets @SharadRaghavan. Views are personal.
(Edited by Asavari Singh)
“If corporate India and the stock markets want stability, and Prime Minister Narendra Modi wants someone who unquestioningly follows his directions, then she is the right person for the job.”
That is the subheading, and also second paragraph of the article.
Lord Ganesha on a bicycle! When did Modi and stable economics become congruent with each other?!
No….no….wait. I got that wrong. My apologies. The author was merely referring to stability for the stock markets and corporate India. For which he is very correct. Yes. Blindly following Modi will do adequately for that.
Next is ” It’s easy — and unfair — to judge a finance minister by the performance of the overall economy.”
The Minister and her ministry of Finance and Economic Affairs should not be judged critically for the lopsided performance of the composite national economy, for the record levels of profits achieved by banks despite their not having made any efforts for that, for the misdeeds of the enforcement authorities which happen to be directly under her, for the unreliability of available economic data, and …?!
No, no…my apologies again. I read that wrong too. The blame ultimately lies with the Prime Minister.
What! That puts Lord Ganesha behind bars!!
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The author has achieved the remarkable for ThePrint. We, its readers, now know what we are supposed to know far ahead of all that he will ever write. This too is now Lulu Land where is no real reading needed to be done. Which is such a relief. The poll results had me worried that I might need to put my brains back to work.
Trickle down is not working. What would u say on the rising economic inequality. This govt is an overall failure. Nirmala is just working to ensure the inequality only increases. India is a case study when it comes to inequality. India needs trickle up.
Modi is misreading the signal of 2024 verdict. I thought BJP would be more agile. Even the thought of poor getting loans and money in the pocket of poor makes useless and fake science based economists uncomfortable. Economists, pseudo intellectuals, feel awkward and counter intuitive when the status quo of rich getting richer is challenged.
The bank mafia wants poor people money to provide dirt cheap loans to the rich in the name of convenience. The mafia harass common man for even simple loans from their own money. They don’t want services like Paytm etc, which democratises financial services, to thrive. The bank mafia is a clever device to siphon off money from poor to the rich. Writing off loans is termed as balance sheet improvement of public sector banks. While making ensure that enough NPAs is continuously being created in the name of crony Adani.
We need revolutionary ideas of liberal capitalism in India. The American way is not working in India, clearly. The way this govt is working is nothing but a lazy ass way of working. Corporate tax is not the key for attracting investments, Purchasing power and gross profits are. Purchasing power can only be increased by investing in human capital, effective education, and real skill development.
The only thing overall good in this government is that they build roads better than Congress.