Indian Prime Minister Narendra Modi has decided to retain some of his closest advisers in key government leadership positions, signaling that his party remains in control of the new coalition government despite a setback in the recent elections. This decision puts an end to speculation that the ruling Bharatiya Janata Party’s electoral disappointment, where they failed to secure a majority for the first time since 2014, would lead to Modi relinquishing control of important ministries such as finance, home, and external affairs. Out of the 30 cabinet positions, 25 will be held by the BJP, with the remaining going to their allies.
Sanjay Kumar, a professor at the Centre for the Study of Developing Societies, a Delhi-based think tank, stated that the recent cabinet appointments in the BJP government send a clear message to critics – that the party will not compromise on its agenda regardless of whether it is in the majority or not. He also noted that Prime Minister Modi has emerged stronger and is effectively managing his coalition allies.
After being sworn in for a third consecutive term on Sunday, Modi announced the cabinet appointments on Monday following intense negotiations with coalition partners. Key Modi aides, including Nirmala Sitharaman, Amit Shah, Subrahmanyam Jaishankar, Piyush Goyal, and Nitin Gadkari, will retain their portfolios in the new government.
Analysts believe that the BJP’s decision to retain key ministerial portfolios indicates a continuation of policies in one of the world’s fastest-growing economies. However, there may be pressure on the Modi government to increase spending in order to address issues such as unemployment and rising living costs, which are important concerns for voters.
In the coming months, the BJP will face crucial state elections in Maharashtra, Haryana, and Delhi.
According to media reports on Tuesday, there are no plans to raise the fiscal deficit target from 5.1% of gross domestic product for the current year. Modi’s government had previously committed to reducing the deficit to 4.5% by next year.
According to Abheek Barua, chief economist at HDFC Bank, Sitharaman is seen as a responsible manager of the country’s finances. He believes that she will prioritize fiscal consolidation and ensure that any increase in allocation towards rural development and housing does not lead to fiscal slippage. This is crucial at the moment.
Sitharaman’s immediate task is to present the government’s budget, expected in July, which will reveal the priorities of the Modi coalition moving forward. The recent increase in government funds means that there is room for more spending. Tax revenue has risen and the central bank will pay a record dividend of approximately $25 billion to the government.
S&P Global Ratings has also hinted at a possible credit rating upgrade in the coming months, acknowledging the improved fiscal position.
“The decision to retain key cabinet ministers in important portfolios such as finance, home, defense, external affairs, and road transport in their third term sends a strong message of policy continuity,” said Sonal Varma, the chief economist for India and Asia ex-Japan at Nomura Holdings Inc.
Among the new faces in the cabinet are Shivraj Singh Chouhan, the former chief minister of Madhya Pradesh state, who has been appointed as the agriculture minister, and J.P. Nadda, the BJP president, who will now serve as the health minister.
Economists anticipate that the BJP-led government will continue to prioritize infrastructure spending, as it has been a driving force behind the country’s rapid economic growth. In the previous fiscal year, India’s economy expanded by over 8%, and the central bank predicts growth to reach 7.2% in the current fiscal year.
Goldman Sachs Group Inc. economists, including Santanu Sengupta, expressed their expectation that the new government would adhere to the fiscal consolidation path. They anticipate a continued focus on infrastructure development, particularly in expanding the rail network. Additionally, there may be a slight shift towards increased rural spending. Assistance in preparing this note was provided by Ruchi Bhatia.