The boss of the finance ministry took charge during a challenging period. She has managed to steer the economy towards growth and fiscal consolidation
In a televised address at the peak of the Covid-19 pandemic in 2020, Prime Minister Narendra Modi delivered a stark message: “India is at a stage of the pandemic where our actions will decide our future.” It was a moment of national anxiety, not just for the millions confined to their homes, but for an economy staring at an impending crisis. For Nirmala Sitharaman, less than a year into her role as Union finance minister, it was nothing short of a trial by fire.
Four years later, she stands at the helm, forged in that fire and facing fewer doubters. The National Democratic Alliance (NDA), having renewed its mandate with the help of its allies, chose once again to entrust her with the nation’s finances—a testament to the belief that India’s economy is steadier, and perhaps safer, in her hands.
India’s economic profile today appears far more robust than it did a decade ago, despite a once-in-a-century crisis along the way. The country is on a growth trajectory that, in the aftermath of the pandemic, many economists had deemed improbable.
The resurgence has been brought about by fiscal policies that Sitharaman shaped in the seven consecutive, record-breaking budgets she has presented in Parliament.
Signs of a slowdown were evident before the pandemic when India’s growth rate plunged 6.6% in 2020-21. With private sector players slashing investments to protect profits, the country needed a finance minister to take decisive charge.
Between 2020 and 2024, Sitharaman raised capital expenditure from Rs 4.1 lakh crore to an unprecedented Rs 11.1 lakh crore. Calling it a “policy prerogative”, she emphasised that the allocation—amounting to 3.4% of the gross domestic product (GDP)—would have a substantial multiplier effect on growth.
Before 2014, India’s economy was among the ‘fragile five’. Today it is being recognised as one of the ‘fabulous five’. The Indian economy has become one of the fastest-growing large economies. Rajnath Singh Defence Minister
“In keeping with what the finance minister mentioned in her Budget speech, the government has provided significant support to infrastructure, which has served our economy well,” notes Ajay Seth, secretary, department of economic affairs.
It has now been three consecutive years that India has grown at over 7%. On May 31, it was officially announced that India’s GDP grew by 8.2% in 2023–24, surpassing projections by both government and private forecasters. A week later, on June 7, the Reserve Bank of India revised its GDP growth estimate for the current fiscal year upward from 7% to 7.2%. Global agencies soon followed, with the World Bank increasing its forecast from 6.4% to 6.6% and later to 7%.
“What is important is that this is happening in an international environment that is adverse. Global growth rates are below the trend of the past two decades,” says TT Ram Mohan, economist and former part-time member of the Prime Minister’s Economic Advisory Council.
Modi and his cabinet highlighted these achievements.
“India’s economy has undergone unprecedented changes. Before 2014, India’s economy was among the ‘fragile five’. Today it is being recognised all over the world as one of the ‘fabulous five’. The Indian economy has become one of the fastest-growing large economies today,” said defence minister Rajnath Singh in a speech in Kerala on August 30.
The term ‘fragile five’—a label India shared with Brazil, South Africa, Turkiye and Indonesia—was coined in 2013 by a Morgan Stanley analyst, reflecting concerns over unchecked spending and a growing fiscal deficit.
India’s fiscal deficit shot up to 9.2% as a share of GDP in 2020–21. This made Sitharaman’s job far more complex than when she took office in 2019. Yet rather than raising taxes to shrink the deficit, Sitharaman focused on broadening the tax base and drawing more people into the tax net.
The result: revenue from the goods and services tax (GST) has grown robustly without rate hikes. Average monthly GST collections surged from under Rs 1 lakh crore before she took office to Rs 1.7 lakh crore in 2023–24.
Similarly, income tax collections have grown at an average of 16.7% annually since 2019, a pace slightly higher than the 16.3% growth seen during the NDA government’s first term. This achievement is notable given the severe impact of the pandemic on incomes nationwide.
Under her leadership, the finance ministry has followed the path of fiscal consolidation, reducing the fiscal deficit to 5.6% this year.
What makes this fiscal consolidation a major victory is that it has been achieved without increasing the burden on taxpayers and with substantial capital investments. Global agencies have taken notice, with ratings giant S&P upgrading India’s outlook from “stable” to “positive” in May.
The agency cited a “pronounced improvement in the quality of government spending and political commitment to fiscal consolidation” as key factors in its decision—praise that is a hat tip to Sitharaman’s stewardship in navigating the economy.