Modi Control of New Cabinet Suggests He Can ‘Manage His Allies’
(Bloomberg) -- Indian Prime Minister Narendra Modi is keeping some of his closest advisers in place across key government leadership posts, an indication that his party remains firmly in control of the new coalition government despite suffering a setback at the polls.
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The continuity atop ministries such as finance, home and external affairs put to rest speculation that the recent electoral disappointment suffered by the ruling Bharatiya Janata Party — it failed to win an outright majority for the first time since 2014 — would force Modi to cede control of New Delhi’s top portfolios. Out of the 30 cabinet positions, 25 posts stayed with the BJP, while the rest went to allies.
“It is a very clear message to the critics of the BJP and the country that, whether the BJP is in the majority or not, the party is not going to make any compromise on the way they want to take the agenda forward,” said Sanjay Kumar, a professor at the Centre for the Study of Developing Societies, a Delhi-based think tank.
“At this moment, the perception is that Modi has emerged stronger, and he is able to manage his allies also,” he added.
Modi was sworn in to office for a third consecutive term on Sunday. The announcement on cabinet appointments Monday followed several days of intense negotiations between the BJP and its coalition partners.
Among key Modi aides keeping their portfolios in the new government is Nirmala Sitharaman, India’s finance minister since 2019, Home Affairs Minister Amit Shah, External Affairs Minister Subrahmanyam Jaishankar, Commerce Minister Piyush Goyal and Transport Minister Nitin Gadkari.
The BJP’s retention of the key ministerial portfolios suggest policy continuity in one of the world’s fastest-growing economies, analysts said. However, there may also be pressure for the Modi government to spend more, especially to tackle unemployment and rising living costs, key concerns of voters.
The BJP will face a series of crucial state elections in coming months including in Maharashtra, Haryana and Delhi.
Media reports Tuesday suggested 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 pledged to curb the deficit to 4.5% by next year.
Sitharaman is “a prudent fiscal manager,” said Abheek Barua, chief economist at HDFC Bank, adding that the minister will ensure India remains on the path of fiscal consolidation. “We can see more allocation towards rural development and rural housing, and she will ensure that it does not translate into any fiscal slippage. It’s very critical at this moment.”
The minister’s immediate task will be to present the government’s budget, likely in July, which will provide insight into the Modi coalition’s priorities going forward. A boost to government coffers recently means there’s fiscal space to spend more. Tax revenue has soared and the central bank recently announced it will pay a record dividend of about $25 billion to the government.
S&P Global Ratings recently signaled a possible credit rating upgrade in coming months, citing the improved fiscal position.
“The decision to retain key cabinet ministers in the important portfolios of finance, home, defense, external affairs, road transport, in the third term sends a strong signal of policy continuity,” said Sonal Varma, chief economist for India and Asia ex-Japan at Nomura Holdings Inc.
Some of the new faces in the cabinet include Shivraj Singh Chouhan, the former chief minister of Madhya Pradesh state, who was appointed agriculture minister, and J.P. Nadda, the BJP president, who was named health minister.
Economists expect the BJP-led government to continue its focus on infrastructure spending, which has helped underpin rapid economic growth. India’s economy expanded more than 8% in the fiscal year that ended in March, with the central bank predicting growth will reach 7.2% in the current fiscal year.
“We expect the new government to stick to the fiscal consolidation path with a continued thrust on infrastructure creation through more rail network, amidst a slight tilt towards more rural spending,” Goldman Sachs Group Inc. economists including Santanu Sengupta wrote in a note.
--With assistance from Ruchi Bhatia.
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