Indian Finance Minister Arun Jaitley pledged to restore investor confidence in Asia’s third-biggest economy on his first day in office after Narendra Modi unveiled the nation’s smallest cabinet in 16 years.
Jaitley, who will also head the defense and corporate affairs ministries, told reporters today his priorities include restoring economic growth, containing inflation and fiscal consolidation. Modi, sworn in as prime minister last night, unveiled a cabinet of 23 ministers, the fewest since 1998.
“I’m conscious of the fact that I’m taking over at a challenging time, particularly when there’s a need to rebuild confidence in the Indian economy,” Jaitley told reporters in televised comments. “The mandate which our government has received has an inbuilt hope in it, and I’m sure that a political change itself sends a strong signal to the global community as well as domestic investors.”
Modi has vowed to reduce the size of India’s government to revive Asia’s third-biggest economy after winning a parliamentary majority in the nation for the first time in 30 years. Jaitley faces the challenge of boosting growth as Governor Raghuram Rajan keeps interest rates elevated to rein in the region’s second-fastest inflation.
“The long-lasting solution to India’s inflation problem is with the government and not with the Reserve Bank of India,” said Rajeev Malik, an economist at CLSA Asia-Pacific Markets in Singapore. “So the two should work hand-in-hand and the government should undertake steps which will lower inflation, which then allows the RBI to ease interest rates.”
Fighting inflation is the top priority, Rajan told reporters in New Delhi after meeting with Jaitley today. Rajan has raised interest rates three times since taking office last year to bring down consumer-price inflation exceeding 8 percent.
Modi’s cabinet was sworn in last night before more than 3,000 guests, including Pakistani Prime Minister Nawaz Sharif and other regional leaders, in front of the presidential palace in New Delhi. Modi will be in charge of “all important policy issues” and any unallocated portfolios, the president’s office said in a statement today.
Modi, 63, won after making campaign promises of a stronger economy, more jobs, better roads and a high-speed rail network. His Bharatiya Janata Party ousted the Congress party that’s ruled India for most of its history.
Modi’s cabinet is the smallest since the BJP’s last prime minister Atal Bihari Vajpayee inducted 21 cabinet ministers in 1998. Former Prime Minister Manmohan Singh had 34 cabinet ministers when he formed a coalition government in 2009.
“A smaller cabinet is a good thing because it will streamline decision making,” said A.S. Narang, professor of political science at the New Delhi-based Indira Gandhi National Open University. “In the past there have been multiple authorities and clashes between different departments.”
Sushma Swaraj became foreign minister and Rajnath Singh will head the home ministry, according to the statement. Harsh Vardhan will take over the health ministry, Nitin Gadkari will run the roads and shipping ministries and D.V. Sadananda Gowda will head the railways ministry. Narendra Singh Tomar will be in charge of the mines, steel and labor ministries.
In a statement released shortly after he was sworn in, Modi said the nation of 1.2 billion people delivered a mandate for economic development, stability and good governance.
“Together we will script a glorious future for India,” Modi said in a statement posted on his website. “Let us dream of a strong, developed and inclusive India that actively engages with the global community to strengthen the cause of world peace and development.”
Modi’s win has also cheered investors, with the benchmark stock index rising to a record and the rupee one of the world’s strongest performers this year. The currency weakened 0.3 percent to 58.915 per dollar as of 3:10 p.m. in Mumbai, while the benchmark S&P BSE Sensex fell 0.6 percent as energy companies fell.
His policies over the next few months will have significant implications for the nation’s credit rating, Standard & Poor’s said May 16. The company had said it might downgrade Asia’s third-biggest economy to junk status if the next government is unable to revive growth and improve public finances.
“The Modi era begins with high hopes,” said Satish Misra, a political analyst at the Observer Research Foundation in New Delhi. “There is no scope for an excuse for him after getting a huge mandate to run the country.”