Modi surprises markets by naming Sitharaman as India's finance minister

By Manoj Kumar

NEW DELHI (Reuters) - Indian Prime Minister Narendra Modi on Friday surprised markets by naming Nirmala Sitharaman, formerly the country's defense minister, as the next finance minister at a time when Asia's third-largest economy is stuttering.

Amit Shah, chief of the Hindu nationalist Bharatiya Janata Party (BJP), was appointed as the minister of home affairs, giving him responsibility for internal security with a control over the federal police.

Regarded as the architect of Modi's landslide victory in the recently concluded general election, Shah replaces senior BJP leader Rajnath Singh, who will now be defense minister.

Shah had been tipped as a possible candidate for the finance ministry in recent days, but the job went to Sitharaman, who has an economics background and was briefly the junior finance minister in Modi's first term.

Unlike Shah and former Finance Minister Arun Jaitley, who opted out of this government due to ill health, Sitharaman is seen as a political lightweight.

Sitharaman, 59, will become the senior most woman minister in Modi's cabinet and the second woman to head the finance department after late former prime minister Indira Gandhi.

“It is a big surprise and very unexpected news,” said Yogesh Nagaonkar, founder and chief executive of Rowan Capital Advisors in Mumbai. “The initial expectation of the market from her would be to see how she addresses liquidity concerns. We need to have good liquidity in the market to achieve growth.”

Nagaonkar said the ministry should have gone to Piyush Goyal, a chartered accountant who had stepped into the role twice in the previous government when Jaitley was out sick. Goyal will now be minister of railways and commerce, at a time when trade ties with the United States are straining.

Sitharaman will take over the finance ministry when there is pressure from industry for the government to provide some stimulus to halt a worrying slowdown in India's $2.7 trillion economy.

India probably lost its spot as the fastest growing major economy to China in the January-March quarter as a chill in domestic and global consumer demand hit manufacturers and service providers. Data for the quarter is set to be released later on Friday.

The government is already considering rolling out a slew of 'big-bang' economic reforms in the first 100 days of Modi's second term, with a focus on privatization of state assets and relaxation of labor and land rules for businesses, a top official at the government's main think tank told Reuters.

Modi also named S. Jaishankar, a former foreign affairs secretary, as India's new external affairs minister. He will take over from Sushma Swaraj, the ruling party's veteran leader and the previous most senior woman in the cabinet. She has also stepped aside due to poor health.

This is the first time that a diplomat has been appointed as India's foreign minister.

“It shows that the prime minister is serious about foreign policy, and secondly, that he is entrusting it in the hands of a professional,” Lalit Mansingh, a former foreign secretary, told Reuters.