Should Nirmala Sitharaman be removed as Finance Minister?

ELI5/TLDR

Former chief economic adviser Arvind Subramanian thinks the Indian economy is in a near-crisis: the rupee is sliding, energy import bills have doubled after a war, and private companies have stopped investing the way they used to. He argues the government has actually done plenty of reform on paper, but its “deeper instincts” — favouring a few big business houses, weaponising tax and enforcement agencies, punishing opposition-ruled states — quietly scare off investors. His fix is provocative: change the people in charge across ministerial, technocratic and bureaucratic levels. Karan Thapar spends the whole interview trying to get him to say the obvious name (Nirmala Sitharaman) out loud, and Subramanian refuses to bite.

The Full Story

Two problems, one short-term and one structural

Subramanian splits the diagnosis cleanly. The short-run problem is an external shock: oil up, natural gas scarce, urea prices up, Gulf exports hit by a war. India imports most of its energy, so when energy prices double, the balance of payments groans and the rupee falls.

The structural problem is the one he cares about, because it predates the war.

“the rupee decline… began well before the war began… in the years preceding the war the rupee declined by about 20% and this was amongst the worst performing currencies apart from Turkey, despite massive intervention by the RBI.”

Translation: even when there was no crisis to blame, investors were already quietly voting against India with their money. A falling currency despite the central bank spending heavily to prop it up is a tell.

Where does growth come from?

The deeper anxiety, he argues, is that nobody can clearly answer where India’s next decade of growth comes from. Manufacturing was supposed to catch the “China plus one” wave — companies diversifying supply chains out of China. Apart from Apple and electronics, India largely missed it. Services boomed instead, thanks to global capability centres (the back-office and engineering arms multinationals set up in India). But that engine now faces a question mark: a lot of those service jobs are exactly the kind AI could replace.

So the picture is: manufacturing underperformed, services succeeded but look fragile, and private investment has quietly collapsed.

“private investment today… is just about more than half what it was at the peak in the early 2000s and it’s been on a steady decline apart from a brief blip post-covid.”

Half of its early-2000s peak. That is the number doing the heavy lifting in his whole argument.

Reform on paper vs. risk on the ground

Here is the genuinely interesting distinction, and the heart of the interview. Subramanian gives the government real credit: it rationalised GST, reformed labour laws, opened up to foreign investment, signed a free-trade deal with the EU, is negotiating one with the US. You cannot accuse them of not reforming.

So why hasn’t it worked? Because, he says, reform changes the cost of doing business — the policy on paper. What investors actually weigh is the risk of doing business — what happens to them on the ground, day in and day out.

“reforms affect the costs of doing business on paper… what investors care about is the risks of doing business on the ground day in and day out.”

Think of it like a restaurant that publishes a beautiful menu with fair prices, but where the inspector might shut you down on a whim if you’re not the owner’s friend. The menu is the reform. The arbitrary inspector is the “deeper instinct.” You read the menu, then you decide not to eat there.

The four bad instincts

Thapar lists the four habits Subramanian names: favouring a few large corporate houses, favouring BJP-ruled states over opposition ones, weaponising the state’s coercive apparatus against opponents, and arbitrary, overzealous tax enforcement.

The textile example is the concrete one. The government imposed “quality control orders” on man-made fibre — polyester and the like. Producing that fibre is capital-intensive and dominated by a few large domestic houses. The orders made cheap imported fibre scarce or expensive. So the small and medium exporters downstream — the people sewing jeans and t-shirts, a highly labour-intensive and globally competitive business — saw their input costs jump and their exports fall.

“you protect a capital intensive activity and the downstream activity of selling jeans and t-shirts is very labor intensive and their cost of production go up and therefore their exports go down.”

One favour to a few big players quietly kneecapped the labour-intensive, job-creating, export-earning end of the chain. That is the mechanism he wants you to see.

The interview-within-the-interview

Most of the runtime is a polite duel. Subramanian’s written prescription was: “Changing personnel at ministerial, technocratic and bureaucratic levels is one, perhaps the only way the government could signal a departure from these instincts.” Thapar reads this as a coded call to fire the finance minister (ministerial), the finance secretary (bureaucratic) and the chief economic adviser (technocratic). He says so, repeatedly, in increasingly direct language.

Subramanian dodges every time.

“this is not about any particular individual… who are we to assess.”

His actual argument for fresh faces is twofold: first, a credibility point — he invokes Mario Draghi’s “whatever it takes” moment, where the messenger mattered as much as the message; India needs credible, non-defensive interlocutors. Second, a churn point — that habits and ideas go stale, and democracies and bureaucracies need fresh blood regardless of crisis. He notes he made this “stale ideas” point almost two years ago.

Thapar then pushes the logic to its endpoint: if 12 years is too long for ideas to stay fresh, doesn’t that apply to a prime minister too? Subramanian, again, declines to name the man at the top and retreats to “people get the final say… enlightened leaders can recognise the need for change.”

The Surjit Bhalla cross-examination

Thapar imports arguments from a parallel Indian Express piece by Surjit Bhalla. On the “fastest growing major economy” claim, Bhalla ranks India 9th in GDP growth and 16th in per-capita dollar growth since 2014 — behind Bangladesh and Ethiopia, not even the leader of South Asia. Subramanian accepts Bhalla’s arithmetic and adds that even India’s official numbers may need revising downward. His takeaway: drop the triumphalism.

But he refuses to follow Bhalla all the way. On Bhalla’s claim that India is now one of just two “fragile” economies alongside Turkey, Subramanian pushes back as “excessive” — inflation is low, the financial sector is in decent shape, growth is unspectacular but fine. India is not a basket case. The puzzle, he insists, is precisely that India isn’t broken, yet investors still hold back.

Where they fully converge: investor uncertainty about policy. Bhalla points to India letting its bilateral investment treaties lapse without negotiating new ones — another self-inflicted source of anxiety.

Key Takeaways

A currency that falls steadily despite heavy central-bank intervention is a sign of structural investor doubt, not just a passing shock. India’s rupee fell ~20% pre-war, near the bottom of the global league alongside Turkey.
Private corporate investment in India is roughly half its early-2000s peak and has been declining for years — the post-covid surge was a brief blip, not a turnaround.
The “cost vs. risk” distinction: policy reform lowers the cost of doing business on paper; what actually drives investment is the perceived risk on the ground. Good reforms can be neutralised by bad enforcement instincts.
“China plus one” was a once-a-generation manufacturing opening. India captured it mainly in electronics (Apple) and largely missed the rest.
India’s services boom rests heavily on global capability centres — exactly the white-collar work most exposed to AI substitution.
Quality control orders are a quiet protectionist tool: they can shield a capital-intensive upstream industry (a few large houses) at the direct expense of labour-intensive downstream exporters.
The four “deeper instincts” alleged: favouring big corporate houses, favouring BJP states over opposition states, weaponising enforcement agencies against opponents, and arbitrary tax administration. All raise long-run uncertainty, which matters most for long-gestation manufacturing investment.
Subramanian explicitly rejects the “India is uniquely fragile like Turkey” framing — low inflation, sound banks, decent growth. The puzzle is that a non-broken economy still can’t attract investment.
Government officials have already shifted blame to the private sector (“we’ve done enough, now industry must step up”). Subramanian flips the diagnosis: maybe it’s the government’s habits, not the private sector’s reluctance.

Claude’s Take

This is two things stitched together, and they’re unequal in quality. The economic diagnosis is genuinely good — the cost-versus-risk framing is a clean, portable idea, the textile QCO example is concrete and damning, and “the rupee fell while the RBI was spending to stop it” is the kind of single fact that reframes a whole debate. Subramanian is a serious economist making a serious argument, and he refuses the easy partisan moves (he won’t call India a basket case, he won’t endorse the “fragile two” line, he credits the government’s actual reforms). That intellectual honesty is what gives the critique weight.

The other thing is the title’s promise, and it’s mostly theatre. Thapar has decided the story is “ex-CEA wants the FM fired” and spends half the interview trying to extract a name. Subramanian never gives it, and his refusal is principled — his real point is that no single swap fixes a problem rooted in collective instincts and, by implication, in who sits above the finance minister. Thapar’s framing (“you’re shying away from it”) is good television but slightly mischaracterises a more careful argument. The honest read is that Subramanian is gesturing at the top of the pyramid without committing the journalistic suicide of saying so on camera.

Docking points for what’s unexamined: there’s no real engagement with why the government behaves this way (is it ideology, capture, electoral logic?), and “we need fresh faces and churn” is closer to a vibe than a mechanism — it’s the weakest part of an otherwise sharp piece. But the underlying data and the cost/risk model are worth keeping. A 7: substantive macro argument, slightly inflated by a clickbait frame and a long stretch of polite name-dodging.