With an eye on economy and defense, India's Modi expands cabinet

By Frank Jack Daniel and Aditya Kalra NEW DELHI (Reuters) - India's Prime Minister Narendra Modi beefed up his cabinet on Sunday, appointing a separate defense minister to spur military modernization and free Finance Minister Arun Jaitley to focus on the budget and reforms to revive the economy. Jaitley had run both defense and finance since Modi took office six months ago, leading to criticism that neither of the key departments could be properly led. The larger cabinet was welcomed by business groups impatient for the Modi government to fulfil campaign pledges to get the economy out of a long slowdown by fixing India's power crisis and overloaded infrastructure. "The cabinet expansion sends out a strong signal that the government under Prime Minister Modi is serious about accelerating the reforms process," said Ajay Shriram, president of the Confederation of Indian Industry. Even though Modi relieved Jaitley of defense, the media-savvy lawyer will still have to juggle three ministries, since he now has the additional portfolio of information and broadcasting. Including junior ministers, Modi added a total of 21 new names into his team including one woman - bringing to eight the number of women in his 65-strong council of ministers. Former Goa chief minister Manohar Parrikar was made defense minister. Jayant Sinha, a Harvard Business School graduate and investment fund manager who is the son of a former finance minister, was brought in as a junior to Jaitley. The list combined first-timers and veterans, and included a popular singer and an Olympic sportsman. The newcomers are from a wider range of India's states, increasing regional representation ahead of state elections. The expansion went some way toward addressing Modi's reliance on a small group of overworked ministers, but several posts remain vacant. Jaitley was hospitalized for several weeks in August and September after an operation to treat diabetes. Doctors blamed his workload for delaying his recovery. The opposition Congress party had criticized Modi for turning defense and finance into "part-time jobs." An ambitious $9.5 billion privatization target is well behind schedule, partly because of delays in getting a new team in place in the finance ministry. Jaitley now has a new bench of officials in the ministry, including one of the world's leading economists, Arvind Subramanian, as an adviser. Together they must revive investment, growth and job creation in a country that adds some 10 million people to the workforce every year. The next budget is due in February and investors are hoping for bold decisions on the economy. "Some reforms are easily possible, some are possible with a consensus, and some are more challenging. I have clearly prioritized most of them...and for the next few months we have our plates reasonably full," Jaitley said on Sunday. The government has so far taken a series of steps to make life easier for businesses and has reduced subsidies on fuel, spurring a rally in stocks and bond markets after the longest period of low growth since the 1980s. But investment in the economy has not picked up, and industrial output is flat. TURN OUT THE LIGHTS Manohar Parrikar, the former chief minister of the small coastal state of Goa is a metallurgy graduate from one of India's top technology schools. Parrikar has a reputation as an honest administrator. In a recent speech he said he insists his staff use both sides of pieces of paper and switch the lights off when they leave rooms to save public money. He is also close to the same right wing, Hindu nationalist volunteer organization that helped mold Modi's India-first world view, and gives the ideological bearings to their Bharatiya Janata Party on many issues. Parrikar will have a tough job to fix India's woefully outdated armed forces - and will have to weed out corruption that regularly plagues defense contracts in the country. India's servicemen face shortages of everything from ammunition to fighter jets and submarines as Asia's third largest economy seeks to close the gap with newly assertive neighbor China, which is arming itself quickly. A stalled deal to buy a fleet of Rafale fighter jets from France's Dassault Aviation has raised speculation that it might fall through, although Dassault Aviation Chief Executive Eric Trappier on Wednesday predicted it would be wrapped up by March. Modi wants India to rely less on imported hardware for a multi-billion dollar modernization plan. IHS Jane's defense analyst Rahul Bedi said India's indigenous defense industry was years away from being ready to meet the country's weapons orders. "He has a very formidable task ahead of him," he said. (Additional reporting by Rajesh Kumar Singh; Editing by Rosalind Russell and Dominic Evans)