India’s new prime minister Narendra Modi has begun his term in office by holding talks with Pakistan counterpart Nawaz Sharif.

Modi – who has also met with Afghanistan’s outgoing leader Hamid Karzai – had already invited Sharif to his inauguration ceremony, amid hopes of a thaw in relations between the nuclear-armed rivals.

Relations with Pakistan will be a crucial test for the new Hindu nationalist leader, whose election victory marks a turning point in modern Indian history.

During the campaign Modi sought to downplay any friction with India’s sizeable Muslim minority, and since his election has made several conciliatory statements to reassure people he will not pursue “Hindu-first” policies.

Instead he has focused on restoring rapid economic growth, slashing public spending, and waging war on corruption. He also needs to restore investor confidence with growth at a decade-low of below five percent.

Modi’s diplomacy came after he named some of the key ministers in his new administration.

The new finance minister will be Arun Jaitley, a corporate lawyer, who will also take the defence portfolio as Modi seeks to downsize the government.

“We have to restore back the pace of growth, contain inflation and obviously concentrate on fiscal consolidation itself,” Jaitley told reporters.

Public finances are in dire straits as government spending has outpaced revenues. The new administration will immediately need to take a decision on slashing subsidy spending which is threatening a budget blow-out and a sovereign ratings downgrade.

“I am sure the political change itself sends a strong signal to the global community and also domestic investors,” Jaitley said. “I think over the next few months by expediting decision-making processes, I am sure we will be able to build that.”

The Interior Ministry will be run by Rajnath Singh, the head of Modi’s BJP party.

Singh will be charged with the task of ensuring internal stability and calming the anxieties of India’s religious minorities.

The Foreign Ministry will be headed by Sushma Swaraj. He is one of the parrty’s best-known faces in parliament. He has led the health ministry in the past and is seen as a moderate within the BJP.