Prime Minister Manmohan Singh has appointed Palaniappan Chidambaram as the new finance minister, a government statement said on Tuesday.
Chidambaram is currently the home minister.
Power Minister Sushilkumar Shinde will replace Chidambaram as the home minister in Prime Minister Manmohan Singh's cabinet, the statement added.
Chidambaram has held the finance post twice before and was hailed for his deft handling of the economy during the global financial crisis in 2008.
His appointment would come at a time when economic growth has faltered to a nine-year low due to policy inaction, high inflation and interest rates and global economic uncertainty.
A failure to rein in subsidies has strained public finances and has put India's investment-grade sovereign debt rating in peril. A record current account gap, policy flip-flops and waning global appetite for risk have hammered the rupee.
To make matters worse, light monsoon rain has raised the spectre of a drought, which could force higher spending and aggravate the fiscal situation.