India boosts spending in last pre-election budget, ignores ‘overt populism’

  • Capex will rise 33% to Rs 10 trillion in 2023/24
  • The government has targeted a total debt of Rs 15.43 trillion
  • 5.9% eye funding deficit in 2023/24, 4.5% in 2025/26

NEW DELHI, Feb 1 (Reuters) – India on Wednesday announced its largest-ever increase in capital spending for the next fiscal year to create jobs, but is targeting a narrow fiscal deficit in its last full budget ahead of parliamentary elections in 2024.

Even though the economy is now one of the fastest growing in the world, Prime Minister Narendra Modi’s party is under pressure to create jobs as many struggle to find employment in the populous nation.

“After a subdued period of contagion, private investments are picking up again,” Finance Minister Nirmala Sitharaman said as she presented the 2023/24 Budget in Parliament.

“Budget once again boosts the virtuous cycle of investment and job creation. Capital investment rises vertically by 33% to Rs 10 trillion for the third year in a row.”

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After an increase of more than 37% between 2020/21 and 2021/22, capital expenditure will increase to about $122.3 billion, representing 3.3% of gross domestic product (GDP).

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Total spending will rise 7.5% to 45.03 trillion rupees ($549.51 billion) in the next fiscal year starting April 1.

Sitharaman said the government would target a fiscal deficit of 5.9% of GDP for 2023/24, compared with 6.4% in the current fiscal year and slightly below the 6% a Reuters poll had predicted. The target is to reduce the deficit to 4.5% by 2025/26.

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Standard ‘Macro Boat’

Brokerage Nomura said the budget would “smartly stimulate growth without rocking the macro boat”.

“In the event, the government has presented a sound budget. It has fueled growth through public capex and continued on the path towards fiscal consolidation, rather than providing too much in terms of overt populism.”

Capital Economics said the “absence of a financial blowout”, a recent drop in inflation and signs of moderate growth could convince India’s central bank to slow the pace of rate hikes next week.

It said there is still a chance of a financial downturn as campaigning begins for an election widely predicted to win Modi a third consecutive term.

The finance ministry’s annual economic survey released on Tuesday forecast the economy to grow by 6% to 6.8% in the next fiscal year, down from 7% forecast for the current year, while warning of the impact of cooling global demand on exports.

Sitharaman said India’s economy is “on the right track and, despite challenges, heading towards a bright future”.

India’s real GDP is projected to grow in the range of 6-6.8% in FY24

His deficit plan includes a 28% cut in subsidies on food, fertilizer and petroleum to Rs 3.75 trillion in the next fiscal year. The government has cut spending on a key rural jobs guarantee scheme to 600 billion rupees — the smallest in more than five years — from 894 billion rupees for this fiscal year.

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The government’s total market debt is estimated to rise by 9% to Rs 15.43 trillion in the next financial year.

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Moody’s Investors Service’s narrow fiscal deficit forecast points to the government’s commitment to long-term fiscal sustainability, but “high debt burdens and weak creditworthiness remain key impediments to offset India’s fundamental strengths”.

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Among other measures to stimulate consumption, the surcharge on annual income above Rs 50 million has been reduced from 37% to 25%.

Indian shares pared earlier gains on Wednesday, led by falls in insurers after the Budget proposed to cut tax breaks on insurance income, while Adani Group shares fell again as it struggled to fend off concerns raised by a US short seller.

Since taking office in 2014, Modi has ramped up capital spending, including on roads and energy, while luring investors with lower tax rates and labor reforms, and handing out subsidies to poor households to win their political support.

Youth unemployment and low wages for job seekers are among Modi’s main criticisms.

As Modi focuses on green hydrogen and other clean fuels to meet India’s climate goals, Sitharaman also said the government would allocate 350 billion rupees for energy transition.

($1 = 81.7725 INR)

A report by Subam Patra, Nikunj Ohri, Shivangi Acharya, Sarita Singh, Nigam Prusty, Manoj Kumar, Rupam Jain and India Bureau; Krishna N. Das wrote; Editing by Kim Coghill, Jacqueline Wong and Gareth Jones

Our Standards: Thomson Reuters Trust Principles.

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