June 24, 2024

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India raises spending and avoids “outright populism” in the pre-election budget

India raises spending and avoids “outright populism” in the pre-election budget
  • Capital expenditure will increase by 33% to 10 trillion rupees in 2023/24
  • The government targets total borrowing at 15.43 trillion rupees
  • It looks forward to a fiscal deficit of 5.9% in 2023/24, 4.5% by 2025/26

NEW DELHI (Reuters) – India on Wednesday announced one of the largest increases ever in capital spending for the next fiscal year to create jobs, but aimed to reduce the fiscal deficit in its last full budget before parliamentary elections due in 2024.

Prime Minister Narendra Modi’s party is under pressure to create jobs in the densely populated country as many struggle to find work, even though the economy is now one of the fastest growing in the world.

“After a lull in the pandemic, private investment is growing again,” Finance Minister Nirmala Sitharaman said as she presented the 2023/24 budget in Parliament.

“The budget makes the need once again to ramp up the virtuous cycle of investment and job creation. Capital investment increases sharply for the third consecutive year by 33% to 10 trillion rupees.”

Reuters graphics

The increase in capital spending to about $122.3 billion, equivalent to 3.3% of GDP, would be the largest such jump after an increase of more than 37% between 2020/21 and 2021/22.

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Reuters graphics

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 will target a fiscal deficit of 5.9% of GDP for 2023/24 compared to 6.4% for the current fiscal year and slightly lower than a Reuters poll at 6%. The aim is to reduce the deficit to 4.5% by 2025/26.

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Reuters graphics

Fixed “big boat”.

Nomura told the brokerage that the budget “prudently pushes for growth without causing macroeconomic destabilization”.

“In this case, the government delivered a good budget. It pushed for growth through public capital expenditures and continued down the path toward fiscal consolidation, without offering much in terms of outright populism.”

Capital Economics said the “absence of a financial explosion”, the recent decline in inflation and signs of moderate growth may persuade India’s central bank to slow the pace of interest rate hikes next week.

She said there was still a chance of a financial slippage as the election campaign gets underway, as Modi is widely expected to win a third term in a row.

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

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

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

Its deficit plan will be supported by a 28% cut in food, fertilizer and petroleum subsidies for the next fiscal year at 3.75 trillion rupees. The government cut spending on the Key Rural Jobs Guarantee Program to 600 billion rupees – the smallest in more than five years – from 894 billion rupees for the current fiscal year.

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Reuters graphics

It is estimated that total government market borrowing will rise by about 9% to 15.43 trillion rupees next fiscal year.

Reuters Graphics Reuters


Moody’s Investors Service said the narrower fiscal deficit projections indicate the government’s commitment to long-term fiscal sustainability, but “the high debt burden and weak debt sustainability remain major constraints that offset India’s core strengths.”

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

Indian stocks reversed previous gains to close lower on Wednesday, led by a drop in insurers after the budget proposed to limit tax breaks for insurance proceeds, while Adani Group shares fell again as it struggled to allay concerns raised by the US short seller.

Since taking office in 2014, Modi has ramped up capital spending, including on roads and energy, while wooing investors with tax cuts and labor reforms, and handing out subsidies to poor families for their political support.

The lack of jobs for young people, and meager wages for those who find work, was one of Modi’s main criticisms.

Sitharaman also said the government has allocated 350 billion rupees for the energy transition, as Modi is focusing on green hydrogen and other cleaner fuels to meet India’s climate targets.

($1 = 81.7725 Indian rupees)

Additional reporting by Shubham Batra, Nikong Uri, Shivangi Acharya, Sarita Singh, Nigam Prosti, Manoj Kumar, Rupam Jain and Hindi Offices; Written by Krishna N Das; Editing by Kim Coghill, Jacqueline Wong, and Gareth Jones

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