New Delhi Feb 1 (Reuters) – India on Wednesday announced its biggest-ever increase in capital spending for the next fiscal year to create jobs, but targeted a narrow fiscal deficit in its latest budget ahead of parliamentary elections in 2024.
Prime Minister Narendra Modi’s party is under pressure to create jobs in a densely populated country that is struggling to find jobs, but whose economy is now one of the fastest growing in the world.
“After a period of pandemic, private investment is growing again,” Finance Minister Nirmala Sitharaman said as she presented the 2023/24 budget in Parliament.
“The Budget once again needs to accelerate the cycle of investment and job creation. Capital investment grew by 33% to Rs 10 trillion for the third year in a row.”
Capital spending is expected to increase to about $122.3 billion, the biggest jump in gross domestic product (GDP) after growing by more than 37% between 2020/21 and 2021/22.
Total spending in the next fiscal year, starting April 1, will increase by 7.5% to 45.03 trillion rupiah ($549.51 billion).
Sitharaman said it would target a fiscal deficit of 5.9% of GDP for 2023/24, compared with 6.4% for the current fiscal year, slightly lower than the Reuters poll of 6%. The target is to reduce the deficit to 4.5% by 2025/26.
A stable ‘MACRO boat’
Brokerage Nomura said the budget “consciously pushes for growth without rocking the macro boat.”
“The government presented a good budget at the event. It pushed growth through public constraints and moved on to fiscal consolidation without giving much in terms of outright populism.”
A recent slowdown in inflation and signs of moderate growth could persuade India’s central bank to slow interest rates next week, Capital Economics said.
He said there was still a chance of a financial vacuum as election campaigning began, with Modi widely projected for a third term.
The finance ministry’s annual economic survey released on Tuesday forecast the economy could grow by 6 to 6.8 percent next fiscal year, down from the 7 percent forecast for the current year, and warned of the impact of falling global demand on exports.
Sitharaman said India’s economy is on the right track and is heading towards a bright future despite challenges.
Her deficit plan for the next fiscal year includes food, It will be helped by a 28% cut in subsidies for fertilizers and oil to 3.75 trillion rupees. The government cut spending on a key rural employment guarantee scheme from Rs 894 billion to Rs 600 billion, the smallest in more than five years.
The government’s total market borrowing is expected to rise by about 9 percent to Rs 15.43 trillion in the next fiscal year.
Limitations
Moody’s Investors Service said that while the narrow fiscal deficit indicates the government’s commitment to long-term fiscal sustainability, “a high debt burden and weak debt affordability remain key constraints that offset India’s fundamental strengths.”
Among other moves to stimulate consumption, the surcharge on annual income above Rs 50 million has been reduced from 37 per cent to 25 per cent.
Indian shares pared gains early on Wednesday as insurers in the budget proposed to limit tax exemptions, while Adani Group fell again as it struggled to fend off US short-seller concerns.
Since coming to power in 2014, Modi has boosted capital spending, including on roads and energy, while tax cuts and labor reforms have lured investors and bolstered their political support for poorer households.
A lack of jobs for young people and low wages for job seekers has been a major criticism of Modi.
Sitharaman said Modi has allocated 350 billion rupees for the energy transition as he focuses on green hydrogen and other clean fuels to meet India’s climate goals.
(1 dollar = 81.7725 Indian rupees)
Shubham Batra, Nikunj Ohri, Shivangi Acharya Sarita Singh Nigam Prusty Manoj Kumar Reporting by Rupam Jain and India Bureau. By Krishna N. Das, Kim Coghill Edited by Jacqueline Wong and Gareth Jones.
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