India plans big on infrastructure
BUDGET SEES CAPITAL AND WELFARE SPENDING UP AHEAD OF POLLS NEXT YEAR
INDIA’S government announced a huge infrastructure programme, increased welfare spending and tax cuts last Wednesday (1) as prime minister Narendra Modi seeks to boost the economy and voters’ incomes ahead of elections next year.
It will spend around $122 billion (£101.75bn) in the next financial year – an unprecedented 33 per cent increase – on a number of ambitious road, port and railway projects, finance minister Nirmala Sitharaman said in her budget announcement.
The investments could create millions of jobs and boost Asia’s third-largest economy.
Welfare spending will rise, including on providing all households with piped water and health insurance for the poor, and the finance minister extended a scheme giving free food grains to about 800 million struggling Indians.
Prime minister Narendra Modi’s party has been under pressure to create jobs in the country where many have struggled to find employment, though the economy is now one of the fastest-growing in the world.
“After a subdued period of the pandemic, private investments are growing again,” 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 is being increased steeply for the third year in a row by 33 per cent to `10 trillion.” The capital spending increase to about $122.3 billion, which would amount to 3.3 per cent of gross domestic product (GDP), will be the biggest such jump after an increase of more than 37 per cent between 2020-2021 and 2021-2022. Total spending will rise 7.5 per cent to Rs 45.03 trillion ($549.51bn) in the next fiscal year starting on April 1.
Sitharaman said the government would target a fiscal deficit of 5.9 per cent of GDP for 2023-2024 compared with 6.4 per cent for the current fiscal year. The aim is to lower the deficit to 4.5 per cent by 2025-2026.
Modi looks set to seek a third term as prime minister in a general election due before May 2024. The loudest cheers in Sitharaman’s near 90-minute speech to parliament came when she announced around $4.2bn (£3.5bn) of direct tax incentives for the middle classes – some of the most vocal supporters of Modi and his Bharatiya Janata Party (BJP).
But only about 80 million people and companies pay direct taxes in India, despite its population of 1.4 billion. The vast majority of people earn less than the income tax threshold, and tax under-reporting remains a major issue. Sitharaman said India’s economy was “on the right track, and despite a time of challenges, heading towards a bright future”.
The finance ministry’s annual Economic Survey, released last Tuesday (31), forecast the economy could grow six per cent to 6.8 per cent next fiscal year, down from seven per cent projected for the current year, while warning about the impact of cooling global demand on exports.
Since taking office in 2014, Modi has ramped up capital spending including on roads and energy, while wooing investors through lower tax rates and labour reforms, and offering subsidies to poor to clinch their political support. A lack of jobs for young people, and meagre wages for those who do find work, has been one of the main criticisms of Modi.
Sitharaman also said the government was allocating `350 bn (£3.5bn) for energy transition, as Modi focuses on green hydrogen and other cleaner fuels to meet India’s climate goals.
Finance secretary TV Somanathan said the government’s expectations were based on growth projections and an increased total tax take. New Delhi’s deficit and growth targets were hit after Covid-19 restrictions in 2020 but the country has since recovered to become the world’s fastest-growing major economy.
The IMF last week projected India would grow 6.1 per cent this year.