New Delhi, Feb. 1 (BNA): The Indian government on Wednesday unveiled its largest jumps in capital spending in the past decade in its budget for next year and said the fiscal deficit will decrease, as it tries to create jobs while maintaining fiscal discipline.
Prime Minister Narendra Modi’s party, which faces elections in key states this year and a national vote in 2024, is under pressure to create jobs in the country of 1.4 billion, where many have struggled to find jobs even though it remains one of the fastest growing nations. The world’s major growing economies, according to Reuters.
“After a lull in the pandemic, private investment is growing again,” said Finance Minister Nirmala Sitharaman, as she presented the 2023/24 budget in parliament, with total spending rising 7.5% to 45.03 trillion rupees ($549.51 billion).
“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.”
An increase in capital spending to about $122.3 billion, which will amount to 3.3% of GDP, in the next fiscal year starting April 1, would be the largest such jump after an increase of more than 37% between 2020/21. and 2021/22.
“With the expected slowdown in global growth, relying on public expenditures as a counter-cyclical policy will help support overall growth,” said Vivek Kumar, an economist at QuantEco Research in Mumbai.
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.
Sitharaman said that despite the global slowdown due to the COVID-19 pandemic and the Russia-Ukraine war, the Indian economy was “on the right track”.
Sitharaman said the government will target a budget deficit of 5.9% of GDP for 2023/24, down from 6.4% for the current year. A Reuters poll had put the deficit for the next fiscal year at 6 percent.
The deficit plan will be supported by a 28% cut in subsidies on food, fertilizer and petroleum 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.
Moody’s Investors Service said the narrower fiscal deficit outlook indicated the government’s commitment to long-term fiscal sustainability.
“Although the gradual trend of fiscal consolidation remains intact and will help stabilize the government’s debt burden relative to nominal GDP, the high debt burden and weak debt sustainability remain major constraints that offset India’s core strengths, including High growth potential and deep local capital markets said Cristian de Guzman, its senior vice president.
The government’s total market borrowing is estimated at 15.43 trillion rupees ($189 billion) for the next fiscal year, while net borrowing is seen at 11.8 trillion rupees.
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.
After Seetharaman reveals the capital expenditure jump, ruling party MPs lock their offices as the camera pans to Modi.
The lack of sufficient, well-paying jobs for young people has been one of the biggest criticisms of Modi, who is still widely expected to win the general election.
Indian stocks rose after the government raised the minimum tax deduction to 700,000 rupees from 500,000 rupees earlier and increased spending. Bond yields fell after they raised overall borrowing.
The surcharge on annual income above 50 million rupees has been reduced to 25% from 37%.
Seetharaman said the aim is to have strong public finance and a strong financial sector for the benefit of all departments of the country. It has also set aside 350 billion rupees for the energy transition, with Modi focusing on green hydrogen and other cleaner fuels to meet the country’s climate targets.
HF