| 21 April 2024, Sunday |

India boosts spending, cuts deficit in $550 billion budget ahead of 2024 election

In its budget for the upcoming year, the Indian government presented one of the largest increases in capital spending in the last ten years on Wednesday and predicted that the fiscal deficit would decrease as it works to increase employment while preserving fiscal restraint.

In the 1.4 billion-person nation where many people have struggled to find employment despite it still being one of the world’s fastest-growing major economies, Prime Minister Narendra Modi’s party has been under pressure to create jobs. The party faces elections in important states this year and a national vote in 2024.

“After a subdued period of the pandemic, private investments are growing again,” Finance Minister Nirmala Sitharaman said as she presented the 2023/24 budget in parliament.

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

“The budget makes the need once again to ramp up the virtuous cycle of investment and job creation,” she said. “Capital investment is being increased steeply for the third year in a row by 33% to 10 trillion rupees.”


The capital spending increase to about $122.3 billion, which would amount to 3.3% of gross domestic product (GDP), will be the biggest such jump after an increase of more than 37% between 2020/21 and 2021/22.

“In the backdrop of an anticipated slowdown in global growth, reliance on public capex as a countercyclical policy will help in supporting overall growth,” said Vivek Kumar, an economist at QuantEco Research in Mumbai.

The finance ministry’s annual Economic Survey, released on Tuesday, forecast the economy could grow 6% to 6.8% next fiscal year, down from 7% projected for the current year, while warning about the impact of cooling global demand on exports.

India’s economy was “on the right track, Sitharaman said, despite the global slowdown because of the COVID-19 pandemic and the Russia-Ukraine war.

Sitharaman said the government would target a budget deficit of 5.9% of GDP for 2023/24, down from 6.4% for the current year. A Reuters poll had pegged the deficit for the next fiscal year at 6%.

The deficit plan will be aided by a 28% cut in subsidies on food, fertiliser and petroleum for the next fiscal year at 3.75 trillion rupees. The government cut the spending on a key rural jobs guarantee programme to 600 billion rupees – the smallest in more than five years – from 894 billion rupees for this fiscal year.

The minister also pledged to reduce the fiscal deficit further to 4.5% of GDP by 2025/26.

Moody’s Investors Service said the narrower fiscal deficit projection pointed to the government’s commitment to longer-term fiscal sustainability.

“Although the gradual fiscal consolidation trend remains intact and will help to stabilise the government’s debt burden relative to nominal GDP, the high debt burden and weak debt affordability remain key constraints that offset India’s fundamental strengths, including its high growth potential and deep domestic capital markets,” said Christian de Guzman, its senior vice president.

The government’s gross 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.

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

Indian shares reversed earlier gains to trade lower, led by a fall in insurance companies after the budget proposed to limit tax exemptions for insurance proceeds, while Adani Group shares tumbled again as it struggles to dispel concerns raised by a U.S. short seller.

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 households to clinch their political support.

After Sitharaman revealed the capital spending jump, ruling-party lawmakers thumped their desks as the camera moved to Modi.

A lack of jobs for young people, and meagre wages for those who do find work, has been one of the biggest criticisms of Modi, who is still widely projected to win the general election.

Sitharaman also said the government was allocating 350 billion rupees for energy transition, as Modi focuses on green hydrogen and other cleaner fuels to meet the country’s climate goals.

  • Reuters