NEW DELHI: India's government on Wednesday unveiled one of its biggest jumps in capital spending in the past decade in its budget for the coming year and said the fiscal deficit would fall, as it tries to create jobs while maintaining financial discipline.
Prime Minister Narendra Modi's party, which faces elections in key states this year and a national vote in 2024, has been under pressure to create jobs in the country of 1.4 billion where many have struggled to gain employment despite it remaining one of the world's fastest-growing major economies.
"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 per cent to Rs 45.03 trillion ($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 per cent to Rs 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 2020/21 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 per cent to 6.8 per cent next fiscal year, down from 7 per cent 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 per cent of GDP for 2023/24, down from 6.4 per cent for the current year. A Reuters poll had pegged the deficit for the next fiscal year at 6 per cent.
The deficit plan will be aided by a 28-per cent cut in subsidies on food, fertiliser and petroleum for the next fiscal year at Rs 3.75 trillion. The government cut the spending on a key rural jobs guarantee programme to Rs 600 billion - the smallest in more than five years - from Rs 894 billion for this fiscal year. The minister also pledged to reduce the fiscal deficit further to 4.5 per cent 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 Rs 15.43 trillion ($189 billion) for the next fiscal year, while net borrowing is seen at Rs 11.8 trillion. Among other moves to stimulate consumption, the surcharge on annual income above Rs 50 million was cut to 25 per cent from 37 per cent.
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 US 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 Rs 350 billion for energy transition, as Modi focuses on green hydrogen and other cleaner fuels to meet the country's climate goals. - Reuters