India boosts spending, avoids ‘outright populism’ in last pre-election budget

India boosts spending, avoids 'outright populism' in last pre-election budget
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  • Capex will increase by 33% to Rs 10 trillion in 2023/24
  • The government has a target of gross borrowing of Rs 15.43 trillion
  • Fiscal deficit to 5.9% in 2023/24, 4.5% by 2025/26

NEW DELHI, Feb 1 (Reuters) – India on Wednesday announced one of its biggest increases in capital spending for the next fiscal year to create jobs but saw a narrow fiscal deficit in its last full budget before 2024 parliamentary elections.

Prime Minister Narendra Modi’s party is under pressure to create jobs in the populous country where many have struggled to find. employmentAlthough the economy is now one of the fastest growing in the world.

“After a subdued period of epidemics, Personal investment Increasing again,” Finance Minister Nirmala Sitharaman said while presenting the 2023/24 budget in Parliament.

“Budget is needed to once again boost the virtuous cycle of investment and job creation. Capital investment is being increased by 33% to Rs 10 trillion for the third consecutive year.”

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Capital expenditure is set to increase to around $122.3 billion, which would be 3.3% of gross domestic product (GDP), after growing by more than 37% between 2020/21 and 2021/22.

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

Sitharaman said the government would target a fiscal deficit of 5.9% for 2023/24, compared with 6.4% in the current fiscal year and slightly lower than a Reuters poll of 6%. The target is to reduce the deficit to 4.5% by 2025/26.

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fixed ‘macro bot’

Brokerage Nomura said the budget “prudently nudged growth without rocking the macro boat.”

“In the event, the government has presented a good budget. It has pushed growth through public capex and is on track for fiscal consolidation without giving much in terms of outright populism.”

Capital Economics said that “absent a fiscal blowout”, a recent slowdown in inflation and signs of moderate growth could persuade India’s central bank to slow rate hikes next week.

It said there is still the possibility of a financial slippage as campaigning begins for the election, where Modi is widely tipped to win a third consecutive term.

The finance ministry’s annual economic survey, released on Tuesday, forecast that the economy could grow by 6% to 6.8% in the next fiscal year, down from the 7% forecast for the current year, warning of the impact of cooling global demand on exports.

Sitharaman said India’s economy is “on the right track, and despite challenging times, is moving towards a bright future.”

India’s real GDP is forecast to grow in the range of 6-6.8% in FY24

His deficit plan will be supported by a 28% cut in subsidies on food, fertilizer and petroleum to Rs 3.75 trillion for the next fiscal year. By reducing government spending a Rural Employment Guarantee Programme 600 billion rupees – the smallest in more than five years – from 894 billion rupees for this fiscal.

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The government’s total market debt is estimated to grow by around 9% to Rs 15.43 trillion in the next fiscal year.

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Moody’s Investors Service said the narrow fiscal deficit projection indicates the government’s commitment to long-term fiscal sustainability, but “high debt burden and weak debt capacity are key constraints that offset India’s fundamental strengths”.

Among other measures to stimulate consumption, the surcharge on annual income above Rs 50 million has been reduced from 37% to 25%.

Indian shares closed lower on Wednesday, reversing earlier gains, led by declines in insurance companies after the Budget proposed limiting tax breaks for insurance activities, while Adani Group shares fell again as it struggled to allay concerns raised by US short sellers.

Since taking power in 2014, Modi has increased capital spending, including on roads and energy, while luring investors with lower tax rates and labor reforms, and offering subsidies to poor households to win his political support.

A lack of work for the youth, and low wages for those who do find work, is one of Modi’s main criticisms.

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

($1 = 81.7725 Indian Rupees)

Reporting by Shubham Batra, Nikunj Ohri, Shivangi Acharya, Sarita Singh, Nigam Prasti, Manoj Kumar, Rupam Jain and the India Bureau; Written by Krishna N Das; Editing by Kim Coghill, Jacqueline Wong and Gareth Jones

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