Modi un­veils ‘re­vival budget’ for In­dia

Financial Mirror (Cyprus) - - FRONT PAGE -

In­dia’s govern­ment has un­veiled its first budget, aimed at rein­vig­o­rat­ing flag­ging growth in the emerg­ing eco­nomic power.

The Hindu na­tion­al­ist Bharatiya Janata party (BJP), led by Naren­dra Modi, won a land­slide vic­tory in May with a pledge to cre­ate jobs, rein in soar­ing in­fla­tion, bal­ance pub­lic fi­nances and im­prove in­fra­struc­ture.

Modi’s rep­u­ta­tion for ef­fec­tive, hon­est ad­min­is­tra­tion, built over more than a decade run­ning the state of Gu­jarat, has won sup­port in In­dia’s busi­ness com­mu­nity. How­ever Arun Jait­ley, the fi­nance min­is­ter, faces the tricky task of bal­anc­ing the long-term need for struc­tural re­form, par­tic­u­larly of ex­pen­sive sub­si­dies for house­hold items, with short-term pro­tec­tion of In­dia’s poor, who have been hit hard by spi­ralling prices, Ja­son Burke wrote in The Guardian.

Jait­ley told par­lia­ment that In­dia’s 1.2 bln people were ex­as­per­ated af­ter two years of eco­nomic growth be­low 5% and had voted for change. The for­mer lawyer promised to bring growth rates in Asia’s third-largest econ­omy back up to 7-8%.

Amid a range of mea­sures aimed at bring­ing in for­eign funds, Jait­ley an­nounced that he would lift caps on for­eign in­vest­ment in the de­fence and in­sur­ance sec­tors but did not en­tirely re­move the threat of retroac­tive taxation, a key con­cern for over­seas busi­ness­men.

A range of in­fra­struc­ture projects – par­tic­u­larly rail­ways, air­ports and roads – were also an­nounced in line with pre-elec­tion prom­ises. Sub­si­dies would be bet­ter tar­geted, a long-mooted uni­form na­tional sales tax pushed through, new med­i­cal col­leges set up and a range of ini­tia­tives launched to en­cour­age par­tic­i­pa­tion in sports, the min­is­ter said.

Jait­ley re­tained the fis­cal short­fall tar­get at 4.1% of GDP while leav­ing rev­enue and ex­pen­di­ture fore­casts largely sim­i­lar to an in­terim budget in Fe­bru­ary. At the same time, he un­veiled plans to “over­haul” food and fuel sub­si­dies to nar­row the fis­cal gap to 3% of GDP in 2017. He pro­jected rev­enues will rise to 11.9 trln ru­pees ($198 bln), 1.9% more than the pre­vi­ous govern­ment fore­cast in Fe­bru­ary, boosted by higher as­set sales. Ex­pen­di­ture will in­crease 1.8% to 17.9 trln ru­pees, with sub­si­dies main­tained at about 2.6 trln ru­pees.

Shub­hada Rao, chief econ­o­mist at Yes bank in Mum­bai, said the budget was “a good be­gin­ning”. Other an­a­lysts said that al­though the broad thrust of the budget was pos­i­tive, it lacked rad­i­cal mea­sures to tackle the big pic­ture.

Se­nior op­po­si­tion politi­cians ac­cused Jait­ley of steal­ing the poli­cies of the ousted coali­tion govern­ment, which had been led by the cen­tre-left Congress party. So­nia Gandhi, pres­i­dent of Congress, was quoted by tele­vi­sion chan­nels as say­ing the budget in­cluded noth­ing for the so­cial sec­tor.

De­spite the slow growth of re­cent years, In­dia is still seen over­seas as one of the most at­trac­tive mar­kets among emerg­ing eco­nomic pow­ers. But it is also a no­to­ri­ously dif­fi­cult en­vi­ron­ment for for­eign businesses. The at­trac­tion of a po­ten­tially huge mar­ket is off­set by bu­reau­cracy, re­stric­tions on in­vest­ment, cor­rup­tion, poor in­fra­struc­ture and ris­ing en­vi­ron­men­tal prob­lems.

Jait­ley also an­nounced a range of so­cial mea­sures, in­clud­ing funds to im­prove se­cu­rity for women in In­dia’s cities amid a wave of sex­ual vi­o­lence, in­clud­ing high-pro­file cases in the cap­i­tal and other ma­jor cities in re­cent years. The budget was “al­most a copy and paste of the in­terim budget” and “a lost op­por­tu­nity” to de­tail bold steps to re­vive eco­nomic growth, Taimur Baig, di­rec­tor of Asia eco­nom­ics in Sin­ga­pore at Deutsche Bank AG, told Bloomberg TV. “If they had some tough mea­sures, In­di­ans would have taken it. They have the ap­petite, they have given them the man­date, but some­how or the other the govern­ment didn’t fol­low through.”

Jait­ley sought to man­age ex­pec­ta­tions early on when pre­sent­ing the budget to par­lia­ment, say­ing “it would not be wise” to ex­pect big changes 45 days af­ter the govern­ment took of­fice. He pledged to bridge the fis­cal gap by in­creas­ing rev­enues as a per­cent­age of the econ­omy, in part through ex­pand­ing the tax base, while leav­ing sub­si­dies un­touched.

Stocks have gained 5.1% since Modi’s win on May 16, among Asia’s top per­form­ers in that time, on bets that the first par­lia­men­tary ma­jor­ity for a sin­gle party since 1984 will en­able him to make tough choices.

“The man­date we’ve re­ceived may have sen­sa­tion­alised ex­pec­ta­tions, but we need to es­tab­lish a care­ful bal­ance to keep re­vival sus­tain­able,” Com­merce Min­is­ter Nir­mala Sithara­man said in an in­ter­view with Bloomberg TV In­dia. “This is the course we are on.”

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