India said to breach deficit targets to woo farmers before vote

NEW DELHI: India focused its budget on farmers and its rural population as Prime Minister Narendra Modi looks to win over voters before national elections next year.

“We have taken up programmes to direct the benefits of structural reforms and good growth to reach the farmers, poor and other vulnerable sections of the society and uplift the underdeveloped regions,” Finance Minister Arun Jaitley told lawmakers in New Delhi. “This year’s budget will consolidate these aims and particularly focus on strengthening agriculture and rural economy.”

Jaitley will widen deficit goals, people with knowledge of the information said, asking not to be identified as he hasn’t yet disclosed plans. The budget deficit for the year ending March 31 will be 3.5% of gross domestic product instead of the 3.2% targeted earlier, while the goal for next year will be set at 3.3% instead of 3%, the people said. Most economists in a Bloomberg survey had predicted 3.5% and 3.2%, respectively.

Investors have been skeptical of the government’s long-standing vow to improve public finances – rising yields made the nation Asia’s worst-performing bond market over the past quarter. Higher spending also complicates policy for the central bank, which meets next week to review interest rates amid accelerating inflation.

Modi’s walking a fiscal tightrope, according to Chetan Ahya, chief Asia economist at Morgan Stanley. While the government needs to take steps – such as probably lowering corporate taxes – to boost urban jobs, Modi also needs to increase rural transfers to help ease worsening farm distress, Ahya said.

“In the background there have been a few election results that have not been exactly in favor of the ruling party. People may have been getting impatient in the terms of progress at their level,” Ahya told Bloomberg TV.

“So there is pressure on the government to do something, so that some of the progress is shared.”

India will plan FY19 market loans at 6.06 trillion rupees, the people said. Minimum guaranteed prices for specified crops to be set at 1.5 times production cost.

Modi’s party faces as many as eight state elections this year after economic woes contributed to its worst showing in more than two decades in a vote in his home state in 2017. Then there’s the national poll early in 2019.

The government’s top economic adviser Arvind Subramanian warned this week that setting overly ambitious goals in a year before elections could undermine the credibility of fiscal policy.

He predicts GDP growth will pick up to 7% or 7.5% next year, winning back India the tag of the world’s fastest growing major economy.