India budget focuses on tax cuts and spending boost
News Delhi, India - India's government announced a huge infrastructure programme, increased welfare spending and tax cuts Wednesday as Prime Minister Narendra Modi seeks to boost the economy and voters' incomes ahead of elections next year. It will spend around Us$122bn in the next financial year – an unprecedented 33 per cent increase – on ambitious road, port and railway projects, finance minister Nirmala Sitharaman said in her budget announcement.
The investments could create millions of jobs and boost Asia's third-largest economy.
Welfare spending will rise, including on providing all households with piped water and health insurance for the poor, and the finance minister extended a scheme distributing free food grains to about 800mn struggling Indians.
Modi looks set to seek a third term as premier in a general election due before May 2024.
The loudest cheers in Sitharaman's near 90-minute speech to parliament came when she announced around Us$4.2bn of direct tax incentives for the middle classes – some of the most vocal supporters of Modi and his ruling
right-wing Bharatiya Janata Party.
But only about 80mn people and companies pay direct taxes in India, despite its population of 1.4bn. The vast majority of people earn less than the income tax threshold, and tax under-reporting remains a major issue.
India announced a doubledigit increase in its annual defence budget with an eye on its increasingly assertive geopolitical rival China, with which it shares a tense and disputed northern border.
New Delhi – already the world's third-biggest military
spender according to the Stockholm International Peace Research Institute – will increase its defense expenditure to Us$73bn, a 13 per cent rise, finance minister Nirmala Sitharaman told parliament in her budget announcement.
Despite the tax cuts, Sitharaman said India's budget deficit would be reduced from 6.4 per cent of GDP to 5.9 per cent.
Finance Secretary T V Somanathan told journalists the government's expectations were based on growth projections and an increased total tax take.