India boosts spending, cuts deficit in $550 bn budget
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.
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