2024-07-23 08:40:23
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Indian Prime Minister Narendra Modi’s government announced huge investments in new coalition partners and rolled out schemes to create jobs in an effort to shore up public support after an electoral setback last month.
Modi’s Bharatiya Janata Party won a historic third term in the election in June this year, but lost its ruling majority and can only rely on two regional parties to form a ruling coalition.
In the new government’s first budget for the year ending March 2025, Finance Minister Nirmala Sitharaman on Tuesday announced plans to maintain capital investment at a record 11.11 trillion rupees ($133 billion) while cutting the fiscal deficit to 4.9% of GDP from the current 5.1%.
Sitharaman described India, the world’s fastest-growing large economy, which is expected to expand 6.5% to 7% this year, as a “shining exception” to slowing global growth.
Modi said the budget would “determine the direction of our term for the next five years” [and] Become a solid foundation for our dream of “Viksit Bharat” [developed India]”.
Sittaramana, in his budget speech, detailed billions of dollars spent by the government’s alliance partners – the Telugu Samajwadi Party in southern Andhra Pradesh and the BJP (United) in northern Bihar.
These include a 26,000-crore industrial corridor through Bihar, 15,000 crore to build a new “high-tech” capital called Amaravati in Andhra Pradesh, and funds for flood reconstruction and development of local temples.
The Reserve Bank of India (RBI) has allocated a record 2.1 trillion rupees, boosting the government’s budgetary firepower, giving it room to continue spending while lowering the fiscal deficit target. Sitharaman said the government plans to reduce the deficit to below 4.5% next year.
Andrew Holland, chief executive of Avendus Capital Public Markets Alternate Strategies in Mumbai, said the budget could “allay concerns about the alliance issue.”
“A large part of the RBI dividend has obviously gone to rural development, employment and Andhra Pradesh and Bihar,” he said.
The BJP also sought to quell widespread public discontent, which many analysts blamed for the disappointing election results, by announcing plans to tackle youth unemployment and boost agricultural productivity among farmers.
Jairam Ramesh, a spokesman for the opposition Indian National Congress party, called the budget “too late and … too weak,” adding that the government “seems to have finally tacitly acknowledged that mass unemployment is a national crisis.”
India’s benchmark Nifty 50 index fell more than 1% after the budget speech after the government announced it would raise taxes on short-term and long-term capital gains in the country. The 10-year government bond yield fell to its lowest level in two years as it plans to cut borrowing levels.
“There will definitely be some knee-jerk reaction in the market but it will definitely level out,” said Abhay Agarwal, founder and fund manager at Piper Serica in Mumbai. [is] Continue to invest in infrastructure of all types.”
India, which became the world’s most populous country last year, has been seeking to capitalize on global investor interest in its economy as manufacturers and technology companies seek alternatives to China. India has attracted Apple Inc, which assembles iPhones in India, and a growing number of so-called global competence centers, the in-house back offices of multinational companies.
But its economy has been plagued by chronic weaknesses, including low job creation, rising inequality and tepid private investment.
Economist Montek Singh Ahluwalia, former vice chairman of India’s Planning Commission, said the budget “generally gets the right consensus on the important issues,” including job creation, maintaining macroeconomic stability and reducing the fiscal deficit.
But he added that the success of plans to address jobs, agriculture and urban development “will depend entirely on how well they are designed and how well they are implemented”.
“We’ve had plans like this before,” he said.
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