India is to ramp up spending on rural areas, infrastructure and fighting poverty, Indian Minister of Finance Arun Jaitley said yesterday as he unveiled his annual budget, adding that the impact on growth from the government’s cash crackdown would wear off soon.
Addressing parliament, Jaitley called his fourth budget one for the poor.
Yet, while vowing prudent fiscal management, he also raised his 2017-2018 federal deficit target to 3.2 percent of GDP to cover his spending promises.
Jaitley called India “an engine of global growth,” but highlighted risks to its outlook from likely US interest-rate hikes, rising oil prices and signs that globalization is in retreat.
Indian Prime Minister Narendra Modi’s surprise decision in November last year to scrap high-value banknotes worth 86 percent of India’s cash in circulation has hit consumer demand, disrupted supply chains and hurt capital investment.
However, the worst of the cash crunch is now over and Jaitley said that he expected it would not spill over into the fiscal year starting on April 1.
A private manufacturing survey yesterday showed business was slowly returning to normal.
Still, the Indian Ministry of Finance forecast that growth could dip to as low as 6.5 percent in the current fiscal year to next month, before picking up slightly in the coming fiscal year to between 6.75 and 7.5 percent.
That is below the target rate of 8 percent or more that Modi needs to create enough jobs for the 1 million young Indians who enter the workforce each month.
Half of the population in the nation of 1.3 billion is below the age of 25.
While opinions vary on how long the disruptions caused by Modi’s crackdown on untaxed and illicit wealth will last, there is near unanimity among economists that Asia’s third-largest economy needs a helping hand.
The government is to hike capital investment by 25.4 percent, Jaitley said.
He also announced a 24 percent hike in rural and farm spending as part of Modi’s commitment to double farm incomes over five years.
However, there was no extra room in the budget to increase capital support for the country’s troubled state banks.
Jaitley said he would pump in 100 billion rupees (US$1.48 billion), in line with earlier plans.
In a surprise announcement, Jaitley said India would abolish the Foreign Investment Promotion Board (FIPB), a government body, in a move that seeks to cut a layer of bureaucracy and make India an easier place to do business.
“Abolishing the FIPB will further boost foreign direct investment,” said Pravin Kumar Agrawal, a tax partner at Deloitte Haskins & Sells.
Modi has vowed to improve the ease of doing business in India, which is ranked a lowly 130th in the World Bank’s global rankings.
Economists had expected Jaitley would raise the fiscal deficit from the 3 percent that he had planned earlier — a target he now promised to meet in 2018-2019.
“The fiscal deficit bit does not seem very credible. Jaitley is leaving room to exceed it at a later time. I think people will question the fiscal math over the next few days,” Bullero Capital New Delhi-based managing director Varun Khandelwal said.
The deficit for the current year is expected to come in at about 3.5 percent.
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