(Bloomberg) — Prime Minister Narendra Modi is likely to use India’s final budget before elections to win over voters with new spending measures while avoiding a rise in the budget deficit.
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Rapid economic expansion has provided the government with a tax windfall, helping it meet its goal of reducing the budget deficit. That means Finance Minister Nirmala Sitharaman, who will deliver her sixth budget speech on February 1, has a target to continue infrastructure spending and support Prime Minister Modi’s election priorities: farmers, women, the poor and youth. This means there is room to take narrower measures.
But economists say there is no hope for a sharp increase in spending either. This week’s budget is an interim budget until the new government takes office, and the finance minister has already indicated that there will be no major announcements.
“The pace of fiscal consolidation and future policy priorities will be the focus of attention,” said Madhavi Arora, an economist at MK Global Financial Services.
Bloomberg Economics’ Abhishek Gupta said in a report that there is less pressure on Modi to take populist steps as he is in a strong position to extend his 10-year rule in the upcoming elections. He said the fiscal plan is expected to demonstrate policy continuity.
Here are some highlights from the budget speech, which is usually held around 11 a.m. in New Delhi.
deficit and borrowing
The government has steadily reduced the budget deficit to keep debt in check after it soared to 9.2% of gross domestic product during the pandemic. The deficit target of 5.9% for the current fiscal year, which ends in March, is likely to be met and will be further reduced to 5.3% next fiscal year, according to economists surveyed by Bloomberg.
Much of this year’s improvement in the fiscal deficit is due to a sharp increase in tax revenues. HSBC Holdings said income tax increased by nearly 30% compared to last year’s collections, corporate tax increased by 20% and GST increased by 10%.
The government has promised to reduce the budget deficit to 4.5% over time, but at the same time it is focusing spending on items such as infrastructure and subsidy cuts, which bodes well for economic growth prospects, HSBC said. economists wrote in their notes.
Borrowings next fiscal year are likely to remain at record levels of around 15 trillion rupees ($180.5 billion), according to a Bloomberg survey, but this year’s debt market will be boosted by a surge in overseas demand due to India’s economic growth. is unlikely to be a cause for concern. Included in global bond indexes.
infrastructure spending
The government has increased capital spending by almost a third each year over the past three years, prioritizing spending on roads, ports and power plants. This supported economic growth of over 7%, making India the fastest growing major economy, according to official forecasts.
Radhika Rao, an economist at DBS Group Holdings, expects the pace of infrastructure spending to ease, but to remain fairly high at 9-10%.
rural welfare
Economists say the government will provide further financial support to farmers after a number of aggressive measures taken last year to curb soaring food prices, including a ban on exports of rice, wheat and sugar, reduced their incomes. I predict that. Reduced rainfall has also affected crops, negatively impacting prospects in rural India, where about 65% of India’s 1.4 billion people live.
The Modi government has already increased subsidies for cooking gas and fertilizers and extended a $142 billion free food program for 800 million people for five years.
Analysts at Jefferies India expect welfare spending to rise due to popular programs such as income transfers for farmers, universal housing and expanded health insurance. Social spending, excluding subsidies, could rise by as much as 8% in the next fiscal year, which starts in April, compared with a 4% increase this year, analysts wrote in a note.
Local media reports suggest the government may create a social security fund for workers in the informal sector, including gig jobs.
female voters
To attract more women voters, the Modi government is increasing subsidies on cooking gas and offering cheaper loans to women voters. Analysts expect the Budget to include further support for women, given the important role they will play in the next election.
The plan to distribute free gas cylinders to women “could cost more in the government’s vision to expand the number of new beneficiaries to 7.5 million over the next three years,” said QuantEco, led by Shubhada Rao.・Research economists wrote in a memo.
Sitharaman may also consider doubling the annual payment to women farmers who own land to 12,000 rupees, according to media reports.
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