India hikes spending, shuns ‘outright populism’ in last pre-election budget

  • India announced on 1 Feb one of its biggest ever increases in capital spending for the next fiscal year to create jobs but targeted a narrower fiscal deficit in its last full budget ahead of a parliamentary election due in 2024.
  • “The budget makes the need once again to ramp up the virtuous cycle of investment and job creation. Capital investment is being increased steeply for the third year in a row by 33% to INR10tn.” Finance Minister Nirmala Sitharaman said as she presented the 2023/24 budget in parliament.
  • The capital spending increase to about USD122.3bn, which would amount to 3.3% of gross domestic product (GDP), will be the biggest such jump after an increase of more than 37% between 2020/21 and 2021/22.
  • Total spending will rise 7.5% to INR45.03tn (USD549.51bn) in the next fiscal year starting on 1 Apr.
  • Sitharaman said the government would target a fiscal deficit of 5.9% of GDP for 2023/24 compared with 6.4% for the current fiscal year and slightly lower than a Reuters poll of 6%. The aim is to lower the deficit to 4.5% by 2025/26.
  • The finance ministry’s annual Economic Survey, released on 31 Jan, forecast the economy could grow 6% to 6.8% next fiscal year, down from 7% projected for the current year, while warning about the impact of cooling global demand on exports.
  • Sitharaman said India’s economy was “on the right track, and despite a time of challenges, heading towards a bright future”.
  • Her deficit plan will be aided by a 28% cut in subsidies on food, fertiliser and petroleum for the next fiscal year at INR3.75tn. The government cut spending on a key rural jobs guarantee programme to INR600bn rupees – the smallest in more than five years – from INR894bn for this fiscal year.
  • The government’s gross market borrowing is estimated to rise about 9% to INR15.43tn next fiscal year.
  • Among other moves to stimulate consumption, the surcharge on annual income above INR50mn was cut to 25% from 37%.

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