Earlier than expected, the government of Indian Prime Minister Narendra Modi has released the country’s final budget before the country prepares to hold general elections in the coming months.
From the first of April, the interim budget, also known as a stopgap financial plan, will be put into action. This will continue until a new administration is able to offer a full-fledged budget after it has taken office.
It should come as no surprise that India’s Finance Minister Nirmala Sitharaman has continued to provide funding for the construction of infrastructure, which has been a significant contributor to the country’s economic expansion. There has been an increase of 11% over the previous year, with over 130 billion dollars being dedicated to the construction of physical assets such as roads and ports. However, this amount is lower than the roughly three-fold trendline yearly increases that India has been experiencing since 2019.
The government, according to Ms. Sitharaman, plans to construct an additional 20 million affordable homes during the next five years, in addition to the almost 30 million homes that have already been constructed.
“This will provide obvious impetus to the rural economy both in terms of job creation and construction, while also fulfilling the government’s socio-economic agenda,” said Shubhada Rao, an economist and the founder of Quant Eco Research. “This will also fulfill the government’s socio-economic initiatives.”
Increases in public spending are anticipated to contribute to India’s GDP growth remaining at approximately 7%. As a result of the quick expansion, the government has been able to collect higher taxes and reduce its fiscal deficit, which is defined as the difference between what it receives and what it spends, by half a percent, bringing it down to 5.1% this year.
A rally in India’s bond markets has occurred as a result of this, which would mean that market borrowings would be reduced. “The finance minister has laid the path for a 4.5% fiscal deficit target by 2026,” according to Ms Rao.
There were no new tax relief measures announced for the salaried middle class, and Mr. Modi’s pre-election spending plan refrained from announcing significant increases in social schemes, with the exception of a program that would provide free electricity to 10 million households through rooftop solar projects. This was done in an effort to attract voters.
A program that provides free meals to 800 million people has already been extended by India for the next five years. This initiative was initially introduced during the COVID-19 conference.
The Bharatiya Janata Party (BJP), which is currently in office, is largely anticipated to continue to hold power as a result of its victories in three provincial elections held in the previous year and Mr. Modi’s high popularity ratings.
In spite of the fact that this has resulted in a decrease in the populist tendency of the government, criticism regarding the inadequate spending on health and education has been growing.
According to Dr. Raghuram Rajan, who served as the previous governor of the Reserve Bank of India (RBI), there has not been sufficient attention paid to the creation of “human capital” in India. This is in addition to the emphasis that has been placed on the development of physical capital. Given India’s current unemployment situation, this was a cause for concern.
Dr. Rajan continued by saying, “We are flying blind” since we do not have solid data on jobs. In addition, he stated that the levels of malnutrition in certain regions of India was higher than those in many nations in sub-Saharan Africa, which he deemed “unacceptable” for an economy that was outpacing the majority of other economies.
The consumption story in India paints a picture of uneven growth, with the urban rich getting richer and buying more premium products, while those at the bottom of the pyramid in the rural hinterland continue to cut back on spending. Economists have also expressed concern about the fact that private investment has not picked up pace, and India’s consumption story has painted a picture of uneven growth.
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