India unveiled a fire-fighting budget on Monday that seeks to win back support among rural voters for Prime Minister Narendra Modi’s government and sustain growth against a grim global backdrop—all without borrowing more.
Finance Minister Arun Jaitley’s third budget marked a strategic shift by addressing rural distress in a country of 1.3 billion, where two-fifths of families rely on farming and are reeling from two years of drought, Reuters reported.
At the same time it hiked public investment in India’s woeful infrastructure by 22.5%, while taking further steps to revive corporate investment that Modi needs to create new jobs for India’s burgeoning workforce.
“We have a shared responsibility to spend prudently and wisely for the people, especially for the poor and downtrodden,” the finance minister told lawmakers in his 100-minute address.
Despite commanding a large majority in parliament’s lower house, Modi’s government has failed to pass several key measures since sweeping to power almost two years ago, raising doubts over the impact of its reform agenda.
Jaitley called Asia’s third-largest economy a bright spot in a gloomy global landscape, and reiterated a forecast that it would grow by 7.6% in the fiscal year that is drawing to a close.
But, despite hefty commitments on rural welfare and health, Jaitley managed to stick to his fiscal deficit target of 3.5% of gross domestic product for the 2016/17 fiscal year that starts on 1 April—a pledge that may open the way for an early interest rate cut by the Reserve Bank of India.
“Rural demand is weak, private investment is dead in the water and, of course, we have a banking crisis,” he added. “They’ve announced some ease-of-doing-business-measures that are positive. But, in other ways, it’s a classic tax-and-spend budget.”
Jaitley reeled off a list of $16 billion in measures targeted at the countryside, including spending on a job creation scheme, farmers’ welfare and building rural roads. He also targeted a total of $130 billion in credit to farmers.
“These steps will help our millions of farmers recover from the rough patch they have been going through,” said Yoginder K. Alagh, a farm expert and former planning official.
The government will also allocate $32 billion for infrastructure development in 2016/17, an increase of 22.5% from last year, building 10,000km of new national highways and upgrading another 50,000km.
Those spending pledges leave scant cash over to recapitalize a state banking sector weighed down with bad loans to a corporate sector that itself is struggling under a heavy debt burden.
Jaitley announced a capital injection of just $3.6 billion into public sector banks in the coming fiscal year—a fraction of total needs that his economic adviser, Arvind Subramanian, estimated at $26 billion in his pre-budget report.
