India unveils $134bn spend on infrastructure in pre-poll budget
NEW DELHI, February 1, 2024
India's Finance Minister Nirmala Sitharaman on Thursday unveiled plans to spend nearly $134 billion on infrastructure and focus on long-term reforms to drive growth and curb fiscal gap despite pressures to raise spending ahead of crucial polls.
India's economy, the fastest growing among major nations, is going through profound change, Sitharaman said to the thumping of desks in parliament.
"We have better managed the economy with correct intentions, correct policies and correct decision. So it's a governance with care, conviction and confidence," she stated.
"There will be a white paper on the economic performance of the last 10 years compared with the previous 10 years...Govt has got the trust, confidence and blessings of the people based on its exemplary track record of GDP that is Governance, development and performance," she added.
Terming it a golden era for the country's tech- savvy youth, Sitharaman said a corpus of Rs1 lakh crore will be established with 50-year interest-free loans to encourage the private sector to scale up research and innovation.
“The next five years will be years of unprecedented development and golden moments to realize the dream of developed India by 2047," she stated.
Sitharaman pointed out that the next generation of reforms will be carried out in consultation with state governments. The government has simplified India's complicated tax structures, invested in new ports and roads but has struggled to liberalise land acquisition and labour laws.
The minister said fiscal deficit target for the next fiscal year had been reduced to 5.1% of GDP compared to the revised deficit estimate of 5.8% for the current fiscal year.
The interim budget for 2024/25 is being seen as an economic manifesto for Prime Minister Narendra Modi's ruling Bharatiya Janata Party (BJP), giving cues to the market on its plans for fiscal consolidation, borrowings and future taxation policy, reported Reuters.
Modi's government resisted the temptation of spending trillions of rupees on schemes for the poor in its last budget before an election and instead stuck to the path of fiscal consolidation to attract investors.
The lack of social spending largesse is indicative of Modi's confidence in returning to power for a rare third term. His stratospheric approval ratings have been further boosted by the building of a grand Hindu temple on long disputed land that appealed to his nationalist base.
Tax policies were left unchanged in Thursday's budget, major subsidies on food, fertiliser and fuel were 8% lower and an allocation for a rural employment scheme was held steady.
"This is an indication that the ruling BJP is feeling fairly confident about securing another big victory in the upcoming general election," said Shilan Shah from Capital Economics.
A national election is due by May this year.
PM Modi characterised the Interim Budget as “inclusive and innovative”, one that “carries the confidence of continuity”, a reference to Sitharaman’s assertion in Parliament that it will be yet another Modi-led government that will present the full Budget in July after the Lok Sabha election.
In a televised address following the Budget, Modi said it would empower the four pillars of developed India - young, poor, women, and farmers. It carries the "guarantee of strengthening the foundations of Viksit Bharat by 2047.
On Wednesday, at the start of the Budget Session, the Prime Minster had, in his customary remarks, said the Interim Budget will not have any major announcements but broad guidelines for the future, and the Budget speech on Thursday reflected that.
Stating that it reflected the aspirations of “young India”, Modi highlighted two significant announcements in the Budget — that of a fund of ₹1 lakh crore for research and innovations, and the extension of tax exemptions for start-ups.
“We set a big goal, achieve it, and then set an even better goal for ourselves,” he said, referring to the target to build two crore more houses for the poor under the Pradhan Mantri Awas Yojana, and create three crore ‘Lakhapati Didis’ as part of women’s empowerment.
Lauding the interim budget, PM Modi said investment for capital expenditure was taken to a historic high of ₹11,11,111 crore. Calling India's capex and infra spending situation to be on a ‘sweet spot’, PM Modi underlined the creation of enumerable job opportunities for youngsters in the coming years, reported PTI.
In her speech, Sitharaman said the government would build 20 million affordable houses in the next five years, to add to the 30 million houses built already.
Over the last three years, the government has stepped up spending on roads, bridges and other infrastructure as a way to boost the economy and create jobs.
The budget foresees an increase in capital expenditure on such long term projects by another 11% over last year, even as the government's overall spending rises at a slower 6%.
The government will also launch a scheme for housing for the middle class, she said, without providing details.
"A corpus of ₹ 1 lakh crore to scale up research and innovation in sunrise domains will be a "game-changer and a force-multiplier", Union Minister of State for Skill Development and Entrepreneurship Rajeev Chandrasekhar told NDTV hours after Sitharaman made the big announcement.
"It is a brilliant way to quantify if you want to call it or realise this vision that the Prime minister has that as the country our economy throws up more and more of these opportunities. That they are available to our youngsters, to our start ups, to our entrepreneurs, to our larger companies.. That there is ample source of credit and capital that is available to them to innovate to research," said Chandrasekhar.
The fiscal consolidation will help the Indian government to make a stronger case for a higher sovereign credit rating in the coming months, economists said.
"The interim budget effectively juggled the need to support growth while signalling continued fiscal consolidation. This will be reassuring for investors and rating agencies alike," said Sachchidanand Shukla, economist at Indian construction giant Larsen & Toubro (L&T).
According to her, the government will borrow a lower-than-expected 14.13 trillion Indian rupees ($170.33 billion) from the bond markets to fund its fiscal deficit, thus achieving a reduction from that of FY24
Sitharaman has adopted an aggressive fiscal consolidation target announcing an FY25 fiscal deficit target of 5.1% as against the expectation of 5.3% levels.
The minister announced a scheme for housing for the middle class to those living in rented houses, slums, and unauthorised colonies to buy or build their own house.
A key hightlight of the budget was the extension of healthcare cover under Ayushman Bharat, a pet scheme of PM Modi, to all Anganwadi workers, helpers.
The Modi government also plans to set up more medical colleges in the country using existing infrastructure.
Sitharaman announced the withdrawal of outstanding disputed tax demands, a move that is set to benefit 1 crore taxpayers.
Many were left disappointed as the FM chose to keep the tax rates unchanged in the interim Budget 2024, including import duty. However, certain benefits to start-ups and tax exemptions to certain IFSC units expiring in March will be extended to March 2025.
