Analyzing India’s Budget: Prudent Plans and Political Messaging

Analyzing India’s Budget: Prudent Plans and Political Messaging

Indian Prime Minister Narendra Modi’s government is set to present its final budget before elections, with an emphasis on fiscal prudence and infrastructure spending. The budget for the financial year 2024/25 will be announced by Finance Minister Nirmala Sitharaman, and is expected to lay out the government’s economic vision for the country for the next five years. However, it is unlikely to include any major, expensive schemes to lower the fiscal deficit. Instead, the focus will be on showcasing the government’s 10-year economic performance and delivering political messaging ahead of the national vote.

The Modi government is likely to aim for a reduction of at least 50 basis points in the fiscal deficit for 2024/25 from its current target of 5.9% of GDP. To achieve this, major subsidies on food and fertilizers will be capped at the current year’s level, and inexpensive welfare schemes such as cash handouts for female farmers will be introduced. Another area of focus is expected to be low-cost housing, with increased spending planned in this sector. The objective is to achieve fiscal consolidation while avoiding aggressive competitive populism, as stated by Madhavi Arora, an economist at Emkay Global.

Given its significant role in driving the country’s growth, the government is expected to increase capital spending on infrastructure. In the current year, India is set to spend over 3% of GDP, equivalent to 10 trillion Indian rupees ($120.5 billion), on infrastructure. A further increase of up to 20% is anticipated for 2024/25. This sustained investment is crucial for maintaining the momentum of the Indian economy, which grew at an impressive rate of 7.6% in the July-September quarter, making it the world’s fastest-growing major economy. Government estimates predict close to 7% growth for fiscal year 2024-25.

The forthcoming budget is expected to primarily focus on fiscal consolidation. The government aims to keep its gross market borrowing relatively unchanged in 2024/25, ranging from 15 trillion rupees to 15.5 trillion rupees. Rupa Rege Nitsure, an economist at L&T Finance, highlights that there will only be a marginal increase in market borrowings. This indicates a cautious approach by the government towards managing its debt, which is crucial for maintaining economic stability and investor confidence.

India’s final budget before the upcoming elections reflects the government’s focus on fiscal prudence, infrastructure spending, and political messaging. By limiting major subsidies, allocating funds for welfare schemes, and increasing investment in low-cost housing, the government aims to achieve fiscal consolidation while avoiding excessive populist measures. Capital spending on infrastructure will play a pivotal role in sustaining the country’s economic growth, which is forecasted to remain robust. By emphasizing fiscal consolidation and managing market borrowings, the government aims to ensure economic stability and investor confidence. As India prepares for the national vote, this budget serves as an economic manifesto, outlining the government’s vision for the next five years.

Economy

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