Asia’s third-largest economy unveiled its annual budget today saying it is aimed at a high-growth trajectory. The budget is focusing on improving infrastructure, cutting the fiscal deficit and boosting investment so that growth would accelerate to 8-8.5% in India’s next financial year starting in April.
“While global growth forecasts are coming down, India’s forecasts are either maintaining or scaling up,” said finance minister Arun Jaitley in his budget speech in Parliament this morning. The finance minister promised to overhaul government finances, reduce corporate tax in phases and remove business bottlenecks.
“The world is predicting that this is India’s chance to fly,” said Jaitley. “India’s is about to take off...”
“Pro-poor, pro-growth, pro-middle class, pro-youth & paradigm shifting,” Prime Minister Narendra Modi tweeted after the presentation of his government’s first full-year budget since it was won a resounding election victory in May 2014. The tweet summarizes the challenges that his government is facing in balancing expectations from various quarters in a country with 1.2 billion people.
Jaitley said it was time for a “quantum leap” on reforms because “incremental change” would not take the country far. The budget announcements, however, did not reveal any sweeping economic overhaul measures, or unveil any ‘big bang reforms’ as some have termed it. The Mumbai stock exchange’s Sensex fell almost half-a-percent after Jaitley finished his budget speech.
Expectations were sky-high as a reworking of calculations this year has catapulted India to forefront among the world’s fastest-growing economies, even overtaking China. A pace of 7.4 percent growth is expected in the current year ending in March, the government has said.
The fiscal deficit target for the 2014-2015 year would be on target of 4.1% of its gross domestic product, Jaitley said in his budget speech.
Falling global oil prices have given the government the room to spend on creating infrastructure without increasing inflation or messing with fiscal deficit targets.
The government would invest a further 700 billion rupees (over $11 billion) this year, Jaitley said, and announced a national investment infrastructure fund. Five ultra-mega power projects of 4,000 MW capacity each are planned. The government will introduce tax-free infrastructure bonds for road, rail and irrigation projects. The focus will be on additional road and ports projects.
The government would look to improve the effectiveness of its rural job creation scheme, its costliest welfare measure, by increasing digital welfare payments that go directly into the bank accounts of the poor.
