India budget expected to focus on rural economy


The Indian government is set to unveil its budget on Monday as it faces pressure to boost growth while also appealing to the country’s poor.

Having overtaken China as the world’s fastest-growing economy, India is seen as a bright spot in the global economy.

But it has been hit by slowing global demand and severe droughts affecting rural areas.

Finance Minister Arun Jaitley also faces pressure to implement promised reforms.

Prime Minister Narendra Modi’s government is expected to increase spending on the rural economy, health and social sectors.

Critics though are concerned this could mean a turn from market reforms and fiscal discipline, which are at the heart of the business community’s wish-list for the budget.

The government needs to “strike a balance between fiscal stimulus and reforms,” Mehda Samant of Fidelity Investments told the BBC. “We’re expecting a clear roadmap for policy reform and economic intent.”

Analysis: Yogita Limaye, India business reporter, Delhi

“How many Oscars will the finance minister get?” reads the front page of one of India’s largest selling business newspapers, accompanied by a picture of Indian Finance Minister Arun Jaitley in a tuxedo holding up an Academy Award. And while his words will probably not get reported as widely as host Chris Rock’s, the substance of the Indian budget will impact the lives of 1.2 billion people.

Some of the big expectations from the spending plan are that the government will try and boost the rural economy, which has suffered thanks to two consecutive years of less than sufficient rainfall during the monsoon.

That is needed to trigger consumer demand in the country, which would in turn impact businesses and perhaps encourage them to invest more.

At the moment private investments in India have not really gathered steam and most of the 7.5% growth we have seen in 2015 has come from government spending. Most analysts believe the government will need to continue spending to push the economy forward over the next year.

But this year there are some big expenses as well. It will cost about $16bn (£11.5bn) for the government to pay for a once-in-a-decade salary hike for all government employees. So people will be watching for what ideas the government has to raise money.

Since coming to power in 2014, Mr Modi had promised to improve business and investor climate in the country with tax reforms and major infrastructure projects.

That policy has been criticised by the opposition as being too business-friendly and coming at the expense of social spending and welfare projects.

The country’s huge rural population has been hit by severe droughts and recent regional elections have shown dwindling support for Mr Modi.

With crucial elections in largely agricultural states like West Bengal and Uttar Pradesh coming up this year and next, the government is under pressure to address the rural economy.

An increased in social spending without abandoning stimulus and infrastructure projects could mean thought that India would be forced to loosen its fiscal deficit target of 3.5%.


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