India's government on Tuesday unveiled a 39.45 trillion rupees ($530 billion) growth-focused budget in an effort to boost the economy amid rising inflationary pressures and a resurgence in Covid-19 infections.
The budget aims to keep the country on track to become the world's fastest-growing major economy, with plans to spend heavily on infrastructure, including railways and roads.
“This budget continues to provide impetus for growth,” said Nirmala Sitharaman, India's Finance Minister, who is delivering the annual plan to Parliament for the financial year beginning in April.
Ms Sitharaman said revenue, excluding borrowing, was estimated at 22.84tn rupees. The government set borrowing at 14.9tn rupees and the 2022-2023 budget deficit at 6.4 per cent of gross domestic product, compared with a 6.9 per cent estimate for the previous year.
India's 10-year bond yield surged 10 basis points higher on the budget deficit announcement, according to Bloomberg.
“The budget focused on a familiar strategy of driving capital expenditure to drive growth, with the intention of crowding in private investment through higher public spending,” said Abheek Barua, the chief economist at HDFC Bank, a major private lender in India.
“It is perhaps prudent to not undertake aggressive fiscal consolidation at this nascent stage of recovery.”
The budget was presented against the backdrop of an Omicron-driven surge in Covid-19 in recent weeks that prompted authorities to impose some fresh restrictions, hampering business activity.
It increased pressure on Prime Minister Narendra Modi's government to prioritise boosting economic growth over fiscal consolidation.
The presentation of the budget comes a day after the release of India's annual government report on the economy. It projects India to be the world's fastest growing major economy in the coming financial year, expanding between 8 and 8.5 per cent.
That is lower than the IMF's forecast for expansion of 9 per cent. It is also down on the survey's projection for GDP growth of 9.2 per cent in the current fiscal year, off a low base after a historic recession in the previous year, as the enforcement of one of the world's strictest Covid-19 lockdowns battered India's economy in 2020.
Unemployment, which hit a four-month high of 7.9 per cent in December, according to data from the Centre For Monitoring India Economy, and steep inflation pushed the government to deliver a budget that addresses the challenges faced by the masses. A recent Oxfam report highlighted that inequality in India has worsened during the pandemic.
To help create jobs and bring in investment, Ms Sitharmanan outlined plans to invest 200bn rupees into a highway expansion programme, as well as announcing a push for India's “housing for all” initiative.
Adding to the pressure on the government, several key state elections will be held over the coming weeks, but New Delhi refrained from populist measures such as income tax cuts.
“Overall, while there was little relief on the personal income tax front and easing of tax compliance, with no other negative surprises, we believe the focus on spending more would create employment opportunities and help in kick-starting the investment cycle which in turn would help to strengthen the economic growth,” said Gurpreet Sidana, the chief operating officer at Religare Broking.
The government aims to fund its spending plans through higher tax revenues and the monetisation and sale of state-owned assets, with its privatisation plans getting boost from last month's handover of Air India to Tata.
Plans were also unveiled in the budget for the launch of a digital currency under India's central bank, the Reserve Bank of India, by 2023.
“The budget focused heavily on integrating technology across sectors, and the gradual acceptance of a digital currency, blockchain and virtual digital assets has the potential to make India a leader in this new paradigm,” said Avinash Shekhar, the chief executive of ZebPay, an Indian cryptocurrency exchange.
IHS Markit PMI data released on Tuesday revealed that India's manufacturing sector had also got off to a strong start in 2022, coming in at 54 in January, down from 55.5 in December. Though the data signals the weakest improvement in the health of the sector since last September, the headline figure remained above its long-run average of 53.6, according to the survey. A figure above 50 represents an expansion.
“The latest PMI results indicated that the new wave of Covid-19 had a mild impact on the performance of the Indian manufacturing sector. A number of measures such as output, new orders and input buying remained in expansion mode. Although growth rates eased, they were historically strong,” said Pollyanna De Lima, economics associate director at IHS Markit.