India’s budget to be delivered as general election looms, with PM Modi seeking third term in office
The government had accumulated a record fiscal deficit during the pandemic, spending billions on food for the poor, vaccines and loans for small businesses.
MUMBAI: As India’s government gets ready to present the annual budget on Wednesday (Feb 1), it will be looking to rein in spending while keeping an eye on next year’s general election.
Prime Minister Narendra Modi will be seeking a third term in office in the next electoral contest.
His government's plans for spending and revenue collection for the next financial year starting in April, will be in focus as households and businesses grapple with high inflation and slowing economic growth.
People are expecting Finance Minister Nirmala Sitharaman to deliver a budget that can alleviate some of the pain.
TAX RELIEF NEEDED
Small business owners who have been struggling to get their firms back on their feet, even after the economy reopened, are hoping that the budget will bring them some tax relief.
Factory owner Amir Beg said high fuel costs, surging labour rates and steep raw material prices, are all cutting into his profits.
“If people end up paying huge taxes, they are not left with any money to grow their businesses. Due to this, the common man will be affected, as the working class depends on these industries,” he said.
Inflation in India, currently just shy of 6 per cent, has remained a concern. Interest rates have also been rising.
The World Bank expects the country's economy to grow 6.9 per cent in this financial year, down from 8.7 per cent a year earlier, due to weakening exports in a slowing global economy.
But there are limits on how much help the government can offer business owners like Mr Beg.
The government had spent billions of dollars during the pandemic on food for the poor, vaccines, and discounted loans for small businesses.
They pushed India’s fiscal deficit to a record 9.3 per cent of gross domestic product (GDP) in the financial year which ended in March 2021 – more than twice its usual.
ELECTION YEAR
The fiscal deficit for the current financial year is budgeted at about 6.4 per cent, and the government wants to bring that down to 4.5 per cent by 2026.
This means it has to rein in its spending by reducing the scope for tax breaks and scaling back subsidies, even though the budget could be an opportunity to win over voters ahead of next year’s election.
Markets analytics firm Crisil’s principal economist Dipti Deshpande said: “I think the government will continue to stay prudent and, therefore, the understanding is that the fiscal deficit to GDP ratio will be brought down, and whatever room could be created from reduction in subsidy spending next year, is likely to be diverted towards capex (capital expenditure).”
Ms Deshpande said Finance Minister Sitharaman is likely to outline robust spending plans for infrastructure, including on roads, railways and housing.
Such projects can help to generate much-needed jobs in the face of rising unemployment, which hit a 16-month high of 8.3 per cent in December.
“One of the things that's really been plaguing my thoughts is the unemployment that's rising in the country,” said one Mumbai undergraduate. “As somebody who is just about to pass out of college, I really hope the budget's focused on generating more jobs across the country.”
Another Mumbai resident told CNA: “If the government cuts down the rates on petrol and cooking gas, then we would be able to save some money and share it with the family.”
