India budget to test Modi budget resolution ahead of 2024 vote

(Bloomberg) – India will unveil its budget on Wednesday, testing the fiscal mettle of Prime Minister Narendra Modi, seen as key to boosting investor sentiment, even though he is likely to leave less room for donations a year before. that he is seeking a third term.

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Modi, riding a lasting wave of popularity as his second term draws to a close, looks set to maintain fiscal consolidation as he takes to the world stage with India’s presidency of the Group of 20 nations. The reduction in the deficit which reached a record 9.2% of gross domestic product in the first year of the pandemic is necessary for Asia’s third-largest economy to improve its credit rating currently at the lowest level of investment. .

India recently restructured the world’s largest food program and cut energy subsidies to save the government about 1 trillion rupees ($12.3 billion). A Bloomberg survey this month of more than 20 economists showed a majority expects the fiscal year budget starting in April to eschew populist measures and focus on bolstering manufacturing and creating businesses. jobs.

Avoiding wasteful spending is crucial for India’s robust, long-term growth, as it frees up funds to build more roads and ports, improve logistics links that will support Modi’s ambition to make India the new world power, without inflating the deficit capped at 6.4% of GDP for the year ending in March.

The fiscal consolidation is in line with Modi’s first budget in 2014. He is set to further cement those credentials by becoming the first to lead what is now probably the world’s most populous nation.

A review of budgets since Modi came to power shows he has cut grants, except in pandemic years when aid has increased.

The government is continuing to put public finances in order even if this risks, for example, upsetting the base of women voters loyal to Modi. Provisions to subsidize liquefied petroleum gas used for cooking for the current financial year have been lowered to 58.1 billion rupees from 352 billion rupees two years ago.

“Fuel costs are hurting us the most right now,” said Nupur Kaushik, a 37-year-old New Delhi resident who is also seeking to cut taxes and incentives for working women.

HSBC Holding Plc’s chief Indian economist, Pranjul Bhandari, said the nation’s path to fiscal consolidation will take a Herculean effort. “Think of it like a long-distance cyclist who has to keep pedaling hard to reach the finish line.”

India’s prime minister still has a year before elections scheduled for the summer of 2024 to correct course politically if it looks like fiscal prudence will hurt his party’s chances in the polls. This year’s state elections will show whether Modi’s popularity can withstand tough measures. A tentative budget next year will also create wiggle room for the premiere.

“Fiscal pressures could arise from the upcoming national elections,” said Fitch Ratings Ltd., which has a BBB- rating for India. “But the dominant political position of the government in place probably limits these risks.”

Under Modi, India has become the world’s fifth largest economy. Looking outwards, he must exploit the full economic potential of the country and achieve the goal of increasing the share of manufacturing industry to 25% of GDP, against 14% currently. This will help the country win over Japan to become the world’s third largest economy before the end of the decade.

A year ago, Finance Minister Nirmala Sitharaman laid out a vision to lead the economy over the next 25 years. This involves boosting growth through infrastructure investment and increasing agricultural production to reduce dependence on imports, including oilseeds.

These measures have yet to translate into gains for a Modi supporter like Trilok Chand, a resident of Tibbi village in Himachal Pradesh.

“All we get from farming is not enough for my family of four,” said Chand, who grows rice and wheat on his small one-acre farm. “Prices for all items are very high,” he said, hoping the government would guarantee lower commodity prices. “If they don’t, they will repent.”

–With help from Kevin Varley, Vrishti Beniwal, Bibhudatta Pradhan, Muneeza Naqvi, Jeanette Rodrigues and Debjit Chakraborty.

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