Finance Minister Nirmala Sitharaman, set to present her sixth budget speech on February 1, has the opportunity to sustain infrastructure investments and implement specific measures to bolster Prime Minister Modi's election-focused sectors, which include farmers, women, the underprivileged, and the youth.
Prime Minister Narendra Modi is anticipated to leverage India's final budget before the elections to attract voters through fresh spending initiatives, all while steering clear of an increase in the fiscal deficit. The robust growth of the economy has resulted in a tax windfall for the government, aiding in achieving deficit reduction goals. As Finance Minister Nirmala Sitharaman prepares for her sixth budget speech on February 1, she has the flexibility to sustain infrastructure spending and implement targeted measures in alignment with Modi's electoral focus on farmers, women, the underprivileged, and young people.
However, economists caution against expecting an extravagant spending spree. This week's budget is considered interim until a new administration assumes office, and the finance minister has indicated that major announcements are unlikely. Madhavi Arora, an economist with Emkay Global Financial Services Ltd, suggests that it will be closely observed for the pace of fiscal consolidation and policy priorities going forward.
With a solid position in the upcoming elections, Modi has less incentive to implement populist measures, as highlighted in a report by Abhishek Gupta from Bloomberg Economics. The fiscal strategy is anticipated to communicate a commitment to policy continuity.
Here's what to anticipate in the budget speech, typically delivered around 11 a.m. in New Delhi:
Deficit and Borrowing: Following a surge to 9.2% of GDP during the pandemic, the government has steadily reduced the fiscal deficit to control debt. The current fiscal year's 5.9% deficit target is likely to be met, with expectations of further reduction to 5.3% in the next financial year, according to a Bloomberg survey. Tax receipts, notably a nearly 30% increase in income tax, a 20% rise in corporate tax, and a 10% uptick in GST, have contributed significantly to deficit improvement.
Borrowing is expected to remain near a record of around 15 trillion rupees ($180.5 billion) in the coming fiscal year, but this is unlikely to concern the bond market as overseas demand is set to rise with India's inclusion in global bond indexes.
Infrastructure Spending: While the government has increased capital expenditure by almost a third annually in the past three years, particularly in roads, ports, and power plants, there is an expectation that the pace of infrastructure spending may ease but still remain relatively elevated at 9-10%.
Rural Welfare: Given challenges faced by farmers and rural areas, economists anticipate increased financial support for farmers. Last year's aggressive steps to curb food prices, such as banning exports of rice, wheat, and sugar, impacted farmers' incomes. The government has already increased subsidies on cooking gas and fertilizers, and extended a free food program for 800 million people. Expectations include an expansion of popular programs like farmer income transfer, housing for all, and health insurance.
Women Voters: To attract more women voters, Modi's government has increased cooking gas subsidies and provided cheaper loans. Analysts expect the budget to outline additional support measures targeted at women. There are speculations about increasing the annual payout to female farmers who own land and extending the free gas cylinder program to more beneficiaries.
In conclusion, the budget is anticipated to balance fiscal responsibility with measures to support key sectors, including infrastructure, rural welfare, and initiatives aimed at women voters.
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