India’s government will strive to reduce its fiscal deficit while providing incentives for investment and increasing state spending to help an economy that is being affected by the global slowdown when India presents its annual budget to parliament on Wednesday.
The budget is unlikely to provide much relief to households due to economic restrictions, officials have indicated, despite the fact that the government faces elections in important states this year and a national vote in 2024. However, officials noted that the budget would focus on long-term growth.
Prime Minister Narendra Modi has increased capital spending, including on roads and electricity, since assuming office in 2014. He has also courted investors with reduced tax rates and labor reforms while providing subsidies to low-income households to win their support politically.
As a result of an uptick in tax receipts, Finance Minister Nirmala Sitharaman is anticipated to stick with this strategy and announce budget increases of 10% to 12% for rural, health, and educational initiatives.
According to Gopal Krishna Agarwal, the Bharatiya Janata Party’s economic affairs spokesman, “the annual budget will continue economic reforms.”
“Ahead of the national elections, the economic recovery would be aided by reducing retail inflation, increased state spending, and expanding bank credit,” he stated.
However, detractors claim that Modi’s economic policies have primarily benefited huge corporations while increasing the tax burden on middle-class families, who are currently experiencing slower growth in real income and employment.
In its annual Economic Survey, the finance ministry warned about the effects of the global slowdown on exports and predicted that the economy could expand by 6% to 6.8% annually in the coming fiscal year, down from the 7% forecast for the current year.
The research stated that “India’s growth prognosis appears stronger than in the years before to the epidemic, and the Indian economy is prepared to expand at its capacity in the medium term.”
The Indian economy is expected to increase by 6.1% in 2023–2024, down from 6.8% in the current fiscal year, according to the International Monetary Fund.
India’s economy, like many others, is at risk from the global downturn, which might have an effect on domestic production and exports. Additionally, rising fuel and commodity prices on a worldwide scale contributed to higher inflation, which in turn raised interest rates and slowed economic growth.
To control retail inflation, which escalated to nearly 7% after a spike in food and energy prices during the Ukraine war, the Reserve Bank of India bank increased its benchmark policy rate by 225 basis points since May 2022.
After expanding 8.7% in 2021–2022, when it was aided by a recovery from a 6.6% pandemic-related recession, the economy has declined.
According to officials, the federal government would likely reduce its budget deficit from 6.4% of GDP in 2022–2023 to between 5.8% and 5.9% of GDP in 2023–2024 because of concern over the mounting public debt.
The government has already ended the free food program that it had in place during the pandemic, and it plans to reduce food and fertilizer subsidies by about $17 billion.
However, according to officials, Sitharaman could modify tax laws, such as by changing the capital gains tax structure to promote investment.
According to them, she is also likely to increase production-related incentives for more industries as well as new investments in order to help India reach its net-zero carbon emissions target by 2070.
According to a Reuters survey, the government anticipates borrowing a record 16 trillion rupees in 2023–24.