India unveils budget for recovery, and the poor

By Reuters in New Delhi | China Daily | Updated: 2017-02-03 08:10

India unveiled a budget on Wednesday to help the poor with hikes in government spending and cuts in taxes as Prime Minister Narendra Modi seeks to win back the sympathy of voters hit hard by his recent crackdown on "black money".

Finance Minister Arun Jaitley announced increases in spending on rural areas, infrastructure and fighting poverty, and sought to assure lawmakers and the country that the economic impact of the government's cash crackdown would wear off soon.

Jaitley also halved the basic personal income tax rate, and cut taxes on small companies that account for 96 percent of India's businesses, while imposing a surcharge on the better off.

"It's an election budget, to all intents and purposes, with a massive push on rural spending and some quite big tax cuts," said Shilan Shah, India economist at Capital Economics in Singapore.

The budget sops come days before India holds five regional elections that will go some way in determining whether Modi can win a second term as Indian leader in 2019.

"This budget is yet again devoted to the wellbeing of villages, farmers and the poor," Modi said in a national TV address soon after Jaitley delivered his two-hour budget speech.

As economists polled by Reuters had expected, Jaitley raised the target for the federal fiscal deficit to 3.2 percent of gross domestic product in 2017/18 - effectively postponing the goal of bringing it down to 3 percent.

Economists, however, said that the sheer scale of the government's promises on tax cuts and spending increases cast Jaitley's higher deficit goal into doubt.

Balancing the books will depend on him hitting his target to sell 725 billion rupees ($10.7 billion) of state assets - or nearly 60 percent more than the expected proceeds this year.

"Jaitley is leaving room to exceed it at a later time," said Varun Khandelwal, managing director at Bullero Capital in New Delhi.

The Finance Ministry estimated that the deficit will come in at 3.5 percent this year, in line with target.

While calling India "an engine of global growth", Jaitley highlighted risks from likely U.S. interest rate hikes, rising oil prices and worries of growing global protectionism.