Budget likely to hike spending to revive economic growth

New Delhi, January 29

The government is expected to increase spending on infrastructure and cut some personal tax in its 2020/2021 Budget, to spur consumer demand and investment, government sources and economists said.

India is facing its worst economic slowdown in a decade. Growth slipped to 4.5% in the July-September quarter, worsening the job prospects for millions of youth entering the workforce each year.

Despite cuts in corporate taxes and monetary easing by the central bank, investments have failed to pick up, adding to Prime Minister Narendra Modi’s worries as he tries to quell public protests over a new citizenship law.

Economists and investors say fiscal stimulus in the Budget for the year beginning April 1 and an increase in spending on roads, railways and rural welfare could revive growth. The Budget will be presented in Parliament on Saturday.

A weak economy and the wave of anti-government protests have increased the chances of a fiscal stimulus in the Budget, said Shilan Shah, an economist at Capital Economics in Singapore.

“That would provide a small boost to growth over the coming quarters, at the cost of putting upward pressure on bond yields,” he said in a note.

The International Monetary Fund this month cut its forecast for India’s growth to 4.8% for the fiscal year ending in March and lowered its forecast for growth in the coming financial year to 5.8%.

The Central government looks set to miss its deficit estimates for a third straight year after estimates revenue will fall short by nearly 3 trillion rupees.

Finance Minister Nirmala Sitharaman, who will present her second full-year annual Budget to Parliament, could defer the earlier target of cutting fiscal deficit to 3% of GDP in 2020/21 by at least two years, government sources said. This will be on top of roughly $28 billion of expenditure outlay from off-Budget borrowings, as she seeks to keep the deficit in check. — Reuters

Worst slowdown in decade

• India is facing its worst economic slowdown in a decade. Growth slipped to 4.5% in the July-September quarter, worsening the job prospects for millions of youth entering the workforce each year
• Despite cuts in corporate taxes and monetary easing by the central bank, investments have failed to pick up
• Economists and investors say fiscal stimulus in the Budget for the year beginning April 1 and an increase in spending on roads, railways and rural welfare could revive growth

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