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05 December 2023

India Budget: Jaitley goes for growth, delays cut in fiscal deficit

In this handout photograph taken and released by the Indian Press Information Bureau (PIB) on February 27, 2015, Indian Union Minister for Finance, Corporate Affairs, and Information and Broadcasting Arun Jaitley (3R) gives the final touches to the General Budget 2015-16 in New Delhi. (AFP)

By Agencies

India's Finance Minister Arun Jaitley on Saturday announced a budget aimed at high growth, saying the pace of cutting the fiscal deficit would slow as he seeks to boost investment and ensure that ordinary people benefit.

Jaitley, delivering his first full-year budget since Prime Minister Narendra Modi's landslide election victory last May, said growth would accelerate to between 8 and 8.5 percent in the fiscal year starting in April. A pace of 7.4 percent is expected for the current year.

"India is about to take off," Jaitley, 62, said early in his speech to lawmakers. "The world is predicting that this is India's chance to fly."

He forecast inflation at 5 percent by the end of the fiscal year ending March 2016, undershooting the Reserve Bank of India's 6 percent target and creating room to cut interest rates. Annual inflation was 5.1 percent in January.

Jaitley said he would stand by the fiscal deficit target for the 2014/15 fiscal year, which ends March 31, of 4.1 percent of gross domestic product.

But he pushed back by a year, to 2017/18, a deadline for cutting the deficit to 3 percent of GDP. In 2015/16, the deficit will be 3.9 percent of GDP, above the 3.6 percent target inherited from the last government.

India's NSE share index was up 0.2 percent at 0625 GMT in a special Saturday trading session, paring earlier gains of as much as 1 percent after Jaitley's deficit announcement.

"The 3.9 percent number will be negative for the markets," said Ananth Narayan, regional head of global markets at Standard Chartered in Mumbai.

Road and Rail

India's budget concentrates a year's economic policymaking into a single speech, and the range of measures Jaitley announced included a monetary policy overhaul, a bankruptcy code and the creation of a public debt management agency.

Jaitley, who underwent surgery last year to treat his diabetes, sat down around 20 minutes into his speech and continued to deliver his address from the government's front bench.

Reaping the benefits of low global prices for oil, India's main import, Modi's nationalist government says it is in a sweet spot with spare cash to modernize roads and railways without busting fiscal deficit and inflation targets.

Jaitley announced an increase of 700 billion Indian rupees  ($11.4 billion) in road and rail investments next year and announced that the government would commission five "ultra-mega" generation projects to end chronic power shortages.

The government would seek to boost the efficiency of a rural job creation scheme that is India's costliest welfare programme. It would also boost direct welfare payments into bank accounts, and gradually replace benefits in kind.

An overhaul of economic data has propelled India to the top of the league of fast-growing major economies, and the current account deficit is projected to fall below 1 percent next year, which would help stabilize the rupee and build up reserves.

But expectations for a further shift in expenditure from subsidies to infrastructure are sky high among investors who made India the best performing stock market in Asia after China last year on hopes Modi's government brings sweeping reforms to labour, tax and land laws.

"The settings are just right for Finance Minister Arun Jaitley to shun gradualism and go for broke," the Hindustan Times wrote in an editorial.