The Modi government has also provided financial support to two regional parties that have emerged as key allies of his ruling coalition. The spending plan is the government’s first since voters rejected the Bharatiya Janata Party’s majority in parliament for the first time in 10 years – and ahead of key regional elections later this year.
Despite economic growth of more than 8% making it the fastest growing major economy, India continues to suffer from deep economic problems such as persistent unemployment, growing inequality and high inflation. Unemployment, especially among India’s large and growing youth, has become a major challenge. The Center for Economic Monitoring of India, a private research firm, estimates the unemployment rate to be over 40% for 20-24 year olds.
Bloomberg“There is a clear focus on generating employment, which is clearly the biggest challenge,” said Kunal Kundu, India economist at Societe Generale SA. “It’s also a clear departure from the previous narrative of unemployment not being a big challenge.”
Sitharaman pledged to reduce the budget deficit to 4.9% of gross domestic product in the current fiscal year from the February projection of 5.1%. The new spending will be funded by rising tax revenues fueled by India’s growing economy, as well as a $25 billion dividend from the central bank.
The budget is one of the most concrete indications so far of Modi’s plans to accommodate the demands of voters and his allies as needed after the disappointing election results. So far, the Modi government has not struck a deal with its new coalition partners: His party has retained most of its powerful positions in the cabinet, even as its allies continue to ask for funds for financially troubled countries.
Previous budgets have sought to juice growth by increasing infrastructure spending, an approach welcomed by businesses and foreign investors as they look to India as a destination to diversify their supply chains away from China. But opposition parties criticized the measures for neglecting poor Indians and failing to provide jobs. In an economic survey released Monday, the Indian government said the country needs to create an average of 8 million non-farm jobs annually until 2030.
BloombergKundu, of Societe Generale, noted that the budget’s focus on unemployment contrasted with the BJP’s election manifesto, which contained little reference to India’s labor shortage.
Among the measures announced by Sitharaman on Tuesday are employment-related incentives for job-creating businesses, as well as measures to improve employee skills. To lift consumption, Sitharaman also announced several income tax cuts that he said would result in savings of up to 17,500 rupees a year for salaried Indians.
For Modi’s two main allies – the Telugu Desam Party in the state of Andhra Pradesh and the Janata Dal (United) in Bihar – Sitharaman said the Modi government would direct billions of dollars to key projects, including the development of Andhra Pradesh’s new capital.
Rahul Gandhi, who leads India’s opposition in parliament, on Tuesday said Modi’s budget was full of “empty promises” aimed at appeasing allies with promises that would come at a cost to everyday Indians. He also said the budget was a “copy and paste” of the opposition’s own campaign manifesto.
“Modi appeasing allies shows that he has no choice but to adapt to the political needs of the coalition,” said Yamini Aiyar, former president of the Center for Policy Research, a think tank in New Delhi. “They have shown a degree of accommodation, although they still have the upper hand.”
