India on $24 billion jobs drive in Modi’s first post-election budget

Agencies | Mumbai, India

The Daily Tribune - www.newsofbahrain.com

India’s government will spend $24 billion on employment and training, it said yesterday, as Prime Minister Narendra Modi looks to address uneven economic growth after a surprising election setback last month.

The funding will be used over five years for a package of five schemes and initiatives to “facilitate employment, skilling and other opportunities” for more than 40 million young people, finance minister Nirmala Sitharaman said in her annual budget speech.

Some will go on “employment-linked incentives” for companies, which the government hopes will create jobs.

“The global economy, while performing better than expected, is still in the grip of policy uncertainties,” Sitharman said.

“In this context, India’s economic growth continues to be the shining exception and will remain so in the years ahead,” she added.

Modi’s Bharatiya Janata Party (BJP) fell short of an outright majority in the recent national elections. Modi has overseen India’s ascent to become the world’s fastest-growing major economy.

Sitharaman’s speech also had specific concessions to the BJP’s regional allies, including highways in the eastern state of Bihar and facilitating “special financial support” for a new state capital in Andhra Pradesh, in the south.

Robust economic growth in India has driven a tax windfall, allowing the government to increase spending while still reducing debt.

Despite new spending plans, Sitharaman said India will lower its fiscal deficit to 4.9% of gross domestic product this financial year, lower than the 5.1% projected during an interim budget in February.

India’s benchmark Nifty index fell as much as 1.8% during the budget speech, but it pared back some of the losses in afternoon trading.

ECONOMIC GROWTH

* 2024/25 nominal GDP growth seen at 10.5% y/y vs 9.6% in 23/24

* Government to focus on infrastructure investments to promote private investments

* Global uncertainties pose a downward risk to short-term

FISCAL DEFICIT

* 2024/25 fiscal deficit target lowered to 4.9% of GDP from 5.1% in February’s interim budget

* To reduce fiscal deficit to below 4.5% by FY26

* Record surplus of 2.11 trillion rupees ($25.3 billion) from central bank helps narrow fiscal deficit

* Government’s gross market borrowings for 24/25 cut by 120 billion rupees to 14.01 trillion rupees.

* Government’s net market borrowing at 11.63 trillion rupees vs 11.75 trillion rupees in interim budget

TAX CHANGES

* Corporate tax rate for foreign companies cut to 35% from 40%, to attract investments

* Import tax on gold and silver reduced to 6% from 15%

* Tax rate raised for equity investments held for less than one year to 20% from 15% and for shares held for more than 12 months to 12.5% from 10%

* Import tax cut on mobile phones and some key parts from 20% to 15%

* To review import duties structure in next six months

JOB CREATION

* Budget proposes to allocate 2 trillion rupees for job creation over 5 years

* Allocates 1.52 trillion rupees for agriculture and allied sectors

* To launch 3 schemes for employment-linked incentives

EXPENDITURE PLANS

* Allocation for major subsidies including food, fertiliser estimated at 3.81 trillion rupees, 1.2% of GDP

* Spending on interest payment services estimated at 11.63 trillion rupees, 3.6% of GDP

* To allocate 150 billion rupees as special financial support through multilateral development agencies to Andhra Pradesh state, ruled by Modi’s biggest ally TDP

* Credit support to small and medium businesses during the stress period

* Proposes to support setting up of 12 industrial parks

* Proposes to enhance small loans to 2 million rupees for small and medium businesses

* To set up a venture capital fund of 10 billion rupees for space

RURAL DEVELOPMENT

* Provision of 2.66 trillion rupees ($32 billion) for rural development

* Proposes state aid for 30 million affordable housing units in urban and rural areas

URBAN DEVELOPMENT

* Proposes 2.2 trillion rupees ($26 billion) federal government assistance for affordable urban housing over the next five years

* Government will partner with private players to develop small nuclear reactors

INFLATION

* Finance minister says inflation remains low, moving toward 4% target

* Proposes to take supply-side measures to contain food inflation

INFRASTRUCTURE INVESTMENTS

* Capex outlay for infrastructure retained at the interim budget target of 11.1 trillion rupees ($133 billion) or 3.4% of GDP

* Proposes 1.5 trillion rupees for long-term loans to states for infrastructure investments