India’s budget boosts spending to drive economy

New Delhi : Indian government yesterday announced massive spending for rural areas and projected economic growth above 8 per cent in an annual budget yesterday that won broad approval from economists, though bond and share markets fell.

Delivering the last full annual budget before an election that will fall due by May next year, Finance Minister Arun Jaitley allocated 14.34 trillion rupees ($225.50 billion)for rural infrastucture spending and extra support for farmers.

Jaitley also announced plans to introduce “the world’s largest government funded health care programme”, saying it would cover some 500 million of the country’s poorest people. He went on to lay out plans to merge three public sector insurance companies and list the new entity.

Spending in fiscal 2018/19 was projected to increase by 13.2pc from the current year ending in March, with about three-fifths allocated to better infrastructure in the countryside, where two--thirds of India’s 1.3 billion people live.

“This budget is farmer friendly, common citizen friendly, business environment friendly and development friendly. It will add to ease of living,” Prime Minister Narendra Modi said after the budget announcement.

Jaitley said the spending in rural areas aimed at creating jobs and entrepreneurs, in addition to laying hundreds of thousands of miles of rural roads, building new houses, toilets, and providing electricity.

During his presentation to parliament, Jaitley switched from English to Hindi as he outlined schemes to promote agriculture, organic farming, animal husbandry and fisheries, ensuring that his message got through to rural communities. The budget targeted a fiscal deficit of 3.3pc of GDP in 2018/19, compared with expectations for a deficit of 3.2pc.

The 2018/19 deficit marks some slippage from a previous target of 3.0pc for the year, and investors were also unnerved by the disclosure that this year’s deficit was likely to come in at 3.5pc, which was much higher than expected.

Unlike the bond market, analysts were unalarmed.

India’s needs its economy to grow over 8pc annually to generate jobs for the hundreds of thousands of young people entering the labour market each year.

Jaitley predicted growth would be above 8pc soon, but for 2018/19 the economy was expected to expand by 7.2pc, improving from 6.7pc for the fiscal year ending in March, which was weakest performance in three years.

Growth was slowed by the rollout of a nationwide goods and service tax (GST) in 2017, and a shock move to ban high value currency notes in late 2016.