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05-02-2024
Bureau Report + Agencies
NEW DELHI: India’s Finance Minister Nirmala Sitharaman’s interim budget last week marked nearly 10 years of Prime Minister Narendra Modi’s government. Sitharaman showcased the government’s achievements over the past decade, rather than shower freebies, ahead of national polls due in a couple of months. A careful analysis shows the changing patterns in the Indian economy.
Sitharaman reduced the food subsidy by 3.3 percent to 2.12 trillion rupees ($25.5bn) in 2025 from 2.05 trillion rupees ($24.6bn) in the current fiscal year. The fertiliser subsidy was also reduced while keeping up capital expenditure at 1.3 trillion rupees ($15.6bn).
Keeping such spending in check allowed her to announce that the fiscal deficit would be 5.1 percent for the year ending March 2025, lower than market expectations of about 5.3 to 5.4 percent.
The “fiscal deficit was one of the most surprising things in the budget”, said Suman Bannerjee, the chief investment officer at Hedonova, a global hedge fund. “This was lower than we had expected.”
The reduced subsidy also indicates India’s “move away from agriculture towards manufacturing”, Bannerjee said.
The government had earlier announced free food supplies to India’s poorest, shielding them from potential food price rises.
In her speech, Sitharaman said the average real income has risen by 50 percent, more than 250 million people have been lifted from poverty while the economy has catapulted to the world’s fifth-largest from the 10th in the last decade.
These numbers were disputed by the opposition Congress party.
“COVID and this government’s GST [goods and services tax] have dealt a double blow to the country’s poor and small businesses, which this government has not addressed,” said Manickam Tagore, a Congress member of parliament and party whip.
Demand for the country’s Food for Work program had grown just in the last year, indicating distress among the country’s poorest, he said.
In her speech, Sitharaman said the lower fiscal deficit was also enabled by growing private investment.
“We had looked at whether private sector capital expenditure is reviving and some green shoots are being seen,” said Sunil Sinha, the principal economist at Fitch Ratings. “There is not yet a broad-based corporate investment revival but investment in steel, cement, renewables and other sectors are growing due to increased government investment in infrastructure.”
The government’s improved tax collection may also have helped reduce the fiscal deficit, Bannerjee said. Higher tax realization had come by increasing the ambit of luxury tax, such as including restaurant spending.
