India unveils $713b budget with view to galvanise economic growth

Pedestrians watch a screen relaying the budget speech on the facade of the Bombay Stock Exchange in Mumbai on Feb 1, 2022. PHOTO: AFP

NEW DELHI (BLOOMBERG, REUTERS) - India pledged on Tuesday (Feb 1) to spend more to fire up the key engines of growth in Asia's third-largest economy, as it stages a world-beating recovery from the pandemic.

Finance Minister Nirmala Sitharaman proposed increasing the size of the economy's annual spending to 39.5 trillion rupees (S$713.36 billion) to support growth plans for the year beginning April.

Capital expenditure is budgeted to rise significantly once again - by 35 per cent - to 7.5 trillion rupees, she said.

That will leave her with a budget shortfall equivalent to 6.4 per cent of gross domestic product, wider than the median 6.1 per cent seen in a Bloomberg survey.

The government will end the current financial year with a deficit of 6.9 per cent of GDP against a targeted 6.8 per cent, she said.

"This budget continues to provide impetus for growth," she said in Parliament in New Delhi on Tuesday.

Ms Sitharaman announced spending of 200 billion rupees for a highway expansion programme and said 400 new trains would be manufactured over the next three years.

For the next fiscal year, India is targeting a deficit of 6.4 per cent of GDP, hoping to build on higher tax revenues and privatisation of state firms.

Indian bonds fell, with the yield on benchmark 10-year notes rising by as much as nine basis points after she targeted a higher budget deficit for next fiscal year.

The selloff was exacerbated as the annual budget announcement lacked widely expected measures to facilitate inclusion of the nation's bonds into global bond indexes. Elevated bond sales will worsen debt supply worries in a year when the Reserve Bank of India is expected to wind back on its monetary stimulus.

Benchmark stocks were trading up 1.6 per cent.

The budget is one of the most keenly watched economic events, with businesses, investors and India's 1.4 billion people looking to it for direction on policy and spending priorities.

Boosting government expenditure on infrastructure, creating jobs and increasing productivity are key to the country's sustained recovery from the pandemic-induced contraction last fiscal year.

Labourers work at the construction site of a flyover in Kolkata on Feb 1, 2022. PHOTO: REUTERS

Gross domestic product is seen growing by 9.2 per cent - the quickest rate among major economies - in the current year ending March, with the Finance Ministry expecting the performance to be repeated in the next year with an estimated 8-8.5 per cent expansion.

Ms Sitharaman, who has increasingly turned to income from state asset sales to fund her budget, said the proposals will directly benefit the country's youth, women, farmers, as well as public and private investment.

She expects to shortly complete the listing of Life Insurance Corp of India, which could replenish the state's coffers by as much as US$10 billion (S$13.49 billion) if the government sells a 5 per cent stake.

That will provide the administration with funds needed to boost capital spending.

The budget's "approach is driven by seven engines", Ms Sitharaman said, listing roads, railways, airports, ports, mass transport, waterways and logistics infrastructure as the key areas.

"All seven engines will pull forward the economy in unison", complemented by energy transmission, IT communication, the water and sewerage sector and social infrastructure, she said.

India also plans to launch a central bank digital currency in the financial year starting in April, Ms Sitharaman said in her budget speech.

The digital rupee will help to usher in cheaper, more efficient currency management, Ms Sitharaman said.

The Reserve Bank of India has been working on a phased implementation strategy for its digital currency, which could reduce dependency on cash.

India's move comes after China already began CBDC trials in several cities, while the US Federal Reserve and Bank of England are looking into possibilities for their economies.

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