Modi to focus on jobs, incomes in first budget

FE Team | Published: July 25, 2024 19:45:48

NEW DELHI, July 18 (Reuters): Indian Prime Minister Narendra Modi will seek to mend his relationship with voters in the federal budget to be announced next week, economic analysts said, citing possible steps to boost jobs and incomes as growth in the economy remains uneven and food prices continue to surge.
Modi's party fell short of reaching the half-way mark in the general election that concluded last month as jobs and the high cost of living overshadowed his high voltage Hindu nationalist campaign.
To stay in power, Modi is depending on two fickle regional allies, the Telugu Desam Party (TDP) and Janata Dal (United), who control Andhra Pradesh and Bihar states respectively.
Finance Minister Nirmala Sitharaman will table the government's first budget of Modi's third term on July 23, which will provide the first glimpse of any change in the government's economic policies.
Interim budget estimates for the fiscal year 2024/25 that started on April 1 will be replaced by the new budget.
"We think the budget will balance economic imperatives with political ones," said Shreya Sodhani, regional economist at Barclays.
"This would mean the government using the windfall from the RBI dividend and higher tax revenues to fund higher spending, rather than reducing the deficit," Sodhani said, referring to the central bank, the Reserve Bank of India.
A record $25 billion surplus transfer from the central bank will allow the government more room to spend without expanding the deficit. The fiscal deficit target will be retained at 5.1 per cent of gross domestic product, a majority of economists polled by Reuters said.
Over the last three years, the government has nearly doubled spending on long-term infrastructure projects as a way to push growth and generate jobs. It plans to spend 11 trillion Indian rupees ($131.61 billion) on such projects this year and some economists expect an added push to manufacturing in the budget.
"We expect the government to maintain its focus on promoting domestic manufacturing," Nomura economists said in a note, adding that they expect an increase in local procurement requirements and the extension of a concessional tax rate for new manufacturing facilities.
The government is expected to also bring in consumption boosting measures that were missing in the interim budget presented before the elections.