NEW DELHI: Prime Minister Narendra Modi on Friday (Jul 5) hailed a “new chapter for India” as his re-elected government unveiled what he called a “green” budget aimed at reviving growth and creating a US$5 trillion economy.
India was recently leap-frogged by China as the world’s fastest-growing major country, with unemployment in Asia’s third-biggest economy at its highest since the 1970s.
In the first budget since Modi won a second term by a landslide in May, Finance Minister Nirmala Sitharaman said she wanted to boost foreign direct investment (FDI) and infrastructure spending.
“The government will examine suggestions of further opening up FDI in aviation, media, and, insurance sectors in consultation with stakeholders,” said Sitharaman.
The FM also ditched the traditional British-style budget briefcase in favour of a cloth ledger, in what chief economic advisor Krishnamurthy Subramanian said symbolised India’s “departure from the slavery of Western thought”.
Sitharaman, 59, also said India’s public sector banks would be injected with US$10.2 billion to tackle bad loans.
A sudden collapse of India’s shadow banking sector in 2018 and bad loans had resulted in a liquidity crunch in Asia’s third-largest economy.
Sitharaman said that nearly 20 million new houses would be constructed by 2022 and that all rural household would have drinking water by 2024.
She also announced that the central government deficit to 3.3 per cent of gross domestic product in fiscal 2019 from 3.4 per cent in fiscal 2018.
This would be achieved by divestments, including of Air India, increased excise duties on petrol, diesel, precious metals and tobacco, and higher taxes for those earning between 20 million and 50 million rupees (US$290,000-730,000).
Moody’s said in a research note however that achieving a lower fiscal deficit while maintaining support for growth and incomes would be “very challenging”.
“We expect the economy to grow relatively slowly, despite the government’s income support measures,” Moody’s analyst Gene Fang said.
In a country with some of the world’s most polluted cities, the budget also included tax breaks for individuals on the purchase of electric cars.
The government aims to invest in infrastructure and other incentives for electric vehicles to reduce carbon emissions and air pollution.
It also wants to increase the use of rivers for transportation, with the volume of cargo on the Ganges set to almost quadruple over the next four years.
“Sitharaman’s budget focused on something for every industry including tax relief for startups and thrust on infrastructure spending,” Mumbai-based independent economist Ashutosh Datar told AFP.
The government on Thursday predicted India would rebound and grow at 7.0 per cent this year and also outlined plans on how to meet the target of doubling its economy by 2025 to US$5 trillion.
The annual growth in the last fiscal year dipped to 6.8 per cent from 7.2 per cent in 2017-18, too slow to create enough jobs for the more than a million Indians entering the labour market every month, economists say.
India is ranked as the world’s sixth-biggest economy just behind Britain and ahead of France. The US and China occupy the first and second spots with US$19 trillion and US$12 trillion.
On Thursday, India’s chief economic advisor KV Subramanian laid out a strategic blueprint for achieving India’s growth goals through a “virtuous cycle” of savings, investment and exports.
Modi, who had faced sharp attacks for failing to create jobs, lauded Sitharaman’s plans it as a “green budget focusing on environment, electric mobility and solar sector”.
“This budget is a roadmap for new India and is one of hope. It will transform agriculture sector of the country,” Modi said.