[The budget speech, given by India’s finance minister, Arun Jaitley, came against a sunny economic backdrop in India, especially in comparison with other developing economies. The government now predicts a growth rate of 7.4 percent in the current fiscal year. Meanwhile, lower oil and other commodity prices helped curb India’s chronic budget deficits, a development that Raghuram G. Rajan, the governor of the Reserve Bank of India, described as “a $50 billion gift for the economy.”]
India’s finance minister, Arun Jaitley, with
budget documentsSaturday in New Delhi.
Credit European Pressphoto Agency
NEW DELHI — Prime Minister Narendra Modi’s government unveiled its first full-year budget on Saturday, promising to boost growth with a major increase in public spending on infrastructure and to lower the corporate tax rate, steps that were cheered by Indian industry.
Those market-friendly moves were balanced by new welfare programs for the poor, like the creation of a new social security plan to provide subsidized insurance and pensions, and relaxed targets for reducing the fiscal deficit.
The budget was eagerly anticipated by economists and industrialists, who had been hoping it would contain major reforms that would jump-start a vibrant new investment cycle. But the changes proposed were more incremental in nature, and markets — which had specially opened on a Saturday for the occasion — swooned and then recovered, ending trading slightly higher.
The budget speech, given by India’s finance minister, Arun Jaitley, came against a sunny economic backdrop in India, especially in comparison with other developing economies. The government now predicts a growth rate of 7.4 percent in the current fiscal year. Meanwhile, lower oil and other commodity prices helped curb India’s chronic budget deficits, a development that Raghuram G. Rajan, the governor of the Reserve Bank of India, described as “a $50 billion gift for the economy.”
Mr. Jaitley began his speech on a triumphal note, proclaiming that the government had rebuilt India’s reputation with investors.
“The credibility of the Indian economy has been re-established,” Mr. Jaitley said. “The world is predicting that it is India’s chance to fly.”
Ahead of the budget, much tension arose around the question of what was more important: to curb government spending or to spur growth by ramping up public investment, shifting the burden off a heavily indebted private sector and stressed banks.
Saturday’s $288 billion budget leaned toward the latter, increasing annual spending on roads, ports and railways by the equivalent of about $11.36 billion. It also scaled back goals for spending cuts, increasing the fiscal deficit target to 3.9 percent of the gross domestic product from a target of 3.6 percent, and slowing the timeline for a reduction to 3 percent by a year.
The combination left most market analysts satisfied, if not especially excited.
“This is not a big-bang budget, but a good budget more focused on smaller issues, and ironing out a lot of irritants to investors in the process,” said Sujan Hajra, chief economist at Anand Rathi Financial Services in Mumbai. The slower timeline for spending cuts, he allowed, was “not particularly positive.”
In his speech to Parliament, Mr. Jaitley raised expectations for a dramatic announcement, saying “it is quite obvious that incremental change is not going to take us anywhere.”
“We have to think in terms of a quantum jump,” he said. But toward the end of the speech, he seemed to defend himself against accusations of excess caution.
“People who urged us to undertake big-bang reforms also say that the Indian economy is a super giant, which moves slowly but surely,” he said.
Critics on Saturday complained that the new government had missed a chance to increase revenues and cut its spending, especially on inefficient subsidy programs, and was relying too heavily on improved growth and low inflation. Among them was Manmohan Singh, who served as India’s prime minister for 10 years under the Congress Party.
“Mr. Jaitley is a very lucky finance minister,” Mr. Singh told the NDTV news channel. “He has inherited an economy which is in reasonably good shape. Inflation is under control, not because of anything we have done, but because the international prices of petroleum and other commodities have gone down.”
He added, “I had hoped that the finance minister used this lucky phase of his inheritance to give a real big boost to stabilize the economy, strengthen the macroeconomic framework.”
Mr. Modi’s Bharatiya Janata Party suffered a setback in recent state elections in Delhi, where the upstart Aam Aadmi, or Common Man, party, cast him as indifferent to the needs of the poor. Mr. Jaitley, on Saturday, seemed intent on blunting that accusation. A new subsidized insurance program would provide coverage for accidents or death at a cost to enrollees of 12 rupees a year, or around 20 cents.
There were no significant changes to India’s colossal subsidy programs for food, fuel and fertilizer, which cost the government around $40 billion a year. The new government hopes to save money by transforming subsidies into direct cash transfers to people’s accounts, a step that could save around $4 billion a year by eliminating corruption, according to the Credit Rating Information Services of India Limited.
Jayshree Sengupta, a senior fellow at the Observer Research Foundation, said the budget’s focus on welfare was unexpected.
“You know, I had expected it to be a very pro-business, pro-rich budget, and I was really surprised by how much he has given to the rural employment scheme” and other development programs, she said.
One way the government intends to increase revenues is by cracking down on tax evasion, which is rampant. Mr. Jaitley, speaking to a television interviewer after the speech, estimated that the government receives tax payments from only around 35 million Indians, or roughly 3 percent or 4 percent of the total population.
The new budget proposes a penalty of up to 10 years of “rigorous imprisonment” for concealing assets overseas, and would require citizens to provide a government identification number when making a purchase or sale of more than $1,622. A new 2 percent tax will also be levied on the “superrich.”
Corporate taxes, meanwhile, will drop from 30 percent to 25 percent over the next four years, which could increase Indian firms’ compliance, said Ajay Bodke, head of investment strategy at Prabhudas Lilladher, a brokerage firm in Mumbai. Previous governments, he said, have given “given extremely aggressive revenue targets to tax officers, who in turn go about raising unreasonable demands.”
Mr. Jaitley set a deadline of April 2016 for a taxation change long sought by investors, which would replace multiple layers of local taxes currently levied at state borders with a national Goods and Services Tax. A constitutional amendment bill for the introduction of the Goods and Services Tax has been introduced in the lower house of Parliament, but a lack of realistic deadlines or credible information had slowed progress, analysts said.
Several of the changes most ardently desired by investors could not be achieved in the budget, and instead require Mr. Modi to navigate a polarized legislature.
Among them is the liberalization of a highly restrictive 2013 law governing land purchases, which requires buyers to secure the consent of 80 percent of landowners on the property. Mr. Modi’s government has submitted an executive ordinance that would eliminate the consent clause and the requirement of a social impact assessment if land is to be used in certain ways — for industrial corridors, and affordable housing, among others — but needs the approval of both houses of Parliament. The new government has yet to propose changes to India’s stringent labor laws, which have also deterred investors.
Hari Kumar contributed reporting.