India's Union Budget Likely to Raise Spending over Infrastructure for Economic development

Prime Minister Narendra Modi’s government is expected to raise spending on infrastructure and cut some personal tax in its 2020/2021 budget, to spur consumer demand and investment, government sources and economists said.

India is facing its worst economic slowdown in a decade. Growth slipped to 4.5% in the July-September quarter, worsening the job prospects for millions of youth entering the workforce each year.

Despite cuts in corporate taxes and monetary easing by the central bank, investments have failed to pick up, adding to Modi’s worries as he tries to quell public protests over a new citizenship law.

Economists and investors say fiscal stimulus in the budget for the year beginning April 1 and an increase in spending on roads, railways and rural welfare could revive growth. The budget will be delivered to parliament on Saturday.

A weak economy and the wave of anti-government protests have increased the chances of a fiscal stimulus in the budget, said Shilan Shah, an economist at Capital Economics in Singapore.

“That would provide a small boost to growth over the coming quarters, at the cost of putting upward pressure on bond yields,” he said in a note.

The International Monetary Fund this month cut its forecast for India’s growth to 4.8% for the fiscal year ending in March and lowered its forecast for growth in the coming financial year to 5.8%.

The central government looks set to miss its deficit estimates for a third straight year after estimates revenue will fall short by nearly 3 trillion rupees.

Finance Minister Nirmala Sitharaman, who will present her second full-year annual budget to parliament, could defer the earlier target of cutting fiscal deficit to 3% of gross domestic product in 2020/21 by at least two years, government sources told Reuters.

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