New Delhi- India unveiled a budget on Wednesday to help the poor with hikes in government spending and cuts in taxes as Prime Minister Narendra Modi seeks to win back the sympathy of voters hit hard by his recent crackdown on “black money”.
Finance Minister Arun Jaitley announced increases in spending on rural areas, infrastructure and fighting poverty,
and sought to assure lawmakers and the country that the economic impact of the government’s cash crackdown would wear off soon.
Jaitley halved the basic personal income tax rate, and cut taxes on small firms that account for 96 percent of India’s businesses, while imposing an income-tax surcharge on the better off.
“This budget is yet again devoted to the wellbeing of villages, farmers and the poor,” Modi said in a national TV address after Jaitley delivered his two-hour budget speech.
As economists polled by Reuters had expected, Jaitley raised the target for the federal fiscal deficit to 3.2 percent of gross domestic product in 2017/18 – effectively postponing the goal of bringing it down to 3 percent.
Economists, however, said that the sheer scale of the government’s promises on tax cuts and spending increases cast
Jaitley’s higher deficit goal into doubt.
Balancing the books will depend on him hitting his target to sell 725 billion rupees ($10.7 billion) of state assets – or nearly 60 percent more than the expected proceeds this year.
The finance ministry estimates the deficit will come in at 3.2 percent this year, compared with its 3.5 percent target.
Modi’s shock decision in November to scrap high-value banknotes worth 86 percent of India’s cash in circulation has
hit consumers, disrupted supply chains and hurt investment.
The worst of the cash crunch is now over, however, and Jaitley said he expected it would not spill over into the next fiscal year. Still, the finance ministry forecasts growth could dip as low as 6.5 percent this fiscal year before picking up to between 6.75 and 7.5 percent in 2017/18.
That is below the target rate of 8 percent or more that Modi needs to create enough jobs for the 1 million young Indians who enter the workforce each month.