Budget sweeteners see India backtrack on financial discipline

01-02-2018 / PSE and FT

Prime minister Narendra Modi’s government has unveiled a pre-election budget aimed at placating hard-pressed rural voters and small businesspeople, as it backtracked on promises of greater fiscal discipline.Presenting the administration’s final full-year budget before elections due in 2019, Arun Jaitley, finance minister, revealed new spending plans and tax breaks aimed at voters hardest hit by two years of turbulence and slowing economic growth.“This budget is farmer friendly, common citizen friendly, business environment friendly and development friendly,” Mr Modi declared. “It will add to the ease of living.” But the new promises will come at a cost. Mr Jaitley said the government was targeting a fiscal deficit of 3.3 per cent of gross domestic product for the financial year starting on April 1, backtracking on a promise made last year to reduce the fiscal deficit to 3 per cent of GDP.Mr Jaitley also confirmed market expectations that New Delhi would overshoot this year’s deficit target of 3.2 per cent. He said the actual deficit was likely to come in at 3.5 per cent of GDP, as revenues were lower than expected in a year of radical tax reform.

 India budget main points

  • Backtrack on previous fiscal deficit target
  • New long-term capital gains tax
  • Corporate tax breaks for small and medium-sized enterprises
  • More spending for rural economy
  • Promise of new national health insurance scheme for poor