Modi’s government is also lining up financial support for two regional parties that have emerged as key allies of his governing coalition. The spending plan is his government’s first since voters denied his Bharatiya Janata Party a majority in parliament for the first time in 10 years — and ahead of key regional elections later this year.
Despite economic growth of more than 8% that makes it the fastest-growing major economy, India continues to suffer from deep economic woes like persistent unemployment, widening inequality and elevated inflation. Joblessness, particularly among India’s huge and growing pool of young people, has emerged as a top challenge. The Centre for Monitoring Indian Economy, a private research company, estimates a jobless rate of more than 40% for people between the ages of 20-24.
“There was a clear focus toward employment generation, which clearly remains the biggest challenge,” said Kunal Kundu, India economist at Societe Generale SA. “This is also a clear departure from the earlier narrative of unemployment not being a big challenge.”
Sitharaman pledged to lower the budget deficit to 4.9% of gross domestic product in the current fiscal year from her February projection of 5.1%. The new spending would be funded by surging tax revenues spurred by India’s expanding economy, as well as a record $25 billion dividend from the central bank.
The budget serves as one of the most concrete indications so far for how Modi plans to accommodate the demands of voters and of his much-needed allies following the disappointing election outcome. Up until now, Modi’s government had yielded little to his new coalition partners: His party retained most of the powerful positions in cabinet, even as his allies kept up demands for funding for their financially troubled states.
Previous budgets have sought to juice growth by ramping up infrastructure spending, an approach applauded by businesses and foreign investors as they seek out India as a destination to diversify their supply chains away from China. But opposition parties have criticized the measures for neglecting poor Indians and for failing to deliver jobs. In its economic survey released Monday, India’s government said the country will need to create an average of 8 million non-farm jobs a year until 2030.
BloombergKundu, of Societe Generale, noted that the budget’s heavy focus on joblessness stood in contrast to the BJP’s election manifesto, which contained scant references to India’s employment shortcomings.
Among the measures announced by Sitharaman on Tuesday were employment-linked incentives for businesses to create jobs, as well as measures to boost employee skills. To lift consumption, Sitharaman also announced a series of income tax breaks that she said would result in savings of up to 17,500 rupees a year for salaried Indians.
For two key Modi allies — the Telugu Desam Party in the state of Andhra Pradesh and the Janata Dal (United) in Bihar — Sitharaman said Modi’s government would direct billions of dollars toward key projects, including for the development of Andhra Pradesh’s new capital.
Rahul Gandhi, who leads India’s opposition in parliament, on Tuesday said Modi’s budget was full of “hollow promises” aimed at appeasing allies with promises that come at a cost to everyday Indians. He also said the budget was a “copy and paste” of the opposition’s own campaign manifesto.
“Modi appeasing allies shows he has no choice but to adapt to the needs of coalition politics,” said Yamini Aiyar, a former president of the Centre for Policy Research, a think tank in New Delhi. “He has shown a degree of accommodation, even though he still has the upper hand.”