Modi’s first Budget targets growth, curbs debt

NEW DELHI — India’s new government under Prime Minister Narendra Modi introduced a reform-minded Budget yesterday, vowing to lift economic growth to rates of 7 to 8 per cent by promoting manufacturing and infrastructure development as well as overhauling populist subsidies.

Finance Minister Arun Jaitley outlined the broad strokes of the plan, which he said would move towards lower government debt, more privatisation and greater openness to foreign investors. It is a departure from the “mere populism and wasteful expenditure” that dragged down the economy.

Government overspending would be brought down dramatically in the next three years, with the fiscal deficit reduced to 3 per cent in the next financial year (2016/17) from a target of 4.1 per cent this financial year, he pledged.

Mr Jaitley indicated that would involve overhauling expensive subsidies for food, fuel and fertiliser that cost India’s government about US$40 billion (S$49 billion) a year. He gave no details other than saying the subsidies would be more targeted.

He added that a revival of manufacturing and building of new infrastructure are ways to provide jobs and announced programmes to promote investment in factories, roads and ports.

Noting that India’s 1.2 billion people were exasperated after two years of economic growth below 5 per cent, Mr Jaitley vowed that Asia’s third- largest economy would expand at an annual rate of 7 to 8 per cent within three to four years.

In another signature initiative, the government will launch a tax reform this year to unify India’s 29 federal states into a common market, a measure that economists have said would boost revenue and at the same time make it easier to do business.

The government’s other major policy initiatives had been broadly flagged in advance. Mr Jaitley said he wants a solution by December on how India would impose a national goods and services tax, promising that the government would be “more than fair” in its dealings with the country’s states on how revenue would be allocated.

A high-level committee will also be set up to review retrospective tax claims blamed for choking off foreign investment after companies such as Britain’s Vodafone were hit with massive demands.

He also raised limits on foreign investment in defence and insurance ventures to 49 per cent from 26 per cent. Foreign defence contractors had sought a higher threshold to justify sharing technology when they site operations in India, a major arms buyer.

While the concrete measures announced by Mr Jaitley fell short of the most bullish expectations, Indian stocks and bonds finished a volatile day stronger, thanks to his commitment to fiscal probity.

“These measures are very progressive and good for the bond and equity markets,” said Mr Murthy Nagarajan, head of fixed income at Quantum AMC in Mumbai. “It would lead to a reduction of inflation in the coming years due to a lower fiscal deficit.”

The Budget for the fiscal year ending March 2015 is being watched as an indicator of whether the Modi government will act quickly to deliver on promises to revive stalled growth.

Since taking charge after a landslide win, Mr Modi, 63, has sent strong signals he will pursue his “Modi-nomics” agenda of “maximum governance, minimum government”. He pledged to create jobs for the one million people who enter India’s workforce every month and warned that “bitter medicine” is needed to nurse the economy back to health. AGENCIES