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Pre-election India Budget 2024: PM Modi avoids significant expenditure

The administration led by Indian Prime Minister Narendra Modi has unveiled its last budget before the upcoming national general elections.

The interim budget, a provisional financial plan, will be implemented from 1 April until a new administration introduces a comprehensive budget after assuming office.

Unsurprisingly, Finance Minister Nirmala Sitharaman has persistently allocated funds towards infrastructure development, which has significantly driven India's economic progress. Over $130 billion has been designated to construct tangible infrastructure such as roads and ports this year. That is an increase of 11% compared to the previous year. However, it falls short of the roughly three-fold annual growth rate that India has been experiencing since 2019.

 

Ms Sitharaman announced the government's plan to construct an additional 20 million affordable dwellings over the next five years, in addition to the existing 30 million residences that have already been completed.

"This will clearly stimulate the rural economy by generating employment opportunities and promoting infrastructure development, in line with the government's socio-economic objectives," said Shubhada Rao, an economist and founder of Quant Eco Research.

Anticipated elevated levels of government expenditure are projected to contribute to maintaining India's Gross Domestic Product (GDP) growth at about 7%. The government's swift growth has increased tax collection and reduced its budget deficit by 0.5%, bringing it down to 5.1% this year.

Consequently, there has been a surge in India's bond markets due to reduced market borrowings. "According to Ms. Rao, the finance minister has established a goal of achieving a fiscal deficit target of 4.5% by 2026."

No new tax relief measures were announced for the salaried middle class, and Mr. Modi's pre-election spending plan also avoided announcing significant increases in social schemes, except for a program to offer free electricity to 10 million households through rooftop solar projects to attract voters.

India has just prolonged a complimentary food initiative, first enacted during the COVID-19 pandemic, benefiting a staggering 800 million individuals over the subsequent five years.

Based on its victories in three regional elections last year and Mr. Modi's intense popularity, the incumbent Bharatiya Janata Party (BJP) is primarily anticipated to maintain its hold on power.

Although the government's populist inclination has diminished, there has been growing criticism of insufficient funds for healthcare and education.

Dr. Raghuram Rajan, the former governor of India's Central Bank RBI, said that although there has been a focus on developing physical capital, there has been insufficient emphasis on cultivating "human capital" in India. This was a concern in light of India's unemployment situation.

"Lacking reliable data on jobs, we are operating without sufficient information," Dr. Rajan said, emphasizing the lack of clarity in our current situation. Furthermore, he expressed that the prevalence of malnutrition in some regions of India surpasses that of several countries in sub-Saharan Africa, a situation that he deemed "unacceptable" given India's GDP, which is surpassing that of most other nations.

Economists have raised concerns regarding the sluggishness of private investment and the imbalanced growth depicted by India's consumption pattern. This pattern reveals that the affluent urban population is becoming wealthier and purchasing more high-end products, while those in the rural areas are reducing their expenditure.