India Unveils Budget to Spur Growth, Jobs, and Coalitions
- July 24, 2024 01:03am
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India's government has allocated billions of dollars towards job creation and regions governed by key coalition partners in a budget aimed at solidifying its coalition and regaining voters' support after Prime Minister Narendra Modi's electoral setback.
India's government has presented its budget, allocating significant funds for job creation, rural development, and support for regions run by key coalition partners. The $576 billion budget includes $32 billion for rural programs, $24 billion for job creation over five years, and over $5 billion for two states ruled by coalition partners.
Finance Minister Nirmala Sitharaman emphasized the budget's focus on employment, skill development, small businesses, and the middle class. The government will also implement reforms across production factors, including land and labor.
India Unveils Budget to Spur Growth, Jobs, and Coalitions
Despite the increased spending, India has reduced its fiscal deficit target to 4.9% of gross domestic product (GDP) for the fiscal year ending March 31, 2025, from 5.1% in the interim budget, aided by a $25 billion surplus from the central bank.
Economists have attributed Modi's Bharatiya Janata Party's (BJP) recent electoral setback to economic distress in rural areas and a weak job market. They believe land and labor reforms are crucial for India's sustained economic growth.
India Unveils Budget to Spur Growth, Jobs, and Coalitions
Sakshi Gupta, principal economist at HDFC Bank, praised the budget's balance between measures supporting growth and maintaining fiscal discipline. However, Gene Fang of Moody's Ratings cautions that implementing ambitious reforms will be challenging for the coalition.
The budget includes incentives for companies to provide employee training and lower-interest loans for higher education. India's urban unemployment rate is reported at 6.7%, but private agency Centre For Monitoring Indian Economy estimates it to be higher at 8.4%.
Long-term infrastructure projects will continue to receive funding of 11.11 trillion rupees, with states allocated 1.5 trillion rupees in long-term loans for such expenditure. Some loans will be linked to reform milestones in areas such as land and labor, which Sitharaman aims to push through during the government's third term.
To appease its allies, the government will accelerate loans from multilateral agencies for Bihar and Andhra Pradesh.
Tax changes in the budget include an increase in the tax rate on equity investments held for less than a year from 15% to 20% and those held for over 12 months from 10% to 12.5%. Equity derivative transactions that attract retail investors will also face a higher tax from October 1st.
The market initially declined after the budget announcement but recovered most of its losses. The tax changes are seen as a short-term setback but may benefit the market in the long run by attracting long-term investors. Foreign companies' corporate tax has been reduced from 40% to 35%, aiming to attract more investment. Lower taxes for lower-income consumers have boosted consumer stocks to record highs.
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