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New Delhi / Agencies
India’s government pledged billions of dollars to help struggling farmers and boost the rural economy as it unveiled its annual budget on Monday, with an eye on kickstarting growth and boosting its flagging popularity.
Finance Minister Arun Jaitely proposed spending nearly $13 billion on rural development, promising higher incomes for farmers who form the majority of India’s 1.2 billion people.
Presenting the annual budget for 2016-17, he forecast that India would grow by 7.6 percent in the year ending March 2016. The government intends to distribute the benefits of growth among the poorer sections of society, including the vast majority of India’s farmers, he said.
“We plan to double farmers’
income in five years,” Jaitely said.
He outlined what he called the government’s “nine pillars” of a “transformative agenda” for the economy.
They include a slew of measures to boost education, increase spending on roads, irrigation and other infrastructure, intensify oversight of government spending and reform India’s complicated tax regime.
The Indian economy is doing well despite slowing growth in other emerging and leading economies, Jaitely said. His reference to a recent observation by the International Monetary Fund that India was the one bright spot in the global outlook was vigorously applauded by fellow members of the ruling Bharatiya Janata Party.
“We inherited an economy of slow growth, high inflation and low faith in government … amid global headwinds, the Indian economy has held its own,” he said.
Jaitley acknowledged the challenges as he presented the budget in parliament, but said he had a “vision to transform India”.
“We have a desire to provide socio-economic security to every Indian, especially the farmers, the poor and the vulnerable,” he said.
“We have a dream to see a more prosperous India and a vision to transform India.”
India also plans to raise credit available to farmers to 9 trillion rupees for 2016-2017, and has pledged to ensure all the country’s villages would have electricity within two years. It will increase spending on the National Rural Employment Guarantee Scheme, which guarantees 100 days of employment on public works each year for any household that
requests it.
India Doubles Clean-Energy Tax on Coal
India doubled the clean-energy tax on coal to fight environmental pollution, risking higher electricity-generation costs at a time when the government is seeking to revive ailing power distributors.
The tax on the fuel, which fires more than 60 percent of the nation’s generation capacity, will be raised to 400 rupees a metric ton from 200 rupees, Finance Minister Arun Jaitley said for the year beginning April 1. The government plans to allocate 30 billion rupees ($438 million) annually to come up with a comprehensive plan, spanning 15-20 years, to augment nuclear power generation, he said.
Taxing coal and promoting nuclear energy shows the government’s commitment to the environment, said Debasish Mishra, a partner with Deloitte Touche Tohmatsu India LLP in Mumbai. Still, the tax increase could have waited, especially since the government is working with the states to reduce the debt burden on state-owned power distributors.
Bonds Rally Most in 9 Months
Indian sovereign bonds rallied, driving the 10-year yield down by the most since May, after Prime Minister Narendra Modi’s government retained a plan to narrow the fiscal deficit in the federal budget.
The administration stuck to its target of bringing the shortfall to 3.5 percent of the gross domestic product in the year that starts April 1. The gap will be 3.9 percent of GDP in the current fiscal year, as projected, Finance Minister Arun Jaitley told lawmakers. He announced gross market borrowings of 6 trillion rupees ($87.6 billion). The rupee reversed a decline.
“Markets are quite pleased with the deficit targets and the borrowing numbers look manageable,†said Ajay Manglunia, Mumbai-based head of fixed income at Edelweiss Financial Services Ltd. “This will pave the way for more central bank rate cuts and that will lower the yields further.â€
Stalled reforms
Analyst Samir Saran said the ruling Bharatiya Janata Party (BJP) was “responding to the political reality” ahead of crucial state elections this year and next.
“The BJP has to lay greater emphasis on social policy, it has to deliver a more populist budget,” said Saran, a senior fellow at the Observer
Research Foundation think tank.
“The government is also responding to the fact that farmers have suffered two bad monsoons and there is great stress in the rural sector.”
Despite a major push to boost manufacturing, farming remains by far the biggest employer in India and the
sector is struggling after two years of weak monsoon rains.
India is seen as a relative bright spot in the world economy, but feeble global demand has caused its exports to shrink for 14 months in a row and investment remains weak.
On Friday the government forecast gross domestic product (GDP) would expand between 7.0 percent and 7.75 percent in the next financial year, marking little change from this year’s levels.
The main Sensex index on the Bombay Stock Exchange fell 300 points during Jaitley’s presentation of the budget, which included a hefty 23 percent pay rise for millions of civil servants and a pension scheme for retired soldiers.
The two schemes will add billions of dollars to the government’s spending bill over the next year, but Jaitley said it would stick to its ambitious target to cut the fiscal deficit to 3.5 percent of GDP in 2016-2017.
He also pledged to spend 2.21 trillion rupees on improvements to its creaking roads and other infrastructure seen as key to attracting investment for manufacturing.
The government will also inject 250 billion rupees into India’s ailing public sector banks, which are weighed down by bad loans.
Despite a major push to boost manufacturing, farming remains by far the biggest employer in India and the sector is struggling after two years of weak monsoon rains.
This month the Jats, traditionally a farming caste, sparked riots in northern India to press their demands for better access to government jobs and education. They say they are struggling to make a living in farming.
The BJP performed poorly in elections in the impoverished eastern state of Bihar last year and faces polls in other major farming states this year and next.
