Expectations for the pre-election budget include a focus on rural welfare and infrastructure development.

Prime Minister Narendra Modi is expected to utilize India’s last budget before the elections to entice voters with new spending initiatives, while avoiding an increase in the fiscal deficit. The government has experienced a tax windfall due to the rapid expansion of the economy, enabling it to meet deficit reduction targets. This provides finance Minister Nirmala Sitharaman with the opportunity to continue investing in infrastructure and take targeted measures to support the priority sectors for the upcoming elections, including farmers, women, the poor, and young people.

However, economists suggest that the budget will not be characterized by excessive spending. As an interim budget until a new administration takes office, Sitharaman has already hinted at the absence of major announcements. The focus will likely be on the pace of fiscal consolidation and policy priorities going forward, according to Madhavi Arora, an economist with Emkay Global Financial Services Ltd.

PM Modi is in a strong position to extend his decade in power, reducing the pressure to implement populist measures. The fiscal plan is expected to signal policy continuity, ensuring stability and consistency, as stated in a report by Bloomberg Economics’ Abhishek Gupta.

Here are the key aspects to watch for in the budget speech, traditionally delivered around 11 a.m. in New Delhi:

1. Deficit and Borrowing: The government has successfully reduced the fiscal deficit to control debt levels after it surged to 9.2% of the GDP during the pandemic. Economists surveyed by Bloomberg anticipate the deficit target for the current fiscal year to be achieved and further lowered to 5.3% in the next financial year.

2. Fiscal Consolidation: The budget deficit improvement is largely attributed to increased tax receipts. Income tax, corporate tax, and GST collections have seen significant growth compared to the previous fiscal year. The government aims to bring the budget deficit down to 4.5% over time, while channeling spending towards infrastructure and reducing subsidies to support the economy’s growth outlook.

3. Infrastructure Spending: The government has prioritized capital expenditure on roads, ports, and power plants, resulting in robust economic growth. Annual capital expenditure has increased by almost a third in the past three years, contributing to India’s status as the fastest-growing major economy.

4. Rural Welfare: To counter the impact of soaring food prices and poor rainfall, economists expect the government to provide additional financial support to farmers. The government has already implemented measures such as increased subsidies on cooking gas, fertilizers, and the extension of a free food program. Welfare spending, excluding subsidies, is projected to increase by up to 8% in the upcoming fiscal year.

5. Women Voters: The government has implemented measures such as cooking gas subsidies and cheaper loans to attract more women voters. The budget is expected to outline further support measures targeting women, given their significant role in the upcoming elections. Reports suggest the plan to provide free gas cylinders to women may see increased funding, along with a potential doubling of the annual payout to female land-owning farmers.

Overall, the budget speech is anticipated to focus on maintaining fiscal consolidation, promoting infrastructure development, addressing rural welfare, and targeting women voters.

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