Presented by Amy Kazmin. Filmed by Jyotsna Singh. Edited by Paolo Pascual. Footage from Reuters.
Indian Prime Minister Narendra Modi's government has just unveiled its last full-year budget before the country's next general elections which are due next year. Investors have been watching closely to see how the administration would reconcile the competing pressure for popular measures to appeal to voters and the need to maintain fiscal discipline. At stake is the country's macroeconomic stability and the threat of a re-emergence of higher inflation.
In the end, the government has bowed to electoral compulsions and decided to back away from its roadmap for fiscal consolidation. Finance minister Arun Jaitley has set a fiscal deficit target of 3.3% of GDP for the coming year, backing away from the tighter 3% target that he had promised markets last year. He also admitted that the government is going to breach this year's fiscal deficit target of 3.2% of GDP. As a result of shortfalls in revenues, the actual deficit is likely to be 3.5% of GDP. That could unsettle some bond market investors who've been selling off 10-year Indian debt, pushing up yields.
The main focus of the government's budget is increased spending for rural areas where farmers have been complaining about a deterioration in their economic conditions. The government has promised to sharply increase the price at which it buys food grains from farmers, which is a way of pushing up their incomes. The other very dramatic announcement in the budget was a big new health insurance scheme that's supposed to provide around 100 million poor and vulnerable families with up to $8,000 in coverage a year in case any of their members are hospitalised. That's likely to be popular among working class and rural voters for whom a health crisis is also often a major financial emergency. But details of this scheme have yet to be announced so it's unclear how it's actually going to work.
While the budget had plenty for the common man, some business people have expressed concern that there wasn't enough in it to revive private investment, which has been flat through most of Mr Modi's term. Ultimately, it's only a revival in private investment that will give India the kind of long-term job generating growth that it so desperately needs. Amy Kazmin, Financial Times, New Delhi.