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India budget expected to focus on rural economy India budget to boost farm growth
(about 4 hours later)
The Indian government is set to unveil its budget on Monday as it faces pressure to boost growth while also appealing to the country's poor. India's government is unveiling a budget aimed at boosting farm growth and appealing to the rural poor.
Finance Minister Arun Jaitley said he planned to double the income of struggling farmers in the next five years.
Having overtaken China as the world's fastest-growing economy, India is seen as a bright spot in the global economy.Having overtaken China as the world's fastest-growing economy, India is seen as a bright spot in the global economy.
But it has been hit by slowing global demand and severe droughts affecting rural areas.But it has been hit by slowing global demand and severe droughts affecting rural areas.
Finance Minister Arun Jaitley also faces pressure to implement promised reforms. "We are grateful to our farmers for being the backbone of the country's food security," Mr Jaitley said of India's estimated 120 million farmers.
Prime Minister Narendra Modi's government is expected to increase spending on the rural economy, health and social sectors. He pledged to "spend prudently and wisely for the people, especially for the poor and downtrodden".
Critics though are concerned this could mean a turn from market reforms and fiscal discipline, which are at the heart of the business community's wish-list for the budget. Analysts say Mr Jaitely is announcing increased spending on rural economy, health and social sectors with an eye on boosting his party's prospects in the coming state elections.
The government needs to "strike a balance between fiscal stimulus and reforms," Mehda Samant of Fidelity Investments told the BBC. "We're expecting a clear roadmap for policy reform and economic intent." They include a pledge to set up 89 projects for irrigation, doubling investments in rural roads to help farmers get produce to market, getting cooking gas to millions of poor households and funds for women entrepreneurs from underprivileged families.
Analysis: Yogita Limaye, India business reporter, Delhi The government would work to ensure all the country's villages had electricity within two years, Mr Jaitley said.
"How many Oscars will the finance minister get?" reads the front page of one of India's largest selling business newspapers, accompanied by a picture of Indian Finance Minister Arun Jaitley in a tuxedo holding up an Academy Award. And while his words will probably not get reported as widely as host Chris Rock's, the substance of the Indian budget will impact the lives of 1.2 billion people. Since coming to power in 2014, Mr Modi has promised to improve business and investor climate in the country with tax reforms and major infrastructure projects.
Some of the big expectations from the spending plan are that the government will try and boost the rural economy, which has suffered thanks to two consecutive years of less than sufficient rainfall during the monsoon.
That is needed to trigger consumer demand in the country, which would in turn impact businesses and perhaps encourage them to invest more.
At the moment private investments in India have not really gathered steam and most of the 7.5% growth we have seen in 2015 has come from government spending. Most analysts believe the government will need to continue spending to push the economy forward over the next year.
But this year there are some big expenses as well. It will cost about $16bn (£11.5bn) for the government to pay for a once-in-a-decade salary hike for all government employees. So people will be watching for what ideas the government has to raise money.
Since coming to power in 2014, Mr Modi had promised to improve business and investor climate in the country with tax reforms and major infrastructure projects.
That policy has been criticised by the opposition as being too business-friendly and coming at the expense of social spending and welfare projects.That policy has been criticised by the opposition as being too business-friendly and coming at the expense of social spending and welfare projects.
The country's huge rural population has been hit by severe droughts and recent regional elections have shown dwindling support for Mr Modi.The country's huge rural population has been hit by severe droughts and recent regional elections have shown dwindling support for Mr Modi.
With crucial elections in largely agricultural states like West Bengal and Uttar Pradesh coming up this year and next, the government is under pressure to address the rural economy. With crucial elections in largely agricultural states like West Bengal and Uttar Pradesh due this year and next, the government is under pressure to address the rural economy.
An increased in social spending without abandoning stimulus and infrastructure projects could mean thought that India would be forced to loosen its fiscal deficit target of 3.5%.