India's budget likely to increase spending to spur growth

Prime Minister Narendra Modi's government is likely to increase state spending on infrastructure and offer some tax incentives in its 2020/2021 budget on Saturday, aiming to get growth back up from its lowest in a decade.

In its annual economic report, released on Friday, the government predicted that economic growth would pick up to 6.0% to 6.5% in the fiscal year beginning April 1, but warned that it may have exceed its deficit target to revive growth.

India is facing its worst economic slowdown in a decade. The government estimates economic growth this year, which ends on March 31, will slip to 5%, the weakest pace since the global financial crisis of 2008-09.

Finance Minister Nirmala Sitharaman, who will present her second full-year annual budget to parliament, could defer the earlier target of cutting the deficit to 3% of gross domestic product in 2020/21 by at least two years, government sources told Reuters.

This will be on top of roughly $28 billion of spending from off-budget borrowings, as the government seeks to keep the deficit in check.

Economists in a Reuters poll predicted the government would set a deficit target of 3.6% of GDP for 2020/21, up from 3.3% targeted for the current year.

Sitharaman is expected to announce plans to spend over 102 trillion rupees (1.09 trillion pounds) on roads, ports, airports, irrigation and other infrastructure over the next five years.

The government may also announce an income tax amnesty, after collecting over 350 billion rupees ($4.92 billion) from an amnesty this year to settle tax disputes on service and factory gate duties, the sources said.

Some experts said global trade tensions and the outbreak of coronavirus in China, which has killed more than 200 people so far, pose a new risk to economic recovery by hitting cross-border commerce and supply chains.

"The economic recovery is likely to be slow and shallow despite the recent measures to boost investments," said Anagha Deodhar, an economist at ICICI Securities.

Last month, the statistics office said investment growth was expected to fall to just 1% in the current financial year from 10% the previous year. Private consumption growth might slip to 5.8% from 8.1%.

Krishnamurthy Subramanian, chief economic adviser to the finance ministry, said the government could push economic reforms to boost growth.

The government should rationalise food subsidies to create additional fiscal space, push exports and adopt "counter-cyclical fiscal policy" to boost the sluggish demand and consumer sentiments, he said.

The government is expected to earmark around 1.90 trillion rupees for food subsidies in the next financial year, though the food ministry has sought more than 2 trillion rupees to run the world's biggest food welfare programme.