Modi’s India budget seeks to revive slowing economy

Indian stock markets tumble after 2020 budget disappoints investors

India budget 2020 Nirmala Sitharaman

Web Report

India on Saturday unveiled an annual budget that pledged to boost people’s incomes as Prime Minister Narendra’s Modi government aimed to revive the country’s slowing economy, with the pace of growth slumping to its lowest level in more than a decade.

India’s finance minister Nirmala Sitharaman was under huge pressure to meet sky-high expectations to formulate a budget that would foster growth in the next financial year – which starts at the beginning of the April – while trying to keep the country’s fiscal deficit in check as a far as possible.

Highlights of the budget aimed at addressing the economic challenges included a widely-anticipated cut in personal income tax, a big push on investment in infrastructure, and an injection of close to $40 billion (Dh146 billion) into the country’s farming sector. It also abolished a tax on dividend distributions.

“The budget has clearly been a pro-people and populist budget with a view to address the concerns across diverse spectrums of the economy,” says Rajesh Narain Gupta, the managing partner at SNG & Partners, an Indian corporate law firm. But he warns that “it remains to be seen how these big-ticket announcements would translate into reality”.

“This is the budget to boost incomes and enhance their purchasing power,” said Ms Sitharaman in a speech ahead of its release. “Only through higher growth we can achieve that and have our youth gainfully and meaningfully employed.”

India’s economy was the world’s fastest growing in 2018. But the government expects GDP growth of just 5 per cent in the current financial year, which runs until the end of March. That would be the country’s slowest growth since the 2008 global financial crisis.

Weak private investment and consumer demand, exacerbated by a credit crisis in the country’s non-banking financial sector, have pressured the economy in the last year.

Ms Sitharaman’s delivery of the budget lasted more than two and a half hours, making it the longest ever budget speech. She cut off the end of her speech, however, as she started to feel unwell.

Stock markets, too, were ailing by this point. The benchmark S&P BSE Sensex fell more than 1 per cent during afternoon trading. Stock markets in India opened on Saturday to allow investors to trade as the country’s budget was unveiled.

This came after the benchmark index suffered a fall of 1.3 per cent in January – its worst start to the year since 2016.

“Though the budget focused on agriculture and rural development, it didn’t meet expectations,” says Deepthi Mary Mathew, an economist at Geojit Financial Services. “The abolishment of the dividend distribution tax is a welcome step. However, for consumption revival, the finance minister mainly focused on the adoption of [a] new tax regime. It needs to be looked into whether the new regime will be enough [to revive] the consumer spending.”

“As the market reaction suggests, it gives a picture that budget 2020 was a disappointing one,” says Ajit Mishra, vice-president of research at Religare Broking, based in New Delhi. “It fell short of expectations as the stimulus package for rural, infrastructure and transportation was up marginally. Further, even the widely-expected personal income tax came with a caveat of having to forego earlier exemptions and deductions.”