By Shivangi Acharya and Nikunj Ohri
NEW DELHI (Reuters) -India will focus on boosting middle-class spending power, encouraging inclusive development and boosting private investment to strengthen growth, Finance Minister Nirmala Sitharaman said on Saturday, announcing the annual budget.
The world’s fifth-largest economy is expected to post its slowest growth in four years next year amid frail urban demand and weak private investment.
Measures to assist the poor, youth, farmers and women will also be included in the budget for 2025-26, Sitharaman said, highlighting plans for “transformative reforms in taxation” with a new income tax bill to be released next week.
The country’s chief economic adviser, in a report released on Friday, forecast India’s economy would remain sluggish in the fiscal year beginning April 1, advocating long-delayed reforms in areas such as land and labour to boost medium-term growth.
The government, however, continued to improve its finances, targeting a fiscal deficit of 4.4% of GDP in 2025-26, down from a revised 4.8% of GDP in the current rate.
The government will borrow 14.82 trillion Indian rupees ($171 billion) via the bond markets to fund this year’s fiscal deficit.
While near-term growth is in line with the 10-year average, India needs a growth rate of 8% to meet its longer-term economic goals and create enough jobs for its large, youthful population.
Economists have suggested the government ease the burden on individuals through tax cuts on income and energy products and to build on the $24 billion programme of job creation schemes announced in the first post-election budget in July.
Equity markets reversed early gains to trade lower as budget details were released.
The Nifty 50 and the BSE Sensex were both down 0.2% at 23,466 points and 77,295 points, respectively, as of 11:53 a.m. IST.
All sectoral sub-indexes also gave up gains and were trading in red, with the fast-moving consumer goods sector and realty leading losses, both down around 1%.
FOCUS ON FARM, MANUFACTURING AND FINANCIAL SECTOR
India has faced a bout of high food inflation over the past year. Retail inflation in December eased to a four-month low of 5.2% but inflation in food, which accounts for nearly half of the consumption basket, continued to remain high at 8.39% in December.
To boost productivity across the farm sector, the government will launch a national mission to push high-yielding crops, with a special focus on pulses and cotton production.
To help farmers, the limit for subsidised credit has been raised to 500,000 Indian rupees ($5,778) from 300,000 rupees earlier.
The government will also launch missions to push manufacturing and exports, Sitharaman said, without going into details.
India has long aimed to boost the share of manufacturing and exports in its economy but has had little success. The share of manufacturing in the economy has remained close to 17%, short of its long-standing goal of 25%.
To deepen the penetration of insurance in the economy, the foreign direct investment limit on insurance was raised to 100% from 74% currently.
($1 = 86.5360 Indian rupees)
(Reporting by Shivangi Acharya and Nikunj Ohri in New Delhi; Writing by Ira Dugal and Aftab Ahmed; Editing by Alex Richardson and Lincoln Feast)
