New Delhi: With Finance Minister Arun Jaitley presenting NDA governments’ first full year budget, Prime Minister Narendra Modi’s stomach for free-market economics faces a major test on Saturday, as top economic advisors have warned that even slight imbalance could wreck the leader’s promises of “good days” if there’s no roadmap to reform.Reaping the benefits of low global prices for oil, main import, Modi’s government sees itself in a sweet spot with spare cash to modernize ageing roads and railways without busting fiscal deficit and inflation targets.
“Let us stop unnecessary expenditure so that money can reach the poor,” Modi told parliament on Friday after a Finance Ministry report committed to bringing the fiscal deficit down to 3 percent of gross domestic product – from more than 4 percent at present – in the medium-term.
“We believe in optimum utilization of our infrastructure,” he said.
An overhaul of economic data has propelled India to the top of the league of fast-growing major economies, and the current account deficit is projected to fall below 1 percent next year, which would help stabilize the rupee and build up reserves.
But expectations for a further shift in expenditure from subsidies to infrastructure are sky high among investors who made India the best performing stock market in Asia after Chinalast year on hopes PM Modi’s government brings sweeping reforms to labor, tax and land laws.
Spanish bank BBVA described the budget as “the best opportunity for India to kick-start major structural reforms”.
The rally has continued this year on expectations that legislative reform will push ahead stalled private investment and consumer demand, and reverse a decline in corporate earnings to make Asia’s third-largest economy a global growth driver.
The stakes are high after a part-year Budget that disappointed investors just after the government took over last year with a large majority in the lower house of Parliament.