Modi adheres to fiscal prudence in the pre-election budget, giving priority to infrastructure development

Indian Prime Minister Narendra Modi’s administration has unveiled its last budget before the upcoming national elections, opting for fiscal prudence instead of populist spending measures. This strategic decision aims to attract investors and potentially secure a third term for the Bharatiya Janata Party (BJP).

Key Highlights:

1. Limited Populist Spending: Despite the approaching elections, the budget refrains from significant increases in social spending, reflecting confidence in the BJP’s electoral prospects.
2. Fiscal Consolidation: The budget targets a substantial reduction in the deficit to 5.1% of GDP, potentially enhancing India’s credit rating.
3. Infrastructure Emphasis: Capital expenditure reaches a historic peak, with a focus on long-term projects such as roads and bridges.
4. Consumption Challenges: Although overall growth is robust, concerns arise due to weak wage growth and inflation affecting lower-income earners, raising questions about consumption levels.
5. Housing Initiatives: The government plans to construct 20 million affordable houses and launch a middle-class housing scheme.
6. Bond Market Boost: Lower-than-expected borrowing and a better-than-anticipated deficit target contribute to gains in bonds.

Reactions:

Economists view the budget positively for its emphasis on fiscal consolidation and its potential to boost investor confidence.
Moody’s awaits further progress on debt affordability before considering a credit rating upgrade.
Criticism emerges regarding the absence of measures to stimulate consumption, particularly in rural areas.

Overall Significance:

This budget prioritizes long-term economic stability over immediate political gains. While its impact on electoral success remains uncertain, it underscores the government’s commitment to fiscal discipline and infrastructure development.

Further Developments:

National elections are scheduled for May 2024.
The government’s ability to meet its fiscal deficit target and address consumption concerns will be closely monitored.

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