NEW DELHI: Prime Minister Narendra Modi’s right-wing government will unveil its first full budget on Saturday, a day after announcing the time was ripe for long-awaited reforms to kickstart the economy.
Modi swept to power last year on a pledge to revive India’s flagging economic fortunes and provide jobs for its rapidly growing population of over 1.2 billion.
But he has been criticised for failing to push through the concrete reforms experts say India needs if it is to attract much-needed foreign investment.
On Friday, his government forecast i India’s growth would exceed eight percent in the next financial year, leaping from around five percent for the past two years and overtaking China to become the world’s fastest-growing major economy.
This “gives an opportunity to the increasingly young, middle-class and aspirational India to realise its full potential,” the government said in a statement on the India Economic Survey, an annual report prepared by the finance ministry.
“It appears that India has reached a sweet spot and that there is a scope for big bang reforms now.”
The apparent turnaround was due partly to a change in the way the data is calculated, but economists say low oil prices and reduced inflation have given India a genuine growth boost.
Finance Minister Arun Jaitley is expected to increase spending on the country’s underfunded transport network and dilapidated power infrastructure as part of Modi’s plans to entice foreign businesses to set up shop in India.
On Thursday, the government signalled spending of more than 8.5 trillion rupees ($137 billion) over the next half-decade to rebuild the country’s crumbling railways after years of neglect.
“The settings are just right for finance minister Arun Jaitley to shun gradualism and go for broke,” India’s English-language Hindustan Times newspaper said in an editorial Saturday.
Analysts welcomed the plans, but warned the government would have to balance its spending with the need for fiscal restraint.
“The government has come to the view that public expenditure is now critical to get our infrastructure sector moving again, and to do that it has to find ways to put more money into the investment process without compromising on fiscal discipline,” said Subir Gokarn, director of research for Brookings India.
“This is a hugely challenging proposition.”
The government has committed to cutting the fiscal deficit to 4.1 percent of gross domestic product (GDP) for 2014/2015 from 4.5 percent the year before, seeking to persuade the central bank to continue to unwind high interest rates.
Beyond infrastructure improvements, investors will be looking to the government to make good on its promise to slash red tape, make it easier to buy land and liberalise rigid labour laws.
Projects such as cleaning up the holy Ganges river and building 100 “smart cities” are expected to feature in the budget.
The premier is also expected to continue his “Modinomics” agenda of “maximum governance, minimum government”, including by handing more power to states to speed up decision-making on projects.
Despite new figures showing the economy is growing at a faster clip than previously thought, many ordinary Indians have yet to feel the effect.
Modi’s Bharatiya Janata Party (BJP) last month suffered a drubbing in Delhi state elections, its first major defeat at the polls since it came to power, with critics saying Indians were tired of waiting for change.
But in an interview published Saturday, the country’s new chief economic adviser Arvind Subramanian downplayed expectations of major reforms in the budget, suggesting changes would be “incremental”.
“Big-bang reforms in robust democracies with multiple actors and institutions with the power to do, undo and block are exceptions rather than the rule,” he told the Business Standard newspaper.
“A bold policy shift in areas under government control, plus a persistent, encompassing and creating incrementalism in other areas can cumulate to a bang.”