India’s finance minister pledged major investment in infrastructure on Saturday, saying it was time for the economy to “fly”, as he unveiled Prime Minister Narendra Modi’s first full budget.
Arun Jaitley said his government had inherited an economy dominated by “doom and gloom” when it took power last year, trumpeting its achievements in conquering inflation and kick-starting growth.
“The credibility of the Indian economy has been re-established. The world is predicting this is India’s chance to fly,” he said.
Prime Minister Narendra Modi swept to power last year on a pledge to revive India’s flagging economic fortunes and provide jobs for its rapidly growing population.
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 Saturday Jaitley said the government would increase spending on the country’s crumbling roads, railways and ports by $11.3 billion in 2015/16 as it seeks to win back investment and boost growth.
He said the government would complete 100,000 kilometres of roads currently under construction and build another 100,000 kilometres.
The government will set up tax-free infrastructure bonds to finance its plans through a national fund that would receive a 200-billion-rupee ($3.2 billion) injection of public money.
“It is quite obvious that incremental change is not going to get us anywhere,” said the finance minister.
“We have to think in terms of a quantum jump.”
Analysts have said the government’s challenge will be to balance its spending with the need for fiscal restraint.
Jaitley said the government would achieve its goal of cutting the fiscal deficit to 4.1 per cent of gross domestic product (GDP) for 2014/2015 from 4.5 per cent the year before.
But he said it would delay by a year the goal of cutting the deficit to 3 per cent, forecasting a figure of 3.9 per cent in 2015/16.
“Although possibly controversial … and against economist expectation, the pushing out of meeting (the) fiscal deficit target by a year shows pragmatism in bringing in additional public investments for infrastructure development,” said Nilaya Varma, the head of government services for consultants KPMG in India.
Jaitley also announced plans for a universal social security system that would give poor Indians access to subsidised insurance and pensions.
The scheme will provide coverage for accidents and death for just 12 rupees – less than 20 US cents – a year.
Despite new figures showing the economy is growing at a faster clip than previously thought, many ordinary Indians have yet to feel the benefit.
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.
On Saturday Jaitley said the BJP government was committed to achieving “genuine, effective upliftment of the poor” by boosting growth and helping create jobs for all.
The government has forecast that growth for 2014/15 will reach 7.4 per cent, making it the world’s fastest growing major economy, topping 8 per cent in 2015/16 before moving into double figures in subsequent years.
India’s economy has been seen as stagnating in recent years and the dramatic turnaround is 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.
India’s government heavily subsidises food and fuel and there had been speculation Jaitley would seek to slash the $40 billion public subsidy bill, aided by the fall in crude prices.
Instead, he pledged to make the schemes more efficient and reduce corruption by accelerating the roll-out of biometric cards and expanding direct cash transfers.
The government has already pledged bank accounts for all to enable it to pay subsidies direct to consumers.
On Saturday Jaitley said it would also make it easier for small businesses to obtain credit through microfinance institutions.
“Just as we are banking the unbanked, we are also funding the unfunded,” he said.