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• The budget places a significant emphasis on the rural economy.
• The fiscal deficit target has been set at 5.1 percent for the upcoming fiscal year, starting on April 1.
• The budget anticipates an 11 percent increase in capital expenditure for long-term projects.

In preparation for the upcoming national elections in India, the government has revealed its interim budget, aligning with expectations while introducing some surprises for investors and rural voters.

The world’s fifth-largest economy and most populous nation is gearing up for elections scheduled between March and May, making this budget a crucial opportunity for the incumbent administration to appeal to voters.

Key Takeaways from the Budget:

Fiscal targets: Lowering Deficit and Enhancing Investment Rating Indian Prime Minister Narendra Modi’s government has set a fiscal deficit target of 5.1 percent for the upcoming fiscal year, starting on April 1.

This move comes after successfully reducing the current year’s deficit to 5.8 percent of GDP. The projected fiscal deficit has pleasantly surprised economists, as most anticipated it to be around 5.3 to 5.4 percent. Achieving this level of consolidation relies on increased tax collections and some subsidy reductions, alongside higher capital spending and new welfare policies.

Rural economy focus: The budget places a significant emphasis on the rural economy, acknowledging that despite an expected economic growth rate of 7.3 percent for the current fiscal year, consumption, which constitutes nearly 60 percent of GDP, remains weak.

Lower income levels in rural areas, coupled with high inflation, have hindered spending, particularly on essential goods. To address this, the finance minister has announced enhancements to existing schemes, including support for fisheries and women-run self-help groups.

The government has committed to building 20 million affordable houses over the next five years, in addition to the 30 million already constructed.

Capex increase: Over the last three years, the government has ramped up spending on infrastructure projects such as roads and bridges to stimulate the economy and generate jobs.

The budget anticipates an 11 percent increase in capital expenditure for long-term projects, totaling 11.1 trillion Indian rupees ($134 billion), even as overall government spending rises at a slower rate of 6 percent.

Although the pace of capital spending growth is slower than the previous year, it remains a focus for economic development.

Budget cuts: While the budget includes various spending increases, some cuts have been made for the next fiscal year. Food subsidies have been reduced by 3.3 percent, and the fertilizer bill is expected to decrease by 13 percent due to declining global fertilizer prices.

However, the budget maintains funding for the Mahatma Gandhi National Rural Employment Guarantee Scheme, India’s prominent job guarantee program.

Election significance: Analysts view the budget as a sign of the government’s confidence in its chances of re-election, with Prime Minister Modi aiming for a rare consecutive third term.

The budget aligns with expectations and plays it safe, reflecting the administration’s comfort in its electoral prospects.

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