India Unveils Budget to Boost Consumption Amid Economic Slowdown

Tax Relief for Middle Class

India's Finance Minister Nirmala Sitharaman announced a budget on Saturday that provides 1 trillion rupees ($11.5 billion) in tax relief for middle-class consumers. Individuals with annual income up to 1.2 million rupees will be exempt from income tax, raising the cap from 700,000 rupees. The move aims to boost household consumption, savings, and investment.

Budget Deficit Reduction

Despite the tax cuts, the government plans to reduce the budget deficit to 4.4% of gross domestic product (GDP) in the coming fiscal year, from the previous estimate of 4.5%. Increased transfers from the central bank and government-owned financial institutions will offset the revenue loss.

Infrastructure Spending

Capital expenditure is set to grow 10% to 11.2 trillion rupees in the forthcoming year, as the government seeks to counter the slowdown.

Economists' Reactions

Economists have welcomed the tax cuts, but expressed concerns about the ambitious revenue targets. The infrastructure spending allocations have also been met with disappointment from investors.

Political Context

The budget was presented amidst protests from opposition lawmakers, who called for more debate on issues such as unemployment and corruption. The Indian National Congress, the main opposition party, criticized the tax cuts for not addressing the plight of the unemployed.

Global Economic Risks

The budget is being implemented against the backdrop of India's weakest economic growth since the pandemic and rising geopolitical risks due to the US-China trade tensions. Investors have sold off Indian stocks in recent months, wiping out $600 billion in market value.

Credit Rating Outlook

Curbing the fiscal deficit and government debt will be crucial for raising India's credit rating, which is currently at the lowest investment grade level. Moody's Ratings has not indicated any immediate change in the rating based on the budget plan.

Conclusion

India's government is seeking to boost consumption and economic growth through tax relief and infrastructure spending. However, concerns remain about the sustainability of the budget deficit and the overall economic outlook amidst global uncertainties. The implementation of the budget and its impact on the economy will be closely watched in the coming months.