Skip to content
Search

Latest Stories

India's Modi Seen Appeasing Voters, Putting Reforms Aside In Pre-election Budget

Desperate for five more years in power, India's Hindu nationalist government will woo rural and urban middle-class voters with farm relief measures and tax cuts, said officials privy to plans for the final budget before a general election.

Stung by opposition victories in three state polls last month, and needing to call a national election by May, prime minister Narendra Modi is facing growing discontent over depressed farm incomes and doubts over whether his policies are creating enough jobs.


The electoral compulsions mean that major economic reforms, such as tax cuts for bigger companies and plans to bring down the budget deficit, could be put on hold at least until after the election, the sources said.

Piyush Goyal, India's interim finance minister, will present the budget on February 1, in the absence of finance minister Arun Jaitley, who is currently in the United States for medical treatment.

The higher spending, along with a shortfall in tax collections, will push the fiscal deficit up to the equivalent of 3.5 per cent of gross domestic product for the year ending in March, overshooting a previous 3.3 per cent target, according to one of the sources with direct knowledge of budget discussions.

That would fit with the expectations of a Reuters poll of economists.

The source said there was a chance that the government could take corrective action in March, hoping that by that time the election schedule will be settled and the public focus will shift towards campaigning.

"We may resort to spending cuts in March to contain the fiscal deficit," the source said.

The finance ministry had cut capital and other spending amounting to Rs 750.8 billion ($10.55bn) in the last financial year ending in March 2018. But Modi’s government has been stepping back from such fiscal rectitude in recent months.

In its desperation to find ways to pay for pre-election spending, the government has also pressed the central bank to part with more of its reserves, causing a rift that culminated in the resignation of the bank's governor last month.

"This is an election budget, and most of the economic reforms have been put on hold," said another official, adding the government could defer any decision on business demands for a cut in corporate tax.

Business leaders said the government still has to meet its three-year old promise of cutting the corporate tax rate for larger companies to 25 per cent from 30 per cent.

"Although all over the world overall tax has started coming down, India is one of the large economies which has corporate taxes on the higher side," said Rohinton Sidhwa, partner at Deloitte India.

The budget, which is interim and is likely to be followed by a full one in July, is expected to project economic growth of around 7.5 per cent for the next financial year, while expanding capital spending on railways, roads, ports by seven to eight per cent, and estimating an increase in revenue of about 15 per cent, officials said.

But the main focus will be on the rural sector and the urban middle-class.

The government is ready with relief measures for farmers, benefits for unemployed youth, higher tax exemptions for the middle class and small businesses, the officials said.

According to two government sources, the farm relief package itself could run to at least $14bn if the government is to have a meaningful impact on which way voters lean in rural areas, where two-thirds of Indians live.

The pre-election giveaways could give the economy short term momentum, but result in a hangover after the election.

Credit rating agencies have warned that without bringing down other spending, a higher farm subsidy bill will increase future fiscal deficits.

"In the absence of new revenue boosting measures, the policies will collectively make it harder for the government to achieve its fiscal consolidation objectives," Moody's Investors Service said last week.

Looking For Jobs

Though he has spent big on building roads and railways, Modi has been fiscally conservative for most of his time in power, helping to bring retail inflation to near two per cent from double-digits during the previous government's time.

Last month's state election upsets have made the Modi government shed some of that caution.

Despite expanding by seven per cent plus annually - the fastest pace among major economies, the uneven nature of the growth has meant that the economy has failed to create enough jobs for millions of youth entering the workforce each year.

Merchandise exports have shown no signs of growth in last four years, and some textile, leather and engineering goods producers have shifted production abroad.

Earlier this month, the Centre for Monitoring Indian Economy (CMIE), a leading independent think tank, issued a report showing the country lost as many as 11 million jobs last year, making it even harder for new entrants to the labour market.

Last week, Raghuram Rajan, former governor of the Reserve Bank of India, said India needed flexible labour and land laws, and to fix glitches in the Goods and Services Tax, launched as a major tax reform in 2017.

"We need two percentage points more growth to provide those jobs that are needed," said Rajan.

More For You

5 best wireless headphones in 2025:Top picks for every budget in the UK

Discover the top wireless headphones of 2025 for every lifestyle and budget

iStock

5 best wireless headphones in 2025:Top picks for every budget in the UK

Wireless headphones are no longer just a luxury; they’re a lifestyle essential. Whether you’re blasting your favourite playlist on your morning commute across London, tuning out distractions while working from home, or hitting the gym, the right pair can make all the difference. But with countless options flooding the market, how do you choose? Don’t worry—we’ve done the hard work for you. From premium noise-cancelling powerhouses to wallet-friendly gems, here are the five best wireless headphones to elevate your audio game in 2025. Here’s our list:

1. Bowers & Wilkins Px8 (2025 Edition): A standout choice for UK audiophiles, the Bowers & Wilkins Px8 combines British craftsmanship with cutting-edge technology. Known for their luxurious design and exceptional sound quality, these over-ear headphones feature enhanced noise cancellation and up to 35 hours of battery life. Whether you’re navigating the Tube or enjoying a quiet evening at home, the Px8 delivers a rich, immersive listening experience.

Keep ReadingShow less
Bank-of-England-Getty
A general view of the Bank of England on December 19, 2024 in London. (Photo credit: Getty Images)

Bank of England set to reduce interest rate amid weak growth

THE BANK OF ENGLAND is expected to cut its key interest rate on Thursday as it seeks to support weak economic growth, even though inflation remains above target.

Analysts predict the central bank will reduce borrowing costs by a quarter point to 4.50 per cent at its first rate meeting of the year.

Keep ReadingShow less
OYO to boost UK presence with £50m investment

OYO operates more than 200 budget hotels across 65 UK cities

OYO to boost UK presence with £50m investment

OYO, a hospitality technology company, aims to invest £50 million in the UK over three years to expand its premium hotel portfolio, supporting 1,000 jobs in the hospitality sector.

The company is upgrading its UK portfolio by acquiring premium inventory and securing longterm leasehold and management contracts. OYO is in advanced talks with large hotel chains and real estate firms for asset management deals, the company said in a statement released to Indian media.

Keep ReadingShow less
India and Britain brace for impact of Trump tariff threat

India lowers duties on high-end motorcycles to 30 per cent

India and Britain brace for impact of Trump tariff threat

INDIA does not want to give any signal that it is protectionist, the top bureaucrat in the finance ministry said, after slashing import duties on high-end motorcycles, amid US president Donald Trump’s moves on tariffs.

Trump has ignited a trade war with sweeping tariffs on Canada, Mexico and China. None were aimed at India, although Trump had called it a tariff abuser during his election campaign last year.

Keep ReadingShow less
Diageo-jw-reuters

The global beverage company is known for brands like Johnnie Walker. (Photo: Reuters)

Diageo faces challenges in life after Ivan Menezes

DIAGEO, the global beverage company known for brands like Johnnie Walker and Guinness, has encountered significant challenges following the death of CEO Sir Ivan Menezes in June 2023. Menezes, who had led the company since 2013, was succeeded by Debra Crew.

Under Crew's leadership, Diageo has faced a profits warning and adverse global consumer trends. The company's shares have declined nearly 30 per cent since her appointment.

Keep ReadingShow less