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India Goes on a Spending Spree to Boost Growth, Stokes Concern over Fiscal Deficit

In Short:

  • Finance minister unveils higher spending on infrastructure

  • Allocates higher subsidies ahead of state elections

  • Indian economy projected to grow 8%-8.5% in 2022/23

The Indian government said on Tuesday that it will increase expenditure to 39.45 trillion rupees ($529.7 billion) in the coming fiscal year to improve public infrastructure and spur economic growth, but this will result in a larger budget deficit than expected and record borrowing.

After dropping 6.6 percent in the previous fiscal year, Asia's third-largest economy has been on the mend since the government removed mobility restrictions in June to combat the spread of coronavirus.

When presenting the yearly budget to parliament, Finance Minister Nirmala Sitharaman stated that total government spending in the 2022/23 fiscal year, which begins in April, will be 4.6 percent higher than the current year.

Trillions of rupees will be allocated to expressways, affordable housing and solar manufacturing to put growth on a firmer footing, she said. Growth is estimated to be 9.2% for 2021/2022, coming off a low base and slowing to 8 to 8.5% in the coming fiscal year, still the fastest among the world's major economies.

Public investment, according to Sitharaman, must continue to lead and pump up private investment and demand.

"The economy has shown strong resilience to come out of the effects of the pandemic with high growth. However, we need to sustain that level to make up for the setback of 2020/21," she said.

She announced spending of 200 billion rupees ($2.68 billion) for a highway expansion programme and said 400 new trains would be manufactured over the next three years.


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