India budget unveils infrastructure, green energy plans

India will boost its spending on infrastructure and focus on creating more jobs, according to the government's annual federal budget unveiled on Wednesday.

Indian Finance Minister Nirmala Sitharaman presented to parliament an annual federal budget of $550 billion (€503 billion) for the 2023-24 financial year. 

"After a subdued period of the pandemic, private investments are growing again," the finance minister said. 

"Capital investment is being increased steeply for the third year in a row by 33% to 10 trillion rupees," she added. That is the equivalent of $122 billion the government is planning to spend on the construction of schools, airports and ports.

While India's economy is projected to grow 7% in the fiscal year ending next March, the government forecasts growth of 6-6.5% next year.

India's economic growth plan

While the budget put an emphasis on boosting infrastructure to spur economic growth, it also lays focus on creating more jobs, ramping up welfare schemes, slashing taxes for the middle class, and boosting renewable energy.

The government of Prime Minister Narendra Modi has been under pressure to generate more jobs as it faces key state polls this year and a general election in 2024. Sitharaman said there was "the need once again to ramp up the virtuous cycle of investment and job creation."

India surpassed the United Kingdom last year to become the world's fifth largest — and Asia's third largest — economy. On Wednesday, Modi praised the budget as laying a strong "foundation for the aspirations and resolutions of a developed India."

Big CO2 emitter 

Finance Minister Sitharaman said "green growth" is a top priority for the country and announced several new initiatives.

The budget provided around 35,000 crore rupees, or $4.3 billion, to ramp up energy transition initiatives to help India reach its goal of net-zero emissions by 2070. India is currently the world's third highest-emitting nation. 

Sitharaman announced around $8 billion for other projects as well, including mangrove restoration and converting waste into biogas.

Tax cuts for middle class

The government also slashed taxes for India's large middle class — individuals with income up to 700,000 rupees ($8,560, €7,840) will not have to pay tax under the new income tax regime. A host of new tax relief measures is also expected to drive consumption.

Despite the tax cuts, Sitharaman said the goverment is aiming for a budget deficit of 5.9% of India's gross domestic product for the fiscal year ending next March, lower than the 6.4% for this fiscal year.

The budget also extended a $24 billion scheme to provide free grains to vulnerable households for one year and hiked spending by 66% on providing affordable housing to the urban poor.

Defense hike

In the budget, India boosted its defense expenditure to around $73 billion — a 13% rise — as it faces tensions with China on their disputed Himalayan border. But the resources allocated specifically for the modernization of the armed forces saw only a moderate hike, according to experts.

India plans to spend almost 242 billion rupees ($3 billion) for naval fleet construction and 571.4 billion rupees ($7 billion) for air force procurements, budget documents showed.

The country's defense spending, estimated at about 2% of GDP, is still lower than China's 1.45 trillion yuan ($230 billion) in allocations for 2022.

rm/nm (AP, AFP, Reuters)