India will ramp up spending on rural areas, infrastructure and fighting poverty, Finance Minister Arun Jaitley said as he unveiled his annual budget on Wednesday, adding the impact on growth from the government's cash crackdown would wear off soon.
Addressing parliament, Jaitley called his fourth budget one for the poor. Yet, while vowing prudent fiscal management, he also raised his 2017/18 federal deficit target to 3.2 percent of gross domestic product to cover his spending promises.
The worst of the cash crunch is now over, however, and Jaitley said he expected it would not spill over into the fiscal year starting on 1 April. A private manufacturing survey on Wednesday showed business was slowly returning to normal.
Still, the finance ministry forecasts that growth could dip to as low as 6.5 percent in the current fiscal year to March, before picking up slightly in the coming fiscal year to between 6.75 and 7.5 percent.
That is below the target rate of 8 percent or more that Modi needs to create enough jobs for the 1 million young Indians who enter the workforce in India each month. Half of the population in the nation of 1.3 billion is below the age of 25.
While opinions vary on how long the disruptions caused by Modi's crackdown on untaxed and illicit wealth will last, there is near unanimity among economists that Asia's third-largest economy needs a helping hand.
Jaitley said the government would hike capital investment by 25.4 percent. He also announced a 24 percent hike in rural and farm spending as part of Modi's commitment to double farm incomes over five years.
But there was no extra room in the budget to increase capital support for India's troubled state banks. Jaitley said he would pump in 100 billion rupees ($1.5 billion), in line with earlier plans.
Here is Jaitley's full budget speech
Updated Date: Feb 01, 2017 16:26 PM