Prime Minister Narendra Modi’s government is expected to announce measures to improve the ease of doing business and step up infrastructure spending in the upcoming Union Budget, while continuing with fiscal consolidation, according to a Bloomberg report.
The policy direction comes as punitive US tariffs and rising global risks cloud India’s economic outlook.
The budget, due on February 1, is likely to see finance minister Nirmala Sitharaman lean on public spending as private investment remains subdued amid weak earnings and foreign fund outflows.
She is also expected to simplify the import-duty regime and ease compliance requirements for small businesses.
“The budget will focus on both resilience and growth,” said Dharmakirti Joshi, chief economist at Crisil Ltd, as quoted by Bloomberg. “The focus will be on maintaining fiscal discipline, giving the right signal for reforms and taking steps for private investments — partly through reforms and partly through incentives.”
Capital expenditure — mainly on roads, ports and energy assets — in Sunday’s budget may cross Rs 12 trillion ($131 billion), exceeding the Rs 11.2 trillion estimated for the current year, according to a median forecast of 29 analysts surveyed by Bloomberg.
Defence spending may also rise following a military clash with Pakistan last year.
Analysts expect Sitharaman to stay committed to lowering government debt, with the fiscal deficit target seen at 4.2 per cent of GDP for the next fiscal year. The government aims to reduce debt to 50 per cent of GDP, plus or minus one percentage point, by 2030-31.
To finance higher expenditure, Sitharaman is expected to rely more heavily on dividends from the Reserve Bank of India and other financial institutions to bridge the deficit.
Economists, including Pranjul Bhandari, estimate payouts could be as high as 3 trillion rupees this year. Asset sales are seen raising around 500 billion rupees, signalling a continued lull in divestments.
While Prime Minister Narendra Modi’s popularity has remained resilient, expectations are rising that the government may use Sunday’s budget to woo voters in key states such as Tamil Nadu and West Bengal, the report added.
“They tend to focus on the states where there are going to be elections, like they did Bihar last time,” said Shumita Deveshwar, chief economist at GlobalData.TS Lombard. “I wouldn’t be surprised if they did that again this time.”