India’s budget targets key allies and job creation
Nirmala Sitharaman allocates funds for Bihar, Andhra but falls short of allies’ demands
Nirmala Sitharaman’s seventh budget as India’s Finance Minister was aimed at three constituencies: the two allies, Andhra Pradesh and Bihar, which are key to keeping the Bharatiya Janata Party (BJP)-led government in power, and addressing India’s acute job crisis for young people entering the workforce.
Both Nitish Kumar, Chief Minister of Bihar, and Chandrababu Naidu, Chief Minister of Andhra Pradesh, had demanded a special package for their states. Although a special package was not granted, Sitharaman allocated ₹26,000 crores for highways in Bihar and ₹15,000 crores for the new capital of Andhra Pradesh, Amravati.
The new focus on eastern states, including Bihar and Andhra Pradesh, seems to be driven by political exigencies. Gaya in Bihar has received special attention with the announcement of an industrial node, although Sitharaman did not specify any earmarked funds for this in her budget speech.
Fiscal deficit ceiling
A substantial new 2,400 megawatt power project in Bhagalpur, Bihar, at a cost of ₹21,400 crores, was also announced in Lok Sabha, the lower house of India’s parliament. Naidu had demanded ₹100,000 crores but received only ₹15,000 crores, which is just 15 per cent of his request.
While Naidu is a key ally supporting the Narendra Modi government, sources in both parties (BJP and TDP) suggest that he had aimed high with his wish list from the centre. Whether he will reconcile with what has been conceded remains a crucial question for the Modi government.
Top government sources indicate that there is some scope for further concessions if Naidu’s dissatisfaction persists. A key political aide to Naidu pointed out to Gulf News that Andhra Pradesh is in a precarious financial state and seeks an increase in the fiscal deficit ceiling from three per cent of state gross domestic product by allowing an additional 0.5 per cent borrowing for the financial year through March 2025. Naidu also sought ₹50,000 crores to build the new capital, which has clearly not been granted by the BJP government.
Job creation
Three schemes were announced under employment-linked initiatives: direct benefit transfers of one month’s salary, up to ₹15,000, to first-time employees registered under the provident fund scheme; job creation in manufacturing initiatives, with support provided directly to both employers and employees based on their provident fund contributions during the first four years of employment; and support to employers of up to ₹3,000 per month for two years towards their provident fund contributions.
Additionally, a central scheme for skilling two million youths over the next five years was announced, although details were left unspecified.
An opposition MP told Gulf News that the Modi-led government had previously promised 20 million jobs a year but is now revising this promise to 41 million jobs over five years, which he described as nothing more than a promissory note, hardly redeemable.
One fell blow
The removal of the indexation benefit on sale of property has upset a huge number of tax payers who hold real estate. Sitharaman’s move has in one fell blow taken away the one thing that made this asset attractive for those who held it for the long term.
Similarly for those who invest in gold and silver, this budget has been quite a blow. An expert said that the in the run up to the elections the BJP had warned that the Congress wanted to impose an inheritance tax if voted to power. The threat was never real yet the removal of the indexation benefit was in some ways much worse.
Clearly Sitharaman missed a chance to tell a convincing India story in this budget as it seemed to lack a clear cut direction. What drives the BJP government’s economic impetus is still a mystery and the clear cut bias for ‘allies states’ while ignoring opposition ruled states is not part of the federal big story that should drive the centre’s fiscal ideas.