India may seek $7.5b in extra spending to drive growth

Dhaka,  Wed,  23 August 2017
Published : 14 Oct 2016, 17:58:19

India may seek $7.5b in extra spending to drive growth

India may seek parliamentary approval to spend about $7.5 billion more on roads, railways and other public programmes over the next five months, two government sources said, as Prime Minister Narendra Modi looks to spur growth and create jobs, reports Reuters.

The new spending, details of which are still being worked out, would come at a time when private investment has plunged, leading to a slowdown.

It would also coincide with the runup to a crucial state election early next year in Uttar Pradesh, Indian's most populous state that is home to more than 200 million people.

At $7.5 billion, the additional spending would represent about 2.5 per cent of the total budgeted so far for the current fiscal year.

The Uttar Pradesh poll is shaping up to be one of the most important tests for Modi's ruling Bharatiya Janata Party, with ramifications both for the smooth functioning of government and his chances of winning a second term in 2019 national elections.

While some of his government's development initiatives, such as electricity, bank accounts and cooking gas, have started reaching people in the country's vast rural hinterland, the administration has struggled to create enough jobs to meet their aspirations.

Modi has promised to create 250 million jobs over the next decade, but Asia's third-largest economy is not growing fast enough to absorb the roughly 1 million young people who enter the job market every month.

Unemployment rose to 5 per cent in 2015/16, from 3.8 per cent in 2011/12, government data showed.

With private sector investment still failing to take off amid tepid demand and tight credit, Modi is left with little choice but to lean on public spending to fill the gap.

Analysts said additional spending on roads, railways and rural programmes, such as an employment guarantee scheme, could provide jobs to thousands of people.

"Our biggest challenge is to create jobs," a senior finance ministry official said.

The second source, a senior government official, said the extra spending was needed to fund existing programmes and not oriented toward boosting growth. But he added that without the additional investment, the economy would struggle.

Finance Minister Arun Jaitley is likely to seek parliament's blessing for extra spending next month, the officials said.

The new spending would come after lawmakers approved 209 billion rupees in additional investments in August.

Together, the total extra spending over the budgeted 19.78 trillion rupees expenditure could boost growth by about 0.4 percentage points, the finance ministry official said.

India's economy expanded 7.1 per cent in the April-June quarter compared with 7.9 per cent in the previous quarter.

-    TS

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