India faces pressure to deliver on reforms in budget

[NEW DELHI] India's government is likely to lay out growth-boosting measures and overhaul its tax regime in its budget Monday, after warning that a weak global climate was hurting Asia's third-largest economy.

Finance Minister Arun Jaitley is also under pressure to deliver on promised reforms, after last year's budget met with a cool response in many quarters for its lack of "big bang" announcements.

Investors are looking for concrete initiatives from Prime Minister Narendra Modi's government to make it easier to do business, with hopes it will move to simplify a complex tax regime seen as deterring investors.

While Jaitley has previously outlined his intention to reduce corporate tax from 30 to 25 per cent before the next election, Monday is expected to be the first time he lays out a detailed roadmap to reach that target.

The finance ministry has promised the 2016-17 budget will be "growth-oriented" in the face of a global climate that appears significantly more challenging than last year.

India is seen as a relative bright spot in the world economy, after a slowdown in China, collapsing commodity prices and recession in other big emerging markets sent stock indexes tumbling.

But with feeble global demand causing India's exports to shrink for 14 months in a row and private investment weak, the government will likely focus on shoring up growth at home.

On Friday the annual pre-budget Economic Survey said gross domestic product (GDP) would expand between 7.0 per cent and 7.75 per cent in the next financial year, marking little change from this year's levels.

"If the world slows down we will slow down as well," the government's chief economic adviser, Arvind Subramanian, told a news conference.

The budget will likely set aside billions of dollars for a proposed 23 per cent pay rise for millions of active and retired civil servants recommended by a pay commission.

Other spending pledges are seen as focusing on infrastructure, recapitalising public sector banks beset by bad loans, and supporting rural areas struggling from drought.

A key question in economists' minds is whether the government will relax its commitment to rigorous fiscal discipline in favour of boosting spending.

Many think it will soften or delay its ambitious target to cut the fiscal deficit to 3.5 per cent of GDP in 2016-2017.

India has in recent years successfully managed to narrow its high fiscal deficit - the amount by which a government's spending exceeds its income.

Credit rating agencies have warned that straying from fiscal consolidation may leave India vulnerable to a downgrade.

Since sweeping to power in a general election in May 2014, Modi has made it a priority to boost India's economic growth, vital for lifting millions out of poverty.

But investors have raised concerns about the pace of promised reforms needed to spur investment and create jobs for India's tens of millions of young people.

AFP