India seen boosting budget spending on infrastructure

India plans to raise spending on infrastructure in its annual budget next week to set the economy on a firmer footing, but fiscal constraints leave little chance of concessions for households hurting from the pandemic, officials said.

Asia’s third-largest economy is estimated to expand 9.2% in the fiscal year that ends in March, following a contraction of 7.3% in the previous fiscal year.

Yet private consumption, which makes up almost 55% of GDP, is below pre-pandemic levels amid rising household debt, while retail prices have swelled almost a tenth since the COVID-19 outbreak in early 2020.

The Feb. 1 budget comes days before the start of elections in five States, which could spur Finance Minister Nirmala Sitharaman to promise higher rural spending and subsidies on food and fertiliser.

Yet these are likely to be overshadowed by spending to beef up transport and healthcare networks, which analysts estimate could rise between 12% and 25% in the next fiscal year.

“We will focus on reviving the economy through higher investments, while individual and corporate taxes will be kept steady,” one official, who sought anonymity, told Reuters, adding that reviving growth would be a priority.

To attract investments that create jobs and spur growth, Ms. Sitharaman could also boost incentives tied to production in more industries.

“Continuing on its capex push, we expect another 25% increase in capital expenditure by the central government … we expect budgetary allocations for roads, highways and railways to rise,” Nomura analyst Sonal Varma said in a note.