India may seek $7.5 bln in extra spending to spur growth -sources

Gayatri Projects

14/10/2016 01:30

* Modi faces election soon in India's most populous state 
    * Plans extra spending on roads, other projects to create 
jobs 
    * Government aims to up spending without affecting deficit 
target 
    * Unemployment rises to 5 pct in 2015/16 from 3.8 pct in 
2011/12 
 
    By Manoj Kumar 
    NEW DELHI, Oct 14 (Reuters) - 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. 
    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 percent 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.  urn:newsml:reuters.com:*:nL5N1875O3 
    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 percent in 2015/16, from 3.8 percent 
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 percent in the April-June 
quarter compared with 7.9 percent in the previous quarter. 
     
    FISCAL CHALLENGE  
    Jaitley has told officials in his ministry that they need to 
fund the additional spending without breaching his fiscal 
deficit target of 3.5 percent of GDP, according to the finance 
ministry official. 
    Last year, Jaitley had to impose a small spending cut of 42 
billion rupees, despite revenue receipts overshooting initial 
estimates by nearly 5 percent, to meet the deficit target of 3.9 
percent of GDP. 
    The two officials said balancing the books could be tricky 
now as well. India's fiscal deficit  INFISC=ECI  during the five 
months to August was 76.4 percent of the budgeted target for the 
fiscal year ending in March 2017, government data showed. 
    Earlier this month, the government was dealt a setback when 
an auction of telecom airwaves fell short of internal 
expectations, leaving a hole of around 150 billion rupees, one 
of the officials said.  
    Another source of funds, a 565 billion rupees disinvestment 
target, is also yet to take off. Government data shows it has so 
far raised only 31.8 billion rupees. 
    Further, a hike in the wages of nearly 10 million employees 
and pensioners has added to the stress on government finances. 
    A recent report by the World Bank warned a shortfall in 
revenues from stake sales and the spectrum auction could hit 
public finances.  
    "If these are not met, there is a risk that growth-enhancing 
capital and social spending may be cut to meet fiscal targets, 
or that fiscal targets may be missed," said the report.  
    But Jaitley's budget team is betting on up to 120 billion 
rupees in savings in fuel subsidies, a pickup in tax receipts 
and a windfall gain of about 145 billion rupees from a tax 
amnesty.  urn:newsml:reuters.com:*:nL3N1C705K 
    The picture would be clearer by the end of November, as more 
information becomes available about the disinvestment process 
and tax collections, the finance ministry official said. 
 ($1 = 66.5919 Indian rupees) 
 
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India's Jobs Market      http://tmsnrt.rs/2bU1OcW  
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 (Additional reporting by Rajesh Kumar Singh, Doug Busvine and 
Paritosh Bansal; Editing by Mike Collett-White) 
 ((manoj.kumar@thomsonreuters.com; +91 11 4954 8029; Reuters 
Messaging: manoj.kumar.thomsonreuters.com@reuters.net)) 
 
Keywords: INDIA ECONOMY/BUDGET