Modi puts money where mouth is on infrastructure

TAKAFUMI HOTTA, Nikkei staff writer

Finance Minister Arun Jaitley carries a budget laden with infrastructure spending. © AP

MUMBAI -- With its first budget proposal, the government of Indian Prime Minister Narendra Modi has shown a readiness to prioritize spending on the building blocks for economic expansion.

     The draft released Thursday represents a rewrite of the previous government's provisional budget for the fiscal year ending next March. Finance Minister Arun Jaitley said it would put India on the path back to 7-8% growth.

     Total expenditures are forecast to rise 13% on the year to 17.95 trillion rupees ($298 billion). Infrastructure spending makes up 5.75 trillion rupees of this sum, an increase of 21%. Some 380 billion rupees will go toward national and state highways, while 70 billion rupees will be spent to build 100 "smart cities."

     Modi's government will look to the private sector to provide money and know-how for infrastructure improvements. The Japan International Cooperation Agency is conducting feasibility studies for high-speed rail projects, in which bullet train operator Central Japan Railway and other Japanese companies have shown an interest. Urban development is also likely to provide greater opportunities for Japanese technology.

     Fostering growth industries forms another part of Modi's economic agenda. The budget proposal calls for allowing increased foreign investment in the defense and insurance sectors.

     At the same time, his government laid out a timetable for narrowing India's chronic budget deficits -- first to 3.6% of gross domestic product in fiscal 2015, then to 3% the following year, from 4.5% in fiscal 2013.

     Tax receipts for fiscal 2014 are seen rising 18% to 13.64 trillion rupees. Jaitley said a planned goods and services tax, an attempt to simplify taxation, would move ahead this year. He also proposed to "overhaul" food and fuel subsidies, a source of strain on the budget.

     But some analysts lamented a lack of details on cutting subsidies. In the stock market, the benchmark Sensex ended slightly lower. Modi faces the daunting task of balancing the necessary investments with steps to put India's finances on a sounder footing.