India to Cut Taxes, Increase Spending in Bid to Revive Growth

India is cutting income taxes and increasing spending, hoping to resuscitate growth, which has tumbled to a 10-year low in Asia’s third-largest economy.
Some economists and executives, however, warned that some of the measures unveiled over the weekend could end up hurting the economy more than they help it.
In its national budget released Saturday, the government of Prime Minister Narendra Modi said it was delaying plans to rein in the fiscal deficit so it could spend more as the economy needs government help to create jobs for its 1.3 billion people.
“This is the budget to boost [Indians’] incomes and enhance their purchasing power,” Finance Minister Nirmala Sitharaman said at the start of a more than 2 1/2 -hour budget speech Saturday. “Only through higher growth we can achieve that and have our youth gainfully and meaningfully employed.”
In the past year, Mr. Modi has been implementing a series of controversial social measures long on the wish list of the country’s Hindu nationalist groups. Citizens and companies were looking to the budget for signs he has a clear plan to reverse the county’s economic slowdown.
Growth in India’s gross domestic product is likely to dip to a more than 10-year low of 5% or less for the fiscal year ending March 31, according to economists. As India’s working-age population grows by 10 million people annually, that is a disappointing performance for a popular prime minister who came to power promising to make India an economic superpower.
On Saturday the government unveiled a long list of measures to energize consumption and investment. It lowered income taxes and some corporate taxes and pledged more investment in infrastructure, rural development, education and health care.
To accommodate the spending, India decided to miss its own budget-deficit target. It had intended to drop the deficit to GDP ratio to 3.0% in the year beginning this April but now plans to let that rise to 3.5%.
The government said it would try to increase its revenue by selling stakes in state-owned companies, including one of the country’s largest insurance companies, Life Insurance Corp.
Optimists had predicted that in the face of the sudden slowdown — India has seen its GDP expansion rate fall from the fastest in the world for large countries to slower than many peers in Asia — Mr. Modi’s administration might have been more ambitious. They were hoping for even more spending and progress on long-discussed overhauls such as easing restrictions on hiring and land use.
The benchmark Sensex stock index tumbled close to 2.5% in special Saturday trading on budget day, reflecting their disappointment, said Aurodeep Nandi, a Mumbai-based economist with Nomura.
“The markets plunged because they were expecting the budget to be a game changer,” he said. “They were expecting some growth-reviving announcements like massive increase in expenditure, which didn’t happen.”
The Indian auto sector, which is in the middle of its biggest slump with car and motorcycle sales down more than 20% in recent quarters from a year earlier, was hoping for help.
The Indian automobile industry was looking forward to some direct benefits in the budget, which could have helped in reviving demand,” said Rajan Wadhera, president of industry group the Society of Indian Automobile Manufacturers. “The Budget speech was not what we were expecting.”
Some executives were also discouraged by the budget’s bias toward protecting local companies from international competition. The budget included a slew of higher import tariffs on electronics, electric vehicles, toys and other products and repeatedly mentioned the importance of combating the dumping of goods on the South Asian market.
Joining the growing global trend towards protectionism may shelter some less competitive local companies for a while, economists said. But in the long run it may mean India misses a unique opportunity to step up and become an integral part of the global supply chain as the U.S.-China trade war forces manufacturers to look for new bases. More tariffs could also further aggravate already tense trade relations with the U.S.

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