India Plans Infrastructure Investment to Lift Economy

Indian Prime Minister Narendra Modi’s government on Friday proposed to invest heavily in infrastructure, digital economy and job creation to lift a slugging economy that’s burdened with a 45-year-high unemployment rate of 6.1 percent.

Unveiling the budget after a major victory in national elections, Finance Minister Nirmala Sitharaman Sitharaman proposed a bigger role for foreign direct investment in aviation, media and insurance sectors.

The government set a target of a $5 trillion Indian economy by 2025 from the present $2.7 trillion. Sitharaman said the size of the economy would reach $3 trillion by March next year.

She told Parliament that India’s economy was now the sixth largest in the world. In terms of purchasing power parity, it is the third largest after the United States and China, she said.

She also announced cash handouts for small farmers, a pension scheme for informal workers and a doubling of tax relief for the lower middle class.

Small farmers would be paid 6,000 rupees ($85) annually, benefiting as many as 120 million households. Nearly 30 million retail traders and small shopkeepers with an annual income of less than 15 million rupees ($220,000) would get pension benefits, she said.

The budget doubled income tax exemptions for those earning up to 500,000 rupees ($7,142) a year from the existing 250,000 rupees ($3,571). The decision would benefit 30 million lower earning taxpayers.

Sitharaman said that foreign direct investment in aviation, media and insurance sectors could be opened further after multi-stakeholder examination. Also, insurance intermediaries could get 100% foreign direct investment. India at present allows 49% foreign ownership in the insurance sector.

She also said that local sourcing norms of 30% would be eased for foreign direct investment in single brand retail sector, a demand put forward by several multinational companies. India currently requires investors to source locally 30% of the value of goods purchased.

`These companies will certainly have to relook at their strategy to tap the large Indian consumption potential. It would now be a race for all these retail companies to evaluate the conditions and take a quick decision to invest into India,” said Anil Talreja, an industrialist.

The finance minister said the foreign direct investment into India has remained robust despite global headwinds. India’s FDI inflows in 2018-19 were around $64.375 billion, marking a 6% growth over the previous year.

Modi said that the budget would accelerate the pace of development, rationalize the tax structure and modernize the country’s infrastructure.

The government will invest 1,000 billion ($15 billion) in infrastructure over the next five years, Sitharaman said. She also said the government will raise 1,050 billion rupees ($15.5 billion) through disinvestment in government-owned companies in 2019-2020.
 
The government also earmarked 100 billion rupees ($1.5 billion) for creating an infrastructure for promoting electric cars in the country.

 

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