India to step up state spending to boost growth

News Desk
Thursday, Dec 01, 2022

NEW DELHI: India plans to use government capital spending to sustain strong economic growth, finance minister Nirmala Sitharaman told the Reuters NEXT conference on Wednesday, forecasting a "very good" economy ahead of 2024 national elections.

The government will also place a priority on health and education, said Sitharaman, who is preparing the national budget due on Feb. 1, the last full budget before the elections.

"We would continue to push capital expenditure, and that I’m saying even as I’m preparing for the next budget," Sitharaman told the conference. Capital expenditure, she said, "can guarantee good growth."

As a result, India can look forward to "a very good ... growing Indian economy this year and the next," she said.

India's capital spending budget for the current fiscal year is already 27 percent higher than the previous year.

The government's top economic advisor on Wednesday forecast economic growth for the fiscal year to March 31 at 6.8-7 percent.

Economists have warned, however, that growth momentum may ease in the coming months due to higher interest rates and slowing exports.

Other measures to boost growth include a possible expansion of India's main industrial incentive scheme beyond the current sectors, which include autos, electronic manufacturing and solar, Sitharaman said.

Economic reforms will continue despite the elections, she said.

Higher oil imports from Russia are helping the Indian economy and boosting consumer sentiment as cheaper energy costs partly offset rises in prices elsewhere, Sitharaman told the conference.

Affordability is "one of the very important considerations," for an import-dependant country supporting a population of over 1 billion, said Sitharaman, who said Western countries are also taking advantage of cheaper oil from Russia.

Indian imports from Russia totalled $29 billion between Feb. 24 and Nov. 20 an almost fivefold increase on the $6 billion in the same period a year ago, a source told Reuters this week.

Earlier this month, U.S. Treasury Secretary Janet Yellen said she was happy for India to continue buying Russian oil on certain conditions.

As part of India's G20 presidency, which began earlier this month, Sitharaman said India will push for a multilateral framework for climate funding and cryptocurrency. Asked about its investigations against some Chinese companies, she said India has no plans to clamp down on investments from any specific country.

The government is comfortable with the country's current foreign exchange reserves but believes that the rupee will stabilise without much intervention from the central bank.

The rupee fell below 83 against the dollar earlier in the year, before recovering in the last few weeks on the back of signals of a slower monetary tightening from the United States. On Wednesday the rupee finished the session at 81.4.

Inflation is being influenced by external factors for which measures will need to be taken, she said.

But the central bank expects inflation will be "within the tolerance band by early next year or middle of next year," she added.