Election Handouts Threaten India's Plan to Curb Budget Gap

Less than a month before India’s budget, risks are growing that Prime Minister Narendra Modi’s government will miss fiscal targets for a second year in a row as it gives into populist pressures before a high-stakes election, Bloomberg News reported. Speculation is mounting of possible cash handouts to farmers and tax exemptions to shore up voter support ahead of polls due by May. Modi’s Bharatiya Janata Party lost control of key states in provincial elections last month. Economists at Nirmal Bang Equities Pvt. and Kotak Securities Ltd. predict a fiscal gap of 3.5 percent of gross domestic product in the year through March, compared with a targeted 3.3 percent. Finance Minister Arun Jaitley is scheduled to give a budget speech on Feb. 1. “Increased spending on direct benefits to farmers would make achieving fiscal deficit targets even more challenging,” said William Foster, a senior credit officer at Moody’s Investors Service in New York, citing the limited scope for the government to increase its revenue resources in the near term. Read more