The Indian government is trying to stick to tight fiscal policy in the face of a depressed farm sector and a banking sector overburdened with bad loans. Prime Minister Modi hopes to further accelerate the country’s already fast growth by encouraging corporate investment and off-budget financing of infrastructure projects.
In keeping with tradition, Prime Minister Narendra Modi used the latest budget to lay out his government’s macroeconomic strategy and policy priorities for 2016 and beyond. The key message is simple: India will hold the line on the fiscal deficit, sticking to a target of 3.5 percent of gross domestic product (GDP).
There is a catch, though. While popular with most analysts, foreign investors and the central bank, such a policy greatly complicates the challenges of tackling India’s three worst domestic economic problems. They are: a rural population in distress after two poor monsoons, weak capital investment from private corporations and a festering bad loan problem in the banking sector.