NEW DELHI — India unveiled its 2024-25 budget, emphasizing job creation and rural development while aiming to reduce the fiscal deficit, following a recent election setback for the government. Analysts attributed the poor election results, which saw Prime Minister Narendra Modi's Bharatiya Janata Party (BJP) lose its absolute majority and rely on allies to govern, to rural distress and a weak job market.

The government plans to spend US$24 billion (S$32.28 billion) on job creation over the next five years and US$32 billion on rural development this year, according to Finance Minister Nirmala Sitharaman. "The budget successfully engineered a fine balance between supporting job creation and skilling, rural development and agriculture, along with continued focus on infrastructure spending without compromising on fiscal consolidation," said Sakshi Gupta, principal economist at HDFC Bank.

In response to concerns about an overheating market, Sitharaman increased taxes on equity investments and derivative trading, while providing tax relief to lower-income consumers. The fiscal deficit target for 2024-25 is set at 4.9 per cent of GDP, down from 5.1 per cent in the interim budget. The government plans to slightly reduce gross market borrowing to 14.01 trillion rupees (S$225 billion), aided by a US$25 billion surplus from the central bank.

The budget includes incentives for job-creating companies, skill improvement programs, and cheaper loans for higher education. Official unemployment in urban areas is 6.7 per cent, but the Centre For Monitoring Indian Economy estimates it at 8.4 per cent. Spending on long-term infrastructure projects will be maintained at 11.11 trillion rupees, with 1.5 trillion rupees in long-term loans to states, linked to reforms in land and labor.

To appease allies, the government will expedite loans from multilateral agencies for Bihar and Andhra Pradesh.The budget also raises the tax rate on equity investments held for less than a year from 15 per cent to 20 per cent, and for those held over a year from 10 per cent to 12.5 per cent. The tax on equity derivative transactions, popular among retail investors, was also increased. "The tax increase is marginal but will help bring in rationality on options trading exuberance and will better investment behavior," said Trideep Bhattacharya, chief investment officer of Edelweiss Mutual Fund, noting it would encourage longer-term investing.