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Given that this is his last chance at big spending before next year’s general election, it is not unreasonable to expect Prime Minister Narendra Modi to add a populist tinge to his Feb. 1 government budget. This is especially true as his main political opponent, Rahul Gandhi, is on a months-long trek, walking from the edge of the Indian Ocean in the south to Kashmir in the northern Himalayas, in an attempt to spark enthusiasm for everyday issues Such as unemployment and inflation.

At best, however, the budget caters to the middle class with some superficial tinkering with the income tax schedule. I would be surprised if the government suddenly decides to push mass consumption by downplaying its single-minded commitment to investment. Expanding the welfare state – such as better old-age security and higher maternity benefits – is also unlikely, although it would help Prime Minister Modi counter Gandhi’s charge that his government only works for a handful of wealthy tycoons, such as Gautam Adani and Mukesh Ambani, they two of the richest men in the world.

The global economy is slowing. The Fed is determined to kill inflation. China’s aggressive reopening could put some pressure on raw prices. Japan appears to be losing control of its ultra-loose monetary policy. Against this backdrop, India will be reluctant to make costly commitments. Even with a bumper tax harvest – thanks to faster-than-expected domestic inflation – the federal government will run its target budget deficit of 6.4 percent of gross domestic product in the fiscal year ending March 31.

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Add to this the state-level resource shortages, chronic losses of distribution utilities, a current account gap projected to exceed 3% of GDP, and sticky core inflation of 6% – India’s macroeconomic imbalances already a major The worst of the worst. So far the good news is the high growth post-Covid-19. Now that is slowing down, partly because export demand is starting to falter and partly because Mumbai’s central bank has also had to raise interest rates. Focusing on stability may serve India better than desperation to start the fiscal pump.

Central to Prime Minister Modi’s economic agenda is promoting India as a manufacturing destination rivaling China. He tried to do this by incentivizing private factory spending and allocating more state resources to infrastructure, especially railroads and roads. Banks increased credit, and manufacturers of capital goods opened up new businesses. Their orders were 3.8 times revenue in September, compared with 2.9 times in March 2019, according to Crisil, an affiliate of S&P Global Inc. The companies hoping New Delhi will hang on, putting more taxpayer dollars into what is widely believed to be the start of a long-term investment cycle with global ramifications: India’s steel demand has already surpassed that of the U.S. fastest growing.

Sustaining the building boom requires money. This month, the government a pandemic-era free food program for 800 million Indians. With any luck, it could also save some money on fertilizer subsidies, which surged after the war in Ukraine sent international prices soaring. Cuts like these would be passed on to investors through a five-year, $24 billion production-related incentive program aimed at makers of everything from semiconductors and electric car batteries to textiles and even toys. The supply chain for Apple products is taking root, with more suppliers to the Cupertino, California-based behemoth getting licenses to set up shop in India.

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However, uncertain global demand and subdued domestic consumption may limit private investment. The Indian government’s own capex will have to shoulder the load. It will be difficult to repeat the 63% gain in the April-November period without leasing out existing state assets to private companies to raise funds. The problem is that the same rapacious billionaires close to the government that Gandhi complained about in his speeches may also be the ones most eager to invest in roads, train stations and airports. Modi managed to sell loss-making Air India to Mumbai-based Tata Group 15 months ago. That’s timely. As elections loom, the political space for privatization may shrink.

Overall, New Delhi’s spreadsheets likely to show a projected 0.5 percentage point reduction in the annual deficit for the year beginning April 1. That would still leave annual government borrowing at much higher levels than before the pandemic. But at least ratings firms can chalk up the pledge to “anticipated fiscal consolidation” and leave the sovereign unchanged in the last tier of investment-grade rankings. Whether there is real pressure in bond and money markets to meet deficit reduction targets will only become clear during the year.

Markets have so far not paid much attention to the slow shift toward more populist policies. In some states, where opposition parties including the Gandhi Congress recently won elections, they reintroduced the old defined pension pension scheme for local government employees. This is a dangerous trend. Abandoning 20 years of progress in getting workers to contribute to pension security and reassuring half of their last paycheck would place a burden on future taxpayers. Instead, it would also lead to a reduction in welfare funding for the bottom of the socioeconomic pyramid. Even if Modi ignores the challenge, Gandhi may fight back by reiterating his 2019 pledge to provide the poorest 50 million families with a basic income, even as urban unemployment remains high at 10%.

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The February 1 budget is expected to be fairly cautious, but the risk of a budget downturn during the year cannot be ruled out if political pressures mount as growth slumps.

( from the title, this story is unedited by NDTV staff and published via a syndicated feed.)

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