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India budget to test new government's mettle

Published on NewsOK Modified: July 9, 2014 at 12:46 am •  Published: July 9, 2014

MUMBAI, India (AP) — India's new government presents its inaugural budget this week in the first substantive test of whether Prime Minister Narendra Modi will deliver on ambitious promises to revive stalled economic growth.

Modi's Hindu nationalist Bharatiya Janata Party swept into power in May after the most decisive election victory India has witnessed in three decades, ousting the long-dominant Congress party. Voters were fed up with Congress' failure to curb runaway inflation and the wilting of growth rates to below 5 percent.

The prime minister has warned "bitter medicine" is needed to heal Asia's third-largest economy and improve battered government finances. Expectations of bold policies have been sky high, with the Sensex stock index in Mumbai hitting a series of record highs in the past several weeks. But the prospect of reduced harvests this year due to weak monsoon rains may forestall immediate cuts to fiscally ruinous subsidies for fuel, food and fertilizer.

"I don't think we are going to see something that is completely path-breaking and transformational," said Anjalika Bardalai, an India analyst for the Eurasia Group. "But I do think there will be enough in the budget that is going to be perceived as business friendly and good for the economy."

India's economic growth has slowed to less than 5 percent for the last two years after a decade of expanding by an average of 8 percent, which is the minimum the government says is necessary to provide jobs for the 13 million young Indians who enter the workforce each year.

Big spending on subsidies has limited the government's ability to use its budget to make productive investments that could boost the economy's productivity in the long run. A chronic current account deficit has contributed to weakness in India's currency, worsening consumer inflation that has touched double digits in the last year.

The BJP campaign promised pro-business policies similar to those in the Gujarat state where Modi was chief minister for years and focused on clearing obstacles to building roads and other infrastructure and offering incentives for large-scale investment.

Critics accuse Modi of promoting a more free-wheeling capitalism with less of a social safety net, but the overwhelming victory in May indicated Indian voters, especially the young, are more concerned with the faltering economy.

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