A weakened Narendra Modi subsidises jobs and doles out pork

Narendra Modi, India’s prime minister, was brimming with confidence when his government unveiled an interim budget in February. With a general election a few weeks away, his ruling Bharatiya Janata Party (BJP) was widely expected to retain, and possibly expand, its majority in parliament. Such was his sureness of victory that the mini-budget contained few of the welfare handouts and other sops that often precede Indian elections. It focused instead on trimming the fiscal deficit, improving infrastructure and other measures aimed at a long-term goal to make India a developed nation by 2047, the centenary of its independence.

A new political reality infused the full budget, unveiled on July 23rd. It was the first since the election result in June, in which the BJP lost its majority, forcing it to rely on coalition partners to form a government. That unexpected shift in India’s political landscape—attributed largely to public anger over unemployment, inflation and inequality—was evident in the budget in several ways.

One of the headline figures was $24bn of new spending on job-creating measures over the next five years. This includes a plan to incentivise hiring in the formal sector by contributing to employees’ first month’s wages and reimbursing some of employers’ social-security contributions. It also includes new training programmes for women. Borrowing from the manifesto of the BJP’s main rival, the Congress party, the budget also proposed a scheme to provide internships at top Indian companies for 10m young people.

The new focus on jobs suggests that Mr Modi is trying to adjust course without abandoning the core tenets of his programme. He has long trumpeted India’s status as the world’s fastest growing major economy and dismissed critics’ allegations of “jobless growth”. But the government’s chief economic adviser, V. Anantha Nageswaran, set the stage for the budget in an annual economic survey released a day earlier in which he said that India needed to create 8m non-farm jobs annually until 2036. He also made the case for seeking more investments from China to boost manufacturing.

Agriculture, which employs about 45% of India’s 565m-strong workforce, was the other big focus of the budget. It promised to spend $18bn on that and related sectors this year. Plans included one to expand digital public infrastructure to link farmers with digital land records and crop surveys and to give them better access to information such as market prices. The government also pledged to introduce high-yielding and climate-friendly crop varieties.

As expected, among the biggest winners from the budget were the BJP’s main coalition partners. The second-biggest party in his alliance is the Telugu Desam Party (tdp), which is based in the southern state of Andhra Pradesh and won a landslide victory in a state election there in June. The budget did not grant its request for “special-category status” (whereby Andhra would get more central funding annually) but it promised $1.8bn this year, and more in the future, for plans that include a new state capital and a huge hydroelectric irrigation project.

Nitish Kumar, the veteran chief minister of the eastern state of Bihar (India’s poorest), got his pound of flesh too. His Janata Dal (United) party is now the third-biggest in the ruling coalition and had lobbied hard for special-category status in recent weeks. The Indian government resisted, promising instead to provide $3.1bn of funding for road projects in the state and to help finance construction of airports, medical colleges, sports facilities and tourist infrastructure around religious sites.

Luckily for Mr Modi he can afford such largesse, thanks to an increase in tax receipts and a windfall from the central bank. In fact, the budget lowered the fiscal-deficit target to 4.9% of gdp from the 5.1% mentioned in the interim financial plan in February. That bodes well for a long-hoped-for upgrade in India’s credit rating, which would ease borrowing costs. Nor did Mr Modi have to water down his ambitious infrastructure plans: the budget retained a commitment made in February to increase overall capital expenditure to $133bn, the equivalent of 3.4% of GDP.

Even so, the budget required trade-offs that Mr Modi is unaccustomed to making. By committing so much of his infrastructure spending to Andhra and Bihar, he risks irking allies and voters in other states. And his new splurge on job creation and agriculture come partly at the expense of wealthier Indians who have benefited from a recent boom in India’s stockmarket. They were hit by an increase in taxes on capital gains and some securities transactions. But the biggest risk of all is that his plans fail to create the jobs he has promised in the years ahead. ■