Past failures on spending targets dampen India's 2021 budget hopes

Indian Finance Minister Nirmala Sitharaman’s promise of delivering a budget like no other on Monday stoked hopes of a much-needed spending boost. But if the past is any guide, the reality may disappoint.

The government has missed its total spending targets in the past two years, or even scaled them down, and has failed to meet goals for some of its flagship development programs, a review of budget documents show.

While increasing public expenditure is key to revive the economy from the pandemic-induced slump, falling tax revenues mean Sitharaman will have thin resources. Borrowing has already risen to a record 13.1 trillion rupees (about $180 billion) in the current financial year to March, widening the fiscal deficit and putting its sovereign rating under scrutiny.
 

Ahead of the annual budget for the next fiscal, to be released Feb. 1, here are a few charts to show how India’s spending plans have fared:

A program to improve roads in the hinterland, started in 2000 as part of a poverty reduction strategy, was widely lauded for connecting isolated hamlets and allowing small businesses to deliver faster. Spending has been scaled down even as India’s budget increased over the years. Raising expenditures on rural infrastructure could be a boon as the government bets on rural communities to rescue the economy, while it also seeks to defuse sustained protests from farmers angry over agricultural reforms.

 

BharatNet, a program aimed at improving broadband access in rural India, has repeatedly fallen short and risks running behind schedule. While home to the world’s second-largest pool of internet users, half of India’s population lacks internet access -- which could throw a spanner in the e-commerce works and slow investments from the likes of Amazon.com Inc. and Facebook Inc.

Prime Minister Narendra Modi’s Clean India campaign, among his first after coming to power in 2014, promotes clean streets and building tens of millions of toilets to end "open defecation." While spending exceeded targets in the initial years, fund utilization has since underwhelmed. With the pandemic underlining the need for improved hygiene, the program may come back into focus.

Modi’s plan to modernize India’s cities, announced in 2015, saw a significant shortfall last fiscal after it exceeded targets in preceding years. Spending may be a priority in the new budget as Modi is keen on attracting foreign investment to transform urban centers to help the economy recovers from the pandemic.