Ahead of 2019 elections, Modi govt wants an expansionary economic policy

Weak consumer spending and the fragile farm sector have already been a drag on economic growth.

Prime Minister Narendra Modi's ruling party is in favour of an expansionary economic policy and does not consider the government's plan to keep the fiscal deficit to 3.3 per cent of GDP as "sacrosanct", a party spokesman told Reuters.

Ahead of a general election that must be held by May and after a string of losses in recent state polls, the government run by the Bharatiya Janata Party (BJP) has announced several stimulus measures for the countryside where millions of farmers are grappling with low crop prices. Other fiscal moves have been aimed at helping small businesses.(Business Standard)

The measures are likely to be a drain on finances in Asia's third-biggest economy, though the Modi administration is expected to get the Reserve Bank of India to agree to transfer an interim dividend of 300-400 billion rupees ($4.32 billion-$5.8 billion) to the government by March, Reuters reported last week quoting sources.

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Weak consumer spending and the fragile farm sector have already been a drag on economic growth, creating a headache for Modi as he struggles to meet ambitious job creation targets.

India lost 11 million jobs last year, with around 83 per cent in rural areas, according to independent think-tank the Centre for Monitoring Indian Economy, as operational costs surged for small businesses. Those costs were boosted by the launch of a national sales tax in 2017 and the economic impact of an earlier ban on high-value currency notes.

"There's a demand, there's a debate - all my colleagues are saying what's the need of keeping the fiscal deficit in check when there is distress in a particular sector," said Gopal Krishna Agarwal, the economic affairs spokesman for the Hindu nationalist BJP, referring to the farm sector.

"Even think-tanks associated with us are talking in this sense. Very few people domestically are talking about fiscal prudence. Only foreign think-tanks are talking fiscal prudence. I strongly believe an expansionary policy can benefit the party," he said in an interview on Tuesday night.

India's 10-year benchmark bond yield rose 4 basis points to 7.53 per cent after the news, its highest since January 8 on worries about the fiscal deficit. The rupee also weakened to 71.23 to the dollar from its previous close of 71.03.