India’s Budget: Sustained growth amid elections

On February 1st, Finance Minister Nirmala Sitharaman presented India’s interim budget in Parliament, setting the stage for what could be a historic third consecutive term for Prime Minister Narendra Modi and the Bharatiya Janata Party (BJP) ahead of the general election in April/May. As budget statements ahead of elections typically serve as a platform for incumbent governments to woo key voter groups, British fund management company Liontrust took a closer look at the budget.

“It was, therefore, especially encouraging that Sitharaman offered nothing of the sort, but rather a clear statement of intent − business as usual − issued from a position of strength and confidence,” said Ewan Thompson, fund manager at Liontrust. “This strength and confidence could not be more of a contrast with a decade ago when India was labelled as one of the ‘Fragile 5’.”

In a recent market assessment, the British asset manager outlines the steps India has taken to gain macroeconomic stability. “The budget of February 2021 marked a key turning point, with a major upshift in spending including a large increase in capital expenditure, offering a clear reversal of the years of fiscal contraction, and setting the stage for a re-ignition of the long-awaited domestic investment cycle,” Thompson opined.

The fund manager added that this month’s interim budget could be seen as a continuation of recent trends. He highlights the emphasis on fiscal discipline as the biggest positive surprise. “At a time of uncertain global outlook, consistently raising capital expenditure while maintaining fiscal discipline only serves to underline India’s long-term appeal,” Thompson said. “All in all, the interim budget revealed a confident and assured government, focused on long-term growth and intent on resisting short-term temptations towards vote-winning populism.”