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India’s markets jump on budget, factory activity
February 1, 2017, 5:08 pm

India’s stocks jumped about two per cent on Wednesday after the finance minister’s budget reveal [Xinhua]

The announcement by India’s Finance Minister Arun Jaitley to boost government spending and reduce the base tax helped the stock exchanges jump by about two per cent on Wednesday.

This was helped by a return of growth in India’s factory activity in January and the rupee currency bouncing back 0.4 per cent, signalling that the short-term negative effects of demonetization were now a thing of the past.

But Jaitley’s 2017 budget reveal is also poginant.

The government is boosting spending in many sectors, many of which had been directly impacted by Prime Minister Narendra Modi’s demonetization anti-graft campaign.

Infrastructure wfunding will increase by at least 10 per cent to $59.3 billion

According to economist Subhanil Chowdhury, the agriculture sector was hit hard by demonetization.

“As a result of the loss of cash, both harvesting and sowing is getting hampered because the farmers have been paid the old notes from their sales of their harvest, which are now unusable. With these notes they are not being able to buy seeds and fertilizers or pay wages to the agricultural workers,” Chowdhury says.

But the finance minister’s budget looks like it will provide relief to beleaguered farmers.

He announced an 11 per cent increase in the amount that banks can lend and a nearly 25 per cent increase in government spending on rural development reaching nearly $28 billion in 2017.

A World Bank report – Global Economic Prospects – released in early January said that India’s GDP growth would be scaled back from 7.6 per cent to 7 per cent in 2017 as a direct result of the demonetization policy released in Q4.

However, it classified India’s economy as “still robust” and forecast that GDP growth would bounce back in coming years.

“India is expected to regain its momentum, with growth rising to 7.6 per cent in Fiscal Year(FY) 2018 and strengthening to 7.8 per cent in FY 2019-20,” the report went on to say.

The BRICS Post with inputs from Agencies

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