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Modi's party wants expansionary economic policy ahead of India election

Narendra Modi
India's Prime Minister Narendra Modi attends a presentation of a joint statement with Russian President Vladimir Putin after their delegation level talks at Hyderabad House in New Delhi, India, October 5, 2018. REUTERS/Adnan Abidi
Indian 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 percent 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 Modi's 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.

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.

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 percent 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 a distress in a particular sector," Gopal Krishna Agarwal, a spokesman for the Hindu nationalist BJP, said 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, fiscal prudence. I strongly believe an expansionary policy can benefit the party."

Agarwal, a chartered accountant who is a director at state-run Bank of Baroda and a member of a government committee on small and medium-sized businesses, said Modi was aware of his party colleagues' thinking but that no final decision had been taken.

D.S. Malik, a spokesman for the Ministry of Finance, did not immediately respond to calls and emails seeking comment. Finance Minister Arun Jaitley, who is in the United States for a medical check-up, said in a Facebook post on Tuesday that India’s "fiscal discipline during the past five years has been amongst the best as compared to any preceding period".
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