A weakened Narendra Modi subsidises jobs and distributes pork

NOTArendra ModiIndia's prime minister was full of confidence when his government unveiled an interim budget in February. With just weeks to go before the general election, his ruling Bharatiya Janata Party (BJP) announced a new government on Monday.BJP) was widely expected to retain, and perhaps even increase, his majority in parliament. Such was his certainty of victory that the mini-budget contained few of the welfare packages and other giveaways that often precede Indian elections. It focused instead on reducing the budget deficit, improving infrastructure and other measures aimed at a long-term goal: making India a developed nation by 2047, the centenary of its independence.

A new political reality permeated the full budget, unveiled on July 23. It was the first since the outcome of the June elections, in which the BJP The Indian government has lost its majority, forcing it to rely on coalition partners to form a government. This unexpected shift in India's political landscape, attributed largely to public anger over unemployment, inflation and inequality, manifested itself in several ways in the budget.

One of the key figures in the plan was the investment of $24 billion in job creation measures over the next five years. This includes a plan to encourage formal sector hiring by contributing to employees' first months' wages and reimbursing part of employers' social security contributions. It also includes new training programs for women. Drawing on the Labor Party's manifesto, the plan also includes new training programs for women. BJPIts main rival, the Congress party, has also proposed in the budget a scheme to provide internships in top Indian companies to 10 million young people.

The new emphasis on jobs suggests that Mr. Modi is trying to change course without abandoning the core tenets of his agenda. He has long touted India’s status as the world’s fastest-growing major economy and dismissed critics’ claims of jobless growth. But the government’s chief economic adviser, V. Anantha Nageswaran, laid out the budget’s foundation in an annual economic survey released the day before, in which he said India needs to create 8 million nonfarm jobs a year by 2036. He also argued for seeking more investment from China to boost manufacturing.

Agriculture, which employs about 45% of India’s 565 million workers, was the budget’s other major priority. The government promised to spend $18 billion on the sector and related sectors this year. It included expanding digital public infrastructure to connect farmers to digital land records and crop surveys and give them better access to information such as market prices. The government also pledged to introduce high-yielding and climate-friendly crop varieties.

As expected, among the big winners of the budget are the BJPmain coalition partners. The second largest party in its alliance is the Telugu Desam Party (tdp), which is based in the southern state of Andhra Pradesh and won a landslide victory in state elections there in June. The budget did not grant its demand for special category status (under which Andhra would get more central funding each year), but it did promise $1.8 billion this year, and more in the future, for projects that include a new state capital and a massive hydroelectric irrigation project.

Nitish Kumar, the former chief minister of India’s poorest state of Bihar, also got his share of the pie. His party, the Janata Dal (United), is now the third party in the ruling coalition and has been pushing for special category status in recent weeks. The Indian government has resisted, promising instead to provide $3.1 billion in funding for road projects in the state and to help fund the construction of airports, medical schools, sports facilities and tourism infrastructure around religious sites.

Fortunately for Modi, he can afford such largesse, thanks to increased tax revenues and a financial windfall from the central bank. In fact, the budget lowered the fiscal deficit target to 4.9% of GDP. GDP February’s interim fiscal plan called for a 5.1 percent hike. That bodes well for a long-awaited upgrade to India’s credit rating, which would ease borrowing costs. Nor did Mr. Modi have to water down his ambitious infrastructure plans: The budget kept the February pledge to raise overall capital spending to $133 billion, or 3.4 percent of GDP. GDP.

Still, the budget required compromises that Mr. Modi is unaccustomed to. By devoting such a large share of his infrastructure spending to Andhra and Bihar, he risks angering allies and voters in other states. And his new spending on job creation and agriculture comes partly at the expense of the wealthiest Indians, who have benefited from India’s recent stock market boom. They have been hit by higher taxes on capital gains and some stock market transactions. But the bigger risk is that his plans fail to create the jobs he has promised in the years ahead.