Great Expectations for Modi's First Budget

Investors have been euphoric in the two months since India Prime Minister Narendra Modi swept into office. Campaigning on promises to kick-start the economy, Modi’s strong mandate has boosted confidence that he will carry through on his pro-business reforms—increasing spending on infrastructure and opening India to more foreign investment.

Modi’s budget, expected to be released on July 10, will be the first step of a plan to revive the country’s weak economy. It will also be a gauge of how willing he is to make unpopular choices. Cutting government subsidies is one of Modi’s biggest challenges. In each of the past two fiscal years, food, fertilizer, and oil subsidies cost the government about 2.5 trillion rupees ($42 billion), equal to about half of the deficit each year. The subsidies “detract from spending on other things like ports and rail,” says Glenn Levine, senior economist in Sydney with Moody’s Analytics. “If ever there was a time to push through a tough budget in India, this is it,” Levine says. “He has the political capital.”