NEW DELHI: India’s annual budget made a fresh bet on the country’s manufacturing sector as Finance Minister Nirmala Sitharaman laid out priorities for Asia’s third-biggest economy and pledged to accelerate growth amid a volatile global environment.

The budget for the next fiscal year will focus on structural reforms particularly in the manufacturing sector, building a robust financial sector and stepping up investments in cutting-edge technologies, including artificial intelligence, she said on Sunday (Feb 1).

The Modi government has been struggling to raise manufacturing from the current level of under 20 per cent of gross domestic product (GDP) to 25 per cent to generate jobs for the millions entering the nation’s workforce each year.

The Indian economy is seen growing at 7.4 per cent in the current financial year, with inflation expected at near 2 per cent. The government’s fiscal deficit for the year is expected at 4.4 per cent of GDP.

To spur private investment and demand, New Delhi has rolled out a series of reforms in recent months, including consumption and income tax cuts, an overhaul of labour laws and steps to open up the tightly controlled nuclear-power sector.

The budget will prioritise scaling up manufacturing across seven sectors, Sitharaman said. They include pharmaceuticals, semiconductors, rare earth magnets, chemicals, capital goods, textiles and sports goods.

The government will also revive 200 legacy industrial clusters.

The government will bring down its debt-to-GDP ratio to 55.6 per cent from 56.1 per cent in the current year. Starting this year, the government has adopted debt-to-GDP as the target for fiscal policy.

To meet this debt target, the fiscal deficit is seen at 4.3 per cent in the new financial year, at par with the current year.

The government will borrow a gross amount of 17.2 trillion rupees (US$187.6 billion) from the bond markets in the new year.

"NEXT-GENERATION REFORMS"

"The nation is moving away from long-term problems to tread the path of long-term solutions. Long-term solutions provide predictability that fosters trust in the world," Prime Minister Narendra Modi said on Thursday before the government’s economic survey forecast growth of between 6.8 per cent and 7.2 per cent for the fiscal year starting in April.

India will continue with "next-generation reforms", as the next 25 years will be key to meeting the goal of making the South Asian nation a developed economy, he said.

India is also striking deals, such as a landmark trade agreement with the European Union, to offset the hit from the 50 per cent tariffs United States President Donald Trump has imposed on some Indian goods shipped to the US.

To keep economic growth strong, the government will also spend 12.2 trillion Indian rupees on infrastructure in the new year, compared to 11.2 trillion rupees last year.

The government will set up a high-level committee to review rules for the country’s financial sector to enable it to support the growing economy.

This will include a review of rules for non-banking financial companies and foreign investment management rules to make it easier for foreign investors to access Indian markets.

The budget also announced a series of steps to support the corporate bond market in India, including the introduction of total return swaps and incentives to boost fund-raising via municipal bonds.

Total return swaps is a derivative contract used alongside debt instruments to transfer the economic exposure of a bond from one party to another without selling the bonds outright.