(Bloomberg) -- India's government proposed boosting capital spending by more than a third to 10 trillion rupees ($122.3 billion) next fiscal year to pay for infrastructure projects, as part of efforts to support growth in Asia's third-largest economy.
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Increasing spending on projects such as roads, ports and housing will help India create jobs and raise productivity, which are key to sustaining what Finance Minister Nirmala Sitharaman called the economy's world-beating performance.
"The budget takes the lead once again to ramp up the virtuous cycle of investments," Sitharaman said, as she presented the annual spending plan for the nation of 1.4 billion people for the year beginning April. Capital expenditure "is being increased steeply for a third year in a row," she added.
The government has identified 100 new projects for last mile connectivity and plans 50 additional airports, heliports and aerodromes, Sitharaman said. The government will also extend interest free loans to provinces by one more year to boost capital spending, she said.
Creating jobs is another priority for the government, as Prime Minister Narendra Modi faces re-election next year. Increased employment will help boost incomes, and in turn consumption, prompting businesses to invest even more, setting off a so-called virtuous economic cycle at a time when some advanced economies face recessionary conditions and higher interest rates temper demand.
"The Indian economy is on the right track," Sitharaman said, adding that the budget will focus on youth, women, farmers, the socially underprivileged. The budget will create opportunities for the youth, have strong impetus for job creation and strengthen macroeconomic stability, she said.
A finance ministry report Tuesday forecast India's gross domestic product growth to slow to 6.5% in the fiscal year starting April, compared with the 7% in the current year. The projection is higher than the International Monetary Fund's estimate for 6.1% growth and will be the quickest pace among major economies.
"This budget hopes to build on the foundation of the previous budgets," the finance minister said.
Local stocks pared gains in Mumbai, as Sitharaman continued with her budget speech, while benchmark 10-year bonds extended losses, with yields now up 5 basis points to 7.39%.
The budget also comes as Modi takes the global stage with India's presidency of the Group of 20 nations as he pushes an ambition to turn the nation into the world's third-largest economy before the end of the decade.
"G20 presidency gives us a unique opportunity to strengthen India's role in global order," Sitharaman said. "Our vision for the 'Amrit Kaal' includes technology driven and knowledge based economy with strong public finances and a robust financial sector," she said, referring to the next 25 years leading to India's 100 years of independence, which the government touts as the period of nectar.
Here are other key points from Sitharaman's proposals:
Farm credit target for next fiscal year set at 20 trillion rupees
India will invest 350 billion rupees for energy transition
Relief measures for small- and medium-size businesses proposed, including easing norms related to contract failure
--With assistance from Anup Roy, Shruti Mahajan, Muneeza Naqvi, Pradeep Kurup and Devidutta Tripathy.
(Updates with details throughout)
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