Budget 2018 Preview: Before 2019 polls, govt will aim to woo rural voters

India's government will be trying to woo back rural voters and small businesses when it announces the 2018/19 budget on Thursday and pick up economic momentum as it heads into a season of elections, officials said.

Prime Minister Narendra Modi, extolling India as a model of economic growth and political openness, told the World Economic Forum in Davos last week the country would be a $5 trillion economy by 2025, more than double its current size.

But at home, Modi is facing voter discontent over falling farm incomes and the lack of jobs for hundreds of thousands of youth entering the labour force each month.

This month, the government lowered its gross domestic growth forecast for the year ending March, 2018 to 6.5 percent, the weakest pace in four years. Growth slowed down because of a chaotic rollout of nationwide goods and service tax (GST) last year and a shock move to ban high-value currency notes in late 2016.

Modi's ruling alliance barely scraped through an election in his home state of Gujarat last month and is now faced with elections in eight states spread over 2018 and a general election that must be held by May next year.

Finance Minister Arun Jaitley will likely step up funding of existing rural programmes such as a jobs guarantee scheme, rural housing and a crop insurance plan in what will be his final full year budget before the general election.

Budget proposals are a closely guarded secret, but a finance ministry official with direct knowledge of the discussions said: "The government's top priority is to create jobs and boost growth."

The official added: "The Budget2018 is likely to offer incentives to the farm sector and small businesses." Small businesses form the core support base of Modi's Bharatiya Janata Party and they are hurting over the implementation of the GST, with its cumbersome compliance procedures, and the demonetisation policy that sucked cash out of the system.

Jaitley is also expected to stay the course on a massive plan to build highways, modernise the railways and end infrastructure bottlenecks that have long hobbled Asia's third-largest economy.

As early as November, as he began laying out his priorities, Jaitley said at a conference of government and industry leaders that "two areas to concentrate on in the upcoming budget are rural India and development of infrastructure." India's growth should pick up to 7.4 percent in 2018 as against China's 6.6 percent, the IMF said this month, as the twin effects from the tax reform and demonetisation wear off.