* Modi faces election soon in India's most populous state
* Plans extra spending on roads, other projects to create
* Government aims to up spending without affecting deficit
* Unemployment rises to 5 pct in 2015/16 from 3.8 pct in
By Manoj Kumar
NEW DELHI, Oct 14 India may seek parliamentary
approval to spend about $7.5 billion more on roads, railways and
other public programmes over the next five months, two
government sources said, as Prime Minister Narendra Modi looks
to spur growth and create jobs.
The new spending, details of which are still being worked
out, would come at a time when private investment has plunged,
leading to a slowdown.
It would also coincide with the runup to a crucial state
election early next year in Uttar Pradesh, Indian's most
populous state that is home to more than 200 million people.
At $7.5 billion, the additional spending would represent
about 2.5 percent of the total budgeted so far for the current
The Uttar Pradesh poll is shaping up to be one of the most
important tests for Modi's ruling Bharatiya Janata Party, with
ramifications both for the smooth functioning of government and
his chances of winning a second term in 2019 national elections.
While some of his government's development initiatives, such
as electricity, bank accounts and cooking gas, have started
reaching people in the country's vast rural hinterland, the
administration has struggled to create enough jobs to meet their
Modi has promised to create 250 million jobs over the next
decade, but Asia's third-largest economy is not growing fast
enough to absorb the roughly 1 million young people who enter
the job market every month.
Unemployment rose to 5 percent in 2015/16, from 3.8 percent
in 2011/12, government data showed.
With private sector investment still failing to take off
amid tepid demand and tight credit, Modi is left with little
choice but to lean on public spending to fill the gap.
Analysts said additional spending on roads, railways and
rural programmes, such as an employment guarantee scheme, could
provide jobs to thousands of people.
"Our biggest challenge is to create jobs," a senior finance
ministry official said.
The second source, a senior government official, said the
extra spending was needed to fund existing programmes and not
oriented toward boosting growth. But he added that without the
additional investment, the economy would struggle.
Finance Minister Arun Jaitley is likely to seek parliament's
blessing for extra spending next month, the officials said.
The new spending would come after lawmakers approved 209
billion rupees in additional investments in August.
Together, the total extra spending over the budgeted 19.78
trillion rupees expenditure could boost growth by about 0.4
percentage points, the finance ministry official said.
India's economy expanded 7.1 percent in the April-June
quarter compared with 7.9 percent in the previous quarter.
Jaitley has told officials in his ministry that they need to
fund the additional spending without breaching his fiscal
deficit target of 3.5 percent of GDP, according to the finance
Last year, Jaitley had to impose a small spending cut of 42
billion rupees, despite revenue receipts overshooting initial
estimates by nearly 5 percent, to meet the deficit target of 3.9
percent of GDP.
The two officials said balancing the books could be tricky
now as well. India's fiscal deficit during the five
months to August was 76.4 percent of the budgeted target for the
fiscal year ending in March 2017, government data showed.
Earlier this month, the government was dealt a setback when
an auction of telecom airwaves fell short of internal
expectations, leaving a hole of around 150 billion rupees, one
of the officials said.
Another source of funds, a 565 billion rupees disinvestment
target, is also yet to take off. Government data shows it has so
far raised only 31.8 billion rupees.
Further, a hike in the wages of nearly 10 million employees
and pensioners has added to the stress on government finances.
A recent report by the World Bank warned a shortfall in
revenues from stake sales and the spectrum auction could hit
"If these are not met, there is a risk that growth-enhancing
capital and social spending may be cut to meet fiscal targets,
or that fiscal targets may be missed," said the report.
But Jaitley's budget team is betting on up to 120 billion
rupees in savings in fuel subsidies, a pickup in tax receipts
and a windfall gain of about 145 billion rupees from a tax
The picture would be clearer by the end of November, as more
information becomes available about the disinvestment process
and tax collections, the finance ministry official said.
($1 = 66.5919 Indian rupees)
(Additional reporting by Rajesh Kumar Singh, Doug Busvine and
Paritosh Bansal; Editing by Mike Collett-White)