Monday July 6, 02:43 PM
India pushes up deficit to spur growth
NEW DELHI (AFP) - Indian Finance Minister Pranab Mukherjee forecast a growing fiscal deficit on Monday as he presented a budget aimed at returning the economy to 9.0 percent annual growth "at the earliest."
While stressing the need for fiscal "austerity," Mukherjee announced increased funding for farmers and poverty alleviation programmes in a splurge that would push the ballooning 2009-2010 fiscal deficit to 6.8 percent of GDP.
The estimate was greeted with dismay on the stock market, where the benchmark 30-share Sensex tumbled to close 5.83 percent lower.
The proposed deficit was far higher than the 5.5 percent put forward by the government in an interim, pre-election budget in February.
India's fiscal deficit has risen sharply in recent years on loan waivers for poor farmers, subsidies and stimulus packages to boost the economy.
It had ballooned to 6.2 percent in the year to March 2009 -- more than double the government's target of 2.5 percent and the highest in nearly two decades.
"The fiscal deficit number (forecast) is big and worrisome," said Siddhartha Sanyal, economist with Edelweiss Securities, who saw little in the budget to balance the proposed public spending increases.
He added that the lack of a clear plan for the sale of government stakes in state-run enterprises was also disappointing.
"There were no big-ticket infrastructure spending details and the roadmap for disinvestment was unclear," he told AFP.
Mukherjee said the government's gross market borrowing in the current fiscal year would be 4.51 trillion rupees (around 90 billion dollars), an increase of nearly 25 percent on the figure proposed in February's interim budget.
"The first challenge is to lead the economy back to the high growth rate of 9.0 percent per annum at the earliest," Mukherjee told parliament.
"The second challenge is to deepen and broaden the agenda for inclusive development," he said.
India's economy grew by 6.7 percent in the year ended March 31 -- the slowest rate since 2003 and down from nine percent a year earlier, as the effects of the global economic downturn hit home.
In its annual Economic Survey presented to parliament last week, the finance ministry had predicted that GDP growth could exceed 7.0 percent this year.
But it stressed that the figure was dependent on a recovery in the global economy as a whole, and that of the United States in particular.
"It is possible that the two worst quarters since the global financial meltdown in September 2008 are behind us," Mukherjee told MPs.
"(But) we cannot afford to drop our guard. We have to continue our efforts to provide further stimulus to the economy," he added.
Total budget expenditure is set to cross 10 trillion rupees in the current fiscal year -- its highest since independence from Britain in 1947.
The budget allocated 128.87 billion rupees for urban infrastructure -- an 87 percent rise over the previous year, while spending on national highways was increased by 23 percent.
It was the Congress-led government's first budget since its unexpectedly decisive victory in April-May elections, and had been keenly awaited, with the ruling coalition no longer burdened by the need to cater to its erstwhile Communist partners.
Under the proposed budget, the government has bet on a spurt in non-tax revenue from selling stakes in state-run companies to keep the stretching fiscal deficit at a manageable level.
India now aims to raise 1.4 trillion rupees (28 billion dollars) in non-tax revenue, of which 11.2 billion dollars will be through stake sales, Mukherjee said.
"There is nothing in the budget which is specific to help boost growth. It is a complete disappointment," said Apurva Shah, head of research with brokerage Prabhudas Lilladher.
After Mukherjee's speech, Prime Minister Manmohan Singh acknowledged that it was a "primarily rural development-oriented budget."
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