MUMBAI // India's business leaders and investors were largely disappointed by the federal budget presented yesterday, as the finance minister tried to balance managing a slowing economy and a large fiscal deficit with appeasing the masses ahead of next year's general elections.
"This budget, one thing is that there's no negative Ö but there's nothing positive," said Ramesh Chandak, the managing director and chief executive at KEC International, India's largest manufacturer of electrical power transmission towers.
India's stock markets fell after the budget was unveiled, despite the government's pledge to cut the fiscal deficit to 4.8 per cent of GDP in the next financial year.
The Bombay Stock Exchange's benchmark Sensex closed down 1.52 per cent, while the Nifty declined 1.79 per cent. The rupee and bond prices also weakened.
The budget was delivered as India grapples with large deficits, high inflation and the threat of its sovereign rating being downgraded to junk status.
But the finance minister, P Chidambaram, revealed a budget that was not as austere as some expected, with higher than expected spending in part to be funded by higher taxes on the rich.
The government announced a 10 per cent surcharge on those who earn taxable income of more than 10 million rupees (Dh675,513) a year.
Additional surcharges were also added for local company taxes, with surcharges raised from 5 per cent to 10 per cent for firms with taxable income of more than 100m rupees a year. Foreign companies, which pay the higher rate of corporate tax, will see the surcharge increase from 2 per cent to 5 per cent.
"During the periods of stress, some of the people who have greater means have to pay more," said R Mukundan, the managing director of Tata Chemicals.
Increased duties were also announced for imported cars, motorcycles and yachts. Excise duty on some mobile phones are also being increased.
"I acknowledge that the India economy is challenged," Mr Chidambaram said.
"In a constrained economy there is little room to raise tax rates for large amounts of additional tax revenue.Equally there is little room to give away tax revenues on the tax base. It is a time for prudence, restraint, and patience."
Mr Chidambaram announced plans to set up India's first public-sector women's bank, pledging 10 billion rupees as initial capital. Other notable announcements included raising the duty free limit on gold to 50,000 rupees for men and 100,000 rupees for women returning from overseas.
The government pledged 100bn rupees for its food security programme.
But the business community described the budget as "soft".
"I would say my first reaction is a sigh of relief," said Arun Nanda, a director at Mahindra & Mahindra, one of India's biggest conglomerates, which focuses on vehicle manufacturing. "[P Chidamabaram] could have been more harsh on tax. The populist schemes could have been much more. That was my bigger worry in an election year.
"I personally feel that [the finance minister] has done better than what he could have done given the current situation. You must understand the economy is in a bad shape."
India's economic growth is predicted to slow to a decade low of 5 per cent in the financial year ending this month, according to the most recent forecasts issued by the central statistics office.
The country's central bank is slightly more optimistic, having published estimates for 5.5 per cent growth.
"Certainly the first half an hour, the focus seemed to be very much on the social services spending and the intent seems to be very strongly in that direction, which for any country like India is certainly justified and the right thing to do," said Govind Sankaranarayanan, the chief financial officer and chief operating officer, corporate affairs at Tata Capital Financial Services.
"What one needs to see is how much of that actually flows through into, let's say, enhanced consumption, which is something which in some sectors seems to have fallen away in the last year," said Mr Sankaranarayanan.
Mr Chandak was disappointed that there seemed to be no measures to cheer the power sector.
"As the electrical industry, we had requested that we should be treated on par with the infrastructure industry for service tax purposes," he said. "I don't know if there's anything in the detailed proposal, anything, but he has not spoken about that. We wanted the large investments to happen in the power sector. I don't think there's anything that says that power sector will grow. I think these are the issues."