NEW DELHI // India's finance minister yesterday delivered a subdued budget for the government's upcoming financial year, levying new taxes on "super-rich" individuals and corporations to raise revenues.
Although general elections are scheduled for next year, a sluggish economy and a large deficit compelled P Chidambaram to unveil a budget notable for its low-key populism, its aversion to risky reforms and a reliance on foreign investment.
"The economic space is constrained because of a high fiscal deficit," Mr Chidambaram said in his speech presenting the budget, seen as a balancing act to stave off a credit-rating downgrade while meeting demands for populist spending heading into an election year.
Despite the need to increase tax revenues to plug the fiscal deficit, Mr Chidambaram announced no tax hikes on the middle and upper-middle classes, as was widely surmised.
Instead, he chose to levy only a one-time 10 per cent surcharge on those who earned a taxable income of 10 million rupees (Dh676,695) or more this year. By his own admission, this was a small group of people - 42,800 - hardly significant in India's vast electorate.
Strictly speaking, yesterday's was not an election-year budget; the finance minister will present one more budget before the general elections next summer. But it will be the last one in this government's tenure whose effects can be observed over a full year. Typically, in such circumstances, finance ministers have spent lavishly on programmes to woo voters.
In 2008, a year before the elections in 2009, Mr Chidambaram announced a 600-billion-rupee (Dh40bn) loan waiver for farmers with small landholdings, and he doubled spending on minority welfare schemes.
Similarly, a year before the 2004 elections, the coalition government headed by the Bharatiya Janata Party (BJP) launched a universal health insurance scheme.
Instead, Mr Chidambaram's budget was "simple, straightforward and reasonably short",. But analysts said that in merely extending the status quo, the budget will not win the Congress Party too many new votes.
"This was a very flat budget," said Praveen Jha, a professor in the Jawaharlal Nehru University's Centre for Economic Studies and Planning. "If you're a Congress supporter, given the difficult times, you would say that the finance minister's hands were tied. There was very little he could do, and under the circumstances, he has done very well by not disturbing anything too much."
Mr Chidambaram admitted that projections for India's economic growth this year stood at between 5 and 5.5 per cent, "below India's potential growth rate of 8 per cent".
Government data released yesterday showed that India's economic slowdown had deepened in the October-December quarter, expanding by 4.5 per cent on an annual basis. It underscored the scope of the challenge Mr Chidambaram faces.
His most significant overtures towards voters came in the measures he outlined for rural India.
The budget increased its allocation to the agriculture ministry by 22 per cent to 270.49bn rupees; its allocation to the rural development ministry also went up, by 46 per cent, to 801.9bn rupees.
To three key constituencies - women, the youth and the poor - Mr Chidambaram addressed three new schemes.
Referring to the gang rape in New Delhi in December, he noted that "recent incidents have cast a long, dark shadow on our liberal and progressive credentials", and he proposed a new fund of 10bn rupees to enhance the safety and security of women across India
Mr Chidambaram also pledged a similar amount to finance skill-development programmes for the youth, and promised to expand a cash-transfer scheme that sends some welfare benefits directly into beneficiaries' bank accounts.
Mr Chidambaram also sounded hopeful that parliament would pass the food security bill over the coming year and said that he had set apart an additional 100bn rupees to help implement the bill, over and above the 900bn rupees that the government will spend on food subsidies during the year.
Jayshree Sengupta, a senior fellow at the Observer Research Foundation, a New Delhi-based think tank, said she did not see many economic "growth drivers" in the budget.
"The budget is supposed to be pro-growth but how actually the investment is going to come in is a still an issue. That is the main problem," Ms Sengupta said. "There is a huge slack. Even companies that have money are not investing, because they are not sure of policy frameworks and reforms."
She also observed that Mr Chidambaram had not spelt out effective measures to increase foreign direct investment in India, leaving the corporate world "quite vulnerable on that front".
Mr Jha pointed out that big-picture political problems facing India - such as the quality of education, health care and job creation - had not been tackled by Mr Chidambaram at all.
He admitted that these issues "cannot be addressed in just one budget".
"But they should be a part of a larger growth strategy, a vision," Mr Jha said. "The least they could have done is outlined it. In that sense, this budget is a failure, as much as the others were over the past few years."