x Abu Dhabi, UAEThursday 18 January 2018

India budget designed to reduce deficit

Rising oil prices and ambitious subsidy programmes have made it increasingly difficult for the Indian government to rein in spending.

NEW DELHI // Under pressure from a rebellious coalition partner and an emboldened opposition, India's finance minister yesterday presented a budget avoiding bold reforms and aimed at reducing a growing deficit.

This year's federal budget needed to boost the country's flagging growth, which fell to 6.1 per cent in the last quarter, down from more than 8 per cent a year ago.

It projects 7.6 per cent growth in the coming year.

Pranab Mukherjee, the finance minister, also needed to balance income and spending as rising oil prices and ambitious subsidy programmes have made it increasingly hard for the government to rein in spending.

"I know mere words are not enough. What is needed is a critical road map," Mr Mukherjee told parliament in a two-hour speech.

The government spent an estimated 20bn rupees (Dh1.5bn) on subsidies this year, far above the budgeted amount of 13bn rupees.

It expects to shell out 17.9bn rupees in 2012-13.

These programmes, which are aimed at keeping fuel, fertiliser and other essentials at affordable prices, have led to a spiralling deficit - thought to be 5.9 per cent this year, well above the target of 4.6 per cent.

If the government fails to reach its growth targets next year, it will struggle to bring the deficit down, particularly if the pending Food Security Bill becomes law, which aims to provide cheap grains to millions of the poorest Indians. That programme would cost 750bn rupees, up from 728bn rupees this year.

The government promised to cut subsidies, but not yet. "There will be difficulties, but if the government has to govern, when the time comes, we have to bite the bullet on controlling subsidies," said the prime minister, Manmohan Singh.

To recover some of the lost revenue, sales taxes on household and luxury goods were increased, as were so-called "sin taxes" on tobacco and alcohol.

Diamond jewellery, branded garments, luxury cars, air conditioners and refrigerators will see a price rise with the implementation of a higher GST (goods and services tax) that will take effect in August.

The tax cuts and increased duty on luxury goods, seems to be made with an eye towards the general election in 2014. Experts said the budget was "populist".

The leading opposition Bhartiya Janata Party (BJP), on the other hand, criticised the budget, calling it "anti-people."

"The failed economic formula of Pranab Mukherjee has been presented in a new frame," Mukhtar Abbas Naqvi, the BJP vice president told the Press Trust of India. "Instead of leading the nation on the path of reform, it will lead it to indebtedness," he said.