NEW DELHI: India on Friday unveiled a budget that relies on a pick-up in the economy to help rein in the growing public deficit, while funding a flurry of new subsidies for farmers and the rural poor.
The annual budget for the next financial year starting April 1 came against a backdrop of political infighting over a proposed hike in rail fares that has highlighted the increasingly dysfunctional nature of the ruling coalition.
Finance Minister Pranab Mukherjee said he would target a fiscal deficit in 2012/13 of 5.1 per cent of gross domestic product (GDP) compared with 5.9 per cent in the current year.
“I have made a determined effort to come back to the path of fiscal consolidation,” he told lawmakers during a presentation that also called for an acceleration of the government's stalled reform programme.
Economic growth for next year was forecast at 7.6 per cent, an increase on the 6.9 per cent projected for the current financial year, which marked a “significant slowdown,” Mukherjee said.
He announced spending increases on projects such as credit schemes for farmers, subsidised food for the poor, health initiatives to reduce malnutrition and provision of clean water, as well as packages for weavers and artisans.
At the same time, he promised subsidies would be capped at below 2.0 per cent of GDP.
The Congress-led administration, already battered by a string of graft scandals, is under financial market pressure to cut public spending and rein in a ballooning deficit while also spurring slowing growth.
This task comes at a time of infighting in the left-leaning coalition sparked by the first proposed rise in rail fares in eight years to pay for a safety overhaul on the notoriously dangerous network.
Railways Minister Dinesh Trivedi, from the minority Trinamool Congress party, unveiled the hike on Wednesday, but he has since been savaged by his own populist party leader Mamata Banerjee, who asked him to roll back the measure.
The prospect of another policy U-turn and the resignation of a cabinet member has inflicted further damage on the administration of Prime Minister Manmohan Singh, already seen as incapable of pushing through reforms.
“It's essentially a lame-duck government,” senior journalist and television commentator Swapan Dasgupta told AFP.
The main challenge for Mukherjee in the budget will be to get it through “without hiccups,” Dasgupta said.
Given the disharmony in the coalition and heavy losses for the dominant Congress party in recent state elections, there is growing speculation about the possibility of early general elections ahead of their scheduled date in 2014.
The government that was elected in 2009 had plans for reforms such as opening up key sectors of the economy to foreign firms, overhauling pension, insurance and tax systems, and bringing in new land acquisition laws.
“We have to accelerate the pace of reform and improve supply side management of the economy,” Mukherjee said on Friday.