Budget dresses up India for investors

India’s new government has unveiled billions of dollars in spending for the poor, from water to jobs, in an expansionary first budget that taxes the rich but does little to tackle a nagging deficit.

Military spending up by 17%
Military spending up by 17%

Finance Minister Palaniappan Chidambaram’s cautious budget on Thursday was less inflationary than some analysts had feared.


“The key to growth is investment,” he told parliament. “Public and private. Domestic and foreign. It is my goal to make the environment in India attractive to investors.”


As expected, the budget included no major measures to cut a worrying fiscal deficit seen as a challenge to sustained high economic growth.  


Reliance on growth 


Instead, it relied largely on growth – targeted at 7 to 8% for the year to March, 2005 – to bring the deficit down to 4.4% of gross domestic product (GDP) from 4.6%.


Budget stresses on investment to fight poverty

Budget stresses on investment 
to fight poverty

Share markets gave the budget a thumbs down, with traders particularly upset over a move to impose a 0.15% tax on purchases of securities on stock exchanges and the benchmark Bombay index closed down 2.3% at 4,843.84.


Amid a nascent peace process with Pakistan, Chidambaram announced an almost 17% jump from the interim budget to $16.8 billion to modernise the world’s fourth largest military machine.


Raft of programmes


Announcing a raft of programmes for education, health, rural reforms and housing, Chidambaram said boosting investment was vital to achieve his growth target and to fight poverty.    


But the 2004-05 budget contains few major concrete measures to boost investment. It imposes a 2% levy on all taxes, an additional 10% surcharge on people earning more than $19,230 a year and raises corporate tax by an extra 2.5%.


“It appears to be a very carefully balanced act”

Mahesh Rangarajan,

The budget lifts spending in 2004-05 by 100 billion rupees ($2.2 billion) over the previous government’s interim budget in February.


The increase is largely to deliver the Congress-led coalition’s promised “new deal” for rural India, which brought it to power. Congress failed to win an overall majority in parliament in the May general election, and relies on the Communists for support.


“It appears to be a very carefully balanced act,” political analyst Mahesh Rangarajan said. “He is targeting the poor in line with the government’s … programme, while committing himself to fiscal prudence. The question is where will the money come from for these measures?”

Source : Reuters

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