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By Suvashree Dey Choudhury and
Frank Jack Daniel
NEW DELHI | Thu Feb 28, 2013
3:22am EST
(Reuters) - India unveiled
higher-than-expected spending
for fiscal 2013/14 on
Thursday, aiming to fund it
with higher revenues -
including new taxes on the rich
and large companies - in a
budget aimed at reviving
growth amid the country's
worst slowdown in a decade.
The budget caps an intensive
campaign by Finance Minister P.
Chidambaram since he was
appointed last August to turn
around the fortunes of Asia's
third-largest economy after years
of policy drift and global economic
turmoil.
"Fiscal consolidation cannot be
effective only by cutting
expenditure," Chidambaram said in
his speech, a balancing act to
stave off a credit rating downgrade
and meet demands for populist
spending heading into an election
year.
Total budget expenditure will rise
by an unexpectedly high 16
percent in the fiscal year that
begins on April 1 to 16.65 trillion
rupees ($309 billion), even as the
fiscal deficit for the current year
will fall to 5.2 percent of gross
domestic product, besting a
revised target of 5.3 percent.
Next year's deficit will be 4.8
percent of GDP, he said, in line
with expectations.
Net market borrowing of 4.84
trillion rupees for the new fiscal
year met investor hopes that the
figure would not top 5 trillion
rupees, but the gross figure
exceeded expectations.
"The high gross borrowing and the
higher spending is going to be
inflationary and RBI would rather
think of slowing the pace of
monetary easing rather than
increasing it," said Rupa Rege
Nitsure, chief economist at Bank of
Baroda.
An added surcharge on local firms
with incomes of over 100 million
rupees and a 10 percent surcharge
on individuals with taxable
incomes of more than 10 million
rupees - a group that now includes
just 42,800 people - will be put in
place for one year, moves that sent
prices of Indian stocks .BSESN
falling.
FENDING OFF 'JUNK'
India's fiscal and current account
deficits have alarmed investors
and ratings agencies, triggering
warnings that the country's
sovereign bonds could be
downgraded to 'junk' status if
urgent steps are not taken to rein
in spending.
Chidambaram has staked his
reputation on hitting a fiscal
deficit target of 5.3 percent of GDP
this year and 4.8 percent in
2013/14. A no-nonsense, Harvard-
educated, lawyer who commands
both respect and fear in
government, he squelched
opposition from cabinet colleagues
worried that spending cuts could
ignite a backlash among voters.
Chidambaram has focused on
winning back foreign investors
unnerved by proposals of his
predecessor, Pranab Mukherjee, to
tax merger deals retrospectively
and clamp down on tax evasion.
Since September, he has
implemented a spate of investor-
friendly reforms, including allowing
entry of foreign supermarkets.
Dozens of corporate executives,
watching a telecast at an industry
event, exchanged nervous smiles
as Chidambaram introduced the
surcharge on the rich.
"In the larger scheme of things, I
guess that is one way of reducing
his deficit. Am I going to lose
sleep over it? No," Ganesh
Natarajan, CEO of IT outsourcer
Zensar Technologies (ZENT.NS),
told Reuters by phone.
A flagging economy left
Chidambaram with little room for
big-bang populist measures
without raising revenue, with
economic growth for the current
fiscal year on track to hit just 5
percent, nearly half of what it was
in 2007/08.
"This country must not lose any
time - India must get its act
together to accelerate the tempo of
growth," Prime Minister Manmohan
Singh said in a TV interview after
the budget speech.
The budget also reflects the
realities of a country of 1.2 billion
people, many of them poor.
"On the one side is the economic
policy, on the other side is
economic welfare. We are a
developing country. The link
between policy and welfare can be
expressed in a few words:
Opportunities, education, skills,
jobs and income," Chidambaram
said.
($1 = 53.8775 Indian rupees)
(Additional reporting by Malini
Menon, Aradhana Aravindan, Arup
Roychoudhury, Satarupa
Bhattacharjya, Annie Banerji,
Matthias Williams, Anurag Kotoky,
Swati Bhat, Harichandan Arakali,
Manoj Kumar and Rajesh Kumar
Singh; Writing by Ross Colvin and
Tony Munroe; Editing by John
Chalmers)
India budget increases spending, taxes the rich | Reuters
