Indian finance minister promises to trim deficit, push growth
By Rama Lakshmi,
NEW DELHI — Trying to rekindle the fire of India’s economy, Finance Minister P. Chidambaram promised Thursday to rein in a runaway deficit even as he raised spending on welfare schemes that the government hopes will woo voters in elections scheduled for next year.
In comments that appeared aimed at global investors who have become disenchanted with India’s potential as growth has slowed, Chidambaram, presenting the 2013-2014 budget, told Parliament that “foreign investment is an imperative.”
“Achieving high growth is not a novelty or beyond our capacity. We have done it before, and we can do it again,” Chidambaram said.
Thursday’s budget comes at a time of plummeting business confidence in India, rising prices and growing public disapproval of Prime Minister Manmohan Singh’s coalition government, which has been besieged by allegations of corruption.
India’s economic growth plunged to about 5 percent for the financial year that ends next month, far from the heady days of 9 percent growth just three years ago. Chidambaram said he aims to lower the fiscal deficit, which swelled to 5.2 percent of the country’s gross domestic product last year, to 4.8 percent over the next year and to 3 percent by 2017.
Analysts said a looming election and shaky economic climate forced the government to perform a difficult balancing act between populism and prudence. National elections are scheduled for May 2014, but some analysts say the vote could take place later this year under pressure from coalition allies, who might prefer to cut their losses and face voters sooner.
“The finance minister faced two counter-veiling pressures: to present a populist, voter-friendly budget and also control the huge fiscal deficit,” said Vir Sanghvi, a political analyst. “What he presented was a ‘this-is-the-best-we-can-manage-under-the-circumstances’ kind of a budget. . . . He is hoping that the economy will improve and prices will come down by the time of the election. That is a big political gamble.”
Chidambaram promised to increase spending on rural welfare schemes, rural roads and jobs, food guarantees for the poor, women’s safety programs, tax breaks on loans for first-time home buyers and a women’s bank.
To boost growth, Chidambaram also announced special incentives for investment in oil, gas and infrastructure, and pledged to simplify rules for foreign investors who want to enter Indian financial markets.
Those moves appeared to be attempts to undo the damage done by his predecessor, who said Indians did not “eat lizards” when there was no foreign investment and imposed controversial tax measures that affected foreign investors adversely. Chidambaram put off the tax measures until 2016.
In a statement, the U.S. India Business Council “welcomed the clarity now emerging” on the tax front.
Ron Somers, the president of the council, said Chidambaram “has taken some corrective steps necessary to revitalize investor enthusiasm, spur growth and tame government spending.”
But there were unpopular measures, too, including a temporary one-year addition tax on individuals and companies earning more than the equivalent of $185,000 annually, and higher customs duties on imported high-end yachts, cars and motorcycles.
“By taxing buyers of luxury products, the government is punching a bag that is capable of taking a few knocks and also sending a message that it is very squarely pro-poor in its policies,” said Dilip Cherian, founder-partner of the corporate communications firm Perfect Relations.
Criticizing the budget, opposition leader Arun Jaitley called Chidambaram a “helpless finance minister” who has “very little elbow space” for grand measures.
At a news conference later Thursday, Chidambaram appeared to agree.
“There is no scope for largesse. At the same time, there is no scope for imposing burdens on anyone,” he said.
He added: “The signal to the world and everyone else is that we are now following a fiscally prudent path.”