NEW DELHI // The outgoing government on Monday defended its much-criticised economic and fiscal policies while presenting its final budget ahead of a general election it is widely expected to lose.
The finance minister, P Chidambaram, insisted the government’s record on growth was “unparalleled” over its two five-year terms. “Our way of governance has not come in the way of lifting 140 million people out of poverty in the last 10 years,” he said in his budget speech yesterday.
As is traditional before an election, Mr Chidambaram presented only an interim budget, outlining expenditure for the next few months and refraining from radical alterations to tax structures.
His speech was delivered amid a persistent din as legislators opposed to the proposed division of the southern state of Andhra Pradesh disrupted proceedings with shouted slogans.
The chaos was symbolic of how beleaguered Prime Minister Manmohan Singh’s Congress-led coalition government has been, facing attacks over alleged corruption, high inflation and slowing economic growth.
In the fiscal year ending March 31, 2013, economic growth slowed to a decade low of 4.5 per cent. Last November, the rating agency Standard & Poor’s warned India that its sovereign rating might be lowered from “negative” to “speculative” if its “policy drift” continued.
Mr Chidambaram on Monday rebutted the suggestion of “policy drift”, arguing that India had only been a victim of a downturn in the global economic cycle.
Much of his budget was devoted to prudence, focused on reducing the fiscal deficit – the difference between expenditure and revenue.
India’s fiscal deficit had ballooned to 6.46 per cent of the gross domestic product in the 2011-12 financial year, compared with 3.88 per cent in 2004-2005, when the Congress began its 10-year tenure.
Mr Chidambaram, who took over the finance ministry in July 2012, noted in his speech that he will have managed to reduce the fiscal deficit to 4.6 per cent of GDP by March, and that his budget would help shrink it further to 4.1 per cent next year.
Nearly 800 billion rupees (Dh47.5bn) worth of planned spending has been cut from the budget.
As a result of this fiscal caution, the budget lacked extravagant populist measures aimed at winning votes. This was had been a distinct worry for investors; in December, the ratings agency Fitch noted that “a steeper political struggle to pull in more votes” might result in a spending spree.
But Mr Chidambaram did announce a greater outlay of funds for India’s military, hiking the defence budget by 10 per cent to 2.24 trillion rupees. India is already the world’s largest importer of arms.
His budget also paved the way for cheaper cars, motorcycles, mobile phones and televisions by reducing the excise tariffs on these goods.
“The budget had no big surprises, but since this was an interim budget, there could really be no big surprises,” said John Raja, co-founder of How India Lives, a Delhi-based firm that analyses public data.
Mr Raja said part of Mr Chidambaram’s success in reining in spending was achieved by “jugglery”.
“Some of the payments that they have to make by way of subsidies – in the fuel subsidy, for example – they’ve merely put off till next year, so that it doesn’t show up in this year’s accounting,” he pointed out.
“The way Indian democracy works, every rupee that is spent by the government has to be voted upon,” Mr Raja told The National. “Now, nothing bars the government from including big investments and schemes in interim budgets. But traditionally, only short-term tweaks are announced.”
In keeping with the muted expectations for the budget, the stock markets reacted only tepidly to Mr Chidambaram’s speech. The Bombay Stock Exchange closed 97 points higher from the previous day, rising to 20,464.06, while the National Stock Exchange rose 24.95 points to 6,073.30.
ssubramanian@thenational.ae
