INDIA’S beleaguered government pledged on Friday (March 16) to try to trim a gaping public deficit, banking on higher economic growth and a cap on subsidies for the nation’s hundreds of millions of poor.
Finance Minister Pranab Mukherjee steered clear of contentious “big bang”announcements in presenting the budget for the next fiscal year in what analysts saw as a deliberate move to avoid upsetting hostile coalition allies.
Mukherjee, known as the government’s top trouble-shooter, said in the cautious budget he would target a fiscal deficit in 2012/13 of 5.1 per cent of gross domestic product (GDP) – less that the projected 5.9 per cent this year – but still the widest among major emerging market nations.
“I have made a determined effort to come back to the path of fiscal consolidation,” the 77-year-old veteran politician told parliament.
Economic growth for the next year was forecast at 7.6 per cent, a rise from the 6.9 per cent projected for this financial year.
Growth of Asia’s third-largest economy has slowed significantly from the 8.4 per cent annual expansion in the last two years due to aggressive interest rate hikes to curb stubborn inflation, slowing investment and a global downturn.
“One should not have expected him (Mukherjee) to make announcements of policy intent that could have become subjects of controversy,” said economist Sanjaya Baru, former press secretary to Congress Prime Minister Dr Manmohan Singh.
The budget came against a backdrop of a revolt in the ranks over a proposed rail fare hike to pay for safety upgrades that has spotlighted the Congress-led coalition`s dysfunctional state and losses for the party in recent state polls.
“The budget presented reflected the tight-rope the government has to walk,” said HSBC chief India economist Leif Eskesen, amid growing speculation about early general elections ahead of their 2014 scheduled date.
Mukherjee announced a flurry of increases in spending on farmers and the rural poor – key Congress party supporters – but also declared subsidies would be capped at below 2.0 per cent of GDP.
The government’s chief economic advisor, Kausik Basu, called this “a signal of the direction we want to go in.”
But analysts, who have raised concern about the financial burden of massive subsidies India provides on diesel, fertiliser and food, expressed skepticism the government would meet any of its targets.
They said the deficit was likely to be higher than projected, growth would be lower and that the government would ignore its planned subsidy cap given given its difficult political situation.
“It’s a lame duck government,” said political commentator Swapan Das Gupta.
