Finance Minister P Chidambaram unveiled on Monday a restrained mini budget for the government's remaining months in office, saying the budget deficit has narrowed and pledging to keep public spending steady.
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Chidambaram said that the government's finances are in better shape than a year ago, with a projected budget deficit of 4.6 per cent of gross domestic product for the financial year ending March 31, lower than the target of 4.8 per cent.
He also predicted the new budget, if carried out for the full year, would bring the deficit down further to 4.1 per cent of GDP by March 2015. Elections are due by the end of May, and the new government will determine the full-year budget.
The upcoming election had renewed worries of budget-busting populist giveaways in an attempt to woo voters. The budget was mostly free of big-spending new programs though it did offer some voter concessions in the form of excise tax cuts on some goods.
"I appeal to all political parties to join me in the pledge that we shall not, we shall never, do anything that will affect the stability of the foundations of India's economy," Chidambaram said in his budget speech.
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The finance minister had to raise his voice to be heard over arguments and heckling from lawmakers angered over a long-contentious proposal to create a new southern state - Telangana. The impassioned debate turned into mayhem last week, with one lawmaker unleashing pepper spray in the parliament.
Chidambaram said higher duties on gold imports have helped narrow the country's current account deficit by almost half to a projected $45 billion by the end of March.
Asia's third-largest economy is also starting to grow faster, Chidambaram said, predicting third and fourth quarter growth of 5.2 per cent. After years of economic expansion averaging 8 per cent, India has sputtered in the past year, with growth sinking to a decade low of 4.5 percent in the April-June quarter of 2013.
The ruling Congress party's popularity has languished along with the economy in the past year. Chidambaram used the budget as an opportunity to portray the government as a responsible steward that made tough decisions to restore stability and put the economy back on track.
"The fiscal deficit is declining, the current account deficit has been contained, inflation has moderated, the quarterly growth rate is on the rise," he said.
Chidambaram outlined a budget of Rs 5.6 trillion($90.4 billion) for the April-June quarter, which included a 10 per cent increase in defense spending.
Total government subsidies in areas such as food and fuel would remain steady, allaying lingering fears the government would splash out on populist giveaways ahead of elections. However, the current subsidies include a $20 billion program to subsidise wheat, rice and cereals for some 800 million people approved last year.
Plus, the budget gave temporary cuts in excise taxes on capital goods from 12 per cent to 10 per cent and automobiles and motorbikes from 12 per cent to 8 per cent in a bid to spur investment and consumer spending.
The interim budget also extended a temporary tax hike for the "super rich" intended to bring more money into the state coffers. People with annual income over 10 million rupees ($186,000) were originally to pay the additional tax for one year.
The government got a boost last week in its bid to bring in more revenue with a successful auction of telecommunications spectrum that raised $10 billion.