Dubai: Indian Finance Minister Arun Jaitley on Thursday unveiled a budget with a number of structural reform initiatives that seek to revive growth, vowing to lift economic growth to rates of 7-8 per cent by promoting manufacturing and infrastructure and overhauling populist subsidies.
Expectations had been high that the government would convert India’s strongest election mandate in 30 years into radical steps comparable to the 1991 market reforms that unleashed an era of high economic growth.
But constrained by a two-year spell of growth of less than 5 percent, the government instead announced incremental steps to boost capital spending in Asia’s third largest economy and reassure foreign investors that they would get fair treatment.
Jaitley told lawmakers that he would uphold the fiscal deficit target inherited from the last government, despite expectations he would be forced to raise it due to weak revenues and high subsidy costs.
The government announced that it will launch a tax reform this year to unify India’s 29 federal states into a common market, a measure that economist say would boost revenue and at the same time make it easier to do business.
India’s 1.2 billion people were “exasperated” by the weak economy, Jaitley told lawmakers, vowing that the country would expand at an annual rate of 7-8 percent within three to four years.
“We shall leave no stone unturned in creating a vibrant and strong India,” Jaitley. Investors have piled into Indian stocks on hopes that Modi’s leadership and mandate would break a logjam thwarting a host of reforms during the 10-year tenure of his predecessor Manmohan Singh, whose coalition government became increasingly divided.
But the measures announced by Jaitley fell short of some of the expectations flagged by brokerages and investment bankers, leading shares to fall to a two-and-a-half week low. Bonds rose on the promised fiscal prudence.
Tax relief
The finance minister said he proposed the tax exemption limit for individuals below 60 years at Rs.250,000, subject to parliament’s approval, and Rs.300,000 for senior citizens. Deductions allowed under various heads such as investments in insurance, pension and house rent are also proposed to be raised by Rs.50,000 to Rs.150,000.
The minister said given the state of the economy today, high inflation, low growth and moderate rise in tax collections, the fiscal deficit target of 4.1 percent of India’s gross domestic product set by his predecessor P. Chidambaram was a “daunting” task.The finance minister said the possibility of a poor monsoon and the Iraq crisis were key challenges with a bearing on both government finances and inflation. But he said the situation will be monitored closely to initiate immediate corrective steps.
“Financial stability is the foundation of our recovery.”
Jaitley also promised early introduction of the pan-India goods and services tax, while assuring the domestic and global investment community of predictability in the tax regime to restore confidence about the country’s prospects.
- With inputs from agencies