India passes budget aimed at paring widest deficit among Bric nations

New Delhi The Indian parliament approved Finance Minister Pranab Mukherjee's plan for higher taxes to help pare the widest fiscal deficit among the largest emerging markets.

Lawmakers ratified the budget, unveiled on March 16, in New Delhi Tuesday. Mukherjee has also proposed subsidy curbs to narrow the fiscal gap to 5.1 per cent of gross domestic product in the year through March 2013 from 5.9 per cent in 2011-2012.

The finance minister on Monday retreated on other plans outlined in March to clamp down on tax avoidance, seeking to salvage investor confidence in Asia's third-largest economy. Aside from the budget gap, India is also grappling with a record trade shortfall that's pressured the rupee, the slowest economic growth in three years and lingering inflation.

"There is no denying to the fact that GDP has come down but it is to do with international situation as we are not insulated," Mukherjee said in parliament today adding that collective effort by political parties was needed to speed up economic recovery.

The budget increased both the service tax rate and the excise duty to 12 per cent from 10 per cent. Mukherjee has proposed to restrict a subsidy programme spanning diesel to fertilisers to less than 2 per cent of GDP this fiscal year.

The applicability of the planned General Anti-Avoidance Rule, or GAAR, will be delayed until the fiscal year beginning April 2013, Mukherjee said on Monday. The decision spurred the rupee and stocks.

The currency weakened 0.4 per cent to 53.146 per dollar Tuesday, after rising 1.1 per cent on Monday. The BSE India Sensitive India of stocks slid 2.2 per cent. The rupee tumbled 16 per cent last year, the most in Asia.

India's fiscal gap is the worst among the so-called Bric nations that also include Brazil, Russia and China. The nation also has the fastest Bric inflation.

Standard & Poor's lowered India's sovereign credit outlook to negative from stable on April 25, citing weaker investment and a deterioration in the current account, the broadest measure of trade.