India unveils farmer-friendly, pre-election budget

New Delhi: India announced on Friday a 15-billion-dollar loan bailout for small farmers in a populist pre-election budget targeting the ruling Congress party's traditional poor rural supporters.

Finance Minister Palaniappan Chidambaram, releasing the budget for the year starting April 1 as India's blistering economic growth has begun to slow, announced a 600-billion-rupee ($15.05-billion) relief plan.

Some 30 million indebted farmers' loans would be fully waived and another 10 million would receive aid, said Chidambaram, who presented the budget ahead of nine state elections slated this year followed by national polls in early 2009.

He pledged to wrestle down the fiscal deficit and tame inflation. But the lack of any big corporate incentives along with the debt giveaway dismayed the stock market which tumbled nearly 1.4 per cent.

The budget is seen by analysts as the government's last chance to reverse a string of state poll defeats.

The share slide was greased by a rise in the short-term capital gains tax to 15 per cent from 10 per cent by the Leftist-backed coalition, analysts said.

Arms purchase

Defence spending was up by 10 per cent to $26.5 billion for 2008/09, but experts said a slow bureaucratic process could delay modernisation of the world's fourth largest military. India is planning one of its biggest ever arms purchases, a $10 billion deal to buy 126 fighter jets and US Defense Secretary Robert Gates was in India earlier this week to push American bids for that deal.

It also has plans to spend $30 billion on imports over the next four years to modernise its largely Soviet-era arms as India asserts its military power in South Asia.

Income tax exemption

In a bid to woo middle class voters and spur spending in an economy slowed by aggressive monetary tightening, Chidambaram hiked personal income tax exemptions by 36 per cent to 150,000 rupees.

Data on Friday showed growth slowed to 8.4 per cent for the third quarter ended December 2007 compared with 9.1 per cent in the same year-ago period, as interest rate hikes hit consumer and infrastructure spending and industrial output.

Chidambaram said he was confident "we will maintain the average of 8.8 percent (average annual) growth" in the current financial year, the same seen since the coalition took power in 2004.

Growth forecast

His growth forecast, however, was down from 9.6 per cent the previous year. India's economy is still the second fastest-growing major economy in the world after China.

"We need an ambitious scheme ... to revive agriculture," the minister said, announcing moves to boost yields and improve irrigation and raise spending on a national rural job creation scheme.

Despite the handouts, Chidambaram said the fiscal deficit for next year would fall to 2.5 per cent of gross domestic product from 3.1 per cent this year, helped by buoyant tax revenues from strong growth.