India increases social spending in pro-poor budget

By Agence France-Presse
Monday, February 28, 2011 16:59 EDT
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NEW DELHI – India’s left-leaning Congress government on Monday unveiled a budget focused on helping the poor and rural masses with pledges to hike social spending by 17 percent and fight food inflation.

Finance Minister Pranab Mukherjee, lifting the lid on government plans for the financial year from April 1, scaled up spending for farmers, fertiliser subsidies, food programmes, education and rural employment.

“The country has carried for long enough the burden of hunger and malnutrition,” Mukherjee told parliament, saying the money earmarked for social spending would amount to 36 percent of the total budget.

Banking on bumper tax income from strong economic growth, he announced a 24 percent rise in education spending to 520 billion rupees (11.5 billion dollars) and a 20 percent rise in funds for health to 267 billion rupees.

Mukherjee also pledged measures to help bring down food inflation, which at nearly 11.5 percent is causing huge hardship to the hundreds of millions of poor who are the Congress party’s core supporters.

The government will introduce a long-awaited food security bill, guaranteeing subsidised food for low-income families, in a move aimed at helping the rural poor who re-elected Congress and its allies in 2009.

“It (inflation) clearly remains a concern,” he said. “But I expect the policy taken by RBI (the central Reserve Bank of India) to further moderate inflation in coming months… and average inflation to be lower next year.”

The government, which faces five state elections this year and is labouring under multiple corruption scandals, is mindful that spiralling living costs can be a lightning rod for political discontent in India.

Some 40 percent of the 1.2 billion population in Asia’s third-largest economy live on less than $2 a day.

The increase in social spending will be funded by a 25 percent rise in tax revenues, provided by India’s fast-rising economy and new levies on hotel accommodation and air travel.

Mukherjee predicted “double-digit growth in the near future” while forecasting economic expansion of 8.6 percent for the current fiscal year and nine percent for the year to March 2012.

Mukherjee’s buoyant prediction came despite figures showing growth in the final three months of 2010 slipped to 8.2 percent year-on-year from 8.9 percent in the previous quarter, a larger decline than forecast by analysts.

Revenues of 400 billion rupees from part-privatisation of state firms would also swell government coffers, Mukherjee said, meaning the public deficit would be cut from from 5.1 percent of Gross Domestic Product (GDP) to 4.6 percent next year.

“India stands at the threshold of a decade which presents immense possibilities,” Mukherjee said.

With the government under fire from the opposition over corruption scandals and inflation, he steered clear of sensitive economic reforms, focusing instead on easing India’s infamous red tape and streamlining taxation and customs tariffs.

“At times, the biggest reforms are not the ones that make headlines but the ones concerned with the details of governance which affect the everyday life of the aam aadmi (common man),” Mukherjee, 76, told parliament.

At the same time, he announced another hike in military spending, raising it 11.6 percent to 1.65 trillion rupees.

“Further requirements for the country’s defence would be met,” he declared.

Indian shares finished up 0.69 percent or 122.49 points at 17,829 on the back of the budget as investors welcomed the government’s move to cut the deficit.

Mukherjee “has done a fine balancing act to sustain economic growth, curb inflation, promote inclusive growth and maintain fiscal consolidation,” said Chandrajit Banerjee, director general of the Confederation of Indian Industry.

But the main opposition Bharatiya Janata Party called the budget “futile”, “directionless” and lacking new initiatives.

Mukherjee also announced measures to draw more foreign investment to upgrade India’s dilapidated ports, roads, power plants and other infrastructure.

Agence France-Presse
Agence France-Presse
AFP journalists cover wars, conflicts, politics, science, health, the environment, technology, fashion, entertainment, the offbeat, sports and a whole lot more in text, photographs, video, graphics and online.
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