(Recasts with deficit, adds opposition comments)
By Manoj Kumar and Rajesh Kumar Singh
NEW DELHI Feb 17 India's finance minister on
Monday boasted he had slashed the fiscal deficit lower than his
target, while unveiling a pre-election budget that political
opponents and analysts said contained unrealistic calculations.
Amid uproar in parliament as lawmakers shouted him down,
Finance Minister P. Chidambaram also announced tax breaks for
struggling manufacturers and more money for defence.
He said he would contain the deficit for the current fiscal
year (April-March) at 4.6 percent of gross domestic product
(GDP), below his target of 4.8 percent.
"I can confidently assert that the economy is more stable
today than what it was two years ago," Chidambaram said, while
warning that action was needed to revive manufacturing.
Monday's budget was an interim exercise ahead of the
election due by May which the government looks sets to lose. MPs
will be asked to approve only the period until the new
administration takes charge.
The Bharatiya Janata Party, which polls say is best placed
to lead a new coalition government after the election,
criticized Chidambaram for cutting spending on public investment
while increasing outlay on subsidies and pushing 350 billion
rupees ($5.64 billion) of oil subsidy spending onto the next
"This move is a mere statistical illusion to keep the fiscal
deficit look optically correct while its inflationary impact on
the economy remains real," said senior party leader Arun
Party president Rajnath Singh warned that cuts of some 798
billion rupees ($12.85 billion) to public investment spending
announced for the current fiscal would hurt the economy.
Chidambaram also unveiled lower factory duties for passenger
vehicles, washing machines, TVs and mobile phones in a bid to
breathe life into spending and the manufacturing sector, which
is contracting despite signs of a slow recovery in the wider
Analysts watching the speech welcomed the progress on the
fiscal deficit, including his estimate that it would shrink
further to 4.1 percent in 2014/15, which would be the lowest
But they voiced concern about a lack of details.
"It is hardly a secret that this has largely been achieved by
pushing back expenditures and moving forward tax and dividend
collections," HSBC Global Research said in a note. "It,
therefore, implies that the targeted fiscal consolidation will
be more difficult to come by next fiscal year."
Indian markets were largely unmoved by the speech, with the
rupee at 61.93/94 against its close of 61.9250/9350 on Friday,
but auto stocks responded to the excise cut, leading a 0.48
percent rise in the benchmark BSE index.
The rupee hit record lows last year amid concerns about the
country's current account and fiscal deficits.
Chidambaram predicted the current account deficit would be
contained at $45 billion at the end of March, around half the
level at the start of the fiscal year, thanks largely to tight
restrictions on gold imports and a recovery in exports.
He said the government was looking into the pros and cons of
easing controls on gold imports, but would not let the current
account deficit balloon again.
To reach his deficit target, Chidambaram this year squeezed
higher dividends from cash-rich state-run companies as well as
rolling over oil subsidies into next year's accounts.
Revised major subsidies for 2013/14 will be 2.56 trillion
rupees ($41.2 billion), Chidambaram said. For the coming year,
he estimated total spending of 17.63 trillion rupees, up 10.9
percent against revised expenditure for the current year. Within
that, projected capital spending was flat.
The new spending included a 10 percent proposed hike to the
Opinion polls predict voters will oust the government led by
the Nehru-Gandhi dynasty's Congress party amid widespread
discontent with its mismanagement of the economy, stubbornly
high inflation and corruption scandals.
Chidambaram, struggling to deliver his speech above the din
of lawmakers angry over a plan to divide a southern state,
announced no major changes in tax rates.
However, he unveiled lower duty on vehicles ranging from
SUVs to motorbikes, as well as mobile phone handsets, along with
small measures to soften student loans and help retired members
of the armed forces.
"The current economic situation demands some interventions
that cannot wait for the regular budget. In particular, the
manufacturing sector needs an immediate boost," Chidambaram
Asia's third-largest economy is barely recovering from the
worst slowdown in a decade, with shrinking manufacturing, slower
jobs growth and high inflation.
Chidambaram said India's economy, the 11th largest in the
world, would recover to at least 5.2 percent growth in the
second of 2013/14 from 4.6 percent in the first half.
Looking back at the two terms of rule under a Congress-led
coalition, Chidambaram said there had been an unprecedented
growth trend of 6.2 percent over the past decade and - rejecting
charges that the government was mired in a policy paralysis -
laid out a raft of reform steps it has taken.
($1 = 62 rupees)
(Writing by John Chlamers and Frank Jack Daniel; Additional
reporting by Rajesh Kumar Singh, Shyamantha Asokan, Devidutta
Tripathi, Mayank Bharwaj, Ratnajyoti Dutta and Nidhi Verma;
Editing by Kim Coghill and Nick Macfie)