India's budget targets cut in deficit

India's embattled government pledged Friday to curb a gaping public deficit, banking on higher economic growth and a cap on expensive subsidies for the nation's hundreds of millions of poor. The annual budget for the next financial year starting April 1 came against a backdrop of political infighting over a proposed hike in rail fares that has highlighted the increasingly dysfunctional nature of the ruling coalition. Finance Minister Pranab Mukherjee said he would target a fiscal deficit in 2012/13 of 5.1 percent of gross domestic product (GDP), higher than expected but less that the projected 5.9 percent in the current year. "I have made a determined effort to come back to the path of fiscal consolidation," he told lawmakers in a presentation that also called for an acceleration of the government's stalled reform programme. Economic growth for next year was forecast at 7.6 percent, a rise from the 6.9 percent projected for this financial year. Growth has slowed significantly from the 8.4 percent expansion in the preceding two years due to high inflation, aggressive interest rate hikes and slowing investment. Mukherjee, known as the government's top trouble-shooter, steered clear of contentious "big bang" economic reforms in what analysts saw as a deliberate strategy to avoid upsetting fractious coalition partners. "One should not have expected him to make announcements of policy intent that could have become subjects of controversy," economist Sanjaya Baru, a former press secretary to Congress Prime Minister Manmohan Singh, told India's NDTV broadcaster. Instead, he announced a flurry of increases in spending on farmers and the rural poor, the key supporters of the Congress, but also announced that subsidies would be capped at below 2.0 percent of GDP. The government's chief economics advisor, Kausik Basu, called this "a signal of the direction we want to go in." Analysts have raised concern about the burden of major subsidies India provides on diesel, fertiliser and food, which are set to increase in line with surging crude oil prices. While government insiders hailed the budget as a means to tackle inflation and raise growth, critics saw more evidence of a weak administration unwilling or unable to tackle difficult but necessary economic reforms. "The budget overall is a fairly 'political budget', with very little in the way of bold -- or even timid -- reforms to drive economic growth," Partha Iyengar, India research head of global consultancy Gartner, said. India's leading share index, the Sensex, erased early gains and was down 0.90 percent in the afternoon. The Congress-led administration, already battered by a string of graft scandals, has been under financial market pressure to control public spending and rein in the ballooning deficit at the same time as spurring slowing growth. This task comes at a time of deep discord in the left-leaning coalition sparked by the first proposed rise in rail fares in eight years to pay for a safety overhaul on the notoriously dangerous network. Railways Minister Dinesh Trivedi, from the minority Trinamool Congress party, unveiled the hike on Wednesday, but he has since been savaged by his own populist party leader Mamata Banerjee, who asked him to roll back the measure. The prospect of another policy U-turn has inflicted further damage on the administration of Singh, who is already seen as incapable of pushing through reforms. "It's essentially a lame-duck government," senior journalist and television commentator Swapan Dasgupta said. Given the disharmony in the coalition and heavy losses for the dominant Congress party in recent state elections, there is growing speculation about early general elections ahead of their 2014 scheduled date. The government elected in 2009 had ambitious plans for reforms such as opening up key sectors of the economy to foreign firms, overhauling pension, insurance and tax systems, and bringing in new land acquisition laws. "We have to accelerate the pace of reform and improve supply side management of the economy," Mukherjee said on Friday, but laid out no specific measures.