India unveiled new taxes on the rich and large companies on Thursday to fund higher-than-expected spending for the next fiscal year, in a budget that aimed to revive growth amid the country’s worst slowdown in a decade ahead of a 2014 election. Stocks, bond prices and the rupee all fell despite Finance Minister P. 

 

Chidambaram’s vow to cut next year’s fiscal deficit to 4.8 percent of GDP, which some watchers said counted on ambitious revenue assumptions given hefty spending targets. There had been widespread expectation, fuelled in part by comments by finance ministry officials, that Chidambaram would present an austere budget in line with the spending cuts he forced on government ministries in recent months. But the spending plan appeared to have been drawn up with a looming general election in mind, some economists said. “Fiscal consolidation cannot be effective only by cutting expenditure,” Chidambaram said in his speech, seen as a balancing act to stave off a credit rating downgrade while meeting demands for populist spending heading into an election year. 

 

 

Hefty Revenue Growth Assumptions 

Total budget expenditure will rise by an unexpectedly high 16 percent in the 2013/14 fiscal year that begins on April 1 to 16.65 trillion rupees ($309 billion). Next year’s fiscal deficit target is in line with expectations but assumes hefty revenue growth, including 558 billion rupees from the sale of government stakes in companies, or more than double the 240 billion rupee target for the current year, which falls short of the initial target. The budget also assumes revenue of 408.5 billion rupees from telecoms sector fees, more than double what it will generate this year, with its next auction of mobile airwaves poised to flop after attracting just one bidder. Net market borrowing of 4.84 trillion rupees for the new fiscal year met investor hopes that the figure would not top 5 trillion rupees, but the gross figure exceeded expectations. 

 

The budget included several measures to spur investment both in markets and by corporations, including an incentive on investments in plant and machinery exceeding 1 billion rupees and extending tax breaks for small companies that grow larger, and an expansion of tax-free bonds for infrastructure. 

 

Hey, Big Spender 

While the added spending included capital investment that many have said is sorely needed, including a 29 percent increase in funding for infrastructure and development, it also included a 46 percent jump in funding for development programmes in rural areas. An added surcharge on local firms with incomes of more than 100 million rupees and a 10 percent surcharge on individuals with taxable incomes topping 10 million rupees - a level of earnings currently declared by just 42,800 people - will be put in place for one year. 

 

(Reuters and Economic Times)