(Updating with further quotes, details)
NEW DELHI (AFX) - Finance minister P Chidambaram has unveiled a populist budget, targeting the nation's poor while pledging strong growth and fiscal prudence.
Chidambaram forecast that Asia's third-largest economy will register 8.1 pct for the current year ending in March and said the government is aiming for growth of more than 10 pct in the next few years.
'I believe that growth is the best antidote to poverty,' Chidambaram told parliament, pledging to keep up the 'assault on poverty and unemployment.'
The Congress-led government, brought to office after a surprise victory in 2004 by support from India's poor rural masses and facing five state elections this year, announced a series of social-spending programs at the same time as holding the line on personal and corporate incomes taxes.
Social measures include a 31.5 pct increase in education spending and a 22 pct rise in health and family welfare outlays, plus a 54 pct increase in funds to improve infrastructure and bring basic amenities to rural India.
India's poor roads, railways, ports and other infrastructure are seen by economists as key hurdles to achieving higher growth.
Helping the government spend more is India's surging economy that has pushed up tax revenues by 20 pct 'for an unprecedented three years running,' said Chidambaram.
He held the line on personal and corporate incomes taxes but raised the tax rate on services to 12 pct from 10 pct. He also widened the tax net on services which accounts for 54 pct of GDP, but just 5 pct on areas such as advertising and management services.
Chidambaram, an arch economic reformer, said the budget was a bid to show investors the government has both its 'head and heart in place.'
'Growth will be our mount, equity will be our companion and social justice will be our destination,' he told parliament.
In a move that pleased financial markets, the finance minister announced the fiscal deficit will fall to 4.1 pct of gross domestic product (GDP) for the year to March 2006, instead of the 4.3 pct initially forecast, and then drop further to 3.8 pct next fiscal year.
'Last year, I reluctantly pressed the pause button on fiscal correction,' he said. 'I believe that I have redeemed my promise that the process of fiscal correction will be resumed in 2006/07.'
Chidambaram said the government will maintain an 'unrelenting emphasis on fiscal prudence.'
In other moves, the government cut customs duties to 12.5 pct from 15.0 pct to bring India closer in line with East Asian rates. Chidambaram said the government wants to double India's share of world exports to 1.5 pct by fiscal 2008/09.
In addition, he announced measures to boost sectors which generate jobs such as the textile, automobile and food processing industries.
The finance minister raised military spending by 7.2 pct to 890 bln rupees, including 374 bln rupees for capital expenditure to upgrade military hardware.
(1 usd = 44.44 rupees)
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© 2006 AFX News
