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Last Updated: Wednesday, 28 February 2007, 10:17 GMT
India budget focuses on farming
Woman working at an Indian chilli farm
India says it needs to be self-sufficient in food terms
India's government has unveiled its annual budget, saying agriculture "must top the agenda of policy-makers".

The finance minister said unless India could be self-sufficient in food, this could upset "macro-economic growth stability and growth prospects".

The governing Congress party also said high growth would be critical as a way to fight widespread poverty.

However, the government said that economic growth, at 8.6% in the third quarter, had also pushed inflation up.

Inflation

Analysts greeted the government's 6.81 trillion rupee (78bn; $153bn) budget positively.

"The good part is that the budget is not anti-inflationary," said Rashesh Shah, chief executive of Edelweiss Capital.

However, Finance Minister Palaniappan Chidambaram said the government still had concerns over inflation.

While India had already taken "a number of measures on the fiscal, monetary and supply sides to maintain price stability", it would take more measures if needed.

Broadly, it is a growth-oriented budget, with focus on agriculture and education
A. Balasubramaniam, Birla Sun Life Asset Management

There had been fears that anti-inflation measures could limit growth in Asia's fourth-largest economy.

Figures for February revealed that wholesale price inflation had reached nearly 7%, following higher food and consumer goods prices.

Equity and growth

In a bid to boost India's agriculture - which grew by 2.3% on average in the last three years, against a target of 4% - the government said that it would offer cheaper credit to more farmers.

Some two thirds of Indians make a living from agriculture.

Mr Chidambaram said five million farmers would be "brought into the banking system" in the present fiscal year and the rural job guarantee scheme would be expanded.

According to analysts, a lack of adequate, affordable credit has prompted a wave of suicides amongst farmers across rural India.

Mr Chidambaram said: "Revenues were buoyant for the third year in succession. I have put the revenues to good use to promote inclusive growth, equity and social justice."

'Business momentum'

A Balasubramaniam, chief investment officer at Birla Sun Life Asset Management in Mumbai, said: "From the corporate angle, reduction in excise duties in relevant sectors are positive."

We must remember the finance minister has not derailed business momentum
Stockbroker Sushil Choksey

But the increase in excise duty on cement was "a punishment for the sector", he said. The budget also included higher taxes for telecoms firms.

India's main stock market fell 4% after the budget was unveiled amid concerns about plans for higher taxes on dividends and the removal of tax exemptions from technology firms.

Stockbroker Sushil Choksey said: "The fall is a knee-jerk reaction of Indian markets, but we must remember the finance minister has not derailed business momentum."

"This is a short-term view taken by investors and I expect this fall to taper off in a day or two."

Overheat

Mr Balasubramaniam said the budget was broadly "growth-oriented", with focus on agriculture and education.

Finance Minister Mr Chidambaram said spending on education would be increased by 34.2% in the coming fiscal year, while health and family welfare spending would rise by 21.9%.

Other aspects of the budget included increasing defence spending by some 7.8% to March 2008, as India strives to update its military capabilities.

Mr Chidambaram said the defence budget had risen to 960 billion rupees ($21.8 billion) from 890 billion a year before.

Other figures released on Wednesday showed the manufacturing sector at a rate of 10.7% in the quarter, although farming expanded by a lower-than-expected 1.5% because of crop shortages.

Analysts have raised concerns that India's economy could overheat, with growth running at about 9%.


SEE ALSO
India's 'left-of-centre' budget
28 Feb 07 |  South Asia
India to unveil 'populist budget'
27 Feb 07 |  Business
The pitfalls of the 'economy game'
20 Feb 07 |  South Asia
Bangalore's Boomtown Blues
29 Jan 07 |  Business

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