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Thursday, 28 February, 2002, 08:04 GMT
India unveils annual budget
Indians waiting for a train
Indians are still waiting for the benefits of liberalisation
Indian Finance Minister Yashwant Sinha has cut back on some of India's many subsidies for staple goods, in an effort to control the country's fiscal deficit and has pledged to press ahead with economic reforms.

Presenting the country's annual budget in parliament, the finance minister announced a 4.8% increase in defence spending to $13.8bn.

Budget highlights
Defence budget up 4.8% to $13.8bn

Subsidies on fertiliser, gas and kerosene lowered

12,200 government jobs to go by March

Petrol prices lowered by one rupee per litre

Interest rates cut on small savings scheme

Mr Sinha also said he would continue to carry out reforms in the agriculture sector and announced a cut in interest rates on a government-promoted small savings schemes to help encourage economic growth.

Announcing that the country's fiscal deficit will reach 5.7%, Mr Sinha cut subsidies on fertilisers, cooking gas and kerosene by 5, 15 and 33% respectively.

"I think it is a good budget, no euphoria but I think we are making headway on reform quite strongly," Darun Das, director of general of Confederation of Indian Industry told the BBC's World Business Report.

"If I say one disappointing thing for me it would be that there is not enough in it to stimulate manufacturing industry," he said.

Survey

Economists have warned that Mr Sinha will need to come up with strong policies to give the economy the boost it badly needs.

On Tuesday, the government's annual Economic Survey said that further economic liberalisation was needed to boost growth and reduce poverty.

The survey, which is seen as a preview to the budget, highlighted the difficulties for India's Bharatiya Janata Party (BJP) which heads the coalition government, to lift rapid growth before elections in 2004.

After rapid growth in the early 1990s, the Indian economy slowed down as its GDP dropped from 7% to 4% in the fiscal year to March 2001.


The economy has slowed down quite substantially

Mahesh Vyas, Centre for Monitoring the Indian Economy
"The restoration of high economic growth would be difficult to achieve without a significant and sustained reduction in the fiscal deficit," the Economic Survey said.

State elections last week brought surprise setbacks for the BJP. The party lost three states, including the key one of Uttar Pradesh.

Correspondents say the outcome could make it harder for the BJP to push through reforms, such as privatisation and relaxation of rigid labour laws.

Kickstart

Without the reforms, the high deficit could become chronic.

Higher interest rates, agricultural subsidies and pension payments in recent years had driven it up to unsustainable levels, limiting investment in infrastructure and social sectors.

"The economy has slowed down quite substantially," Mahesh Vyas from the Centre for Monitoring the Indian Economy told the BBC's World Business Report.

"The substantial slowdown in the agricultural sector, and a resulting slowdown in domestic consumption, has had an impact on investment, bringing down the growth rate and affected employment opportunities as well," he said.

Growth target missed

The fiscal deficit for the year ending in March is expected to shrink to 5.1% of GDP, from 5.5% the previous year, as slower growth cut expected tax revenues.

Indian school
The budget deficit has limited the government's social investment
The deficit target for the current year was for 4.7% of GDP.

The report said growth would be 5.4% in the year to March, up from 4% in the previous year but well short of the 8% the government says is needed to reduce poverty.

Faisa Feroz, managing director of sales at Pramad Securities in Delhi told the BBC's World Business Report that this is a respectable growth rate but she believes it falls short of India's potential.

"You could hit 5% in India just on normal demand growth," she said.

A turnaround in the recession-bound manufacturing sector has not occurred, but higher rural incomes from a bumper harvest could push up demand for industrial goods and revive industry.

 WATCH/LISTEN
 ON THIS STORY
Mahesh Vyas, CMIE
"The economy has slowed down quite substantially"
Darun Das, Confederation of Indian Industry
"I think it is a good budget"
The BBC's Sanjeev Srivastava in Delhi
"He [Sinha] has to come out with measures which kickstart the economy"
See also:

26 Feb 02 | Business
India's deficit weighs on economy
26 Feb 02 | South Asia
India hikes rail fares
25 Feb 02 | South Asia
India's BJP mulls poll blow
25 Feb 02 | Business
India pledges economic reform
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