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Last Updated: Friday, 9 July, 2004, 07:42 GMT 08:42 UK
Markets cool to new Indian budget
Indian finance minister Palaniappan Chidambaram
Mr Chidambaram has a balancing act to perform
Indian stock markets have been volatile a day after the budget presented by the country's new left-leaning government.

Shares on the benchmark Bombay Stock Exchange (BSE) rose marginally after falling by 1.5% in initial trading.

On Thursday, the BSE fell more than a 100 points (2.26%) after the budget pledged billions of dollars of spending for the poor.

The budget has been generally welcomed although some question where the funds are going to come from.

In his first budget, Finance Minister Palaniappan Chidambaram focused on setting aside money for improving education and health services for the poor as well as special assistance for farmers.

He also increased military spending by nearly 18% to 770bn rupees ($16.73bn) to pay for modernising India's armed forces.

It's disappointing. He could have done a lot more
Pradip Shah, market analyst

Mr Chidambaram said the economy would continue to grow at close to seven per cent, making it one of the fastest growing in the world.

But market analysts fear that the extra spending would add to India's growing deficit and are also unhappy at increased taxes imposed on services and brokers.

"It's disappointing. He could have done a lot more," the Economic Times quoted one analyst, Pradip Shah, as saying.

But the budget has been welcomed by industry, with many saying that the finance minister was able to perform a careful balancing act.

"Given the compulsions the [government] had, it is a very good budget. It is a step in the right direction," said Rahul Bajaj, chairman of car firm Bajaj Auto.

Others welcome the move to increase investment, particularly in telecommunications, insurance and aviation.

"The reform process has been pushed forward," said Azim Premji of software giant, Wipro.


But some analysts say the government is going to find it difficult to pay for the extra spending.

India's biotechnology sector A
The economy is growing - but the poor are not benefiting
"He has budgeted a 24% increase in tax revenues. Such a massive increase has never been witnessed before," says economist Ila Patnaik.

The Business Standard newspaper warned in an editorial that "if the revenue and growth projection assumptions don't materialise, the deficit numbers in relation to Gross Domestic Product are going to look very different from now".

Mr Chidambaram promised to eliminate the deficit by the 2008-09 fiscal year and set the next deficit target at 4.4%. Economists say that improving infrastructure, as well as cutting the deficit, is the key to sustaining India's strong economic growth.

The budget has also been criticised by the opposition.

Former prime minister Atal Behari Vajpayee said it made many promises but there were no resources to meet them.

The Shiv Sena party, an ally of Mr Vajpayee's Bharatiya Janata Party, called the budget populist and said it seemed the government was gearing up for another general election soon.

There was a more positive response from left-wing parties supporting the government.

The Communist Party of India-Marxist said it appreciated Mr Chidambaram's concern for agricultural development, employment generation, health and education.

However, it said it would protest against the government's decision to allow more foreign investment in the critical telecom, insurance and civil aviation sectors.

The BBC's Chiyo Robertson
"The new finance minister is trying to be prudent and popular"

India's please-all budget
08 Jul 04  |  South Asia
Reforming India's maddening tax system
05 Jul 04  |  South Asia
India's economy 'to grow by 8%'
09 Feb 04  |  Business
Profile: P Chidambaram
24 May 04  |  South Asia

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