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Page last updated at 16:01 GMT, Friday, 26 February 2010

Indian budget sets out 'prudent vision'

Finance Minister Pranab Mukherjee shows off a briefcase containing Budget documents in Delhi on 26 Feb 2010.
Mr Mukherjee's proposals are unlikely to control inflation

India's finance minister is seeking to please the middle classes with his latest budget. But his proposals may not address the needs of the underprivileged , says economic analyst Paranjoy Guha Thakurta.

Budgets in India are much more than the statement of accounts for the world's largest democracy.

As the finance minister, seasoned politician Pranab Mukherjee, said: "It has to reflect the government's vision and signal the policies to come in future."

In this budget Mr Mukherjee has sought to roll back some of the fiscal stimulus measures introduced from late 2008 in the wake of the global economic crisis.

Expensive food

The gradual withdrawal of economic stimulus packages was signalled by a 2% increase in excise duties (after they had previously been reduced by 6%). Taxes on petroleum products have also been increased.

But instead of dampening expectations of lower prices, the budget may well stoke inflationary fires further.

The official wholesale price index is currently going up by close to 9% at present.

What is particularly troubling for India's poor is the sharp rise in food prices - the official index indicates that food price inflation has varied between 18% and 20% in recent weeks.

The sudden jump in the price of specific food items is of particular concern.

Sugar prices have nearly tripled over the last year, while potato prices have almost doubled. Prices of edible oils, pulses, fruits and vegetables have also increased substantially: varying between 20% and 40%.

People buying vegetables in India
Food prices in India have hit the roof

Even the annual "Economic Survey" released by the ministry of finance on Thursday, a day before the budget was presented, has all but acknowledged that poor management of supplies by various government agencies has contributed to high prices after 2009 witnessed inadequate rainfall.

Growth expectations

The government is exultant about the fact that India's economy has not merely escaped the worst ravages of the worldwide recession but has bounced back quickly from a period where growth slowed down.

In the financial year that ended on 31 March 2009, India's gross domestic product (GDP) grew by 6.7% against a continuous increase of more than 9% each year four years in a row.

In the current financial year that will end on 31 March, the government expects GDP to go up by somewhere between 7.2% and 7.5%, despite a fall in farm output by 0.2%.

The survey optimistically projects that GDP growth will pick up from 8.5% to more than 9% over the next two years.

Time will tell whether these projections are excessively optimistic or grounded in reality.

The government concedes that much would depend on a favourable monsoon - even the finance minister prayed to Lord Indra, the Hindu god of rainfall, in his budget speech.

At the same time, the government is of the view (shared by many) that there is a distinct possibility that India's economy may grow faster than China's four years down the line.

This would be predicated on economic growth in India encouraging job creation and becoming more "inclusive" so that the gap between the rich and poor narrows and regional imbalances are not exacerbated.

Protests against the budget in Hyderabad on 26 Feb 2010
Many are already protesting against the hike in fuel prices

Mr Mukherjee also intends to cut the government's total borrowings from all sources - or the fiscal deficit - from 6.7% of the GDP to 5.5% in the coming fiscal year.

Towards this end, the government intends to raise more revenues from indirect taxes and other measures such as taxing company profits.

Rural concerns

Friday's budget was predictably endorsed by Prime Minister Manmohan Singh, of the ruling Congress party. He is a renowned economist credited with liberalising India's economy two decades ago.

Until the 1970s, the Congress was perceived as a left-leaning party which favoured socialist principles. But from the early 1990s, the Indian government's economic policies became more market-friendly and outward looking.

The slowdown over the last few years has seen the left-wing in the Congress gain an upper hand over the gung-ho liberalisers.

The party's victory in the 2009 general elections was attributed to the government's jobs guarantee programme in rural areas and a farm loan waiver scheme.

For many Indians, issues like a reduction in the fiscal deficit or the acceleration of GDP growth matter little in comparison to the big issue of food prices.

In this respect Mr Mukherjee's budget is likely to fall short of the expectations of the ordinary citizen.



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