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India trades growth with higher fiscal deficit

Pallab Bhattacharya, New Delhi
With the objective of taking Indian economy on a high growth trajectory in, the midst of worldwide recession, the budget for 2009-10 presented in parliament on Monday has traded growth with higher fiscal deficit, analysts said here yesterday.
Finance Minister Pranab Mukherjee himself admitted as much when he told state-owned Doordarshan news channel that he had taken a risk in boosting the economy by providing for big spendingfor farm, urban development and infrastructure sectors which would push up the fiscal deficit sharply.
Mukherjee's budget was devoid of big-ticket economic reforms and economic liberalisation as expected by a section of economists in view of the fact that the government of Prime Minister Manmohan Singh, the architect of India's reforms, is no longer dependent on Left parties for its survival.
Hoping to create more jobs and drive growth further, the budget will raise total spending by 36 per cent to Rs 10.3 trillion (214 billion dollars) for the financial year ending on March 31, 2010 as Mukherjee said the first challenge is to lead the economy back a high growth rate of nine percent.
The budget announced ambitious schemes for rural employment, infrastructure and health programmes, credit and tax sops to recession-hit exporters, income tax breaks for salaried class and drought-hit farmers plagued by unpaid loans.
There was no significant increase in direct or indirect tax proposals in the budget. The direct tax proposals are revenueneutral and only Rs 2,000 crore would be generated by raising some excise and customs duties, the finance minister said in his budget speech.
Mukherjee's roadmap for higher economic growth would push the ballooning fiscal deficit of the federal government in 2009-
10 to 6.8 percent of the Gross Domestic Product (GDP) and the figure would be 10.4 percent if one has to take into account combine fiscal deficits of different state governments, say credit rating agencies.
The deficit proposed in the regular budget is much higher than the 5.5 percent pointed to by Mukherjee himself in his interim budget presented in parliament in February just before parliamentary elections.
Loan waiver for farmers, subsidies on fuel and fertiliser and food for the poor, pay hike for government employees and three separate stimulus packages in recent months have led to a sharp hike in India's fiscal deficit and the 6.8 percent mark projected by the full budget is the highest in nearly two decades.
Because of the huge gap between revenue and expendi- £ ture, the government will have to look at borrowing from the mar ket, which is estimated to be at Rs 400,000 crore.