Budget 2013: India to put investors before voters in pre-election year

Feb 26 2013, 14:49 IST
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Chidambaram has staked his reputation on meeting deficit cutting targets. (Reuters) Chidambaram has staked his reputation on meeting deficit cutting targets. (Reuters)
SummaryChidambaram has staked his reputation on meeting deficit cutting targets.

a budget meeting last month that India had no alternative to meeting the fiscal deficit target and a slippage could have dire consequences, according to a senior bureaucrat who was present at that meeting.

Officials told Reuters that he has already slashed public spending in the current fiscal year that ends in March by some 9 percent from the original target and for 2013/14 he plans to cap it roughly at the same level.

In a Reuters poll conducted earlier this month, 18 out of 23 economists predicted that the focus of Chidambaram's budget speech will be on slashing subsidies and government handouts.

LETTERS TO THE MINISTER

That is not what other ministers wanted from the budget as the government - mired in corruption scandals and widely derided as incompetent in the face of the economic slowdown - faces a struggle for re-election in polls due by May, 2014.

Officials say that the rural development minister argued in one letter to Chidambaram against spending cuts that would hit housing and road construction in poor rural areas, on which the Congress party has traditionally relied for votes. He wrote again this month to avert a possible cut in funding to a rural employment guarantee scheme.

The tribal affairs minister wrote twice to Chidambaram to plead against cuts in welfare spending, worried that they could alienate tribals, who traditionally vote for the ruling Congress party. And the defence minister complained that budget cuts would hobble a grand plan to modernise India's armed forces.

Chidambaram wants these ministers and the railways minister to prioritise their spending, focusing primarily on critical projects, but has held out the prospect of additional funding if revenues pick up later in the year.

In a measure of the many demands Chidambaram faced, the Planning Commission - a powerful body of government advisers - sought an increase of at least 15 percent in capital spending over this year's original target to underpin growth. But he was ready to provide for a rise of just about 6 percent from actual spending.

"You can provide money only if you have money," said a top official at the Finance Ministry.

As well as keeping a lid on expenditure, Chidambaram is expected to announce steps to maximise revenues through more efficient tax collection, fewer tax exemptions and higher proceeds from the partial privatisation of state-controlled companies.

But, wary of dealing another blow to investors' confidence, proposals for higher taxes on the super-rich that were

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