Social plans at core of Indian budget

By Ben Richardson
Editor, BBC India Business Report

The budget aims to improve the lives of ordinary Indians

The biggest risk the government faced was disappointing voters.

But with this self-styled populist budget, it will have done almost all the things it promised to.

At the heart of what it announced is the belief that India needs to drive domestic demand if it wants to return to an economic growth rate of more than 9%.

It also wants to ensure that any growth is inclusive, and not exclusive to the country's richer, urban Indians.

With this in mind, the main focus of the budget has been on rural development and there is a raft of new economic and social development plans.

Rural debt

The government has decided to more than double spending on its successful rural employment scheme, which guarantees 100 days of work to everyone who wants it.

To run alongside this, it has set up a task force to look again at the problem of farmers' debts that have led to thousands of suicides in the countryside.

At the same time, the government will also try to create jobs by expanding and improving the country's road and infrastructure systems.

According to the finance minister, spending on infrastructure will rise to 10% of gross domestic product over the next few years.

These changes have been well received by economists and commentators in India.

The government's attempts to tweak and simplify the tax system, provide food guarantees to some of India's poorest people and reduce the burden of national policies such as fuel subsidies have also been greeted positively.

Market fears

On the face of it, the government seems to have hit the bull's-eye with this budget.

Unfortunately, it's not as simple as that because there are a number of large issues that have not been addressed.

India's stock markets have dropped on the news and bonds have seen a sell off. This is due to fears over the size of the budget deficit and the impact the spending plans will have.

The government now expects its budget deficit to hit 6.8% in the next year, higher than it had previously forecast and at a level that will make many investors and economists nervous.

There are fears that if the deficit is not brought under control, then rating agencies could downgrade India.

One of the ways India had hoped to cut the shortfall in spending was to step up its privatisation of state-owned firms, and many observers were expecting more details of how it would do that in today's budget.

However, the finance minister did not outline any clear path for asset sales, nor did he explain when he would allow greater foreign ownership of companies in key industries such as banking and insurance, or bring an end to the state subsidy system.

'Juggling'

The government said it would give more details at a later date, saying it would not fix itself to dates, preferring to react when the right opportunity presented itself.

The government has argued that in times of economic difficulty it needs to spend more, pointing to the US and UK as prime examples of nations buying their way out of trouble.

While India is in a far better position than many other nations, it still has the tricky task of juggling fiscal prudence with the needs of its population.

And while this budget doesn't have all the answers, for many experts it at least manages to have a decent go at most of them.