Jaswant Singh: Weighing war fears

With India facing a number of elections in the coming months, Finance Minister Jaswant Singh announced measures to help tackle poverty and give tax relief for the middle class.

Building roads and highways and tax-breaks for the telecom and pharmaceutical industries were other highlights.

Despite fears that a possible Iraq conflict could cast its shadow over the Indian economy, Mr Singh expressed confidence that India's economy was well positioned to withstand the pressure.

Markets lukewarm

Industrial leaders praised Mr Singh's budget for focusing on infrastructure, consumer spending, health care and tourism.

It is the poor man who will continue to suffer Farm labourer Click here for more reaction

Rahul Bajaj, chairman of Bajaj Auto, a leading motorcycle manufacturer, said: "Three cheers to the budget.

"It is growth oriented, meeting expectations of all class of people and industry, especially the manufacturing sector which has been offered a slew of benefits by way of excise tax rationalisations."

But the markets were more muted in their response.

The Bombay Stock Exchange's 30-share index lost most of its early gains before the budget announcement to be up just 5.77 points in afternoon trade.

Vallabh Bhansali, director of Enam Financial, a leading domestic brokerage. said: "The stock market probably has still not understood the correct implications of the budget policies.

"But it is a market friendly budget in the long term."

Infrastructure boost

Tax reform and tackling poverty were among the goals set by the finance minister in his maiden budget speech to parliament.

A drive to increase healthcare cover for poor Indians was among several steps aimed at improving their quality of life.

But middle class Indians have reason to be happy after tax breaks for parents paying private school fees and new rates which leave them playing less income tax.

Mr Singh also announced plans to spend more than $8b to build roads and new projects to improve airports at Bombay and Delhi.

Other proposals include:

• Reducing taxes on cars, bicycles and cigarettes
• Introducing Value Added Tax in Indian states from 1 April
• Duty reduced on textiles and on life-saving equipment
• Higher tax exemption for senior citizens
• Income-tax exemption for pharmaceutical and biotechnology research

However, Mr Singh appears to have stayed away from taking tough decisions to trim India's massive fiscal deficit as well as steps to push forward the country's economic reforms programme.

The BBC's Sanjeev Srivastava in Delhi says the conditions favoured shedding a conservative approach.

Foreign exchange reserves have peaked at a record $75bn, the highest in India's history, and enough keep them going for 15 months.

And the BJP-led governing coalition is politically very stable.

Nevertheless, analysts say uneasy market conditions and a possible conflict in the Middle East restrained Mr Singh from taking India's economic reforms programme forward.

The caution stems from fears that a conflict in the Gulf could send the price of oil soaring radically affecting India's import bill.

'Shocking flaws'

Indian Prime Minister Atal Behari Vajpayee described his finance minister's budget as "unique."

He said: "It has a taken a holistic view of all aspects of the economy and an effort has been made to resolve the problems related to it."

But the main opposition Congress party took a different view.

"The shocking flaw is that they have not understood the problem of agriculture and employment.

"The solutions offered are not going to help the situation," said Shivraj Patil, Congress deputy leader in the lower house of parliament.