Modi budgets for growth, aims to curb deficit

Modi budgets for growth, aims to curb deficit
Finance Minister Arun Jaitley (C) poses as he leaves his office to present the federal budget for the 2014/15 fiscal year, in New Delhi July 10, 2014.

NEW DELHI - Prime Minister Narendra Modi's new government on Thursday unveiled a first budget that seeks to revive growth and curb borrowing, but left open questions on how it would reduce the fiscal deficit and restore investor confidence.

Expectations had been high that Modi would utilise India's strongest election mandate in 30 years to take radical steps comparable to the 1991 market reforms that unleashed an era of high economic growth.

In a bid to halt a two-year spell of weak growth, the government announced steps to boost capital spending in Asia's third largest economy and reassure foreign investors that they would get fair treatment.

Yet Finance Minister Arun Jaitley stopped short of halting retroactive tax claims against foreign investors. Britain's Vodafone vowed in response to continue its fight against a years-old $2.2 billion charge.

"We shall leave no stone unturned in creating a vibrant and strong India," Jaitley said, vowing to raise the pace of economic growth to 7-8 per cent in three to four years from less than 5 per cent now.

Jaitley, 61, told lawmakers he would uphold the fiscal deficit target for this year inherited from the last government - 4.1 per cent of gross domestic product - but admitted that this would be a challenging task.

"The intent appears to be there, but the measures have not been really thought through," Atsi Seheth, Moody's sovereign credit analyst for India, told Reuters.

Jaitley announced an 8 per cent rise in spending, roughly unchanged after taking inflation into account. The government will also seek to raise a record $13 billion from asset sales - nearly four times what the previous government collected from privatisation moves in the fiscal year ended in March 2014.

In his two-and-a-quarter hour address, Jaitley raised the minimum income level at which people start paying tax and hiked levies on cigarettes and soft drinks.

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