India’s budget gets mixed reviews, Indonesia surges post-election
Finance Minister Arun Jaitley said he would raise caps on foreign investment in the defence and insurance sectors, maintain a low budget deficit, and launch tax reforms to unify India’s 29 federal states into a common market.
Two years of economic growth below five percent has exasperated investors and India’s 1.2 billion population as it dropped from 10.3 percent in 2010 to 4.4 percent in 2013. By boosting FDI limits in defence and insurance ventures to 49 percent from 26 percent, and getting planned infrastructure spending back on track, Jaitley vowed that Asia’s third largest economy would expand at an annual rate of 7-8 percent within three to four years.
This commitment to fiscal discipline was stronger than analysts had expected
Modi won a landslide general election victory in May with a pledge to create jobs for the one million people who enter India’s workforce every month. He has since warned that “bitter medicine” is needed reverse high inflation and the worst slowdown since free-market reforms in the early 1990s unleashed an era of rapid growth.
Fiscally tough budget
“I have decided to accept this challenge. We cannot leave behind a legacy of debt for our future generations,” Jaitley said, adding that the budget deficit would be reduced to 3.6 percent in the following two fiscal years, according to
This commitment to fiscal discipline was stronger than analysts had expected with the deficit already approaching half of the annual target just three months into the fiscal year. Nevertheless, Jaitley maintained that “fiscal prudence is of paramount importance”.
Prior to the announcement, sources had revealed that the budget would also look to impose a national Goods and Services Tax, ensuring a more fair distribution of revenue between the country’s states. Jaitley also announced a review into retrospective tax claims blamed for hindering foreign investment after companies such as UK’s Vodafone were hit with massive demands.
However, the budget was not enough to reassure investors as the
Nevertheless, Jaitley maintained that India has adequate food stocks to cope with a drop in output and vowed to keep an eye on price stabilisation for the timebeing.
Surprisingly, Jaitley vowed to adhere to the daunting budget deficit target – of 4.1 percent of gross domestic product for the fiscal year ending March 2015 – that the government inherited from its predecessor.
