MUMBAI, India (AP) — India's new government introduced a reform-minded budget Thursday, telegraphing a contentious overhaul of populist subsidies and vowing to lift economic growth to rates of 7-8 percent by spending billions of dollars on infrastructure.
The budget for the fiscal year ending March 2015 was closely watched as an indicator of whether Prime Minister Narendra Modi's government will act quickly to will deliver on promises to revive stalled economic growth. The government also announced plans to ease limits on foreign investment in defense and insurance businesses.
Finance Minister Arun Jaitley outlined the 18 trillion rupee ($301 billion) budget, which he said would be a departure from the "mere populism and wasteful expenditure" that has dragged down Asia's third-largest economy.
India's economic growth has slowed to less than 5 percent for the last two years after a decade of expanding by an average of 8 percent, which is the minimum the government says is necessary to provide jobs for the 13 million young Indians who enter the workforce each year. Big spending on subsidies has limited the government's ability to use its budget to make productive investments that could boost the economy's productivity in the long run.
Jaitley, however, maintained the previous government's target for a budget deficit of 4.1 percent of gross domestic product and also said it would be "daunting" to meet that goal. He said the deficit might end up at 4.5 percent. In the two subsequent years, he forecast the deficit to fall to 3.6 percent and 3 percent of GDP respectively.
He indicated those reductions would involve overhauling expensive subsidies for food, fuel and fertilizer that cost India's government some $40 billion a year. He gave no details other than saying the subsidies would be "more targeted."
In some quarters there was disappointment that the government held back from an immediate and radical slashing of the previous government's populist policies, which provide a social safety net but also swell the budget deficit.
"There was a sense that this budget would an opportunity for the government to break away from the principles, the world views of the previous government. It did not do that," said Jahangir Aziz, head of Asian emerging markets for JP Morgan Chase.
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