Government presents reform Budget

The government announced a Budget on Thursday, which will cut subsidies and interest rates on government-run savings schemes and press ahead with economic liberalisation to boost growth.

Finance Minister Yashwant Sinha said the government would cut the administered interest rate on small savings schemes by 50 basis points, a move which should in turn lead to wider cuts in bank deposit and lending rates and help lift growth.

However, the Budget for the financial year starting in April failed to inspire Indian financial markets.

Analysts said they were disappointed Sinha had not cut the interest rate on small savings schemes more aggressively.

An admission that the fiscal deficit had actually risen in the financial year ending in March -- to 5.7 per cent of gross domestic product from 5.5 per cent, despite a promise in last year's Budget to cut it, also made markets sceptical.

"This is a very disappointing budget," said Pieter van der Schaft, regional economist at Barclays Capital in Hong Kong.

"We are seeing an increase in this year's fiscal deficit and government spending slightly in excess of nominal GDP growth. Also the cut in the small savings schemes is disappointing."

Sanjay Dutt, director at Quantum Securities in New Delhi, said: "The cut in administered interest rates was expected, but it has fallen short. We would have been happier with a 100 basis point cut."

Analysts said they needed to study all the Budget measures before drawing final conclusions.

Sinha also said the government aimed to raise Rs 120 billion by selling state-owned companies in the financial year starting in April.

That was the same as last year's target, though in the end the government raised only Rs 50 billion.

The Budget also cut subsidies on fertiliser, cooking gas and kerosene and lifted all remaining controls on agricultural exports, a move which will both boost exports and reduce grain stocks.

Sinha was presenting the Budget at a time when the Bharatiya Janata Party, which dominates the coalition government, faces one of its biggest crises.

Defeated in state polls over the weekend, it now faces a potential flare-up of communal tensions after a suspected a mob attacked a train carrying Hindu activists in Gujarat on Wednesday, killing 58 people.

Reuters

YOU MAY ALSO WANT TO READ:
The Rediff Budget Special
The Rail Budget 2002-03
The Economic Survey 2001-02
More Budget Stories
Money