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    Jul 11, 2014

    Modi budget relies on India revenue boost


    PRIME Minister Narendra Modi's two-month-old government unexpectedly kept India's budget deficit target unchanged, adding pressure on him to boost revenues to pay for food and fuel subsidies.

    The gap will narrow to 4.1 per cent of gross domestic product (GDP) in the year through March next year, as projected by the previous administration, Finance Minister Arun Jaitley said, while presenting Mr Modi's first budget in New Delhi. The target is a seven-year low from the previous year's 4.5 per cent.

    "The revenue collection number is quite a strong one," said Siddhartha Sanyal, chief India economist at Barclays Bank in Mumbai, who expected the target to be revised to 4.5 per cent. "If that comes through, it's well and good. If the number is on the downside, then it makes the situation a bit complicated."

    Mr Modi faces pressure to bolster economic growth from near a decade low while narrowing one of Asia's widest fiscal deficits, after winning the biggest Indian mandate in 30 years.

    The measures announced by Mr Jaitley reduce revenues by as much as 0.2 per cent of GDP, Fitch Ratings, a credit-rating company, said in a statement yesterday.

    "Fitch is surprised that the Indian Finance Minister Arun Jaitley has stuck with the outgoing government's fiscal consolidation path," Andrew Colquhoun, head of Asia-Pacific Sovereigns Group at Fitch, said in a statement.

    "The agency is unsure how this can be met without further revenue-strengthening or expenditure-saving measures."

    India's benchmark stock index fell 0.3 per cent yesterday, while the rupee weakened 0.3 per cent.

    Mr Jaitley called for revenues as a percentage of the economy to increase, as he mapped out a plan to reduce the fiscal deficit to 3 per cent of the economy by 2017. He cited rising oil prices and a weak monsoon as key risks for the target.

    He said in an interview with state-run Lok Sabha TV after the budget speech: "The only way I am going to achieve the target is by collecting more taxes, not by raising the rates, but by expanding the base."

    Mr Jaitley also announced plans to revive special economic zones while building more highways, coal-fired power plants, airports and ports.

    India will raise the caps on the automatic approval for foreign direct investment (FDI) in the defence sector to 49 per cent, from 26 per cent now, he said. The FDI limit in the insurance sector would also be raised to 49 per cent, he said.