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India to increase spending in bid to revive economic growth

INDIA'S government said yesterday that increased spending in its new budget would inflate the fiscal deficit to 6.8 percent of the country's gross domestic product as it bids to revive economic growth.

Stocks plunged on concerns about a ballooning budget deficit and disappointment that Finance Minister Pranab Mukherjee stopped short of announcing any new liberalization measures. Speculation that the ruling Congress Party would quickly enact sweeping pro-market reforms has been running high since May's national elections.

Hoping to create jobs and spur growth, the government will boost total spending 36 percent to 10.3 trillion rupees (US$214 billion) for the year that ends March 2010, Mukherjee said in presenting the budget to Parliament.

"The first challenge is to lead the economy back to a high growth rate of 9 percent per annum at the earliest," he said. Economic growth for the year through March slowed to 6.7 percent.

Simplify tax

Mukherjee said he aimed to increase infrastructure spending to 9 percent of GDP by 2014, boost defense spending, provide credit to troubled exporters and simplify the tax code.

Spending on a rural employment program that last year provided jobs to 44.7 million poor households would go up 144 percent to about US$8 billion, he said.

Government food subsidies for the poor and farmer loan relief programs would also be extended.

"Aam aadmi" - the "common man" in Hindi - "is now the focus of all our programs and schemes," he said.

Investors, however, worried about the bulging fiscal deficit and lack of new concrete reforms. The benchmark Sensex index tumbled 890 points, or 6 percent, to 14,018.42 in afternoon trading.

The country's deficit has grown since the government enacted three fiscal stimulus packages of tax cuts and spending, on top of deep spending on fuel subsidies, government pay hikes, and farmer loan and employment programs.

Prime Minister Manmohan Singh praised Mukherjee for carrying forward "inclusive growth," a mantra of the ruling Congress Party, which has pushed welfare and wealth redistribution programs even as it opens its economy to market forces and foreign investors.


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