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India boosts defence, agriculture spending                                        

NEW DELHI: India’s finance minister targeted a return to 9.0 per cent economic growth ‘at the earliest’ in a budget speech on Monday that suggested the country had
seen off the
worst of the
global financial
crisis.

But in announcing increased funding for farmers and poverty alleviation programs, Pranab Mukherjee also warned that India’s soaring fiscal deficit would continue to grow in 2009-10 to 6.8 per cent of GDP.

The estimate was far higher than the 5.5 per cent put forward by the government in an interim, pre-election budget in February.
 

The initial stock market reaction however was extremely negative, with the benchmark 30-share Sensex falling 659.55 points or 4.42 per cent to 14,253.3 in intra-day trading.


The deficit had ballooned to 6.2 per cent in the year to March 2009 – more than double the government’s target of 2.5 per cent and the highest in nearly two decades.

‘The first challenge is to lead the economy back to the high growth rate of 9.0 per cent per annum at the earliest,’ Mukherjee told parliament as he presented the 2009-10 budget.

‘The second challenge is to deepen and broaden the agenda for inclusive development,’ he said.
 


India’s economy grew by 6.7 per cent in the year ended March 31 – the slowest rate since 2003 and down from nine per cent a year earlier, as the effects of the global economic downturn hit home.

In its annual Economic Survey presented to parliament last week, the finance ministry had predicted that GDP growth could exceed 7.0 per cent this year.

But it stressed that the figure was dependent on a recovery in the global economy as a whole, and that of the United States in particular.

Mukherjee hiked the defence budget for the financial year to March 2010 by 24 per cent to 1.42 trillion rupees (28.4 billion dollars) to partly fund a programme to modernise India’s 1.23-million-strong military.

The size of the increase had been flagged in a pre-election interim budget in February.

In addition to the defence budget, Mukherjee sanctioned an additional 143 million dollars for the paramilitary and said he will also spend 456 million dollars more to strengthen border security during the current fiscal year.

‘Significant augmentation in the strength of the paramilitary forces is being done,’ Mukherjee said, adding the government will build 100,000 houses for troopers to ‘boost morale’.

In a bid to stem discontent of retired soldiers from spilling into the ranks, he promised an attractive pension programme for 1.2 million ex-military personnel who in recent months had taken their agitation to the streets.

Manmohan Singh said the security modernisation programme was crucial to the unhindered development of Asia’s third largest economy.

‘Law and order is a pre-requisite to sustainable development... so the modernisation of our intelligence is a must,’ Singh told Doordarshan national television.

India, the biggest weapons buyer among emerging countries and which has imported military hardware worth 28 billion dollars since 2000, plans to sign further contracts estimated at up to 30 billion dollars in the next few years.

But strategy expert Uday Bhaskar noted the lion’s share of the funds will be taken up by wages and pensions and said: ‘The current defence allocation may look good but it will not enhance the capability of the military in any way.’


Mukherjee warned that the push for a return to higher growth would have to be balanced against the need for ‘financial austerity.’

Analysing the impact of the global economic crisis on India, he said he believed the ‘the two worst quarters are behind us’.

‘But we cannot afford to drop our guard,’ he added.

The initial stock market reaction however was extremely negative, with the benchmark 30-share Sensex falling 659.55 points or 4.42 per cent to 14,253.3 in intra-day trading.

Analysts said Mukherjee’s speech, which promised increased spending for farmers and the poor, had failed to provide a clear reform path for boosting growth and reducing the deficit.

‘There is nothing in the budget which is specific to help boost growth. It is a complete disappointment,’ said Apurva Shah, head of research with brokerage Prabhudas Lilladher.

After Mukherjee’s speech, Prime Minister Manmohan Singh acknowledged that it was a ‘primarily rural development-oriented budget.

Courtesy: The DAWN

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