Budget 2013: India to put investors before voters in pre-election year
and acquisition deals retrospectively and clamp down on tax evasion.
Together with a widening fiscal gap, the tax moves triggered a flight of capital from Asia's third-largest economy. The rupee was hammered and, with exports and foreign direct investment slowing, fears of a balance of payments crisis mounted.
New Delhi missed its fiscal deficit target of 4.6 percent of gross domestic product (GDP) in 2011/2012 by 1.2 percentage point because of over-spending on social welfare and subsidies, prompting credit rating agencies to threaten a downgrade that would make India the first of the BRICS emerging economies to lose its investment-grade status.
Chidambaram has repeatedly pledged to lower the deficit to 5.3 percent of GDP this fiscal year and 4.8 percent in 2013/14. But with economic growth languishing around 5.5 percent after the sharpest slowdown in a decade, the finance minister cannot rely on tax revenues to meet his goals.
The finance minister told a budget meeting last month that India had no alternative to meeting the fiscal deficit target and a slippage could have dire consequences, according to a senior bureaucrat who was present at that meeting.
Officials told Reuters that he has already slashed public spending in the current fiscal year that ends in March by some 9 percent from the original target and for 2013/14 he plans to cap it roughly at the same level.
In a Reuters poll conducted earlier this month, 18 out of 23 economists predicted that the focus of Chidambaram's budget speech will be on slashing subsidies and government
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