India Budget surprises with surge on spending, tax on super-rich

Feb 28 2013, 20:16 IST
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SummaryChidambaram announces higher-than-expected spending, proposes tax on wealthy people, cos.

to the end of the year to attain its fiscal deficit target," said A. Prasanna, economist at ICICI Securities Primary Dealership Ltd.

Net market borrowing of 4.84 trillion rupees for the new fiscal year met investor hopes that the figure would not top 5 trillion rupees, but the gross figure exceeded expectations.

The budget included several measures to spur investment both in markets and by corporations, including an incentive on investments in plant and machinery exceeding 1 billion rupees and extending tax breaks for small companies that grow larger, and an expansion of tax-free bonds for infrastructure.

Chidambaram has focused on winning back foreign investors unnerved by proposals of his predecessor, Pranab Mukherjee, to tax merger deals retrospectively and clamp down on tax evasion. Since September, he has implemented a spate of investor-friendly reforms, including allowing entry of foreign supermarkets.

"India, at the present juncture, does not have the choice between welcoming and spurning foreign investment. If I may be frank, foreign investment is an imperative. What we can do is to encourage foreign investment that is consistent with our economic objectives," he said.

HEY, BIG SPENDER

While the added spending included capital investment that many have said is sorely needed, including a 29 percent increase in funding for infrastructure and development, it also included a 46 percent jump in funding for development programmes in rural areas, the core voter base of the ruling Congress party.

An added surcharge on local firms with incomes of more than 100 million rupees and a 10 percent surcharge on individuals with taxable incomes topping 10 million rupees - a level of earnings currently declared by just 42,800 people - will be put in place for one year.

Dozens of corporate executives, watching a telecast at an industry event in New Delhi, exchanged nervous smiles as Chidambaram introduced the surcharge on the rich.

"In the larger scheme of things, I guess that is one way of reducing his deficit. Am I going to lose sleep over it? No," Ganesh Natarajan, CEO of IT outsourcer Zensar Technologies , said by phone from Pune, where the company is based.

Indian economic growth for the current fiscal year is on track to hit just 5 percent, nearly half its level in 2007/08.

"This country must not lose any time - India must get its act together to accelerate the tempo of growth," Prime Minister Manmohan Singh said in a TV interview after the budget speech.

The budget also reflects

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