India eyes to cut fiscal deficit

Indian Prime Minister Narendra Modi's government yesterday raised import tariffs on nearly 75 items including gold and automobile parts in its federal budget and increased taxes on the rich to hold down the fiscal deficit as it tries to revive growth.

Aiming to restart investment that's at its weakest level in years, the government also proposed giving foreign investors a bigger role in India's giant insurance and aviation sectors, which have been tightly controlled for decades.

Finance Minister Nirmala Sitharaman unveiled the proposals while presenting the budget for the fiscal year ending March 31, 2020 to parliament, the first since the Hindu nationalist-led government was re-elected in a vote in April and May.

Modi, boosted by a recent election victory, has set a target of growing India into a $5 trillion economy by 2024/2025 from $2.7 trillion.

GDP growth slumped to 5.8% in January-March, the lowest in 20 quarters. Growth for the last fiscal year, at 6.8%, was also a five-year low. All important indicators of economic activity, like the dipping index of industrial production (II) and plummeting automobile sales, confirmed the slowdown.

But the government, in its first budget since the re-election, did not announce a big jump in public spending as was widely expected. Sitharaman said the fiscal deficit would be trimmed to 3.3% of GDP in the fiscal year ending March 31, 2020 - which analysts said was likely based on expectations of higher tax collections.

Sitharaman raised import duties on gold and other precious metals to 12.5% from 10%, and levied an import tax of one rupee per tonne on crude oil to boost federal revenue just as global oil prices have softened from their highs.

The government also increased local levies on a litre of petrol and diesel by two rupees each, stoking fears of inflation.

The finance minister said the government would provide state-owned banks 700 billion rupees of additional capital that are laden with bad debt which has affected their ability to lend and also spur economic growth. Indian banks and financial institutions, in all, hold bad debt of over 10 trillion rupees ($150 billion).

The government raised income tax surcharge on people with an annual income of more than 20 million rupees ($291,930) who make up the top end of Indian society.

Currently, India imposes 10% surcharge where total income is between 5 million rupees and 10 million, and 15% on income above 10 million rupees. The new rate will include 25% surcharge on income between 20 million and 50 million rupees, and 37% on income exceeding 50 million rupees a years.