Indian Lawmakers Approve Budget as Minister Vows to Cut Deficit

India’s parliament approved this year’s budget as Finance Minister Pranab Mukherjee vowed to trim the fiscal deficit after economic growth picks up.

“What is required right now is to achieve high growth in the shortest possible time,” Mukherjee told lawmakers today in the upper house, urging them to support the finance bill. “This level of deficit is not sustainable and we shall correct it soon.” The lower house passed the budget yesterday.

Financial markets are concerned the record 4.51 trillion rupees ($92 billion) borrowing may leave little money for private companies for investments, with the key bond yield rising 24 basis points since the budget was presented on July 6. Mukherjee said he plans to trim the deficit to 5.5 percent of gross domestic product by March 2011 and to 4 percent in the following 12 months.

Mukherjee forecast higher spending for infrastructure and the rural poor will see the budget deficit widen to 6.8 percent of gross domestic product in the year ending March 31, from 6 percent in the previous year. He is betting on faster economic expansion to raise tax revenue and step up allocations for roads and the poor, and trim the budget deficit in the coming years.

The finance minister said the widening of the deficit won’t “crowd out” borrowing needs of private companies, adding that the government “working in tandem” with the central bank will ensure enough money is available with the nation’s banks.

Reviving Demand

Prime Minister Manmohan Singh’s government, which won re- election in May for a second term, is focused on reviving consumer and investment demand as the nation’s $1.2 trillion economy, pummeled by the global recession, is forecast to grow 6.7 percent this year, the weakest since 2003.

“Higher growth is essential because it means higher tax incomes -- and this is no longer a theoretical proposition,” Mukherjee said. India’s record growth of close to 9 percent in the five years ended March 31 helped tax revenue more than double since 2004, he said.

The minister said the government’s fiscal stimulus since December is showing positive results, though the economy is still “not out of the woods.”

In June, steel and cement production grew by 13 percent each from a year earlier, while mobile-phone connections in May rose by 12 million, a 49 percent increase from the year before, the minister said.

Fiscal Discipline

“These are small beginnings that show that our strategy to generate internal demand is responding,” Mukherjee said. “In the medium term, we should have clear objectives and come back to the path of fiscal discipline.”

He said he plans to tap revenue from the sale of stakes in state-run companies and generate more revenue from the introduction of a goods and service tax from April 1 that will subsume all indirect taxes and will levy only value-added production so that manufacturers don’t pay taxes twice.

Indian state-owned companies NHPC Ltd. and Oil India Ltd. will sell shares to the public this year, Mukherjee had told lawmakers earlier in the day. NHPC is India’s largest hydroelectric power generator while Oil India is the country’s second-biggest government-owned energy explorer.