India's government spells out 'Modi-nomics' in first budget

India's new right-wing government under Prime Minister Narendra Modi unveiled its maiden budget Thursday, promising a new era of fiscal discipline, higher growth and greater opportunities for foreign investors.
The budget was a "roadmap" to where the two-month-old government is headed -- toward lower borrowing, more privatisation, greater openness to foreign investment and faster expansion, Finance Minister Arun Jaitley told parliament.
"India unhesitatingly desires to grow," Jaitley declared.
Government overspending would be slashed in the next three years to 3.0 percent of gross domestic product, he said.
He stuck with an ambitious target set by the previous Congress government to cut the fiscal deficit to 4.1 percent of GDP this fiscal year from 4.5 percent in the previous 12 months, surprising analysts who feared the goal was too daunting.
"We cannot leave behind a legacy of debt for future generations," Jaitley said, announcing he would rely on higher revenues from taxation and partial-privatisation revenues to meet the goal.
Analysts voiced skepticism that India could meet the target with the economy stuck in its deepest slowdown in a quarter century, growing by just under five percent last year -- half the rate of just a few years ago.
"We suspect Mr Jaitley may come to regret adopting his predecessor's target," particularly if privatisation proceeds fall short as they have in the past, said Mark Williams, chief Asia economist at Capital Economics.
Global credit rating agency Fitch also expressed surprise while Credit Suisse called the budget "a promising start" but added that the deficit target carried risks.
- No 'big bang' reforms -
To bring in more investment to the capital-hungry nation, Jaitley hiked foreign investment caps in the defence and insurance sectors to 49 percent from 26 percent and projected growth would rebound to 7.0-8.0 percent by 2018 from 4.7 percent last year.
To strengthen balance sheets of state-run banks hit by bad loans, the minister said the government would permit them to sell shares to the public.
The budget also promised more spending, through public-private ventures, on overhauling dilapidated roads, ports and other infrastructure.
Indian shares closed down a quarter of a percent at 25,372.75 points after hitting a string of pre-budget records, and analysts said the bull-run might pause.
"Now the market will wait to see how the government delivers," said Alok Churiwala, head of brokerage firm Churiwala Securities.
The budget also contained social measures to spur low-cost housing and new clean water initiatives, including a bid to reduce pollution in the sacred Ganges river.
There were also initiatives aimed at making life safer for women following a string of brutal sexual crimes, including funding for crisis management centres.
Jaitley boosted defence spending by 12 percent from last year.
But his failure to introduce "big bang" reforms frustrated some business executives.
"The budget was just spread out to satisfy everybody," said S. Sandilya, chief executive of automaker Eicher Group.
On taxation for instance, Jaitley promised a more "stable" environment, but stopped short of scrapping a controversial retroactive tax passed by the last government that foreign investors had denounced as "tax terrorism".
The 2012 move to claim back taxes from companies prompted a $2.4-billion tax row with British mobile phone giant Vodafone, which said Thursday it would "continue the process of international arbitration" to resolve the dispute.
Jaitley also said a long-anticipated direct tax code to widen the revenue base would be studied by a committee, rather than setting a timetable.
There was no mention of changes to rigid hire-and-fire labour laws that analysts say deter manufacturing job creation for India's burgeoning young population.
But Jaitley set a December deadline for pushing through a long-pending national good and services tax (GST) to replace a web of federal and state taxes in a bid to facilitate business transactions.
Laying the ground for a potential regulatory turf war with the nominally independent central bank, Jaitley highlighted the government's desire for a "modern monetary policy framework" to meet the challenges of an increasingly complex economy.
Since ousting the scandal-rocked Congress, Modi has pursued his "Modi-nomics" agenda of "maximum governance, minimum government", consolidating ministries to streamline administration and speed decision-making.
With two-thirds of India's 1.25 billion population living on under $2 a day and fears of a below-average monsoon, Jaitley promised no rollback in costly food, job creation and other anti-poverty subsidies but said they would be better targeted, arguing the poor wanted opportunities, not handouts.  
Jaitley gave no growth forecast for this year, but the finance ministry projected expansion of between 5.4 and 5.9 percent in 2013-14 in its economic survey Wednesday.