New Delhi: The Indian government’s spending will exceed Rs10 trillion for the first time ever in the fiscal year to March as it attempts to boost flagging economic growth with massive investment in infrastructure, especially the rural heartland, and attempts to spur consumer spending.
The United Progressive Alliance (UPA) has budgeted for a total expenditure of Rs10.20 trillion in the year 2009-10, a 36% increase over the previous year.
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“This is the highest expenditure level since Independence,” finance minister Pranab Mukherjee said in his Budget speech in Parliament on Monday.
The government earmarked Rs6.95 trillion for non-Plan expenditure, a 37% increase over the budget estimate for 2008-09, and raised Plan expenditure to Rs3.25 trillion, a n increase of 34%.
Plan expenditure is typically devoted to the creation of assets and is long-term in nature while non-Plan spending finances recurring costs including subsidies and interest payments.
The increase in Plan expenditure was largely on account of an enhanced gross budgetary support (GBS) of Rs40,000 crore over the interim budget that Mukherjee presented in February.
The rise in non-Plan expenditure was mainly due to the implementation of salary increases recommended by the Sixth Pay Commission, increased food subsidies and higher interest payments.
“Bulk of this enhanced GBS is directed towards public investment in infrastructure, with special emphasis on rural infrastructure, raising growth potential and leading to income generation,” said Mukherjee.
The UPA government has been trying to revive economic growth that slowed to a pace of 6.7% in the last fiscal year, the slowest pace in six years, after averaging almost 9% in the previous five years. The government raised public spending in the last financial year through fiscal stimulus programmes.
The UPA’s focus will remain on rural areas. Mukherjee announced a 33% increase in the government flagship National Rural Employment Guarantee Scheme, which promises 100 days of work to at least one member of every rural family a year. The government also guaranteed a minimum real wage of Rs100 a day.
“Putting money in rural consumption is a short-term goal of the finance minister,” finance secretary Ashok Chawla told reporters.
Other programmes that will create rural employment and spur demand in the countryside include Bharat Nirman, which had its overall allocation raised by 45%, and its component schemes such as the Accelerated Irrigation Benefit Programme and Indira Awaas Yojana, a rural housing scheme named after late prime minister Indira Gandhi, in a range of 27% to 75% against last year.
“Finance Minister Pranab Mukherjee stuck to the UPA government’s ‘Inclusive Growth’ theme by continuing its focus on the aam aadmi (common man)...Increased spending on farmers and the poor is overall positive for the FMCG industry, and is expected to further fuel demand growth in rural India,” said Amit Burman, vice-chairman of personal care products maker Dabur India Ltd.
FMCG is short for fast moving consumer goods, which refer to home and personal care products.
The corporate sector also says urban consumption will rise considerably with the withdrawal of a 10% surcharge on income above Rs10 lakh for personal income tax payers.
The “removal of surcharge on income will increase disposable income in the hands of urban consumers, which would in turn boost consumer confidence,” said Milind Sarawate, chief of human resources and strategy at personal care products maker Marico Ltd.
The exemption limit on personal income tax was raised by Rs10,000 for women and Rs15,000 for senior citizens, putting surplus cash in their hands to boost consumer demand.
The budget proposals will also make liquid crystal display television sets, mobile phones, some lifesaving drugs, branded jewellery, sports and leather products and footwear, among other products, cheaper, giving consumers an incentive to buy such products.
“The provisions will help boost consumer demand in both urban as well as rural markets,” said Adi Godrej, chairman of Godrej Group.
Graphics by Ahmed Raza Khan / Mint