New Delhi: India put managing rising price pressures and problematic capital inflows at the front of its budget list for the next fiscal year to keep growth on track ahead of general elections due in 2009.
Finance Minister Palaniappan Chidambaram, presenting the fifth and last full budget of the left-leaning administration, pledged a 20% rise in education spending and a 15% increase in health spending to spread the benefits of an economic boom beyond the cities to rural voters.
Chidambaram said while he was confident India’s economy would grow by 8.8 %in the fiscal year ending on 31 March, there were risks from turbulence on global financial markets and from rising oil, metals, wheat and rice prices worldwide.
“Management of the supply side of food articles will be the most crucial task in the ensuing year,” he told parliament, adding the country was determined to be self-sufficient in food grains.
“Keeping inflation under check is one of the cornerstones of our policy.”
High capital inflows last year complicated monetary policy by pushing the rupee up against the dollar and Chidambaram said the government and central bank would take whatever temporary measures they thought necessary to moderate the flows.
“The solution lies in increasing the absorptive capacity of the economy in the medium term. In the short term it is our responsibility to manage the flows more actively,” he said.
High interest rates to combat inflation last year have put the brakes on consumption and economic expansion, and data showed annual growth of the $1 trillion economy slowed to 8.4% in the Oct-Dec quarter from 8.9% in the Jul-Sept period.
India, the world’s fastest growing major economy after China, clocked a scorching 9.6% in 2006/07, its fastest pace in 18 years.
With the growth accompanied by price pressures, the government is concerned that inflation hits the poor first.
The ruling Congress party faces a string of state elections this year ahead of the national polls due by May 2009, and is looking over its shoulder at rivals seeking to gain support among poor and low-caste voters who feel left out of India’s boom.
India has a population of 1.1 billion and 60% or more live and work in rural areas.
Inflation as measured by wholesale prices hit a six-month peak of 4.35% in early February.
An annual economic survey released by the finance ministry on Thursday warned that maintaining annual 9% growth would be a challenge due to inflation pressures and infrastructure constraints.