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India FinMin Unveils Pre-Election Budget; Estimates Narrow Deficit

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India's Finance Minister Palaniappan Chidambaram on Monday unveiled indirect tax reductions to raise domestic consumption, and still affirmed that the budget deficit will narrow this fiscal year.

In his interim budget speech for the fiscal year 2014-15, presented ahead of general elections, Chidambaram said the fiscal deficit will be contained at 4.6 percent of gross domestic product in 2013-14, down from the previous target of 4.8 percent.

The deficit is estimated to narrow to 4.1 percent by March 31, 2015 and further it need to be lowered to 3 percent of GDP by 2016-17, he said.

Chidambaram estimates the current account deficit for 2013-14 to fall to $45 billion from $88 billion a year ago and expects to add $15 billion to foreign exchange reserves by the end of the financial year 2013-14.

The government estimates fiscal 2014 economic growth at 4.9 percent and agriculture growth at 4.6 percent. At the same time, merchandise exports are forecast to rise 6.3 percent in 2013-14.

"The fiscal deficit is declining, the current account deficit has been contained, inflation has moderated, the quarterly growth rate is on the rise, the exchange rate is stable, exports have increased," Chidambaram told lawmakers.

He claimed that his government has delivered above the trend growth during its two terms, 2004-2009 and 2009-2014.

The minister asserted that wholesale price inflation slowed to 5.05 percent at the end of January 2014 from 7.3 percent during the same period of last year. Although food inflation has declined sharply to 6.2 percent from a high 13.6 percent, he admitted that it continues to be a matter of concern.

In an attempt to help the manufacturing sector, Chidambaram cut the excise duty on cars and mobile phones. He lowered the excise duty on small cars and motorcycles to 8 percent from 12 percent and that on large and mid-segment cars to 24-20 percent from 27-24 percent.

The duty on Sports Utility Vehicles was brought down to 24 percent from 30 percent. The duty on capital goods and consumer goods was cut to 10 percent from 12 percent. He announced no changes to tax laws.

The newly elected government is likely to present the full budget for 2014-15 by June. The interim budget will cover expenditure for the period till the new government is formed.

The defence expenditure would be raised by around 10 percent. The government will infuse INR 112 billion into state run banks. He also partially waived interest payments on student loans over the last four years.

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