India interim budget: Indirect taxes on cars cut

Cars parked in India Image copyright AFP
Image caption Car sales in India have dipped to a 10-year low amid an overall economic slowdown

India's Finance Minister Palaniappan Chidambaram has cut indirect taxes on cars and mobile phones in an attempt to boost economic growth.

Mr Chidambaram unveiled the move as he presented the interim budget ahead of this year's general elections.

In his speech he expressed concerns over the health of the manufacturing sector and rising food prices.

However, Mr Chidambaram added that the economy had stabilised and was showing signs of a turnaround.

"Our objectives were fiscal consolidation, reviving growth cycle, and enhancing manufacturing," he said.

"I can confidently assert that the fiscal deficit is declining, the current account deficit is constrained, inflation is moderated and exchange rate is stable."

The interim budget comes as the government's popularity has slumped amid a slowdown in growth and a number of corruption scandals in recent years.

The elections are scheduled to be held by May and the new government will present a full budget for the next financial year after it takes charge.

'Net positive'

India - Asia's third-largest economy - has been weighed down by various factors such as high inflation, a weak currency and a drop in foreign investment.

A slowdown in the manufacturing sector has also hit the economy. The sector's growth rate has now been below 5% for four quarters in a row.

At the same time, analysts have cited concerns over India's fiscal deficit - the difference between the government's earnings and its expenditure.

Ratings agencies have even threatened to cut the country's rating if the issue is not tackled.

The finance minister said that the fiscal deficit for the financial year ending 31 March 2014 would be contained at 4.6% of gross domestic product (GDP).

That is below the 4.8% target set by the government, which analysts said was a positive development.

"India was under so much scrutiny because of a probability of a rating downgrade, we have been in an environment where the policy makers have been constantly communicating with the various stakeholders," said Vijai Mantri, chief executive of Pramerica Asset Managers in Mumbai.

"So I think what came out in the final document was not surprising, which is a net positive from the market's point of view given that the finance minister has been able to deliver on his promise."

The finance minister also sought to allay worries over the current account deficit - the difference between the income from exports and the import bill.

The area has been a cause of concern among analysts. The minister said the current account deficit was expected to fall to $45bn in the year to 31 March, down from $88bn a year ago.

He also added that economic growth for the financial year ending in March was expected to be 4.9%.

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