Indian budget denounced for `buying votes'

India's latest budget puts a brake on rapid economic reforms to give a lift to the poor, who had been left behind in the dash by the Prime Minister, Narasimha Rao, to turn the world's fifth largest economy from socialism to capitalism.

Presenting the budget in parliament yesterday, the finance minister, Man Mohan Singh, said: "The task of lifting the age-old burden of poverty is a daunting one, but we're on the right track." To fund the extra spending on health, education and rural development, the government intends to run up a higher than expected fiscal deficit of £12.8bn, about 5.5 per cent of gross domestic product.

Economists said the budget was designed to lure back the poor Indian voter, who deserted the ruling Congress party in recent state assembly elections. One foreign economist said: "These are short-term measures to buy the government popularity. Where's India going to get the money for all this?"

Although Mr Singh said the government would "disinvest" from the inefficient state-run companies bloated by over-staffing, a large chunk of the budget will be soaked up by the public sector and by subsidies for essential foods and fertilisers. Earlier, international economic experts had warned India to cut subsidies, but Mr Rao must face a general election next year. More than 30 per cent of India's 870 million people live below the poverty line; a sudden rise in food prices could make the difference between life and starvation for many.

Mr Singh said economic reform was on course. India's growth rate of 5.3 per cent was one of the highest among developing countries. Foreign currency reserves have risen from $2.24bn when Congress was voted into power in 1991 to more than $19bn last year. "These indicators testify to a remarkable turnaround. We inherited an economy near collapse four years ago, and we transformed it into an economy showing strong growth."

Mr Singh is determined to break India out of economic isolationism by relaxing tariffs and giving foreign companies bigger tax breaks. He said fears that formerly protected Indian firms would be driven out of business had proved groundless.

But Mr Singh admitted inflation, at over 11 per cent, was one of the economy's "weak spots". One opposition politician, Madhu Dandavate, a former finance minister, said the budget was "inflationary" with high deficit spending, and India would be forced to borrow abroad.