NEW DELHI - Facing a flagging agricultural sector, dwindling skilled labor pool, and chasm between rich and poor, India's government has announced significant increases in social spending in its annual budget.
P. Chidambaram, the finance minister, said the government would increase spending for health and education and would wipe out or reduce debt owed by an estimated 40 million farmers. Individuals who make less than 150,000 rupees, or $3,750, in a year would be exempt from paying income tax, he said, up 50 percent from the current exemption.
Several Indian states are facing elections this year and a general election is due before May 2009, so an increase in social spending was anticipated because it could garner votes for the governing Congress Party.
The focus on programs aimed at India's poor and middle classes also reflects some disconcerting realities haunting one of the world's fastest-growing major economies: Even as gross domestic product growth hovers near 9 percent and freshly minted Indian billionaires climb the ranks of the wealthy of the world, much of India's population is struggling to get basic education, adequate food, and access to clean water.
While India's young population is expected to fuel economic growth for years to come, industries are struggling now to find adequately skilled workers.
The problem is compounded by the fact that for the first time in several years, recent economic indicators suggest that growth is slowing in India, while inflation is rising more than anticipated.
Overall, India plans to spend 7.5 trillion rupees in the next fiscal year, a 5.7 percent increase from last year's revised budget estimates, the government said Friday. The increase in spending will help to prolong India's dwindling budget deficit, which is anticipated at 2.5 percent of the country's GDP for the coming year.
Spending on healthcare will increase 15 percent, as money flows to programs to eradicate polio, reduce transmission of HIV, and improve rural health. Spending on education will jump 20 percent in the coming fiscal year, Chidambaram said, on the back of increased training programs and expanded school lunch programs.
"Education and health are the twin pillars on which rests the edifice of social sector reforms," Chidambaram said.
Corporate income tax rates were not raised, and customs duties were slashed on a panoply of goods, from cattle feed ingredients to some drugs and sporting good manufacturing machinery.
In addition, the Finance Ministry cut excise taxes on a number of goods, from composting machines and data cards to two-wheelers, small cars, and hybrid vehicles. While still strong, sales of autos and scooters have flagged recently, and the cut in taxes is expected to provide a lift. Automakers, expecting bigger cuts, were lukewarm about the changes.
Small farms have been particularly hard hit in recent years as cotton crops failed and prices of seeds and fertilizers increased.
