The Indian government says its main challenge is to return the economy to a high growth rate and reduce poverty. But the government's widening fiscal deficit and failure to announce economic reforms in its first budget since taking power has disappointed investors and stock markets.
Finance Minister Pranab Mukherjee said Monday the government wants to steer the country back to 9 percent growth "at the earliest." Presenting the annual budget, he said the government also wants to deepen and broaden the agenda for inclusive development so that there is a significant reduction in poverty.
India's economy grew at nearly nine percent for five years before plummeting to 6.8 percent last year amid the global economic crisis.
The minister said the economy appears to be on the path to recovery but stressed the need to remain cautious.
"There are signs of revival in the domestic industry and the foreign investors have also returned to the Indian market in the last couple of months. It is possible that the two worst quarters since the global financial meltdown in September 2008 are behind us," said Mukherjee. "While the global financial conditions have shown improvement over the last few months, uncertainties relating to the revival of the global economy remain. We cannot therefore afford to drop our guard," he continued.
The first annual budget of the Congress-led government, which assumed power in May, kept the focus firmly on rural development. The government unveiled a number of plans, including expanding a rural employment program, extending loan relief programs for farmers and providing subsidized food to the poorest people in the country.
However, the ambitious social development agenda means the government deficit, already running high, will widen further to 6.8 percent.
Finance Minister Mukherjee said that spending will increase this year by 36 percent. He acknowledged that the high deficit needs attention.
"This level of deficit is no doubt a matter of concern and government will address this issue in right earnest to come back to the path of fiscal consolidation at the earliest," he said.
India's stock markets dropped more than five percent, mostly on disappointment that the government failed to announce any market-oriented reforms. The Congress-led government's decisive victory in May had raised expectations that the government would ease curbs on foreign investment and sell stakes in public sector companies to liberalize the economy.
But the government says it wants to keep the focus on what it calls the "common man" in a country where millions still live in poverty.