India says economic growth is faltering due to the global economic crisis, and swift measures are needed to revive growth and stem job losses. The government has also warned that its fiscal deficit will rise to its highest level in recent years.
Acting Finance Minister Pranab Mukherjee said Monday that, at a time when most economies are struggling to stay afloat, India's economy is expected to grow at around seven per cent, making it the world's second fastest growing economy.
But he admitted that India is hit hard by the global economic downturn, and needs urgent measures to revive growth.
"Extraordinary times require extraordinary measures," he said. "Now is the time for such measures."
The government, whose term ends in May this year, is presenting an interim budget.
The acting finance minister says more spending is needed to stimulate domestic growth, but says any new fiscal stimulus measures will have to wait until after national elections.
This led to widespread disappointment in industry, which was hoping that the government would announce steps to stem the decline in the manufacturing, construction, automobile and export sectors. The slowdown in these sectors has led to hundreds of thousands of job losses.
However the government promised to increase spending on infrastructure, education and social welfare projects. Eyeing the forthcoming elections, it also promised to extend interest subsidies for farmers, and give priority to the rural sector.
The government has also announced a hike of 24 per cent in defense spending in 2009 compared to the previous year. Mukherjee says the Mumbai terror attacks last year have made this necessary.
"The Mumbai terror attacks have given an entirely new dimension to cross border terrorism. A threshold has been crossed," he said. "Our security environment has deteriorated considerably."
Mukherjee says the fiscal deficit is expected to rise to six per cent of gross domestic product during this year - the highest in seven years.
Analysts say India's growth may slow from seven per cent in the fiscal year that ends in March to about five per cent next year.