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Government raises social spending: Budget 2011-12
February, 28th 2011

Finance Minister Pranab Mukherjee announced on Monday a food security bill for 2011/12, a budget measure that would provide cheap grains for millions of India's poor but which has sparked worries over its huge cost.

It was part of a slew of increased social spending in the annual budget as Prime Minister Manmohan Singh confronts high prices and corruption scandals as well as elections in five states this year.

Mukherjee said social spending would rise by 17 percent in 2011-12. That includes health spending, which would rise 20 percent in the fiscal year starting April 1.

But the government hopes bouyant tax revenues from near-nine percent economic growth will keep fiscal deficit falling to 5.1 percent of GDP this fiscal year and to 4.6 percent of GDP in 2011/12 - figures widely seen as too optimistic.

"Both the borrowing and fiscal deficit numbers have been worked out taking into account the most optimistic macro-economic scenarios, which in all likelihood is not going to be the real situation." said Rupa Rege Nitsure, chief economist at Bank of Baroda in Mumbai.

There were few of the reforms, like allowing foreign investment in the modern supermarket sector, that many investors had hoped to improve productivity and help India compete with the likes of China.

"At times the biggest reforms are not the ones that make headlines, but the ones concerned with details of governance which affect the everyday life of the common man," Mukherjee told parliament

"In preparing this year's budget, I have been deeply conscious of this fact."

India's most-traded 8.13 percent, 2022 bond yield rose 2 basis points to 8.11 percent on news of increased social spending before falling to as much as 8.05 percent after the fiscal deficit target and net borrowing amount of next year was announced.


Pranab also announced incentives for private investment in infrastructure as well as moves to help agricultural productivity to sustain economic growth and lower inflation.

The minister raised the foreign investment limit in corporate infrastucture bonds by $20 billion. Mukherjee also said infrastructure debt funds would be created.

In a pilot move, the minister said some subsidies for food and fuel would be directly given as cash to customers starting in March, a move aimed at making the subsidies system more efficient with less waste.

The government is expected to count on a robust economy to expand revenue in the absence of big one-time gains that it enjoyed in the current year from the sale of 3G telecom licences. Mukherjee said he expected the economy to grow 9 percent in 2011/2012 and for inflation to ease.

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