New tax for super rich in India's budget

NEW DELHI - Finance minister P. Chidambaram introduced a tax on the super rich while saying he had little choice but to "rationalise expenditure" in a budget that balanced fiscal prudence with some populism.

"Faced with a huge fiscal deficit, I have no choice but to rationalise expenditure. We took a dose of bitter medicine. It seems to be working," said Mr Chidambaram, focusing on growth and stability as he presented his eighth budget.

The finance minister said that expenditure would touch Rs 16.65 trillion (S$ 378 billion) for the next fiscal year that starts on April 1.

While keeping tax slabs intact, the finance minister did introduce a surcharge for 42,800 of India's super rich who have a taxable income of more than Rs 10 million and above.

India has been facing sluggish growth because of a global slowdown leading to a slump in exports and decreased domestic demand that have hit the manufacturing and services sectors.

The government led by Prime Minister Manmohan Singh and finance minister P. Chidambaram have been trying to reverse the economic slowdown with a series of measures including opening up India's retail and aviation sectors to actively trying to attract foreign investment.

Mr Chidambaram's budget was seen as an extension of that effort.

"The key is to attract investment both foreign and domestic," said the finance minister while saying the government would work towards "removing distrust in the mind of investors including fears of undue regulatory burden and tax law."

"India should be seen as friendly and mutually beneficial," he said.

He also said that India needed $75 billion to bridge the current account deficit which he hoped to bridge through foreign investment and external commercial borrowings.

On fiscal deficit, the finance minister said it would stay at 4.8 per cent of gross domestic product in the next fiscal year and projected that the fiscal deficit for this year would be 5.2 per cent, lower than the previous forecast of 5.3 per cent.

Rating agencies had warned that India would be downgraded from sovereign debt to junk status if it does not reduce that deficit which stood at 5.8 per cent of the gross domestic product in 2011/2012.

But if there was any doubt that this was a pre election budget, Mr Chidambaram put that to rest announcing an allocation of Rs 100 billion to cover any unexpected costs for the food security bill, which will provide subsidised grains to the poor, and introducing a series of women friendly measures.

"We have a collective responsibility to ensure the dignity and safety of women," said Mr Chidambaram said, adding "recent incidents have cast a dark shadow" on the country's liberal credentials.

He announced a Nirbhaya fund in memory of the Delhi gangrape victim who passed away in a Singapore hospital on December 29.

He also announced the country first women's only bank that would be run by and would be for women.