New Delhi, February 28:

India’s ruling Congress party unveiled a budget on Wednesday to boost stagnant farm output and combat inflation as it strived to make robust economic growth relevant to the nation’s poor.

“The economy is in a stronger position than ever before,” finance minister P Chidambaram told parliament as he presented the budget for the fiscal year to March 2008. “I have put these revenues to good use to promote inclusive growth, equity and social justice,” he said.

But quoting India’s first prime minister Jawaharlal Nehru, he said, “The main challenge is agriculture — everything else can wait.” He outlined plans to hike farm production

and rural incomes as part of the Congress-led coalition’s pledge to put the “common man” at the top of its agenda and wrestle down inflation hovering at two-year-highs of 6.6 per cent.

“We are confident we can moderate the present inflationary trend,” Chidambaram said.

Both farm output and inflation have become urgent issues with polls looming in India’s politically pivotal and most populous state Uttar Pradesh in two months and federal elections at most two years away.

Congress attributed its losses in state polls in the breadbasket state of Punjab and northern Uttarankhal on Tuesday partly to voter anger over rising prices which have badly hit India’s poor who propelled the party to power in 2004.

Chidambaram announced spending on irrigation, fertiliser subsidies, seed development, rural roads and farm credit along with duty cuts on edible oils to combat inflation.

“There is no death of (agriculture) schemes, no dearth of funds. What remains to be done is achieve the outcome,” Chidambaram said.

With over half of the 1.1 billion population dependent on the farm sector for their livelihoods, low agriculture growth has cast a shadow over India’s economic growth which Chidambaram said would meet an earlier estimate of 9.2 per cent for the full year.

Slow farm growth was cited as a key factor in data released Wednesday showing that Asia’s fourth-largest economy grew by a lower-than-expected 8.6 per cent in the third quarter, down from 9.3 per cent a year earlier.

Chidambaram promised that the government “will deliver on the promise of making growth more inclusive, the poor will benefit from growth” in an attempt to address the gulf between prosperous city dwellers and the vast rural poor. Farming is expected to grow just 2.7 per cent this year, down from six per cent a year earlier. In the third quarter, the farm economy expanded 1.5 per cent, according to data released Wednesday.

He increased spending on education by 34 per cent, announcing programmes to increase school attendance and boost the number of schools and teachers, saying India would only be able to benefit from “its demographic dividend” of a young population if they are educated.

He also boosted spending on AIDs prevention, saying the government has “brought AIDs out of the closet” in the sexually conservative nation.

Chidambaram, an enthusiastic liberaliser, steered clear of any contentious “big bang” privatisation or labour or other reforms that might alienate voters or the coalition’s communist allies who provide key parliamentary support.

The government pressed ahead with meeting its goal of cutting the fiscal deficit as a proportion of GDP to three per cent by 2009, setting a target of 3.3 per cent for the next financial year.

Major highlights

• Average growth rate is 8.6 per cent.

• Average inflation is 5.2-5.4 per cent.

• Economy seen growing at 9.2 per cent in FY 2007.

• Growth target of 10 per cent achievable.

• Per capita income for FY ‘06 up by 7.6 per cent.

• Defence budget rises to Rs 960 billion, an increase of Rs 70 billion.

• Education allocation hiked by 32 per cent.

• Fertiliser subsidy hiked to Rs 224.52 billion.

• Permanent account number (PAN) to be sole identification for all capital market transactions

• Central public sector enterprises to make investment of Rs 1.65 trillion.

• Government to buy Reserve Bank of India stake in State Bank of India.

• Rs 120 billion for National Rural Employment Guarantee Scheme (NREGS).

• Health, welfare allocation hiked by 21.9 per cent.

• Additional cess of one per cent to fund education for socially backward classes.

• Rs 9.69 billion for AIDS control scheme.

• Rs 3.21 billion for insurance scheme for weavers.

• Rs 225 million allocated for modernisation and technical upgrade of coir industry.

• Five billion rupees allocation for e-governance.

• New industrial policy for Northeast

• Reverse mortgage scheme for senior citizens announced.

Budget highlights

Agriculture

• Peak tariff for non-farm products cut to 12.5 percent to 10 percent

• Fertiliser subsidy hiked to Rs 224.52 billion.

• Rs 110 billion outlay for irrigation.

• 50 per cent subsidy for small farmers.

• Rs 1 billion allocated for weather-based crop insurance scheme.

• Rs 1 billion allocated for development of rain-fed areas.

• Aam Aadmi (common man) Bima Yojana insurance scheme for landless people in rural areas launched.

Infrastructure

• New industrial policy for the Northeast.

• 31 per cent increase in allocation for Bharat Nirman programme to boost infrastructure companies.

• Rs 106.67 billion allocated for National Highways Development Programme (NHDP).

Education

• Education allocation hiked by 32 per cent.

• 200,000 teachers to be appointed in 2007-08.

• 500,000 classrooms to be added in FY 08.

• National means-cum-merit scholarship scheme launched.

• Rs 37.94 billion allocated for secondary education programme.

• Rs 73.24 billion for mid-day meal scheme.

• Rs 7.5 billion for upgrading 300 Industrial Training Institutes (it is)

Tax and duties

• Minimum alternate tax 0f 11.2 per cent levied on IT companies.

• Cash withdrawal limit for banking transaction tax raised to Rs 50,000.

• Additional cess of one per cent to fund education for socially backward classes.

• Capital gains tax on works of art.

• Lower duty on edible oils.

• ESOPs brought under fringe benefit tax (FBT).

• Dividend distribution tax raised to 15pc.

• Ad valorem duty on petrol and diesel reduced to six per cent.

• Tax benefit on R&D extended by five years.

• Minimum alternative tax (MAT) extended to

IT companies.

• Surcharge on corporate tax removed for companies with less than Rs 10 million turnover.

• Threshold limit for income tax exemption for all assesses hiked by Rs 10,000.

• Rs 1.95 lakh income tax exemption for senior citizens.

• No change in corporate tax.

• Tax holiday for two-, three- and four-star hotels that come up in Delhi and neighbouring areas before 2010 Commonwealth Games.

• Customs duty on polished gems cut to 3pc.

• Excise duty on pan masala not containing tobacco reduced from 66 pc to 45pc.

• No excise duty on readymade food mixes.

• Clinical trials of new drugs to be exempt from service tax.

Capital market

• Permanent Account Number (PAN) to be made sole identification number for all participants in securities market with an alphanumeric prefix or suffix to distinguish a particular kind of account.

• Idea of Self-Regulating Organisations (SRO) to be taken forward for different market participants under regulations to be made by SEBI.

• Mutual funds to be permitted to launch and operate dedicated infrastructure funds.

• Individuals to be permitted to invest in overseas securities through Indian mutual funds.

• Short-selling settled by delivery, securities len-ding and borrowing to facilitate delivery, by institutions to be allowed.

• Enabling mechanism to be put in place to permit Indian companies to unlock a part of their holdings in group companies for meeting their financial requirements by issue of Exchangeable Bonds.