India looks to boost growth with new budget

India's finance minister announced the government's new budget on Saturday, promising a slew of measures that attempt to balance welfare spending with high economic growth and infrastructure development, while vowing to keep a tight control on the fiscal deficit.

It was Finance Minister Arun Jaitley's first full budget since Prime Minister Narendra Modi won a huge majority in national elections in May on the back of promises to turn around the economy and boost job creation.

There were few sweeping reforms that the government has been promising, but economists and business leaders reacted to Saturday's announcement with cautious optimism, a far cry from Jaitley's first interim budget in July, which was widely panned.

"It's a very positive budget. No big bang, but a steady move forward," Ajay Shriram, president of the Confederation of Indian Industries, told CNN-IBN. "It's moving in the right direction."

Jaitley said the Indian economy is slated to grow at 7.4 percent in the current fiscal year, which ends in March, and will continue grow at between 8.1 and 8.5 percent in the next year.

"The credibility of India's economy has been re-established," Jaitley told Parliament in a 90-minute speech. "India is about to take off on a faster growth trajectory once again."

New growth estimates announced in late January make India the world's fastest-growing economy, surpassing neighbor and rival China. But the higher growth projections follow a revision of the baseline against which India calculated economic growth.

India's annual growth averaged about 8 percent in the decade up to 2010, but slumped to about 5 percent in the following years.

Jaitley said his government would stick to the country's "challenging" fiscal deficit target — the gap between what the federal government earns and spends — of 4.1 percent of gross domestic product in the current year.

But he said the government's target of bringing that number down to 3 percent would take three years because of the need to increase government spending to boost infrastructure growth in Asia's third-largest economy.

Jaitley announced an increase of 700 billion rupees ($11.4 billion) in investments on roads, railways and other infrastructure.

The government also announced a reduction in corporate tax from 30 percent to 25 percent over the next four years, starting next fiscal year.

"India's high corporate tax rates compared to other Asian countries" hurt its ability to attract foreign investment, and lowering the tax rate will bring "higher growth and more jobs," Jaitley said.

Despite having widely criticized the previous government's welfare programs, the finance minister announced no cuts to India's food, fuel or fertilizer subsidies.

In fact, Jaitley announced new funds for a costly rural employment creation program that his Bharatiya Janata Party has often cited as one of the failures of the previous Congress party-led government. He also promised to introduce a universal social security scheme.

Perhaps with an eye on upcoming local elections, including in the largely poor and rural state of Bihar, Jaitley said that "all our schemes should center around the poor."

"We need to cut subsidy leakages, not subsidies themselves," he said, adding that the subsidies needed to be targeted better.