India's Finance Minister Pranab Mukherjee on Sunday defended the government's "zero-risk" budget, conceding he was in a tight political spot and could ill afford bold economic reforms. He steered clear of controversial steps to further pry open India's economy to foreign investors in last Friday's budget and fixed a higher-than-expected fiscal deficit target that avoided tough public spending cuts.
"I could have introduced measures that would have left everybody clapping - but the clapping would have been short-lived," the veteran 77-year-old politician told business leaders at a post-budget forum in New Delhi.
"I had to be extra careful." A string of graft scandals and recent bruising state election losses have put the Congress government on the back foot in parliament and frayed its relations with allies, observers say.
"I had to keep in mind conditions on the ground... that the budget would have to be approved by parliament," added Mukherjee, known as the government's trouble-shooter.
Mukherjee presented the budget against a backdrop of political infighting over a proposed rail fare hike to upgrade the notoriously unsafe network that has underscored the increasingly fragile nature of the ruling coalition.
The budget forecast economic growth for the fiscal year to March 2013 of 7.6 percent, a rise from the 6.9 percent projected for this year, but far below the eight-to nine-percent levels the economy grew at for much of the last decade.
It set a fiscal deficit target of 5.1 percent of gross domestic product (GDP) - less than the projected 5.9 percent this year - but still the widest among major emerging market nations.
The budget has come in for the harshest criticism of on any to be presented by the government of Prime Minister Manmohan Singh since it first took office in 2004. Industry leaders said Mukherjee failed to seize his last opportunity to get the economy back on track before what is expected to be a "please-all budget" next year ahead of 2014 elections.
"What may be good in the short run may be bad in the long run," said R.V. Kanoria, president of the Federation of Indian Chambers of Commerce and Industry.
India's media has also attacked the budget with the Mail Today calling it a "zero risk budget". Economists have been equally harsh with one describing it as a disappointing exercise from "a near-toothless government".
Industry leaders said service and excise tax rises could fan already stubborn inflation, delay interest rate cuts needed to trigger a new investment wave and slow growth further. Industry leaders also slammed the government over a proposed change to allow it to retroactively tax capital gains by foreign investors.
"Retrospective amendments of laws do little for confidence building both among foreign and domestic investors," said Kanoria. But Finance Secretary R.S. Gujral rejected suggestions the move would deter investors. "Foreign direct investment comes when there are profits to be made... not just where taxes are the lowest," he said.