"I have to be cruel only to be kind," India's Finance Minister Pranab Mukherjee said on Friday when he presented the budget for the 2012-2013 fiscal year. He said the goal was to reduce government debt.

He added that he wanted to cut the deficit to 5.1 percent of GDP in order to slow down inflation and stimulate growth, which recent estimates predict at around 7.6 percent next year. He also plans to increase spending on infrastructure, agriculture and poverty reduction schemes.

Observers said the budget was a compromise that everybody could live with, at a time when the government is embroiled in scandal and its popularity and that of Prime Minister Manmohan Singh is waning.

Poor showing for Congress

Parliamentary elections are scheduled for 2014. Singh's Congress Party has fared poorly in recent elections held in five states, giving the ruling party some idea of what it can expect in future.

The population is agitated. Long overdue reforms have constantly been postponed. Foreign investors are losing interest. Food and gasoline prices have risen dramatically.

And just a few days ago, Railway Minister Dinesh Trivedi announced that for the first time in eight years, train ticket prices would increase - a step that is due to affect many people in India, which has the largest railway system in the world.

Ananth Kumar, general secretary of the Bharatiya Janata Party, the largest opposition party said the new budget was "hostile" to ordinary people. The party's vice president Mukhtar Abbas Naqvi said Pranab Mukherjee was only "presenting his failed economic policies with a new backdrop."

Business people also expressed their misgivings. Siddharth Birla of the Birla Group, one of India's largest industrial corporations, said it was a "missed chance."

Massive rise in defense spending

Observers had been keen to see how the government would deal with defense following long-term rival China's announcement of an 11 percent increase in military expenditure to around 110 billion US dollars.

Delhiannounced a 17 percent increase, from around 36 billion US dollars to 42 billion, to modernize the army, the air force and the navy.

Arun Kumar from Jawaharlal Nehru University in New Delhi said this budget did not "quite address India's problems" by concentrating so much on defense.

"Whenever the defense budget of one country goes up, the other country feels threatened and increases its budget," he said. "There is already a kind of an arms race going on between India and Pakistan on the one hand and India and China on the other."

However, he said the government should concentrate on development since India still has "the largest number of malnourished children and women, the largest number of poor people, the largest number of people in the world without toilets and so on."

He said this was the result of the already large defense budget because the Indian government is not "keen to spend more on developmental aspects."

Author: Priya Esselborn / act
Editor: Sarah Berning