India raises taxes on rail fares

India has raised taxes on rail fares and vowed to stick to its planned borrowing target for the year, underlining its will to curb it fiscal deficit and avoid a credit ratings downgrade. Thursday's move came two weeks after Prime Minister Manmohan Singh unveiled a slew of measures aimed at shoring up government finances and attracting foreign investment to revive economic growth, the most daring reforms since he took office in 2004.
"This is a big positive, as this shows the government is determined to improve its fiscal health," said G. Chokkalingam, executive director and chief investment officer at Centrum Wealth Management. The government said a 3.7-percent tax would be imposed on fail freight tariffs and higher class passenger fares from October 1, barely six months after political pressure forced it to roll back the first increase in India's rail fares for eight years. Earlier this month, Singh finally bit the bullet, sharply raising the price of heavily subsidised diesel and cutting supplies of subsidised cooking gas despite strong political opposition, including from within his own coalition. He also opened up the retail sector to global supermarket chains, allowed foreign airlines to buy stakes in local carriers and raised the bar on foreign investment in the broadcasting industries.
The government has been relying on market borrowing to fund its rising spending, which has been crowding out private investors and lowering growth prospects. In March, it pencilled in gross market borrowing of 5.7 trillion rupees ($107.5 billion) for the 2012/13 fiscal year to help bridge a deficit that is forecast to be 5.1 percent of GDP. Already the government's subsidy burden is running higher than expected.
Still, New Delhi on Thursday said it would borrow 2 trillion rupees ($37.7 billion) selling bonds in the second half of the current fiscal year, which begins on October 1, in line with the budget estimate earlier this year. "The option for fresh borrowing announcement later always exists, but we do not expect that it would be used," said Arvind Mayaram, economic affairs secretary at the Finance Ministry.