India plans fiscal deficit cut to 3.5% of GDP, central bank gets policy committee

India plans to cut its fiscal deficit to 3.5% of gross domestic product (GDP) for 2016-17, from 3.9% the year before, according to the country’s finance minister Arun Jaitley.

Presenting his government’s annual budget to parliament on Monday, Jaitley also said India would remove 13 different taxes and streamline its taxation norms, which would “simplify doing business” in the country and boost business confidence.

No service tax would be levied on houses built under 60 square metres, while a tax holiday was announced for start-ups for three of five years of setting up the company. However, excise duty on tobacco products was hiked by 10% to 15%.

The country's export tax on low grade iron ore would be scrapped, but Jaitley said India would impose a higher import duty on aluminium. He also identified 160 airports and airstrips in India which “could be revived.”

Elsewhere in his speech, the finance minister said the government would permit 100% foreign direct investment (FDI) in marketing of food products produced and manufactured in India, via its established single window clearance procedures for overseas investors. Small shops would be given the choice to remain open on all seven days a week.

On the monetary policy front, Jaitley said the country's Reserve Bank of India Act would be amended, so that its central bank benefits from a monetary policy committee. The move is in line with a reform sought by RBI governor Raghuram Rajan.

The minister also put forward plans to boost rural infrastructure spending by $12.7bn (£9.15bn). They include 89 new projects for irrigation, a doubling of investments in rural roads to help farmers get produce to market, improving availability of gas to millions of poor households and funds for female entrepreneurs from poorer backgrounds.

The government would also increase spending on rural employment schemes, a crop insurance programme for farmers and improve rural access to the Internet. Plans are also afoot for the electrification of all of the country’s villages within two fiscal years, Jaitley added.

India has posted impressive growth in recent fiscal quarters, despite concerns of economic headwinds. Official data published by the government’s Central Statistics Office (CSO) suggests the country’s GDP grew at an average rate of 7.5% in 2015, outpacing the 6.9% growth recorded by China.

At the close of trading in Mumbai, the Indian rupee rose against the dollar, with $1 changing hands at INR 68.4335, around 0.31% lower.