Investors reacted with dismay on Monday after India's acting finance minister said new economic stimulus measures would have to wait until after national elections, which must be held by May.
Pranab Mukherjee, the acting finance minister, presented an interim budget to parliament on Monday that contained no major new stimulus spending or tax cuts, disappointing investors who had hoped the government would break with tradition and announce new stimulus initiatives despite upcoming elections.
He said it would be up to the new government to undertake additional spending _ and take on additional debt _ to counter the worsening global downturn.
"There may be a need to consider additional fiscal measures when the budget is presented by the new government," Mukherjee said. The benchmark Sensex index was down 3.5 percent to 9,294.21 by mid-afternoon.
Since December, India has announced two fiscal stimulus programs, cutting taxes and promising to spend $4 billion _ small by global standards. The central bank has also slashed interest rates in an effort to shore up flagging economic growth.
India's economic growth tumbled to an estimated 7.1 percent this fiscal year, after averaging nearly 9 percent over the last four years.
Mukherjee said the nation's fiscal deficit is likely to come in at 6 percent of gross domestic product this year, rather than the budgeted 2.5 percent.
Other economists put the total deficit, including states' deficits and fuel, food and fertilizer subsidies, much higher, at around 10 percent of GDP.
"Conditions in the year ahead are not likely to be normal and, therefore, the high fiscal deficit is inevitable," Mukherjee said. Mukherjee used the speech to highlight steps the ruling Congress Party coalition has taken to improve rural livelihoods and social security ahead of elections. Sixty percent of Indians live in the countryside.
Reaction to the budget in the business community ranged from nonplussed to slightly disappointed.
"In normal times we would have had low expectations," said Phiroz Adi Vandrevala, head of global corporate affairs at Tata Consultancy Services, India's largest outsourcing firm. Given the current economic turmoil, however, he said he expected more. "The government should have set an agenda for the next budget," he said.