India to Tackle Deficit but No Fix Offered for Slowing Economy Saurabh Das/Associated Press Finance Minister Pranab Mukherjee held a briefcase containing budget documents as he arrived at India's Parliament in New Delhi on Friday. MUMBAI - India's finance minister said Friday that the country would raise taxes and slow growth in spending in an effort to lower its swelling budget deficit, but analysts and investors said they were disappointed that he did not announce measures to bolster the country's slowing economy. In an annual budget speech to Parliament, the minister, Pranab Mukherjee, said India would reduce its budget deficit to 5.1 percent of gross domestic product in the fiscal year that starts in April, down from an estimated 5.9 percent for the current year, by relying heavily on increases in sales taxes and import tariffs on cars, gold and other items. The government also proposed a change in tax laws that could impose billions of dollars in capital gains taxes on foreign investors retroactively to 1962. Mr. Mukherjee offered few concrete details about long-pending proposals to simplify the country's tax system or to allow greater foreign investment in retail, insurance and aviation. Though he announced higher spending on infrastructure, analysts said it was hard to see how the budget would significantly increase economic growth, which is expected to slow to 7 percent this year, according to the International Monetary Fund, from 7.4 percent in 2011 and 9.9 percent in 2010. Analysts and investors closely watch India's fiscal budget of 14.9 trillion rupees, or $296 billion, because the government still controls much of the economy directly or indirectly, including the financial system. In recent years, the government has also borrowed significant sums of money to pay for subsidies and government programs, which, some analysts say, have crowded out private companies and individuals. This budget comes 10 days after the governing Congress party, of which Mr. Mukherjee is a senior leader, suffered defeats in important state elections. Those defeats and the fraying relationship between Congress and regional political parties whose support it needs to stay in power probably limited Mr. Mukherjee's options, especially in proposing big policy changes. Mr. Mukherjee acknowledged India's recent challenges at the start of his speech, saying: "We have to improve our macroeconomic environment." But analysts said the details of his budget provided little to advance that cause, aside from allowing private companies to borrow more money from foreign sources. Some also questioned the government's ability to deliver on its fiscal promises, given that it spent significantly more and collected a lot less in taxes than it had estimated in the previous budget. "He is still thinking of growth as being slowed down just because of the cost of acquiring capital," said Jahangir Aziz, J.P. Morgan's chief economist for India. Growth has slowed down because of that, but much more has happened because of slowdown in government policy. Mr. Aziz said this budget appeared to be more realistic than the one last year, which had a fiscal deficit target of 4.6 percent of G.D.P. But he added that given the high price of oil and other commodities, India would struggle to contain spending on its fuel, food and fertilizer subsidies, which cost an estimated 2.4 trillion rupees - about 2.7 percent of the economy. Mr. Mukherjee said he would reduce those costs to 2 percent of G.D.P. in the new budget year. One senior banker in Mumbai said Mr. Mukherjee should be commended for attempting to reduce the deficit and for providing more money and tax breaks for infrastructure. By doing so, the budget lays the groundwork for interest rate cuts by the Reserve Bank of India in the coming months, said the banker, Rana Kapoor, chief executive of Yes Bank in Mumbai. "The government is getting its act together on fiscal discipline," Mr. Kapoor said. Still, other people expressed concern about the budget, especially a proposal that was tucked away in detailed budget documents. The government says it is planning to amend its tax code retroactively to allow it to levy capital gains taxes on sales of Indian assets that take place abroad by foreign entities. The change would apply to transactions that took place as far back as April 1962, when the tax code became effective. The amendment appears to be principally aimed at taxing the British firm Vodafone, which paid $11 billion to buy an Indian cellphone operator from Hutchison Telecommunications of Hong Kong in a 2007 offshore transaction. In January, the Indian Supreme Court ruled that Vodafone should not have to pay a $2.2 billion tax that the government said it should have deducted from its purchase price. The Indian government has asked the Supreme Court to review its ruling. Fereshte Sethna, an Indian lawyer who was part of the team that represented Vodafone in its tax case, said the proposal would scare off foreign investors, who elsewhere in the budget the government was trying to attract to India. "It is unconstitutional and would not withstand judicial scrutiny," she said about the proposal. Later in the day, Mr. Mukherjee said that the government was merely seeking to clarify the 1962 law - something it has done before with other laws. He said the change was meant to close a loophole that allowed some companies like Vodafone to structure transactions in low- or no-tax havens to avoid paying any capital gains tax. "We are making it very clear that it is the law of the land - this is the intention of the legislature," he said on NDTV, a news channel. In a tacit acknowledgment of the growing problem of bad debt in the state-owned banking system, Mr. Mukherjee said the government would invest 158.9 billion rupees in state- owned banks. After the budget was announced, India's stock markets fell in afternoon trading, with the benchmark Nifty Index closing down 1.2 percent. Malavika Vyawahare contributed reporting from New Delhi.