India bails out farmers in populist pre-election budget

India's Congress-led government announced on Friday a 15-billion-dollar loan bailout for small farmers in a populist pre-election budget targeting the party's traditional poor rural supporters.

Finance Minister Palaniappan Chidambaram, releasing the budget against the backdrop of a slowdown in India's scorching economic growth, unveiled the 600-billion-rupee (15-billion-dollar) relief plan for 40 million farmers.

He also pledged to wrestle down the fiscal deficit, tame inflation running at an eight-month high of nearly five percent and hiked personal income tax exemptions. But a rise in short-term capital gains taxes hit share prices.

About 30 million indebted farmers' loans would be fully waived and another 10 million would get aid, said Chidambaram, who presented the budget ahead of nine state elections slated this year followed by national polls in early 2009.

"The country is discharging a deep debt and sense of gratitude to farmers" through the loan scheme, the Harvard lawyer said, adding the government wants "to make growth more inclusive" for those bypassed by the economic boom.

As many as 150,000 debt-hit farmers have killed themselves in a decade, according to the Tata Institute of Social Sciences. The farm sector is key as it provides a living for nearly two-thirds of India's 1.1 billion population.

T.N. Ninan, publisher of the daily Business Standard, called the relief plan in the budget for the financial year starting April 1 "the single biggest giveaway in India's fiscal and banking history." But he questioned how it would be applied, noting many debts were to extortive money-lenders.

Congress is keen to reach out to poor voters, mainly in rural areas, who were seen as mainly responsible for its 2004 election victory.

Farm growth is forecast to slow to 2.6 percent this year from 3.8 percent last year, raising alarm among experts about India's ability to feed itself.

Chidambaram announced "an ambitious scheme" to revive agriculture by boosting yields and improving irrigation. He also raised spending on a rural job creation scheme to ease rampant unemployment.

India's benchmark 30-share Sensex index closed down 1.38 percent or 245.76 points at 17,578.72 as the budget failed to cheer investors dismayed by the rise in the short term capital gains tax to 15 percent from 10 percent.