New Budget Seeks to Revamp India’s Closed Economy : Asia: Official unveils plan to cut customs duties, ease taxes on big business. Aim is to boost nation’s global role.

Endeavoring to carry this nation to the “second industrial revolution,” the government unveiled a budget Monday that, by cutting customs duties, widening rupee convertibility and easing taxes on manufacturers, further integrates India into the world economy.

Voicing hopes that his country will be Asia’s next exporting powerhouse, Finance Minister Manmohan Singh said, “I have a vision of our industrial firms acquiring a global reach and their names becoming household words in far-off, distant lands.”

India, a fiscal basket case three years ago when inflation was at 17% and foreign exchange coffers were bare, has become so solvent as a result of new export-oriented policies and other ongoing economic reforms that it will prepay $1.4 billion in loans from the International Monetary Fund due in the next 12 months, Singh announced.

Singh, who presented the government’s 1994-95 budget to lawmakers, acknowledged that the plan includes so many changes in the country’s arcane revenue-raising system that India’s deficit could reach a troubling 6% of gross domestic product. A self-described proponent of “fiscal rectitude,” he said the continuing shortfall in government revenue is risky but necessary to reawaken the country’s dormant industry and spur growth.

The former economics professor’s eagerly awaited fourth budget mapped how the government of Prime Minister P. V. Narasimha Rao intends to keep pursuing its gradual course, converting India’s mixed, very bureaucratized economy into a freer market.

Singh’s budget, which must be debated and approved by Parliament, would eradicate many of the bizarre inequities in India’s maze of customs duties and excise taxes that sometimes have made it cheaper to import an item than to produce it locally.

In a major reform of corporate taxation, Singh proposed a single rate of 40% for companies regardless of size, in lieu of a tax burden that had reached 50%.

The cost of borrowing money will also be reduced and the capital gains tax cut, he said, two steps that should help Indian industry and business reorganize to take on global competitors.

As another badge of India’s new economic confidence, the rupee will be made convertible on the current account, Singh said, meaning that people and companies will be able to freely buy and sell rupees to pay for personal expenses and business outlays abroad, like travel and advertising. India’s currency is still not yet convertible on the capital account, meaning that large movements of money in and out of India are still subject to government restrictions.

Attempts to seek new sources of government income could not compensate for the new tax rates and goodies doled out by the finance minister. A new 5% tax will be tacked on to telephone bills and stock exchange transactions; building contractors and truck owners will be able to choose to be taxed according to fixed formulas.

Singh said he realized there is a “serious danger” that the projected deficit could fuel inflation, push up interest rates and make it impossible to bring about the rapid economic growth India needs to raise living standards and create new, productive jobs.

The new budget was indicative of the cautious approach taken by India’s government.