By Dr D M Deshpande
This will be the last full fledged budget of the UPA 2 Government at the Centre. Though the general elections are due in the middle of 2014, in all probability they will be held in summer going by the past experience of the Election of Commission and the enormity of the task.
In that case, the caretaker government would present an interim budget for such time as will be needed for the formation of the new government.
As a rule, Indian Finance Ministers are under pressure before and after the budget presentation in the Lok Sabha. The pressure is enormous on the FM, as the forthcoming year and the present have not been good for the economy. Whereas in an election year budget, there will be this temptation to woo the electorate with freebies and goodies, the fiscal consolidation process has assumed critical proportions. It is almost a ‘do or die’ situation on the fiscal front. Rating agencies have been warning of possible downgrade if the government continues on the path of fiscal profligacy.
If India loses its investment grade, it will be the first of the BRICS nation to fall out of the grace of the global rating agencies. That is why the FM is dead serious about cutting subsidies and putting the fiscal house in order. That is also the reason why he is wooing the foreign investors with promises of more prudent fiscal management. If the investors-both foreign and Indian-return, which they won’t do in a hurry, it will certain make a difference to the growth rate as well as the overall investment climate in the country.
The continuous decline in GDP growth rate is a matter of serious concern. Even the most ambitious projection of the growth for the coming fiscal year is around 5.5%. Jury is still out on the question as to whether the economy has bottomed out and it will start recovering at least from now on. There are more experts and economists who are warning the government not to take growth for granted. Any slippage and such slippages have occurred plenty of times in the past, will dent both the tax and non-tax revenues of the government and make the budget exercise extremely uncertain.
Of course, central budget by itself will not be able to kick start the sluggish economy. There will be need for a lot of action on the part of central and state governments. Delays in project and investment clearances, uncertainty in governing laws and regulations and policy instability are reasons why investments have not been forthcoming. The FM can do his bit though; he can, reassure in his budget speech that tax will not imposed with a retrospective effect and/or that no single entity/entities will be targeted for unfair and unexpected tax treatment. Postponement of GAAR (General Anti Avoidance Rules) for two years has gone well with the investors.
Expectations of the industry apart, there are people’s expectations as well. The FM is well aware of the hardships of the poor and middle sections of our society. High and continuous levels of inflation have eroded purchasing power of the rupee. It is but natural for them to expect a hike in the exemption limit of IT and/or concessions in various slabs of income tax. There is also a demand that interest on housing loan be enhanced as home loans have become expensive and unaffordable in cities and metros. There is some merit in the argument that savings need to be encouraged. Savings have been hit because of twin problems of inflation and job losses. The budget may, therefore, view sympathetically demand for an upward revision in tax exemption under Section 80 C.
Budgets in India have been used to push forward big reforms agenda of the Government. Mr Chidambaram is known for his vision and conviction in articulating what is good for the economy in the budget. Going by the way he has gone about preparing the forthcoming budget, it appears that he means business and is quite serious about it. Importantly, he is said to have the backing of both the PM and Ms Sonia Gandhi in his pursuit. In that case, the budget will have very little of election year goodies, but would carry a stamp of better tomorrow for millions of Indians.