Budget will be a tightrope walk for Indian finance minister

Thursday, 27 February 2003, 08:00 Hrs
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NEW DELHI: Indian Finance Minister Jaswant Singh will present the national budget for 2003-04 Friday in an exercise that is likely to be a fine balancing act between political compulsions and hopes of a fiscal stimulus package.

As finance minister of the world's second most populous country, a quarter of the one billion living in penury, Singh, who swapped his portfolio with External Affairs Minister Yashwant Sinha in July 2002, has his job cut out for him.

This includes increasing consumer spending, accelerating industrial growth, checking the spiralling budget deficit and attracting more investment to put the country into a higher trajectory of growth.

But experts don't expect the minister to unveil a "harsh" budget because sweeping overhaul measures could anger the vast middle class ahead of a slew of state elections that will be followed by general election next year.

"Macro-economically speaking, the finance minister has more elbowroom for manoeuvring compared to any of his predecessors in recent years," remarked Subir Gokarn, a senior economist with credit rating firm CRISIL Ltd.

"The budget this year will be a mix of populist decisions and some measures that are not very politically difficult to sell to the electorate," Gokarn told IANS.

Prime Minister Atal Bihari Vajpayee's Bhartiya Janata Party, which heads the ruling coalition, is set to face crucial elections in five states this year. The BJP is determined to dethrone the Congress in Rajasthan and Madhya Pradesh.

An indication of what one could expect Friday came when Railway Minister Nitish Kumar presented the Indian railway budget for fiscal 2003-04 Wednesday that was promptly dubbed by analysts as populist.

Kumar decided against increasing politically sensitive passenger fares and freight tariffs despite a severe financial crunch faced by the railways.

"I think the bad reviews last year's budget got from the middle class is still afresh in the government's mind," said leading economist D.H. Pai Panandiker.

"As the government is gearing up for state elections and general elections, it would not take any decision that could alienate the middle class. Jaswant Singh is not in a position to take bold moves," he added.

BJP members had repeatedly targeted Singh's predecessor, who took up the portfolio in 1998 and presented five budgets, for failing to bring reforms that could please the country's mammoth electorate.

Sinha was given a media roasting in March last year for unveiling a national budget for 2002-03 that newspapers slammed as "short on line", "lacklustre" and "crushing".

Analysts say the thrust of this year's budget should on pump-priming measures, as the economic growth in the short to medium-term is likely to be hit by low agricultural output and global economic uncertainty.

India's economic growth for 2002-03 is estimated at 4.4 percent, down from 5.6 in previous fiscal year, as a severe drought in some parts of the country dented agriculture output.

The farm sector, which provides employment to nearly 70 percent of India's one billion people, contributes 25 percent to the country's gross domestic product.

"Jaswant Singh has got some room to push expenditure in key sectors of economy. The focus should be on facilitating investment in infrastructure development," said Gokarn.

One of Singh's essential tasks would also be to rein in the spiralling fiscal deficit, which, rating agencies say, has put obstacles in India's aim to achieve eight percent growth to make a significant impact on poverty.

The consolidated deficit of the federal and state governments is estimated at 11 percent. The central government plans to end the fiscal year 2002-03 with a budget deficit of 5.3 percent.

The government is also likely to accept some of the recommendations of a high-powered task force that suggested simplification of the tax structure to boost revenue.

"I think the government will take a gradual approach to tax reforms. Not much of reform is likely to come this year in contentious sectors," contended economist Panandiker.

"While some of the suggestions (of a task force) may find a place in the budget proposals, tough issues like imposing a tax on agriculture income and ending tax breaks on housing loans will not be touched."

The finance minister is also likely to announce duty cuts on cars and consumer durables such as fridges, television sets, and mobile handsets to drive consumer demand.

The budget is expected to focus on attracting more investors in the sagging capital market by unveiling pro-market initiatives such as abolition of tax on dividend incomes.

The government's decision to impose tax on dividends last year had dampened the market sentiment and evoked strong protests from small investors.

Source: IANS
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