Cautious optimism ahead of Chidambaram's Thursday budget

Published: 27th February 2013 07:12 PM  |   Last Updated: 27th February 2013 08:28 PM   |  A+A-


India and the world would be keenly watching the annual federal budget, the last regular one before the 2014 general elections, that Finance minister P. Chidambaram would present Thursday in which he is expected to unveil economic policies and measures to spur investment-led growth, enforce fiscal prudence and ease people's concern.

Chidambaram has said he would present a "responsible" budget, given the state of the economy.

Analysts say the minister will have to balance the goals of boosting growth and cutting spending on expensive social welfare programmes, with the political interest of his Congress party as it prepares for the electoral battles ahead.

There are eight assembly elections scheduled in the coming months ahead of the parliamentary poll.

For the finance minister, it is also a difficult task balancing competing interests of different social groups at a time when the economy is growing at the slowest pace in a decade, current account deficit has hit a record high and fiscal deficit on a cliff, with inflation hovering above the comfort zone. Also, infrastructure bottlenecks continue to hinder growth and investments.

Added to his woes is the threat of ratings downgrade by global agencies.

Released hours ahead of the budget, the Economic Survey for 2012-13 indicated the enormity of the job, emphasising the need for more reforms and concrete action on removing bottlenecks to investment and job creation.

"The slowdown is a wake-up call for increasing the pace of actions and reforms," said the survey, adding that India had navigated difficult times as these before, and "with good policies and strong reforms programme, it will again come through stronger."

It said removing hurdles to investments, combating inflation with supply-side measures and reducing borrowing costs would help improve growth.

While foreign investors would look for more market opening measures and liberal taxation in the budget, the Indian industry is expecting the finance minister to announce steps to remove bottlenecks to attract private and foreign investment in the infrastructure sector.

Chidambaram is expected to announce steps to maximise revenues through more efficient tax collection, fewer tax exemptions and higher proceeds from the partial privatisation of state-controlled companies.

Economists say the finance minister may expand the tax net by bringing more people under tax cover.

Direct and indirect taxes are unlikely to be raised, but there is a possibility of the government may introduce surcharges on certain services.

There is also expectations that Chidambaram may announce measures to change India's archaic income tax code and replace numerous central and state taxes with a single goods and services tax (GST).

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