The Budget is again round the corner. The
economy faces two clear problems - slowing economy and high inflation. Over 15
years have passed since P. Chidambaram presented what was called the ‘dream
budget’. It was a budget that changed the discourse of financial policy and
offered a vision of India matching the growth and dynamism of the tiger
economies of Southeast Asia.
India’s economic growth is far below
potential at this moment; perhaps more important is that price inflation, which
could trigger mass discontent anywhere in the world, which has reached an uncomfortable
levels. When the government announces the budget for 2013-14 fiscal on 28th February,
it could be a platform to show that it has the long-term thinking to do the
right thing.
One encouraging fact is that the spending
cuts have started across the board, and even the military has not been spared.
The number of state-sponsored schemes is likely to get drastically reduced,
with a particular focus on areas with inefficiencies and wasteful spending.
Therefore, the deficit target of 4.8% for 2014, after the 5.3% set for 2013,
looks within reach. The fiscal deficit in FY11-12 was 5.8% while the budget
estimate for FY12-13 was 5.1%.
The 28th February 2013 budget is very
crucial. The Finance Minister may outlined broad plans about the budget to
restore the confidence in the economy and can expect no major surprises from
this budget. It appears unlikely that the budget will make any substantial
changes to the direct or indirect tax regime as any major tax hike may prove
counter-productive by hurting the nascent recovery in business confidence. The
government is likely to keep the reform momentum going and at the same time
keep an eye on upcoming state elections in the second half of 2013 and general
elections in 2014.
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