Safe budget

Businessworld
Omkar Goswami

Thanks to a compounded annual growth rate upward of 8.6 per cent over the last four years, Mr Chidambaram has had an enviable situation of an overflowing exchequer. Net direct tax revenues to the centre grew by 42 per cent to Rs 217,149 crore, which was over four-fifth of the budget estimate for 2007-08.

The government is in its final lap, and this budget will be structured with an eye on impending elections. That implies an expansionist budget targeted at rural India, the social sector, employment generation and micro and small enterprises. I, therefore, expect significant percentage increases in outlay on the various planks of the Bharat Nirman programme, such as drinking water and sanitation, rural roads, rural electrification and rural housing. I also expect more on Sarva Shikhsya Abhiyan, the mid-day meal scheme and the National Rural Health Mission. Most likely, the largest absolute increase will be on the National Rural Employment Guarantee Scheme.


The second factor is the distinct possibility of an economic slowdown. Mr Chidambaram is a realist who understands numbers, especially early warning signs. Given the present state of electricity, roads, highways and ports, it is very unlikely that industry can expect to continue growing at double-digits. Growth of the Index of Industrial Production has fallen from 11.2 per cent in April-December 2006 to 9 per cent for April-December 2007, and is trending down. My estimate is that India will be looking at a GDP growth of between 7.5 per cent and 8 per cent in 2008-09. Lower growth may require some expansionary sops. And I believe that the FM will offer a few, without too much pressure on the fisc.

The third factor is a guillotine called the Seventh Pay Commission. Mr Chidambaram had the misfortune of being at North Block when the Sixth Pay Commission was implemented. It seriously hurt the exchequer and scarred him as well. He knows of the pressures for substantial increases in civil service pay; and he knows how it can rock the exchequer. The FM will need to stash away a sizeable chunk of revenues to make these payments. And to go easy on major expenditure outlays, knowing that a big splurge is around the bend.

The fourth factor is fiscal rectitude, and the Fiscal Responsibility and Budget Management Act. Will Mr Chidambaram meet the Act targets for 2007-08 and 2008-09, and leave a much stronger exchequer? I believe he would want to; but he may not be able to, given the possibility of a slowdown, bigger pays and election-year sops.

On balance, what should we see? Lots of stuff on social sector expenditure; some sops to industry; a hold on reducing customs duties; talk on additional resources to meet pay commission recommendations; some talk too on the need for a strong exchequer; and, of course, couplets from Thiruvalluvar and other poets. High on politics; but basically safe. Or so, I hope.