The approaching Budget and speculation about its format is occupying the minds of most market observers. That is not surprising. Given the mandate won by this government, everybody is keen to see what form and shape this budget takes. Everybody also has his pet hypothesis. So, as all eyes converge on Pranab Mukerjee, here is this column’s take on the Budget (which is a bit of my own loud thinking and a bit of mish-mash from all that’s appeared so far in the media).
First, the man himself. Pranab Mukherjee is a seasoned politician and not an “economic technocrat”. This is sure to reflect in the Budget. Those hoping for a reforms blitzkrieg may be in for some nasty shocks. Those hoping for a totally populist budget without any market-friendly giveaways may also have got it wrong. The answer might lie in the way the political landscape has shifted.
First, the FM has to mend the gaping hole in the fisc. ‘We have to deliberate on ways and means to bring back the economy to higher growth trajectory without fiscal profligacy,’ Mr Mukherjee is believed to have told a conference of state ministers. So, out with all hopes of heavy tax cuts. Any substantial tax cuts would have to be substituted with increases in indirect tax rates, an utterly undesirable proposition. But, there are likely to be some tax changes – such as, some tinkering with Fringe Benefit Tax or Securities Transaction Tax which leave an okay taste in the mouth without upsetting the consolidation process.
He may also look at some new tax exemption schemes on a prospective basis to keep the household spending engine on track. Increasing the threshold level for tax breaks on interest paid for new home loans is something that’s already figured in the media. More of such similar schemes might worm their way into the document.
But, he also has to think of the forthcoming assembly elections in some of the states, such as Maharashtra. Therefore, food guarantee programmes, higher procurement prices for rice and other such schemes might find mention in the Budget document. Plus, given the way this monsoon is behaving, Mr Mukherjee might be forced to provide some rural handouts and concessions.
Think state-wise, especially about states that are likely to go to the polls in the next couple of years, when you read the Budget document. The Congress party, emboldened by its improved performance in Uttar Pradesh and some other states where it had reached rock-bottom, will want to consolidate its hold in many states before its current allies (Mamata or Karunanidhi) get too strong or some of the existing political opponents can regroup. See how quickly CBI has acted in arresting NCP man Padamsinh Patil. Or, witness the alacrity with which the Kerala governor has acted against Pinarayi Vijayan, supposed to be close to Prakash Karat. That should provide some clues about not only the shape of politics to come but also hold some pointers to the nature of this year’s Budget document.