New Delhi: Union Finance Minister P Chidambaram made a strong pitch for reforms in various critical areas in the Economic Survey 2007-08 on Thursday, ostensibly to help convince global investors that the India growth story is intact.
But reading between the lines, analysts say the FM may also have created space for some populist measures in the Union Budget that he is going to unveil on Friday.
With just a few hours to go before the Union Budget, speculation is rife that the Finance Minister may bite the poll bait and come out with a 'please-all' Budget.
Since this will be the last full Budget of the UPA Government, the FM is expected to undertake a dexterous fiscal exercise to meet the heightened hopes of a people-oriented Budget while at the same time ensure that the growth momentum is maintained in the face of a global slowdown, inflation is kept under check and copious capital flows are moderated.
The skills of Harvard-educated Chidambaram, who by profession is a lawyer, would be put to test when he rises to present in Lok Sabha the Budget for 2008-09 — a year that will see Assembly elections in seven states followed by general elections.
The Budget will offer the last opportunity to the Congress-led UPA Government to win the confidence of voters after the party's drubbing in Assembly elections of Gujarat and Himachal Pradesh.
The government is also faced with growing protests over farmers' suicides in some parts of the country.
Analysts say with buoyancy in tax collections, Chidambaram is very likely to announce some bonanza for each constituency through personal and corporate income tax cuts, excise duty relief and simplification of taxes and massive funds for farm, rural employment and other social projects.
Chidambaram, who will be presenting his seventh Budget in Parliament, will have a tough time balancing conflicting interests while presenting the Budget.
The Economic Survey, tabled in the Parliament today, has projected fiscal deficit to be further pruned to three per cent in the next fiscal.
The middle-class and the industry remember his 'dream' Budget of 1997-98 and expect a bonanza from Chidambaram in terms of relief in income tax and excise duties.
Government servants are expecting an announcement on implementation of the Sixth Pay Commission.
Chidambaram is also expected to announce massive funds for social sector projects like National Rural Employment Guarantee (NREG), Sarva Shiksha Abhiyan, rural health and power sectors and big debt-relief package of around Rs 30,000 crore for farmers without disturbing the fiscal discipline.
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Economic observers say Chidambaram may announce cut in excise duty rates across the board from 16 per cent to 14 per cent or sector-specific duty cuts in the Budget, while customs duty rates could be retained to please domestic industry.
Sectors like pharmaceuticals, textile machinery, food processing, paper and auto, including two-wheelers and tyres, are expected to get relief in excise duty, but like last year, Chidambaram could also prune excise duty exemptions to maintain revenue collections, sources said.
According to the Finance Ministry, due to various excise duty exemptions, the estimated revenue foregone touched Rs 99,690 crore in 2006-07 as against Rs 66,760 crore in the previous year.
On income tax cuts, the minister himself has acknowledged that with better tax compliance, there could be a case for cut in rates.
The minimum income threshold limit for income tax payer could be raised from Rs 1,10,000 to Rs 1,25,000 or Rs 1,30,000, sources said.
More income in the pockets of consumers will boost demand for consumer goods as well as household savings for investment.
Concerned over the slump in industrial production and to maintain inflation around four per cent, the Finance Minister is also likely to provide relief to the manufacturing sector by marginally cutting excise duty rates or sector-specific duties in the Budget 2008-09 besides sops for exporters.
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