Feb. 26, IIF, New Delhi :The presentation of the Union Budget evokes large interest on part of countrymen, media and the government as it affects the lives of the people. It brings cheers to some and pinches the pockets of some others. The work of finance minister in this year’s budget is rather more difficult as he is to do a lot of balancing act by taking care of National Common Minimum Programme and at the same time put the economy on the faster growth path boosting investment including FDI & FII to bring global competitiveness and increase its productive capacity. At the same time the performance of the economy in the current year in general and sound economic fundamentals exhibited through Economic Survey, makes the task of Finance Minister easier.

A day before the budget to pinpoint what is likely to be presented the next day is a difficult task particularly in the light of high level of confidentiality maintained by the Government. However, everybody is interested to know what is in the Finance Minister’s bag, which is to be opened up in the parliament and presented to the parliamentarians and the nation. I am making a modest attempt to pen down what I think is likely to be in the budget document. To what extent it would hold true will be known only tomorrow.

The Union Budget 2005 to be presented by Finance Minister Mr. P. Chidambaram is likely to be investment oriented targeting faster growth and social sector of the economy.

The Budget is likely to be a path-breaking budget tuned to meet the needs & requirements of Indian economy. It is likely to focus on five major issues i.e. stepping up investment in agriculture, irrigation, rural electrification & rural roads, enhancement of investment in infrastructure, enabling public private partnership in infrastructure sector, resource mobilisation and simplifying procedures & relaxing entry / exit barriers to give a boost to the trade. The budget is likely to be investment oriented with a projected fiscal deficit at 4 % and revenue deficit at 2 % of GDP. The Budget may also encourage FDIs in coal mining, insurance, real estate and retail trade.

The Budget may target a rapid growth with stability and equity. The Finance Minister may announce a scheme for unearthing of black money in order to boost investment in agriculture, infrastructure and enhanced expenditure in social sector.

Enhanced allocations may be made in social sectors and infrastructure to build the productive capacity of the economy. The Finance Minister may particularly target poverty alleviation programmes, labour and employment generation schemes, primary education and health care, socially disadvantaged minorities SC / STs. The allocations to Antodaya scheme may be made to cover 2.5 crore families. In order to take care of the National Common Minimum Programme (NCMP), the Finance Minister may assign or attach high priority to the development of social sector so that the benefit of the economic reforms process initiated by Dr. Manmohan Singh in 1991 are percolated to the masses. The Finance Minster may launch National Food for Work Programme in another 150 most backward districts of the country; may announce a scheme in light of National Rural Guarantee Bill for enhancement of livelihood of the poor in the rural areas through planned programmes like food for word, widen mid-day cooked meal scheme, provision for drinking water and construction of rural roads etc. Wherever possible the public private participation may also be encouraged to have larger investment from private sector.

Budget allocations to defense sector may also be marginally increased.

The budget may also encourage micro finance and micro credit and announce measures to remove severe gaps, which hinder the flow of institutional credit to agriculture. The rationalisation and realignment of subsidies may in the offing. While rationalisation and realigning the subsidies, the Finance Minister may try to ensure that the benefit of the subsidies are optimised without affecting the poor by improving their design, delivery and transparency for instance the subsidies on LPG or cooking gas may be reduced.

The budget may encourage banks to undertake project financing and may include a scheme for realignment of lending and credit rates in general and better credit assessment for SMEs. The budget may announce a scheme to promote bond market, which has witnessed the fall in the turnover recently.

One of the challenges before the finance minister is the fiscal reforms i.e reconciling the need for fiscal consolidation with appropriate tax reforms. The major share of the tax revenue of centre and state comes from tax revenue. Indirect taxes do not only affect resource allocations but also investment climate. The tax evasion and tax avoidance is high while the administrative efficiency of tax collection in the country is very low. In the process of tax revenue augmentation, to mobilise larger revenues to fund the needs of the economy, the Finance Minister may overhaul the regime of tax structure, deductions and subsidies and withdraw some of the tax incentives and simplify procedures to build up mutual trust. There are as many 130 tax incentives offered to the Industry presently. There was a justification of such a large number of tax incentives when the corporate tax rates were very high i.e. 50 %. He may come out with a scheme to minimize large-scale evasion prone cash transactions. The Finance minister may also realign the tax rates and tax slabs for corporate and individuals. In order to mobilize more resources, the scope of service tax may be widened to include more services. Some of the exemptions and deductions may be withdrawn and excise & custom duties may be realigned and rationalized besides the operationalisation of VAT. Some of the postal services and LPG may be costly.

The Finance Minister will be able to maintain a fine balance between financial consolidation, growth and equity and boost investment climate.