The country now looks to see how far Finance Minister Mr Pranab Mukherjee, with his political acumen, will address the key priorities listed out in the President’s address to Parliament such as “combating inflation and protecting the common man from the impact of rising prices”, restoring probity and integrity in public life, and attacking the menace of black money and retrieving wealth stashed abroad. He would hardly ignore the sense of urgency attached to all these goals.

The Prime Minister views the budget on February 28 as “crucial” in dealing with inflation while sustaining high growth and providing a “clearer picture” of the reforms agenda which, it is expected, would give a push to promoting greater investments for infrastructure, domestic and foreign, by removing bottlenecks to the development of corporate debt market. Any move to open up for foreign investment in other sectors of the economy, such as retail trade, must proceed with caution, and the apparent mindset to seek external solutions in basic problems like agriculture must be curbed.

In a highly uncertain global environment of growth yet to stabilize even at low levels in advanced economies mired in deficits and debt, the surge in global food and oil prices, and increased market volatility in the wake of the Middle East uprisings, a rather optimistic picture of growth at 9 per cent in the new fiscal (2011-12) and declining inflation has been presented by the Economic Advisory Council chaired by Dr. C. Rangarajan.

The time has come when elevated inflation unique for India, as pointed out by IMF and the World Bank, can no longer be shirked, as the Government has tried to do for over two years resorting to subterfuges and finally pinning it down to onions and vegetable, a seasonal factor. Nor could Government cover up by readjusting price indices to avoid its embarrassment. What these institutions have called for days before the budget is fiscal and monetary tightening as the country runs fiscal and current deficits above comfort levels.

Mr Mukherjee must be heartened by EAC’s growth projection at 9 per cent in 2011-12 on top of 8.6 per cent in the current year, but its caveats as well as those of IMF cannot be ignored, especially withdrawal from stimulus, fiscal consolidation with credible expenditure management, and containing inflation with focus on both fiscal and monetary policies and supply side management. While RBI went on trying to anchoring inflation expectations, Government kept pleading supply side constraints.

Historically, agriculture productivity has been consigned as a “long-term” problem, and this is especially true of UPA, now in power for nearly seven years, which had talked of a “second green revolution” at the beginning. But food prices were, among other things, attributed to rise in incomes and demand for diversified food. Yet food security at affordable prices for grains for a large mass of population was promised to the electorate. The budget will throw some light on this great challenge.

That India is fairly on a high growth trajectory – and has been so pre-crisis – is universally acknowledged. Mr Mukherjee does not have to harp on this as there is no dispute that growth is a must for more revenues for more allocations. But it does not stop there. That the fruits of growth in terms of equity and betterment of lives of the ordinary people have been elusive is what has been pointed out by critics like the distinguished economist Dr. Amartya Sen, not against growth per se. Government’s use of the umbrella term “inclusive growth” must become more meaningful for visible results for people waiting through decades while its “conducive” policies have bloated the rich.

Mr Mukherjee is committed to fiscal consolidation and this is applauded. India is also running current deficits above norms and both deficits are cause for concern to EAC as well as IMF and the World Bank. Now, growth at 8.5 to 9 per cent in the coming year is taken for granted. But the economy will come under pressure from the rise in oil and food prices which has become worldwide. Oil registered a three-digit dollar price for a gallon on February 21 before returning to 90s.

The 2011-12 Budget arithmetic is likely to be based on a 16 per cent growth at current prices so that Government has a comfortable resource position with a continuation of revenue buoyancy in the current year which would end up with fiscal deficit at less than the targeted 5.5 per cent of GDP (5.2 per cent, according to EAC). In framing the budget proposals for the coming year, the Finance Minister is already committed to keeping it at 4.8 per cent of GDP. But EAC and IMF earlier have said it would be challenging to achieve even this order of deficit without “substantial adjustment” in current spending, mainly by cutting fuel and fertiliser subsidies.

While there will be no one-off benefit like 3G spectrum auction, Government would rely on a fairly sizeable target in disinvestment receipts as an adjunct to higher tax receipts to fund the flagship programmes to be able to narrow revenue deficit as far as possible. There will be no subsidy cuts at a time of high inflation and also politically not judicious. But on the expenditure side, Government would have to demonstrate its concern for quality of expenditure and outcomes.

The time has come for withdrawal of the balance of stimulus by going back to pre-crisis levels of excise and perhaps service tax (from 10 to 12 per cent). Ideally, Industry wants stimulus to continue, no new imposts and no increase in interest rates. .Since inflation hurts one and all, there could be a measured approach which seeks to maintain growth and also ensure that the budget does not aggravate the entrenched inflation further. In any case, monetary tightening is unavoidable in the first half of the year by which time the outlook for monsoon could be gauged.

A measure of populism will be inbuilt perhaps with an increase in personal tax exemption limit, cheaper loan for farmers and some selective import tariff reductions aimed at reducing the negative effects of imported inflation via food, fuel and fertilizers or some metals/minerals.

Infrastructure will be one of the major areas where larger private investment would be required for the 12th plan (2012-17)n the order of investments of one trillion dollars in the 12th plan beginning (2012-17). This would also take care of India’s capital flow requirements to finance the current deficit reflecting the economy’s capacity to absorb such flows, subject to some regulations in palace against any risks of disruption. The budget will have its baggage of policy announcements and measures in regard to agricultural development, studies on targeting subsidies and cash transfers and so on. (IPA Service)