The most significant provision of that budget was writing off the farmers loan amounting around 60 thousand crores. During the same year, the government had implemented the recommendations of the Fifth Pay Commission. In the same budget, the FM had announced to cover the whole country under MNREGA scheme. In this way, almost all sections of society were given something or the other by the FM. Reeling under the world recession, the government has given special package to industries and financial system as well. Excise duties on many items had been reduced. Small cars and two wheelers were made cheaper by the budget provisions.

Now the question arises will P Chidambaram repeat what he had done in 2008? The answer is he would like to do that, but his hands are tied now. This is the year of elections. In some states, elections are being held and in some more states, elections will take place in the coming months. In November, elections will be held in crucial Hindi states of Rajasthan, Madhya Pradesh, Chhattisgarh and Delhi. Before that Karnataka will also witness Assembly Elections. Reeling under the Telengana movement, Andhra Pradesh may also go for early elections.

In all these states, the stakes are very high for the ruling Congress. In at least five states, it has to face BJP, the main opposition party of India during the elections. It has to save its government of Delhi and Rajasthan by defeating BJP and it has to wrest the governments of Karnataka, Madhya Pradesh and Chhattisgarh from its main political rival. The political scene of Jharkhand is also very fluid. Though, there are regional parties like Jharkhand Mukti Morcha and Jharkhand Vikas Morch, both Congress and BJP, too, have their own bases in the state.

Apart from Assembly elections of these states, the Lok Sabha elections, too, will be held within 15 months. That is why, Chidambaram must be under pressure to present a populist or feel good budget for the country. It is all the more important because for the last six months, the government has taken a number of measures, which have hurt the people, who are reeling under the high inflation for many years. Petrol was decontrolled and it’s price has increased substantially after the decontrol. Now even diesel price has also been decontrolled and it is rising month after month. The subsidy on LPG has also been reduced and the people will get only 9 subsidized cylinders. Electricity, water, rail fares and many public utilities facilities have been made costlier and people are naturally turning against the ruling parties at the centre.

Now, the government has to take correcting measures, so far as public mood is concerned during the budget session. Finance Minister would like to present a budget to get the cheers of the public. But, the problem of the FM is that public finance is not in a good shape. Fiscal deficit is the indicator of the health of Public finance. It has grown a lot during the last two years. Rising fiscal deficit makes it very difficult for the government to take fiscal measures of its choice. The declining rate of economic growth is further making the government task difficult.

Growing economy can absorb the higher rate of inflation and it also gives higher revenue to the government, which in turns helps it in containing the fiscal deficit. But the rate of growth is declining. Our Deputy Chairman of Planning Commission hopes a growth rate of 5.5 percent during the current finance year, but it seems to be a very optimistic figure, when we take into account the growth in our industry and manufactures. The growth in agriculture is revenue neutral, so far as the government revenues are concerned and agriculture has emerged as the major component of growth apart from services. It means the decline in growth rate coupled with the reduction of industrial growth rate is restraining the revenue collection of the government.

This strain of the revenue side has led the government to take strong measures over subsidy components of the expenditure. The FM will be facing the same problem, while preparing his budget for the next year, which is year of Assembly Elections and may turn out even the year of Lok Sabha election. With limited resources the government has to try to appease the people, who will decide the fate of political parties during elections.

The question is how will Mr. Chidambaram going to balance the politics with his economics? We must not under estimate the economic acumen of Chidambaram, who has got a lot of experience in budget preparation. He has got an experience of 17 years, so far as budget preparation is concerned. During the last 17 years, he has presented budgets during Deve Gowda, Gujral and Manmohan Singh regimes. He knows the skill to do the miracle, while preparing budget.

It is expected that he will go for a populist budget and may give a lot of tax benefits to the middle class. Under the fiscal strains, he may go for taxing more the richest class of the country. Moving towards Direct Tax Code (DTC) and Goods and Services Tax (GST) may also help the government to raise its revenue. Introducing GST is posing some problems because of certain objections from some states, but DTC may be introduced this year and may give leverage to the government not only in better tax administration, but also in better tax collection. (IPA Services)