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Fiscal rabbit out of the poll hat

New Delhi, Feb. 2: Jaswant Singh will be selling fiscal prudence and an upbeat assessment of the economy in his pre-poll mini budget instead of just mouthing populist slogans.

In a change of tack, the finance minister, who announced a string of sops through last month, will take credit for having managed to keep fiscal deficit (or the gap between the government’s income and expenditure) at close to 5 per cent of the GDP instead of a targeted 5.6 per cent.

While the government normally presents its budget around the end of February, this time it will seek only an interim spending authority, called a vote-on-account, because it plans to dissolve Parliament and call for general elections five months ahead of its term in office expiring in October.

Most finance ministers have overshot their spending targets or not managed to earn as much as they thought. Thanks to lower spend on plan schemes and a sudden rise in the GDP, Singh will be among the rare breed who can claim to have stemmed the red ink flow in the government’s balance sheet.

It is a different thing that lower plan spending means less development work in real terms despite the ‘feel good’ factor that Singh’s past sops may have generated.

However, Singh can still crow. He had claimed a few weeks back “there would be a surprise on the fiscal deficit front” after several key global economy watch agencies had criticised India on its widening gap between the government’s income and expenditure.

Latest calculations show by spending about Rs 12,000-15,000 crore less on plan schemes and making marginal savings on the food subsidy and defence bills. Singh will be able to show gross savings of Rs 16,000-18,000 crore in all, which would balance well against the Rs 9,000 crore deficit he is running on account of a huge shortfall in privatisation receipts.

The net result: a paring of the Rs 1,53,637 crore targeted fiscal deficit by about 7-8 per cent. Add to it the effect of a rising GDP and the fiscal deficit expressed as a percentage of the country’s income falls drastically.

The BJP-led central government and Singh had both expected GDP growth to be at about 6 per cent when they made last year’s budget and all figures are pegged on that.

Unexpectedly, the decade’s best monsoon showers, which brought a bumper harvest in its wake, has seen the economy grow by 8.4 per cent in the second quarter which economist say could mean an overall GDP growth of 7.5-8 per cent. Singh will present this as crowning glory for the four-and-a-half-year-old Vajpayee government in a annual review of the economy, which he is likely to present along with his budget instead of the traditional economic survey.

Although the government will issue its latest economic and fiscal forecasts through this when it presents the vote-on-account, it is not expected to detail new spending or taxation policies. In fact, tax exemptions awarded last year for just one year are likely to be allowed to continue during the interim period between the vote-on-account and a full budget being presented by a new government.

Finance ministry economists say farm growth is being pegged at around 8 per cent (a record), service sector growth will be in double figures while industry, which had been lagging behind, is expected to close with growth rates of about 8 per cent. The review is likely to highlight budget promises made and kept and reform measures initiated. Even though the government has sidestepped tough decisions on labour reforms, reducing administered small savings rates and pruning unwieldy subsidies on food and fertiliser, which it had promised last year.

The government is also likely to increase the country’s defence budget by a double-digit percentage despite peace initiatives with Pakistan, mainly because of payments to be made for advanced jet trainers ‘Hawks’ for the Indian Air Force, the aircraft carrier Admiral Gorshkov and other defence equipment such as the Israeli-made Phalcon airborne early warning systems.

Singh will also highlight how overall revenue collections have been keeping pace with budget estimates. Till December-end, the government had collected 67.2 per cent of the Rs 2,53,935 crore it had set out to. Its total revenue collections stood at 78.5 per cent of the targeted Rs 2,85,158 crore.

On the spending side, officials said they would like to get a vote to spend between 25 to 33 per cent of the total annual expenditure of the government on development schemes or plan expenses.

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