New Delhi, Feb. 27: Finance minister Jaswant Singh has a stark choice tomorrow: put more money in the government’s kitty or more cash in the purses of housewives.
It’s tempting to read the tea leaves at the bottom of railway minister Nitish Kumar’s teacup and expect Singh to come up with a populist budget as well. The problem with such instant clairvoyance is that the Economic Survey Jaswant Singh unveiled today doesn’t make for happy reading.
The political needs for a soft budget, with a general election possibly round the corner, may have to be tempered by harsh economic reality when Singh rises to present the budget at 11 am.
The bad news in the Survey is: fiscal deficit will shoot to 5.5 per cent of the gross domestic product by March-end. GDP growth will fall to 4.4 per cent as forecast before.
Inflation now stands at nearly 4.5 per cent and could tend higher if there is a war in Iraq and oil prices rise.
Foodgrain production has fallen by 13.6 per cent and the government is deep in debt: the March-end forecast is over Rs 14,35,000 crore.
The subsidy bills for food, fertiliser, cooking gas and kerosene will rise way beyond what has been budgeted. This extra hit is estimated at Rs 10,000 crore.
The single-phrase lesson is: Act or go bust.
The government will have to sharply cut expenses by axing subsidies, on food and fertiliser, for instance.
Cooking gas and kerosene subsidies, at Rs 120 a cylinder and Rs 2.50 a litre, could be cut through price increases, unpalatable in a poll year.
The Survey boldly states: “Any successful expenditure rationalisation and reprioritisation must address the issue of subsidies through a rationalisation of prices of food, fertiliser, LPG, and kerosene.”
Cutting costs is one task; raising more money another. The Survey does not pass a value judgement on the Vijay Kelkar report on tax rationalisation beyond stating that “follow up on the recommendations of these task forces is expected to result in improved tax collections in the medium term”. That is quite a telling comment by itself.
The BJP’s concerns about winning elections will prompt acceptance of the party’s report recommending that incentives for housing and the elderly be retained along with the standard deduction allowed to middle-class salary earners.
Against that, Kelkar’s proposals to rationalise personal income tax by raising the floor and having just two slabs, reform corporate tax by cutting exemptions, compress customs duties towards Asian averages, reduce the peak excise rate and cut the interest rate on small savings are likely to win the day.
The Survey says: “There is a need to revise the rate of interest on small savings in line with movements in market-related interest rates.”