Paranjoy Guha Thakurta

Feb.16 : When, on Friday February 26, finance minister Pranab Mukherjee presents the Union Budget for the financial year that starts on April 1, the first full-fledged budget of the second United Progressive Alliance government, there will be expectations that he will announce proposals that would bring down food inflation — the single most important and intractable economic issue currently facing the country’s rulers. There is every possibility that such expectations will not be fulfilled, not because the finance minister does not want food inflation to abate.

The fact of the matter is that anyone in his position would have limited leeway and very few options before him that could expeditiously bring down the prices of commodities such as sugar, potatoes, milk, edible oil, fruits and vegetables, much as he would like these to. Even bringing down the inflation rate, which is not the same thing as bringing prices down, will prove to be a Herculean task despite the comforting assurances that have been made by Prime Minister Manmohan Singh to the effect that the “worst is over”. In other words, the Budget is hardly the right place to expect measures that could dampen inflationary expectations. What then could the proposals in the Budget contain? More of the same?Mr Mukherjee is not exactly known for his flamboyance. He is reputed to be cautious and somewhat conservative, although his political predilections are certainly tilted more towards the left that those of the Prime Minister, his right-hand man, the deputy chairman of the Planning Commission Montek Singh Ahluwalia or, for that matter, his predecessor in North Block who now sits in a different part of the same imposing building on Raisina Hill, namely, Palaniappan Chidambaram.If any one of the last three named individuals had been in Mr Mukherjee’s shoes in July last year, it is unlikely that the fiscal deficit as a proportion of the country’s gross domestic product (GDP) would have been as high as 6.8 per cent of the current financial year. (The fiscal deficit is the gap between the Central government’s total expenditure and its revenue receipts plus recoveries of loans and other receipts and GDP is the sum total of the value of all goods and services produced in the economy in a year.) For 2008-09, Mr Chidambaram had budgeted for a fiscal deficit of 2.5 per cent of GDP; it instead shot up to six per cent. The finance minister has set a fiscal deficit target for himself at 5.5 per cent of GDP for the coming financial year.One hopes that when Mr Mukherjee presents his Budget, he will provide a more accurate picture of the deficit. The finance ministry is adept at presenting a rosy picture. This time round, the base year for calculating national accounts has been changed. In the past, the bonds issued to public sector oil refining and marketing companies as well as fertiliser companies have been kept out of the Budget calculations. Hopefully, the finance minister will make a full disclosure in this regard. He should go a step forward and present an estimate of the total fiscal deficit of the country by including estimates of deficits of state governments.This has become all the more important since the report of the 13th Finance Commission is now with the government and will be presented in Parliament the day before the Budget. (The Finance Commission recommends to the Union government the manner in which taxes collected by it are to be distributed among different state governments for a five year period; its recommendations are invariably accepted.) In his July 6 Budget speech, the finance minister had promised to revamp the complex fertiliser subsidy regime to a nutrient-based one and also move quickly towards a uniform goods and services tax. These two goals are not going to be met. The politically volatile issue of recasting subsidies on petroleum products — in particular, kerosene and cooking gas — have expectedly been postponed as any increase in prices at this juncture would merely add to inflationary fires that are raging. Many argue that the time is opportune for the Central government to take “tough” decisions while the “honeymoon period” is on — the only major state going to the polls this year in Bihar — but such decisions may not materialise.There is likelihood that the finance minister would withdraw part of the stimulus package by hiking excise duties (or Central value added tax) on most manufactured items by two per cent. These taxes were cut by six per cent in two tranches in December 2008 and March 2009. While this will certainly not be welcomed by industry captains, there are expecting it and may not complain too loudly. In any case, it is certain that all chambers of commerce will welcome the Budget. Rack your brains. Do you remember when the Confederation of Indian Industry or the Federation of Indian Chambers of Commerce and Industry last criticised a Budget? Mr Mukherjee will necessarily have to step up outlays on implementing the National (sorry, Mahatma Gandhi) Rural Employment Guarantee. More expenditure on rural development should not come as a surprise, especially since the government has moved rather hesitantly in enacting a National Food Security Act (promised in the Congress Party’s pre-election manifesto and reiterated by the President of India in her address to both Houses of Parliament in June) that would entail a major effort to improve the working of the country’s dilapidated and corrupt public distribution system for food and other essential commodities. The act envisages providing a minimum of 25 kg of rice or wheat a month at Rs 3 a kg to each family living below the poverty line.Much of the finance minister’s work is already cut out for him. Will he go against his own nature and present a Budget that would be filled with fireworks? Probably not. But one can never be sure if the Bengali babu will have a few surprises up his sleeve.Paranjoy Guha Thakurta is an educator and commentator

Paranjoy Guha Thakurta