Budget bailout

After being pushed on the back foot by the series of exposes and scams, the United Progressive Alliance (UPA) is all set to present a populist Union Budget with a “human face” for the next financial year. The preparation for the draft proposal is in its final stage and some of the best financial brains of the North Block are working round the clock to make it happen. According to sources, these people have been asked to prepare a populist Budget, ignoring the aspect of fiscal deficit. The UPA has made up its mind to offer goodies to every segment of the society - right from the salaried class to the common man. It is also expected that the Budget will also keep the interests of the poor in mind. 

10 Janpath is worried that if inflation is not contained, it will adversely affect Congress' prospects in the upcoming assembly polls in several states. And if these states slip out of Congress' hands, they will adversely affect Congress' chances in the 2014 Lok Sabha polls. Congress strategists are extremely worried about inflation. The Centre has called three Cabinet meetings on the price rise issue. As many as seven core committees have been formed. The Group of Ministers as well as the Planning Commission have already submitted their reports in this regard. Prime Minister Manmohan Singh himself has called several meetings in the past to discuss the matter.

Rahul Gandhi's comment on the limitations of coalition politics, during his tour to UP, has sent out clear signals to Sharad Pawar. It was too blunt and too public for his taste. Even in a recently held meeting of National Advisory Council (NAC), members agreed that Pawar had a major role in this mismanagement. In that context, Rahul's statement is supposed to be well planned and deliberately articulated. Talking to TSI, general secretary Digvijay Singh said, “There are indeed limitations of a coalition government. Rahul Gandhi's statement means that coalition partners should not shy away from their respective responsibilities.”

And if that is not enough, it is also being said that the Prime Minister is under immense pressure from the party on the inflation issue. To put it simply, his efforts have shown little or no results. Therefore, Singh wants to use the Union Budget as a final tactical masterstroke. The brains in the North Block are finalising the goodies drawn upon the recommendations from the Sonia Gandhi-led NAC, Committee for Opportunity and Congress Core Committees. The government might not be happy with a few of these recommendations but for the time being it appears that the party has prevailed over the government.

Meanwhile, the Bharatiya Janata Party (BJP) has grabbed this opportunity to push the Congress to a corner. It is planning to turn inflation into a major election issue in the coming assembly polls. Ananth Kumar, senior BJP leader, told TSI, “The Congress came to power riding on the support of the common man. However, the latter has had enough now. We are positive we will be the single largest party after the next Lok Sabha polls and that the Congress tally will come down to double digits.”

But the Congress is trying to regain ground. Like the immensely successful Right To Information Act, the party is trying to bring the Food Security Bill for consideration. The draft proposal is ready and the government is willing to present it in Parliament as early as the coming Budget session.

Talking to TSI, CPI(M) leader Sitaram Yechury said, “This has happened because of the dominance of Congress in the coalition. In the previous government, Left pressure was the major reason why the government performed so well. But things have changed. Inflation is high and industrial productivity is at an all time low.”

It is not that the Congress is unaware of the situation. However, it needs to pull itself together. If its planned schemes are implemented thoroughly, the initiatives will start to show results and the party might fare better than expected in the 2014 Lok Sabha polls.

As far as the recommendations for inclusion in the Budget are concerned, the focus will be on education, health, food security and budgetary relief for the salaried class. To put these plans in action, deputy chairman of the Planning Commission Montek Singh Ahluwalia has asked the Prime Minister to allocate 20 per cent more funds in comparison to the last year's Budget. It will be primarily utilised for implementing several rural development programmes as well as for guaranteeing food security. Sam Pitroda's innovation mission and other flagship programmes will be uppermost in terms of priority.

The total amount for this year's Budget is to the tune of Rs 3.8 lakh crore. The National Rural Employment Generation Scheme allocation is expected to increase by Rs 10,000 crore for the coming year. Something similar is expected about food security. Similarly, for the salaried class, the tax bracket will be further eased. The minimum limit will be increased from Rs 1,60,000 to Rs 2,00,00. The brackets will be in accordance with the discussed tax code, that is, 10 per cent for those earning between Rs two to five lakh, 20 per cent for those making between Rs five and 10 lakh and 30 per cent for those earning more than Rs 10 lakh.

After this unusual hike by the Planning Commission, it is evident that there will be a cut in non-planned expenditure as well as in areas such as defence research. But even that will not manage to squeeze out the desired sum. Clearly, fiscal deficit is set to widen. To offset that, the government will use the service tax tool. Its bracket will be widened to bring in more services. That will pinch the urban Indians but leave their rural counterparts untouched.

Financial management, in all likelihood, will be an uphill task for the UPA, specially if one takes its entire tenure into account. But the government is considering other measures as well. If some parts of the black money, stashed overseas, is brought back, the fiscal deficit will be near about 5.5 per cent of the country's GDP. However, the Planning Commission maintains that after better financial management, the corresponding figure will come down to 4.8 per cent and 4.1 per cent in the next two financial years.

The ball, for now, is in Union finance minister Pranab Mukherjee's court.