Finance Minister Pranab Mukherjee is set to present his sixth national budget Monday, with people hoping for measures that will help them brave high prices and industry expecting steps that would spur demand and reduce tax burden .
The jury is still divided whether the budget would veer towards an anti-inflation approach or be pro-growth. But everybody agrees that the finance minister is going to have to walk a tight-rope to get the right mix of both.
The annual report card on the state of the economy, the Economic Survey 2010-11, did indicate that inflation was here to stay at least in the short-to-medium term even as the country’s gross domestic product grows at around 8.6 percent this fiscal and 9 percent in the next.
Food inflation moved up to 11.49 percent for the week ended Feb 12 as compared with 11.05 percent in the previous week. The barometer for measuring food prices has remained in high double-digits for most part of 2010-11.
The annual inflation based on wholesale prices stood at 8.23 percent in January.
Mukherjee, often touted as the government’s primary trouble-shooter, however has another problem at hand. Following the unrest in the middle east and Libya, global crude prices have soared to around $112 a barrel Friday on concerns that political unrest in the Arab world will create supply shortages.
Even though oil marketing companies have the freedom to charge for petrol as per global prices, a further hike will only add to the inflationary pressure — something that the government would look to avoid for as long as possible.
Then there are the social sector programmes of the government, which are already leaking huge amounts of funds in the absence of proper audits. Many of these programmes, which require huge funds cannot be curtailed as a number of state elections are due.
Mukherjee will also have to look at ways of ramping up its revenue collection and curtail expenditure to curtail fiscal deficit , which was a high 5.5 percent this fiscal.
Whether he will be able to bring it down to 4.5 percent of the gross domestic product by March-end 2012 remains to be seen.
Analysts doubt its possibility in the face of continuing subsidies to various sectors like food, fertilizers, oil and absence of a spike in revenues as was seen last year due to one-offs like the 3G auction, which netted the exchequer Rs.67,718 crore ($15 billion).