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A freer hand, but price rise could bite

Successive budgets in the past 15 years, since the onset of coalition rule in 1996, have reflected not only the economic and political agenda of the party leading the governing coalition but also the demands of its partners. And the results have been mixed.

business Updated: Feb 21, 2010 23:48 IST
Saroj Nagi

Successive budgets in the past 15 years, since the onset of coalition rule in 1996, have reflected not only the economic and political agenda of the party leading the governing coalition but also the demands of its partners. And the results have been mixed.

During the last term of the UPA government, pressure from Left allies helped make the budgets more inclusive through large allocations for rural and social sectors. But the Left and other allies succeeded in stalling several reform measures that could have helped accelerate economic growth.

Breathing space

But in its second term, the UPA government has to depend on fewer allies, and the Congress has a more respectable tally in Parliament — 208 in the 543-seat Lok Sabha.

Unlike UPA-I, which had 14 parties in government, UPA-II has five allies to deal with, including Agriculture Minister Sharad Pawar’s NCP and Railway Minister Mamata Banerjee’s Trinamool Congress.

If last week’s Cabinet decision on fertiliser subsidy is any indication, Budget 2010-11 could mark a break from the past when prudent economic measures often became a casualty of coalition pulls and pressures.

The Cabinet decided to raise urea prices by 10 per cent and deregulate non-urea-based fertiliser subsidy, despite stiff opposition from Pawar, Banerjee and Chemical and Fertiliser Minister M K Alagiri. The Trinamool Congress and Alagiri’s DMK fear the decision could upset farmers in West Bengal and Tamil Nadu, both of which go to polls next year.

There are news reports that there also could be a cut in fuel subsidy –– another move held up because of resistance from allies.

“Once the Congress decided not to have a national common minimum programme, allies were left with little say in decision making,” said Radhakant Barik, a professor at New Delhi-based Indian Institute of Public Administration.

The common minimum programme of the previous UPA government was often cited by allies to block policy measures — disinvestment in public sector companies being a key example.

This time there have been few consultations with the allies on the Budget.

But Finance Minister Pranab Mukherjee may opt to shower a few goodies for the allies. During the Cabinet meeting on fertiliser subsidy, Alagiri and Banerjee apparently gave their consent after Mukherjee promised steps to safeguard farmers. There could be some generous allocations for Banerjee’s railway budget so that she can keep passenger fares unchanged for the second time, and some measures to cheer Tamil Nadu.

The big I

The real pressure on Mukherjee comes from spiralling prices, especially food prices that are increasing at a rate of 18 per cent.

Congress leaders are privately expressing concern that the surge in prices — the annual wholesale price-based inflation rate rose from 7.3 per cent in December to 8.5 per cent in January — could become a game-changer in politics.

The brief to Mukherjee from his party is that the budget should have enough for the aam admi. The budget in last July, which came barely a month after the formation of the government, did not have a big-ticket pro-poor announcement, such as the National Rural Employment Guarantee Act (NREGA) introduced in the UPA’s last term. Many expect a plan to enforce the right to food bill this time to offset the impact of high inflation on the poor.

Mukherjee’s second big challenge is confronting the fiscal deficit, which is estimated to peak to Rs 4 lakh crore this fiscal year.

The steps he takes to curtail fiscal deficit — the difference between the government’s earning and spending — will have political ramifications, as it could mean reducing allocations for some of UPA’s flagship programmes and rolling back tax concessions it had extended last year to help industry tide over the global economic slump.

Some good news

Luckily for Mukherjee, two good spells of late rains have helped farmers raise a bumper rabi (winter) crop and cut losses. On the manufacturing front, industrial output has staged a stronger-than-expected recovery — it grew 17 per cent in December.

The improved outlook for agriculture may help scale down rural India’s expectations of help from government, while the economic recovery may weaken industry’s resistance to any rollback of the stimulus package.

Also, Mukherjee doesn’t have the burden of footing extra bills for pay revision of government employees.

He can also go for an ambitious disinvestment programme. “This is the time to think big and go for stalled economic reforms as in the pension and insurance sectors and widen the tax base to underpin a eight-to-ten per cent growth trajectory in the next decade,” said Congress spokesperson Manish Tewari. “There’s a window to get bold and imaginative.”

The country will know on Friday.