Buffeted by the worst crisis in the world economy in the last 80 years, and a widening budget deficit at home, Finance Minister Pranab Mukherjee assumes charge on Monday in an air of expectancy from domestic industry looking for a demand boost and a salaried class eyeing tax breaks.
The task is a tightrope for Mukherjee, who held informal discussions with Finance Secretary Ashok Chawla and Chief Economic Advisory Arvind Virmani at his residence on Sunday.
An official, who did not wish to be identified, said Mukherjee is in favour of presenting a paper on the state of the economy in the short-session of the Parliament in the first week of June.
Tax breaks can put more spending power among consumers. A hike in income tax exemption limit from the current Rs 1,50,000 per annum can thus not be ruled out. However, using the tax money, the government can also stimulate demand through its own spending.
Official sources said the finance minister would hold a brainstorming session with senior ministry officials to stock of the current economic situation, discuss the preparation for presenting the full budget for 2009-10 and review progress of the fiscal stimulus packages announced a few months ago.
Finance ministry officials have prepared the broad contours of an industrial revival strategy, but also need to figure out ways to boost consumer demand without letting the deficit balloon.
Stimulus measures already announced are set to push up the Centre’s fiscal deficit to a worrisome 7 percent of GDP. Add to that off-budget expenses like oil and fertiliser subsidies, and government accounts could be left with a gaping hole of over 10 per cent.
The first round of pre-budget consultations with industry captains was held last week.
The interim budget passed earlier enabled the government to run its expenditure till July 31 only. In recent months the government has taken a slew of fiscal measures, including sharp cuts in excise duties and increased plan spending, to help the economy tide over the ripple of a recession in developed countries.