Pranab to present interim budget today, expect only tweaks

As he unveils the interim budget on Monday, Finance Minister Pranab Mukherjee faces the daunting task of balancing demands for more fiscal stimulus for a slowing economy with the limited mandate of an outgoing government. If he sticks to convention, Mukherjee is unlikely to propose tax changes other than tweaking a few fiscal incentives for sectors such as housing, construction and exports that have been hit hard by the economic downturn. Rajesh Mahapatra reports. See graphics

As he unveils the interim budget on Monday, Finance Minister Pranab Mukherjee faces the daunting task of balancing demands for more fiscal stimulus for a slowing economy with the limited mandate of an outgoing government.

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If he sticks to convention, Mukherjee is unlikely to propose tax changes other than tweaking a few fiscal incentives for sectors such as housing, construction and exports that have been hit hard by the global economic downturn. He may also set aside more money for programmes that are perceived to be vote-winners.

But beyond that, the interim budget -- which marks the closing bell for business in parliament before the nation heads for elections — will be used mostly as a window to showcase economic gains during the UPA regime and its efforts to put more money into the pockets of the poor and underprivileged.

An analysis by Hindustan Times shows that the Congress-led UPA government indeed scores well in budgeting for the pledges made in the Common Minimum Programme. Funds for social and economic welfare plans more than doubled during the UPA regime compared to the tenure of the BJP-led National Democratic Alliance.

While budgetary allocations for welfare programmes support Gandhi’s assertion, experts say it would be unfair to compare these with the money spent by previous governments on the same count.

The UPA’s tenure included four years of an unprecedented boom before the economy began to slow down last year – GDP growth is estimated to average 8.6 per cent a year since the present government came to power in May 2004. The boom resulted in buoyant tax collections, helping the government to spend more without much of a fiscal risk, said Saumitra Chaudhury, chief economist at credit rating agency ICRA Ltd.

In contrast, “the NDA was caught in the wrong part of the business cycle,” said Mahesh Rangarajan, a New Delhi-based political analyst. It was in the last year of its rule that the economy staged a firm recovery – growing 8.5 per cent through 2003-04 -- from a prolonged slump caused by the Asian financial crisis of 1997.

That said, just as the economy’s turnaround and the return of the feel-good factor in the final year of NDA’s rule didn’t return the incumbent coalition back to power, there is no guarantee that UPA’s big-time spending on welfare measures will translate into votes.

Because, said economist Bibek Debroy, implementation has been poor in the case of several programmes and performance varies across states, depending on the efficiency of local authorities.

Others point out that the Congress party lacks a political machinery to cash in on the popularity of schemes that might be doing well – such as the rural employment guarantee programme and the rural health mission.

“Overall, they haven’t done a bad job (on welfare measures),” said Rangarajan. “But does it add up to a winning score? I am not sure.”

(Arnab Hazra contributed to this story)