2013-14 Budget in black and white

February 7th, 2013

Any government presenting last budget before going into elections is expected to make it a populist one. The current UPA government at the centre, however, is indicating that it will not do so.

The next Lok Sabha polls are due in 2014 but signals emanating from the finance ministry hints at a tight and pragmatic budget to kill the threats of a rating downgrade by the international rating agencies to junk from the investment grade.

This is difficult to digest. Experience suggests that the savings made on the plank of fiscal prudence will be utilized to fund some scheme which will be the real ‘game changer’ in 2014 elections as farmer debt waiver scheme proved to be in the previous one for the Congress party.

The government is currently projecting the direct cash transfer as a game changer. Budget for 2013-14 is set to introduce the actual game changer and food security appears to fit the bill. The cost becomes immaterial if the politics is solidly behind a scheme.

Here lies the catch. Will the government be able to bring in a big money spending scheme only with the help of savings or it needs additional revenue generation for the same keeping in mind the sword hanging on the country’s head of rating downgrade?

The current state of government finances suggest that deft balancing would be required between revenue and expenditure if the real game changer scheme has to be introduced in the budget for 2013-14.

Ruling out the chances of extension of tax ambit to those who are out of the tax net at present would be a folly in this kind of a scenario.

Some method to augment tax collection from largely untapped unorganized sector and also the charitable institutions could be in the offing.

Raising indirect tax rates – excise, customs and service tax — is also an option which finance ministry must be looking at and a final call apparently in this case would be taken at the highest level.

On February 28, the analysts would look at the upcoming general budget through the lenses of meeting 5.3 per cent fiscal deficit for 2012-13 and sticking to the 4.8 per cent target for 2013-14.

The political class would focus on the game changer scheme. The ‘aam aadmi’ (tax payers) will count the tax savings, or hit, which the government in all probability would avoid this year.

On balance, additional revenue generation to fund the game changer scheme would be the key and budget team led by finance minister P Chidambaram must have given a shape to it by now.

Those avoiding taxes or not paying taxes at all are likely to be brought on the centre stage, when the finance minister presents UPA-II government’s last budget before Lok Sabha elections.

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