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The budget math assumes that the UPA will take hard decisions in the coming year
The Union budget couldn't possibly have undone the damage inflicted on the economy over the last couple of years. The previous finance minister had frittered away the opportunity to tighten the belt and reverse the stimulus that had helped the economy rebound after the 2008 global economic crisis. In two years, India's economy worsened structurally, making the course correction look so difficult today. Inflation at over 7 per cent, fiscal deficit at 5.2 per cent of the GDP, and a $75 billion current account deficit (4.2 per cent of the GDP), are sobering, discomfiting figures. The challenge is to first correct the fundamentals, even as efforts are made to revive growth.
Does Finance Minister P. Chidambaram's budget do enough to bring confidence back among foreign investors, so critical to funding the current account deficit? He recognises inflation and the deficits as the primary challenge. And in the current financial year that closes this month end, he has moved in the direction of consolidation. With savings of Rs 60,100 crore (the difference between total expenditure estimated when Budget 2012-13 was presented and now), an ambitious fiscal deficit target for the year has almost been met.
A closer look at Budget 2013-14, however, reveals that it sets difficult targets for itself. Difficult can also shade into doubtful. Against a nominal economic growth rate of 13.4 per cent, it estimates a revenue buoyancy of 21 per cent. Tax receipts are estimated to grow by 19.1 per cent. The revenue buoyancy is also courtesy a stiff sell-off target of Rs 55,814 crore in 2013-14. This year, the government has managed to rake in only Rs 24,000 crore compared with the original estimate of Rs 30,000 crore. If revenue targets appear lofty, the book on expenditure looks understated. For 2013-14, the finance minister has provided only Rs 61,774 crore towards compensation for oil companies that sell fuel products at lower than market prices. This is a phenomenal 34 per cent less than what he provided in 2012-13. Global crude oil prices are expected to remain firm with a modest recovery in the global economy. Such lower provision means the government will hike prices of cooking gas, kerosene and diesel substantially, a tough ask in a pre-election year. Finally, there is a real risk of inflation rearing its head again given the budget assumptions of a sharp 30 per cent jump in plan spend and increase in fuel prices. This may compel monetary action impinging on growth prospects and the tax mop-up. There is little choice for the UPA, it would seem, but to take the hard decisions and frame innovative policy responses.
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