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Vote-on-account not to disappoint on fiscal deficit-Vrishti Beniwal
-The Business Standard


Chidambaram may announce higher fund allocation for the social sector, with focus on education, food, women and rural masses

In his last Budget speech as finance minister in the UPA-II government, P Chidambaram will have a lot to say on Monday but much of it is likely to be high on intent and low on content.

Budget

Ahead of the Lok Sabha elections, interim Budget 2014-15 is likely to be packed with statements promising what the UPA would do if it got the mandate to lead the country for a third consecutive term.

This won't be remotely close to his dream Budget of 1997-98, but obviously the finance minister would not like to miss out on an opportunity to highlight what his government has achieved in the previous 10 years - Direct Benefits Transfer and Food Security Scheme to name a few. He may announce higher fund allocation for the social sector, with focus on education, food, women and rural masses. However, Plan expenditure on the flagship Mahatma Gandhi National Rural Employment Guarantee Scheme might be cut a bit compared to Budget estimate of 2013-14.

Prime Minister's Manmohan Singh's interim Budget speech as finance minister in 1996-97 was also filled with the government's achievement in the past five years and how it brought reforms after 1990s that changed the face of the economy. He did not make specific announcements but gave a broad idea of his economic vision for the next year, stressing on more reforms and fiscal consolidation.

As markets and rating agencies eagerly watch out for fiscal consolidation carried out ahead of the upcoming elections, the finance minister is likely to report a fiscal deficit of around 4.7 per cent of the gross domestic product (GDP), lower than his initial target of 4.8 per cent, helped by a massive cut in expenditure and gains from telecom spectrum auction. He is expected to peg next year's fiscal deficit at 4.2 per cent. This would be so as Plan expenditure in 2014-15 is likely to be kept intact at the Budget estimate level of 2013-14, at Rs 5.55 lakh crore.

"Since major policy announcements and changes on the taxation front are not expected, markets are more likely to be watchful for government's progress on fiscal consolidation. Despite some populist measures and the fiscal deficit breaching 95 per cent of the Budget estimate nine months of the current financial year, the government is likely to curtail the deficit at the budgeted level," Angel Broking said in a note.

Chidambaram may also highlight his government's achievement in reining in the current account deficit (CAD). The deficit on current account had swelled to an all-time high of 4.8 per cent of the GDP in 2012-13, prompting some experts to fear that it could pose a balance of payment problem for India. He may peg the CAD of less than $50 billion in the current financial year against over $85 billion in 2012-13.

Though this is merely a vote-on-account, seeking Parliament's nod to spend in the first four months of the next financial year, tax changes in the interim Budget are not ruled out, as long as they don't require an amendment in the law. The finance minister himself has said any proposal short of amending a law can be made and that he can also outline the vision for the future. So some tax incentives could be there to support certain sectors of industry.

"In 2004, Jaswant Singh made a 12-page speech. In 2009, (Pranab) Mukherjee made an 18-page speech. So, I have two numbers to choose from, between 12 to 18," he said recently.

While Mukherjee's speech mostly revolved around the achievements of the government in the past five years, Singh announced expansion of some schemes and several new initiatives, though small ones, particularly for rural masses. Singh's interim Budget had proposed a few changes in taxation for sectors like power and shipping but did not make any tax proposals as he had announced some measures before the Budget to stimulate the economy after the global financial meltdown.

Chidambaram might win kudos for meeting the twin deficit target this year, but the next government would have to pay the price if the subsidy rollover is more than the previous year.

"The finance minister's credibility on sticking to the target is also strengthened by his track-record on positively surpassing expectations by reining in the fiscal deficit during FY2013 at 4.9 per cent as compared to the budgeted level of 5.1 per cent. To meet its objective, we believe that the government is likely to cut its plan expenditure drastically from the budgeted levels, rollover expenditure into the next fiscal year, as well as aggressively seek to garner proceeds from non-tax revenues and disinvestment receipts," researchers at Angel Broking added.