Opinion Budget certainties

The budget is shrouded in secrecy,and media hype contributes to its mystique.

February 25, 2010 04:58 PM IST First published on: Feb 25, 2010 at 04:58 PM IST

The budget is shrouded in secrecy,and media hype contributes to its mystique. But there is some certainty. First,the speech will have around 12,000 words and 130 paragraphs,65 in Part A and 65 in Part B.

Second,we will get a fiscal deficit of 5.5% of GDP. Calculation is simple. 2009-10 had a target of 6.8%. But change in GDP base increased the denominator and reduced it to 6.4%. So we have to reduce to 5.5% from 6.4%. Slash 0.3% because of Pay Commission arrears. Slash 0.6% because of debt waiver. We have 5.5% and FM will be applauded because of return to fiscal consolidation.

Third,no numbers will be given for 3G auction and disinvestment in budget,though they will be mentioned in the speech. But no specific numbers,more certain for 3G than disinvestment. If disinvestment numbers are given,they will be very low,so there is slack to make up for fiscal slippage.

Fourth,if stimulus is interpreted as tax reductions,excise will increase to 10%. It won’t increase across sectors. Some will be spared. It’s unclear whether service sector taxation will increase to 12%. Probably unlikely. An argument will be made that we need to unify goods and services. GST will probably be 12% — 7% Centre and 5% states. So we unify at 10% this year and 12% the next.

Fifth,urban middle class,the “aam aadmi” of the media,has to be mollified. Adjust thresholds (not rates) of personal income taxation,invoking reform of direct taxes from next year.

Sixth,if stimulus is interpreted as public expenditure,no question of winding that down. Speech will have extension of NREGS (to urban areas),right to education (un-budgeted so far),right to food (cynics will say right to hunger),subsidized gas connections to BPL and so on. No need to budget for them. Else,fiscal numbers will go haywire. Existing expenditure on other programmes can be redirected and clubbed for these.

Seventh,project nominal GDP growth of 14.5%. This high denominator makes numbers look respectable. Pressed at press conferences later,break it up as 8.5% growth and 6% inflation.

Eighth,Plan expenditure was increased in 2009-10 and has to be reduced in 2010-11. Figure out a respectable way of window-dressing it,so that people don’t notice.

Ninth,to keep reformers happy,make noises about targeting subsidies (food stamps,education vouchers,nutrient-based fertilizer subsidies) and link all targeting to Nandan Nilekani delivering.