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Sinha may have to do the tightrope walk on Budget

Finance Minister Yashwant Sinha may have to do a tightrope walk when he presents the Budget, on Wednesday, which will have to blend populist measures due to the impending assembly elections and tough reform agenda to reverse the economic slowdown.

Saddled with a 'difficult' economic situation, mainly due to poor performance of industrial, agriculture and service sectors, Sinha in his fourth Budget cannot afford to ignore revenue mobilisation and expenditure control measures. At the same time he will have to device methods to spur investment and demand to put the economy on higher than 6 per cent growth pedestal.

Persisting high international oil prices, weakening US economy and the massive Rs 200 billion economic cost of Gujarat earthquake has left Sinha with very little option but to pursue hard reform measures, including cut in subsidies, downsizing of government, de-reservation of small industries and steps to reduce interest rates to cut cost of capital.

At the same time due to compulsions of coalition politics and the upcoming assembly elections in five states, Sinha might be forced to announce some populist measures.

Faced with mounting fiscal deficit, which means 'belt-tightening' measures, Sinha is unlikely to fulfil the wishlist of the industry to remove surcharges and bring down tax rates, barring dividend tax.

Highly placed sources pointed out that Sinha may also have to levy a cess to raise a Disaster Management Fund to deal with natural calamities like the recent Gujarat earthquake.

To provide "psychologial comfort" to farmers, import tariff on farm products might be raised to face the challenges of total dismantling of quantitative restrictions (QRs) from April 1 of this year.

Simultaneously, average import tariff would be brought down from the present 34 per cent by lowering duty on several other items.

Apart from agriculture, social infrastructure and rural development would get special attention in the budget by providing incentives for private sector participation, besides apportioning more resources to these sectors.

In a bid to prepare the economy to face competition in the post-WTO (World Trade Organisation) regime, the sources said incentives might be provided in the budget for technological upgradation and research and development.

Going by the pre-Budget Economic Survey, it is evident that the budget might set the agenda for major power sector reforms that would tackle huge transmission and distribution losses.

Budget 2001

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