Finance Minister P Chidambaram will kick off the customary pre-Budget consultations tomorrow. This would be the last full-fledged Budget of the United Progressive Alliance (UPA) government before the scheduled general elections in 2014 and will test the commitment of the government to a fiscal correction path. Two weeks ago, Chidambaram had said bitter pills were needed to adhere to the path of fiscal consolidation.
Among the first to meet the finance minister would be agriculturists. The farm and allied sector witnessed a deceleration in growth at 1.2 per cent in the second quarter of the current financial year (FY13) against 3.1 per cent in the corresponding period of last year.
This will be followed by a series of meetings over the next three weeks with various stakeholders, including captains of industry.
On Wednesday, trade unions will hold discussions with Chidambaram. They are expected to raise issues such as increase in the rate of return for subscribers of the Employees Provident Fund Organisation (EPFO) to 9.5 per cent for 2012-13. EPFO declared the returns at 8.25 per cent for 2011-12. While the demand is not generally met through the Budget, its repercussions on public finance could be felt if the government decides to increase the rate.
Representatives from the social sector will present their Budget wish list on Thursday. Feedback from the social sector would help the government prepare a balanced budget incorporating the needs of social sector and fiscal prudence. Usually, Budgets before the election year are full of populist measures, but this time, due to financial constraints, the government would struggle to come up with schemes involving huge spending.
The meeting would be followed by the one with banking and financial institutions on Sunday. Issues such as bank recapitalisation, financial inclusion, direct cash transfer through Aadhaar-seeded bank accounts, new bank licences and incentives for the insurance sector are likely to crop up.
Later in the day, economists will meet the finance minister to present their Budget recommendations. The meeting comes as the economy faces disturbing macro-economic numbers. The current account deficit touched 5.4 per cent of GDP in the second quarter of FY13 against 4.2 per cent in the corresponding period of the last year. Similarly, the Union government’s fiscal deficit touched 80 per cent of the Budget target in just eight months of 2012-13.
Since the finance minister revised the target to 5.3 per cent of the GDP against 5.1 per cent given in the Budget, the deficit would be 77 per cent, assuming 14 per cent nominal GDP growth in 2012-13, as was projected in the Budget.
Also, economic growth parameters are giving confusing signals against the government’s hopes that it would recover a bit in the second half of FY13. While the economy grew 5.4 per cent in the first half, the finance ministry expected the entire year to deliver 5.7-5.9 per cent growth. Industrial production grew by 6.5 per cent in October, raising hopes of a revival, while the eight core industries, comprising 38 per cent in the IIP (index of industrial production), expanded by just 1.8 per cent in November.
After a series of meetings with these five groups, Chidambaram’s interaction with industry and trade groups will happen after an interval of about 10 days on January 16. The minister’s pre-Budget meetings will conclude with discussion with industry. The meetings hold significance as the government is trying to improve investor confidence and address concerns of India Inc. Some of the suggestions and inputs given by the industry may be incorporated in the Budget.
Industry may raise the issue of impending tax reforms such as GST (goods and services tax) and DTC (direct taxes code), both of which are not likely to come from April 1, 2013.