A Union Budget in March is a rare occurrence. Except in years when general elections are held, the Union government’s annual Budget is usually presented on the last working day of February. For parliamentarians, Saturdays are counted as working days. So even when February 28 or 29 happens to fall on a Saturday, the Union Budget for the following year is presented on the weekend.
If you go by that logic, the Union Budget for 2012-13 should have been presented on February 29. That Finance Minister Pranab Mukherjee chose March 16, instead, to present what would be his fourth Budget under the United Progressive Alliance is what makes the forthcoming Budget a little unusual. There was no general election this year. Yet, the postponement took place since Assembly elections in five states were scheduled to be held over a six-week period ending on March 3. Since the results are to be out on March 6, the Union government decided that the Budget session of Parliament would begin only on March 12, and the Budget would be presented four days later.
This is perhaps the first time that even without a general election, the Union Budget’s presentation has been delayed. More significantly, that Assembly elections in five states caused a postponement of the Budget’s presentation shows the tenuous nature of the current political alliance propping up the Union government. Clearly, the government’s decision on the postponement was influenced by the political assessment that the results of the Assembly elections could significantly alter the Congress’ equations with its other partners in the ruling alliance. If the Assembly poll results strengthen the Congress politically, then Mr Mukherjee could perhaps experiment with some bold Budget moves. So the real directional thrust of the Budget for next year would be finalised only after March 6, when the Assembly poll results will be out and the political situation will become clearer.
This is one of the key imponderables for the Budget for next year. There is no doubt that Mr Mukherjee has to make difficult choices. This is his last chance to present a Budget that will be free from the political compulsions of a forthcoming general election. The Budget for 2013-14 will have to necessarily keep in mind electoral considerations as the general election will be due in 2014. This, then, will be his primary challenge.
A bigger challenge will be the state of the economy and the demands being made on him by the political leadership. The politics of entitlement has already taken a heavy toll on the government’s finances. Such expenditure demands could have been met if the economy was not slowing down and the tax collections remained buoyant. While he cannot rein in expenditure as much as he would like because of these political demands, the cushion of a growing economy – and consequently, rising revenue collections – is no longer available to him. Take a look at all these factors influencing the political economy, and you will understand why Mr Mukherjee’s Budget this year will turn out to be one of the most difficult of all the similar exercises he has undertaken so far.
Indeed, the week beginning March 12 will unveil, one-by-one, new information and data that will have a bearing on Mr Mukherjee’s Budget a few days later. The President’s address to both Houses of Parliament at the start of the Budget session will outline the government’s economic agenda for the year. On the same day, industrial growth figures for January will be released. By all indications, the figures will show higher industrial growth than in the previous months. But then, a couple of days later on March 14, the mood will turn for the worse with the Railway Budget showing the steady deterioration in Indian Railways’ finances. A day later, the Economic Survey will be out, bringing with it numbers that will confirm the slowdown in the economy. On the same day, the Reserve Bank of India governor will announce the monetary policy measures for the quarter and will perhaps set the tone for the Budget.
It will be an action-packed week culminating in the presentation of the Budget on March 16, which happens to be a Friday. Its significance from the stock market point of view should not be underestimated. The stock market will have an opportunity to respond to the Budget announcements on Friday itself, but only on the basis of a quick assessment of the implications, as trading will close within a few hours of the presentation of the Budget. This will be an opportunity for Mr Mukherjee. If the stock market disapproves of the Budget pronouncements and the benchmark indices fall, the finance minister can use the long weekend ahead of him to initiate necessary damage-control exercises. And if the initial stock market reaction is positive, he can step up efforts during the weekend to ensure that the Budget continues to spread cheer for the markets when they open on the following Monday. Either way, it is an opportunity.