Focus on growth, lower fiscal deficit

RUN UP TO BUDGET 2006

The forthcoming Union Budget will target a lower fiscal deficit and focus on sustaining a growth rate of 8 per cent while also controlling inflation.

Finance Minister P Chidambaram will stick to the Fiscal Responsibility and Budget Management Act by reining in expenditure, particularly non-plan spending.

Given the FRBM targets, Common Minimum Programme schemes like the mid-day meal, rural health mission and Rural Employment Guarantee will see a modest hike in allocation.

A marginal increase for secondary education, science and technology and heavy industries is also likely. Finance Minister P Chidambaram could increase the allocation for the schemes later during the year depending on utilisation of funds.

In terms of the general political direction of the Budget, one key difference over last year is that the allies have got their act together better in terms of their wishlists. Unlike last time, when the FM and his advisor Parthasarthi Shome finalised most of the contours, senior allies in the government have had a greater say this time.

On his part, Prime Minister Manmohan Singh has had fewer Budget-related meetings than in the year before.

Among other reasons is his preoccupation with the high-profile visits of foreign dignitaries including the upcoming visit by the US president. Overall, his emphasis has been on the twin objectives of sustaining and broad-basing growth and keeping inflationary pressures under check.

On the whole, few new schemes are expected, with attention being paid to implementation of the existing schemes, particularly the rural employment guarantee scheme.

With a lot of pressure being exerted by the political class "" MPs have been most vocal in their demand for a rollback of last year's unpopular taxes "" this shade of opinion is likely to be appeased through measures such as the withdrawal of the Banking Cash Transaction Tax (BCTT).

In addition, the Fringe Benefit Tax may become optional by marginally hiking the tax burden for corporates. The FBT would also be simplified by removing genuine business expenditure from its ambit. While the existing income tax slabs are expected to continue, there will be a reduction in customs duty and rationalisation of excise duties.

Measures to tap unaccounted income, by enhancing the ambit of the wealth tax or imposing fresh taxes, are also expected.