Budget 2011: Budget likely to cater to populist pressure despite deficit
Prime Minister Manmohan Singh's embattled government will likely boost spending on social programmes in a populist budget on Monday, even as India is threatened with a potentially ballooning subsidy bill for food and fuel.
Higher spending to appease voters will make it tougher to reach deficit-cutting targets in a year that could see slower economic growth , and could also make policymakers' battle against inflation more difficult.
"Pruning the (fiscal deficit) is tricky, especially when the economy is showing signs of a slowdown, cash-guzzling social sector projects are due to be announced and high commodity prices globally are likely to bloat the subsidy bill," HDFC Bank Chief Economist Abheek Barua wrote in a note.
Unlike in the current fiscal year ending March 31, New Delhi will not be bailed out by unexpectedly strong growth and revenue from the sale of 3G telecom licences.
The government's political imperative not to cut subsidies will be hugely expensive. Food subsidies total nearly $13 bn, or 5 percent of the budget, while fuel subsidies total around $5.5 bn, 68 percent more than a year ago.
Political obstacles, including from within the ruling Congress party, which is increasingly moving to the left, will also discourage any major reforms in the new financial plan, such as allowing more foreign investment in the financial services and retail sectors in Asia's third-biggest economy.
The government has become bogged down in a slew of corruption scandals, and soaring food prices have only made matters worse.
DEEPAK KUMAR
PGDM 2ND SEM
Prime Minister Manmohan Singh's embattled government will likely boost spending on social programmes in a populist budget on Monday, even as India is threatened with a potentially ballooning subsidy bill for food and fuel.
Higher spending to appease voters will make it tougher to reach deficit-cutting targets in a year that could see slower economic growth , and could also make policymakers' battle against inflation more difficult.
"Pruning the (fiscal deficit) is tricky, especially when the economy is showing signs of a slowdown, cash-guzzling social sector projects are due to be announced and high commodity prices globally are likely to bloat the subsidy bill," HDFC Bank Chief Economist Abheek Barua wrote in a note.
Unlike in the current fiscal year ending March 31, New Delhi will not be bailed out by unexpectedly strong growth and revenue from the sale of 3G telecom licences.
The government's political imperative not to cut subsidies will be hugely expensive. Food subsidies total nearly $13 bn, or 5 percent of the budget, while fuel subsidies total around $5.5 bn, 68 percent more than a year ago.
Political obstacles, including from within the ruling Congress party, which is increasingly moving to the left, will also discourage any major reforms in the new financial plan, such as allowing more foreign investment in the financial services and retail sectors in Asia's third-biggest economy.
The government has become bogged down in a slew of corruption scandals, and soaring food prices have only made matters worse.
DEEPAK KUMAR
PGDM 2ND SEM
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