Pre-Budget meetings with Chidambaram begin tomorrow

Agriculturalists first to meet FM and his team

As he prescribed bitter pills to adhere to the path of fiscal consolidation, Finance Minister P Chidambaram will kick off customary pre-Budget consultations tomorrow. This would be the last full-fledged Budget of the UPA II before the scheduled general elections in 2014 and will test the commitment of the government to fiscal correction path.

The first to meet him would be agriculturalists at a time when farm and allied sector witnessed a deceleration in growth at 1.2% in the second quarter of the current fiscal against 3.1% in the corresponding period of last fiscal.

This will be followed by a series of meetings in the next three weeks with various stakeholders, including captains of the industry.

 

On January 3, trade unions will hold discussions with Chidambaram. They are expected to raise issues such as increase in rate of return for subscribers of Employees Provident Fund Organisation (EPFO) at 9.5% for 2012-13. EPFO declared the returns at 8.25% 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 January 4. 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 January seven. Issues like bank recapitalisation, financial inclusion, direct cash transfer through Aadhaar-linked bank accounts, new bank licences and incentives for insurance sector are likely to croup up in the deliberations.

Later in the day on January 7, economists will meet the finance minister to present their Budget recommendations. The meeting comes as the economy faced disturbing macro-economic numbers. While the current account deficit touched 5.4% of GDP in the second quarter of the current fiscal against 4.2% in the corresponding period of last fiscal. Similarly, the union government's fiscal deficit touched 80% of the Budget target in just eight months of 2012-13.

Since the Finance Minister revised the target to 5.3% of GDP against 5.1% given in the Budget, the deficit would be 77%, assuming 14% 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 the current fiscal. While the economy grew 5.4% in the first half, the Finance Ministry expected the entire year to deliver 5.7-5.9% growth.

While industrial production grew by 6.5% in October, raising hopes of revival, eight core industries, comprising 38% in the Index of Industrial Production, expanded by just 1.8% 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 pre-Budget meetings will conclude with discussion with the industry.

The meeting holds 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. The industry may raise the issue of impending tax reforms like Goods & Services Tax and Direct Taxes Code, both of which are not likely to come from April 1, 2013.