New Delhi, Feb 13: Recent defeat of the Congress party in the three States of Gujarat, Punjab and Himachal Pradesh, will have a major impact on the last Budget of the UPA government, preparations for which are almost complete.
Continued thrust on social sectors in the Budget 2008-09 with focused attention on the UPA government's flagship programmes is almost a foregone conclusion. However, Finance Minister P Chidambaram would be in a tight corner to maintain a fine balance between fiscal discipline and political demands arising from the next General Elections. Informed sources say that the Budget 2008-09, which is being formulated in the second year of the Eleventh Plan, will leave little margin to introduce strategies and initiatives outlined in the Plan.
With the first year already gone without a Plan in place, political constraints in the second year of the Plan, will further diminish the chances of the Eleventh Plan (2007-11) being implemented in letter and spirit. This being the terminal year for the Fiscal Responsibility and Budget Management Act (FRBMA), the Finance Ministry will not be in a position to create extra resources needed to meet both political requirements and economic demands for growth.
Indications are that the Budget will depend heavily on generating extra funds through Public Sector Undertakings and it would be seen that almost all profit making PSUs go in for IPOs to raise resources from the market without sacrificing their majority share holdings in these companies.
However, the Budget would have to make provision for the schemes already announced during the course of the year. Thus, funds would have to be provided for the Skill Development Mission, schemes relating to the agricultural sector like Rashtriya Krishi Vikas Yojna and the Food Security Mission, clubbed with additional commitments in the education and health sectors. All in all, there would not be any major margin with the Finance Minister to consider demands of other sectors.
Substantial increase is likely to be announced in the social sector schemes and those relating to rural development, including the Horticulture Mission, Rural Water Supply Scheme, Rural Sanitation Programme, Sarv Siksha Abhiyan, National Rural Health Mission, NREGP, Indira Awas Yojna (rural housing), Pradhan Manrti Gram Sadak Yojna, Accelerated Power Development Programme(APDP), Integrated Child Development Scheme, Jawaharlal Nehru Urban Renewal Mission, Rashrtriya Krishi Vikas Yojna, and Backward Region Grant Fund.
Higher allocations will have to be made to the States in view of the State governments expressing displeasure about continuous decline in their share of Gross Budgetary Resources. Over the years, the GBS to the states has come down substantially as the Centre has been depending more and more on the Central Ministries for implementing the social sector programmes.
Availability of funds will be further constrained as both the Central government and States will have to earmark funds for implementing the Sixth Pay Commission Report.
With the Railway Ministry already being asked to keep apart Rs 9,000 crore for this purpose, indications are that the burden on the Central government alone would be to the tune of Rs 30,000 crores.
With national elections to take place in the near future, and Assembly elections due in a number of States soon, the resources of the States will be further under pressure. This would mean further thinning of resources as well as increased pressure on inflationary trends in the economy.
Mr Chidambaram would thus have to keep a careful watch so that inflation does not get out of hand while ensuring that positive trends in the core sectors of the economy are not adversely affected beyond a point. In short, the Budget is set to witness a tug of war between demands economic growth and political wish lists.