India’s Budget to be Announced Monday

The spiraling cost of food is one problem the government of India is worrying about ahead of its annual budget.

Double-digit food inflation has helped keep headline inflation stubbornly high at 8%.

But this is taking center stage – a wave of corruption scandals that’s led to the arrest of the Telecoms Minister, the questioning of leading businessmen, and the Prime Minister being dismissed as a lame duck leader.

[Manmohan Singh, Indian Prime Minister]:
„This sort of atmosphere is not good. It saps our own self-confidence. It also spoils the image of India.“

The opposition fears that Finance Minister Pranab Mukherjee, who has been accused of compromising on fiscal reforms to meet political needs, will try to win back voter confidence by outlining a populist budget.

[Yashwant Sinha, Senior Opposition BJP Leader]:
I hope, really hope that he’ll not be populist because populism at this point of time will only cause greater harm to the economy. Greater harm to the economy in terms of higher inflation. Greater harm to the economy in terms of slower growth, greater harm to the common man, the people who live in this country. Those are the consequences that you’ll follow if it’s a populist budget. It might be sweet in the short term, it will be very painful in the long term.“

Most believe the UPA Coalition will raise food subsidies for the poor in Monday’s budget.

That, along with the rising cost of fuel, which is also heavily subsidized, will only increase government expenditure. The government has been counting on higher revenues rather than spending cuts.

It’s a strategy that’s worked for the current fiscal year, thanks to a windfall from the sales of 3G mobile bandwidth and the IPO of state-owned Coal India.

But in the coming fiscal year, the government might not be so lucky.

It had set a share sale target of nearly $9 billion in other state-owned companies but volatile market conditions have put them on hold.

[Shubada Rao, Chief Economist, Yes Bank]:
“Government will look to rejuvenate the India, Inc. and that’s what we believe is the reason why reforms, big bank reforms can be expected in this budget.“

If that would happen, India would be center focus again for international investors.

If not, they’re likely to watch them wait as the UPA government battles both inflation and corruption.

Foto: NTDTV