NEW DELHI, Feb 26 (AFP): India's Congress-led government will accent populism rather than bold reform in its budget for Asia's third-largest economy next Tuesday as it seeks to deliver on pledges to the poor, economists say.
At the same time, the government will also strive to steer the fast-expanding economy to even greater growth, they say.
With the government relying on Marxist allies for its parliamentary survival and five state elections looming, Finance Minister P Chidambaram needs to target the rural masses who vaulted Congress to its win in 2004, analysts say.
And with the economy seen growing by a better-than-expected 8.1 per cent this year -- generating stronger revenues -- he will have more elbow room for social spending in his budget for the fiscal year to March 2007, they add.
The budget is likely to involve a "push on infrastructure and agriculture development, making spending room for politically attractive initiatives like rural employment and getting on track for fiscal consolidation," says Rajeev Malik, economist at JP Morgan in Singapore.
Chidambaram, presenting his third budget, and Prime Minister Manmohan Singh are arch reformers. But their enthusiasm has been curbed by their communist allies who oppose liberalisation so no big-bang measures are expected.
"Privatisation will be on the backburner due to coalition politics and there'll be no major reforms on amending (rigid) labour laws or opening up the retail sector," said Deepak Lalwani, director at London's Astaire Securities.
But crucially, the budget is not expected to do anything to upset the stock market, which has rocketed by nearly 60 per cent since it began its bull run last April, driven by record foreign fund inflows.
"The budget undertone will be positive ... and there will be an upbeat message to aim for 10 per cent growth in three years," said Lalwani.
Among expected measures are moves to improve India's creaking infrastructure and dire power shortages, seen as key to spurring growth.
India's economy needs to expand by at least 10 per cent to ease the woes of the quarter of its one billion population living in grim poverty, analysts say.
Chidambaram will seek to widen services taxes-which account for just five per cent of tax revenues but 50 per cent of GDP-to bring in more revenues to finance social spending, analysts say.
Chidambaram is also expected to counter rampant tax evasion by India's increasingly affluent middle class and companies. "He'll want to widen the net and plug leakages," says a senior government official.
The finance minister is also seen announcing measures to boost rural employment and spending on health, education and rural infrastructure like irrigation, analysts say. And job generators like textiles, food and automobiles could get tax breaks.
Thanks to robust growth, the fiscal deficit as a proportion of GDP is seen falling to meet the government's goal of 4.3 per cent and remain on track to hit three per cent by 2009. The government missed its deficit target last year.
But the size of the shortfall-long a worry of ratings agencies, who say high borrowings will restrain growth-is expected to rise in raw numbers as the government seeks to pay for welfare projects.
Chidambaram may cut peak import tariffs on non-farm goods to 10 to 12 per cent as part of a drive to bring duties in line with other South East Asian nations.
"Chidambaram is under tremendous pressure to raise revenues and he's not happy to let things to be," said national columnist TCA Srinivasa-Raghavan.