Growth ought to be highest goal right now, finance minister P Chidambaram declared at the outset of his Budget speech on Thursday and sought to find commonality between the two apparently dichotomous objectives he proposed to achieve — relentless fiscal correction and largesse to the electorate ahead of an election year. Relying on a nominal GDP growth estimate of 13.4%, a 10% surcharge on both the “relatively prosperous” individuals and corporates and an aggressive disinvestment agenda, Chidambaram proposed the 2012-14 Budget size at R16.65 lakh crore, 16.3% higher than the revised estimate (RE) of this year, which saw a 4% expenditure compression.
What this means is as a percentage of the GDP, government expenditure is set to rise again — to 14.6% — after declining steadily from the 2009-10 peak of 15.9% to 14.3% in 2012-13. The economic growth the minister assumed came into question later in the day though, with the Central Statistical Office saying third quarter GDP growth was a disconcerting 4.5%.
The finance minister obviously thinks the economy is bottoming out and at least from the first quarter of next fiscal, growth would pick up. Several incentives announced in the Budget to stimulate the investment cycle, he hopes, could help accelerate the growth momentum during the course of next year. While Prime Minister Manmohan Singh said the Budget laid the road map for investments, the Opposition called it “lacklustre” and “unimaginative”.
The Budget pegged the fiscal deficit at 5.2% for this year and 4.8% in 2013-14, despite the higher-than-expected hike in allocations for most flagship schemes. To square up, the minister also hinged on a 10% reduction in spending on subsidies next year to R23,1084 crore (a 30% cut in oil subsidies thanks to diesel price deregulation is under way). The proposed reduction is strictly not that big, given that the revised estimate for this year is 36% higher than the budgeted level and the Direct Benefit Transfer scheme would be “rolled out fully” next year (the minister hasn’t said what all would be covered under DBT, though.)
Chidambaram vowed to support the food security Bill — expected to be the UPA’s chief poll plank in 2014 — but provided just R10,000 crore as additional food subsidy outlay for next year, as against an extra R50,000 crore sought by the food ministry. There could be higher disbursal for food subsidy towards the later half of next year.
While most flagship schemes