Indian government in tightrope budget act
India's finance minister Pranab Mukherjee faces a tightrope walk Monday in presenting the nation's budget as he seeks to tame rampant inflation, sustain high growth and rein in the deficit.
Mukherjee, 76, known as a canny tactician, is unveiling the budget as the left-leaning Congress government has been under fierce public and opposition attack over corruption scandals and runaway food prices.
He will have his eyes on a slew of looming state elections and is likely to opt for a "common man" budget for the fiscal year starting April 1 -- laden with food, fertiliser and fuel subsidies, analysts said.
"We anticipate a sizeable boost to welfare spending, designed to protect the incomes of the poorest," said Credit Suisse economist Robert Prior-Wandesforde.
Some 40 percent of the 1.2 billion population in Asia's third-largest economy live on less than ê2 a day.
The government is mindful that spiralling living costs can be a potent trigger for discontent in India. General inflation is over eight percent while food inflation is at double digits despite aggressive monetary tightening.
At the same time, the government will be seeking to reassure foreign investors that it can keep a lid on spending growth amid dwindling international confidence in the South Asian giant.
The government is banking on high revenues from economic growth to help it trim the fiscal deficit of 4.8 percent of gross domestic product -- the highest among the so-called BRIC nations of Brazil, Russia, India and China.
"The most important message from the upcoming budget should be that of fiscal consolidation," said CLSA economist Rajeev Malik.
Even with growth this year targeted at 8.6 percent and as much 9.25 percent next year, India's allure as an investment has been declining.
India's image has been hit by a number of corruption scandals that have highlighted what analysts are calling a widespread "governance deficit" and worries about its ability to control inflation and narrow the fiscal gap.
The country desperately needs foreign capital to modernise its economy and spur growth to employ the army of young people in the country where 70 percent of the population is below 35.
With the government under heavy opposition attack, any controversial economic reforms may have to wait, although Mukherjee could announce a roadmap to open up India's ê450 billion retail sector to foreign investors to improve the efficiency of India's food supply chain, analysts say.
When the government, led by arch reformer Manmohan Singh, 78, was swept back to power two years ago, investor hopes were high it would open up the still inward-looking economy.
But the scandals, including a multi-billion-dollar mobile telecom scam, internal discord and inflation, have sapped its ability to take bold steps.
"I don't expect any risk taking," said Deepak Lalwani, head of India investment consultancy Lalcap.
Follow Emirates 24|7 on Google News.