year budget since its resounding re-election may signal that increasing populism and ruling coalition infighting will triumph over policies to liberalize the economy and cut record borrowing. This could be the year for India. The world is looking for motors of growth in Asia, the $1.2 trillion Indian economy is recovering faster than expected and the Congress-party led coalition also enjoys a clear majority in parliament. In theory, the budget could allow Finance Minister Pranab Mukherjee to cut a record $97 billion government borrowing, and streamline taxes and push sales of state firms and a 3G mobile phone licence auction to bring in billions of dollars. Instead, the 74-year-old Congress party stalwart may ignore all that and produce a simple statement of accounts on Feb. 26. It would send a signal Congress increasingly broadcasts in its second term – don't rock the boat. It underlines that while Prime Minister Manmohan Singh preaches reforms, pressure from Congress rank and file to focus on social programs combined with Mukherjee's own reputation as a safe, if uninspiring, pair of hands may overshadow any vision. “This is a government that really does not have a mission,” said D.H. Pai Panandikar, head of the private think-tank RPG Foundation. “It is reactive. Don't expect vision in the budget.” But one senior government official cautioned that the budget speech was not yet written, and there were some signs of pressure for the finance minister to present a more reform-driven budget. “People are trying to persuade him (Mukherjee) to go beyond an AFS (annual financial statement),” the official said. Social spending The budget could push new social programs such as offering subsidized wheat and rice to the poor. Another program, the rural employment guarantee scheme that provides jobs for millions of villagers, costs India about one percent of GDP. With little will to cut spending, government borrowing may remain at a record 4.51 trillion rupees ($97 billion) and possibly put further pressure on interest rates. The government debt-to-GDP ratio is just under 80 percent, almost double the norm for emerging Asian markets. “Clearly there is a concern in the market over the political constraints,” said Vineet Malik, head of interest rates at HSBC India. It should not have been like this. In Congress's first term, the communist parties it relied on for parliamentary support were blamed for the government's slow progress in liberalizing Asia's third-largest economy. Since its election win, those communist shackles have disappeared. But Congress, which oversaw a heavily state-run economy for decades after independence in 1947, now seems prisoner to its leftist roots despite flirtation with reform under Singh. The government's first deficit-laden interim budget in July, just after its election victory, disappointed many investors with a 36 percent spending hike funded by record borrowing. With the opposition organizing protests in numerous states against food inflation at an 11-year-high, the federal government is under pressure from Congress party stalwarts to tone down hikes in state-regulated fuel and food prices. “The budget will signal how Mukherjee balances the economic needs of the government with the political agenda of Congress,” said Delhi-based political analyst Mahesh Rangarajan. The government's recent decision to delay the launch of its first genetically modified (GM) vegetable was also criticised as pandering to its farmer voter base rather than science. Reform? No thanks At the crux of the problem, though, is that Congress may just not have its heart in market reform. “The problem was never the communists. The problem was within Congress itself,” said Jahangir Aziz, a JP Morgan economist in Mumbai. “There is no real consensus within the party on these issues. Mukherjee is a wily old-timer who is one of the most powerful men in India. He knows how to balance the competing needs of India's 28 disparate states – a complex cauldron representing 1.2 billion people and a myriad of castes and ethnicities. “The finance minister is not gung-ho about liberalism. He's the old school of Congress,” said economic analyst Paranjoy Guha Thakurta. “He believes that India's socialist past was not an unmitigated disaster.” But there have been some initiatives, including announcing more sales of stakes in state companies and a streamlining of taxes.
