Amid conflicting political compulsions and fiscal pressures, finance minister Yashwant Sinha will unveil his economic agenda to take the country to the 7 to 8 per cent growth path with overall fiscal deficit not exceeding 5.5 per cent of the GDP. During 1997-98, the GDP growth rate slipped to 5 per cent from 7.5 per cent in the previous year and fiscal deficit shot up to 6.1 from 5.2 per cent.

The challenge before the minister is to put the economy back on rails, arrest slowdown in industrial production and exports, and ensure stable value of the rupee through appropriate fiscal and non-fiscal measures. This is also essential to counter the economic sanctions imposed by some of thedeveloped countries like the US and Japan in the aftermath of nuclear explosions at Pokharan.

As far as the state of economy is concerned, the index of industrial production (IIP) during 1997-98 was down to 4.2 per cent and exports dipped to 2.6 per cent. The capital goods sector registered a negative growth rate of (-) 4.0.

Unfortunately, the options before the minister to give a real push to the economy without either sacrificing fiscal prudence or populism are extremely limited. In the interim budget prepared at the existing levels of taxation, the fiscal deficit worked out to be 6 per cent for 1998-99. Sinha has already hinted that he was against excessively compressing the fiscal deficit for the sake of it, but he would have to settle at a point somewhere between 5 to 5.5 per cent of the GDP.

The option would be to either compress expenditure or raise more resources through additional taxation. Also drying up of a part of foreign grants and loans would increase the pressure on the finance ministryto look for more funds.

As far as curbing expenditure is concerned, it will be impossible for the finance minister to reduce non-plan expenditure. On the other hand, he will have to shell out more for defence in wake of the deteriorating security environment.

On the other hand, compressing plan expenditure would prolong the industrial agony and precipitate the slowdown in economy. The industry which wants the government to reduce fiscal deficit also favours an increase in public expenditure for generating demand.

The only limited option which the finance minister has is to re-adjust the level of direct and indirect taxes to garner more funds in addition to going in for a heavier dose of disinvestment of the shares of the public sector companies. In case of disinvestment, the interim budget took credit of Rs 5,000 crore, which may be increased in the regular budget.

With regard to direct taxes, a fourth slab for super-rich may find a place in the Finance Bill. As has been done by finance ministers inthe past, Sinha may impose a surcharge on corporation tax to meet the economic situation in the aftermath of the nuclear explosions.

As far as rates for personal income tax and corporation tax are concerned, there is no possibility of increasing them. Slabs, however, may be re-adjusted to counter inflation.

In case of indirect taxes, there is a possibility of re-adjusting the customs tariff within the parameters of the World Trade Organisation (WTO) commitments. Although the Economic Survey advised against an increase in duties, the step is still a possibility to achieve the twin objectives of protecting the domestic industry and raising revenue.

On the excise front, there is not much which Sinha can do without hurting the industry struggling to come out of the present slowdown.

As far as non-fiscal aspect of the budget is concerned, what is no more or less is certain is that the finance minister will come out with a paragraph on the insurance sector. As the Insurance Regulatory Authority (IRA) billdoes not form a part of the agenda of the union government for the budget session, all those waiting in the wings for entering this lucrative sector will have to take comfort from some announcements in the budget speech of Yashwant Sinha.