Mumbai: The run-up to India’s annual budget, always a spectacle of expectation, is especially fevered this year after a decisive election and precarious global economy added pressure on the government to deliver big initiatives even as it manages a heavy deficit.
From ministries and industries making public demands to saturation media coverage, the tone of anticipation to the release of the budget, scheduled this year for Monday, is closer to that of a big sporting event or national election.
Unrealistic hopes will be disappointed, budget watchers warn.
“Basically it’s become like a free-for-all,” said Andrew Holland, chief executive for equities at Ambit Capital in Mumbai and a veteran investment banker.
“When I first came here (India) 10 years ago, these ministries would go, make their recommendations and so forth, and that would be about it. But now they walk out of there saying we want this, we want that, and it becomes market expectations,” he said.
India’s bond market moves on speculation over the government’s borrowing plans, while share prices move on talk of incentives or tax cuts for industries, infrastructure spending plans and liberalization of foreign investment rules.
Much of the anticipation is focused on the direction the second administration of Prime Minister Manmohan Singh will take now that the Congress-led ruling coalition can act more freely than it did when it depended on leftists in the last government.
“This year, it’s different: there is a much stronger government at the centre, and we’re in the thick of a global economic crisis. So there’s a lot of expectation of the government,” said Manoj Vohra, director of research at the Economist Intelligence Unit (EIU).
The proliferation of financial TV channels has added to the frenzy, with ubiquitous billboard ads by CNBC’s Indian venture touting its coverage and referring to the budget as the “Big B”, a play on the nickname of Bollywood superstar Amitabh Bachchan.
In New Delhi, the finance ministry building, a red sandstone structure adjacent to the presidential palace, is barred to entry by leak-hungry journalists for a month before the budget release.
Building towards anti-climax
For many years the televised budget speech was one of the few opportunities for Indians to hear the government directly, and some finance ministers have added a measure of showmanship, with P. Chidambaram, for example, quoting Tamil poetry.
The heightened anticipation and scrutiny of this year’s budget add to the pressure on policymakers, who are managing a fiscal deficit that last year swelled to 6.2%.
“I won’t draw the conclusion that it necessarily pushes government in a populist direction,” said Pratap Bhanu Mehta, who heads the Centre for Policy Research.
“Certainly it does put pressure. Everybody wants more.”
The buildup to this year’s spending plan, with fevered talk of a “dream budget” that inaugurates reforms, strengthens social outlays and trims the deficit, has bred unrealistic expectations.
“People across the economy are pinning too much expectation on this particular budget, because they expect something dramatic perhaps to happen,” said Shubhada Rao, chief economist at Yes Bank.
The high impact that taxes and subsidies have on the lives of people in a country where poverty remains widespread have long made the annual budget plan especially important for Indians.
While the stakes have risen because there is now more money to spend and thus more room for policy argument -- Nomura expects a 16% increase in expenditure for the year ending in March 2010 to Rs3.2 trillion ($66.7 billion) -- the annual budget speech is not as significant as it once was.
Off-budget spending and policy measures during the year reduce the impact of the yearly budget speech.
“We’ve already had duty cuts and export bans and stimulus packages, and the government has made other policy announcements,” said the EIU’s Vohra.
Also, the government has relatively little flexibility in deciding how its budget will be spent.
Brokerage CLSA figures that at least 72% of expenditure is “sticky”, with commitments for interest payments, pensions, security and subsidies for items including food, fertilizer and petroleum accounting for the bulk of spending.