Economic pulls, political pressures

Economic pulls, political pressures
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First Published: Mon, Feb 25 2008. 12 18 AM IST

Updated: Mon, Feb 25 2008. 12 18 AM IST
The Union Budget for 2008-09 is slated to be the last to be presented by the current United Progressive Alliance government, given that general elections are due next year. Throughout his latest tenure, finance minister P. Chidambaram has enjoyed the virtues of a stable macro-economic environment and unprecedented spurt in tax revenues. But a progressive increase in interest rates, seven times since October 2005, and the consequent credit squeeze, are now beginning to crimp demand. The government has lowered its annual growth projection for this fiscal to 8.7%, against 9.6% seen in 2006-07. However, since investment levels continue to be healthy, the current growth momentum is likely to be sustained. But a deteriorating global economic outlook may queer this pitch. The let-up in growth will most certainly impact tax collections—at the least, the Centre is unlikely to see the sustained growth in direct tax collections of the last three years. At the same time, the inflation rate has begun to edge up, making it even more difficult to cut interest rates. It will be interesting to see how Chidambaram manages the emerging macro-economic challenges and the political pressures, from allies as well as from within the Congress party, to step up development expenditure in a year eight states go to polls. Mint presents the macro-economic scenario that precedes the presentation of the Budget, and a glossary of terms.
Data compiled by Paromita Shastri
Photograph: Ramesh Pathania
Graphics: Sandeep Bhatnagar and Ahmed Raza Khan
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First Published: Mon, Feb 25 2008. 12 18 AM IST