Never in the recent history has Budget exercise gained such significance as now, given the state of Indian economy and macro-economic challenges. The growth numbers are at nadir over the decade while fiscal deficit, current account deficit and inflation remain at alarmingly high levels. Over the years, Indian fiscal policies have depended on growth as an important peg in the economy while trying to balance investments with savings and monetary deficits with foreign capital flows. Firm international fuel prices and expenditure policy that supports consumption – subsidies, NREGA, and higher MSPs – have caused twin deficits as key economic outcome in the recent past. The slowing growth has further increased dependence on foreign portfolio flows in the fiscal arithmetic.

The expectations from the Budget are mixed. Being the last Budget before the general elections makes it a tough balancing act as one would need to please all and yet show fiscal prudence. Also, important is to get the economic engine rolling and facilitate the process to regain the normal of 7% economic growth.

The revision of the current year estimate would remain an academic exercise, driven more by numeric adjustments on the expenditure side – mainly cutting the Plan expenditure – while targets on revenues remain stretched from direct and indirect taxes. The disinvestment proceeds and spectrum allocation exercise would just make it on the last count.

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One can expect an investment-focussed Rail budget to set the right tone for the Budget exercise.

The focus of the Budget would be towards incremental measures that boost revenues while facilitating growth. Furthermore, given the increased sensitivities towards global investors, the focus should be on positioning for stability and growth revival and avoid “surprises”. Stability and a pragmatic approach towards taxation and fiscal policies would go a long way in restoring trust of investors.

The small, steady yet definite change that one needs to watch is the clarity/commitment for timelines on rollout of initiatives such as IT-empowerment of the tax information network and governance, DTC, GST and UIDAI (direct benefit transfer). Any directional positive announcement on either/all would be a positive.

These are times to be positive, as India has to his credit a demonstrated delivery of stronger commitment and courage to take necessary fiscal steps when the situation demands the most. We expect an encore this time, where the Budget would certainly set the right tone.