India's embattled government to unveil budget

Indian Finance Minister Pranab Mukherjee gestures during a press conference in New Delhi. India's embattled government will seek to defuse the anger of inflation-hit voters with a raft of subsidies in a populist budget that stops short of major reforms, analysts say.Photo: AFP

India's embattled Congress-led government will seek this week to defuse the anger of inflation-hit voters with a raft of subsidies in a populist budget that stops short of major reforms, analysts say.
The spending plans, to be unveiled Monday by finance minister Pranab Mukherjee, comes as the left-leaning government reels from a slew of corruption scandals and spiralling food prices that have prompted street demonstrations.
Inflation, a lightening rod for political discontent in India, is running at over eight percent while food inflation is at double digits despite aggressive monetary tightening that has raised fears of an economic slowdown.
Mukherjee "will have to walk a tightrope" to tame inflation, sustain India's high growth rate of around nine percent while reining in a high fiscal deficit, said Religare Capital Market managing director Manoj Singla.
With a string of state elections due this year, Mukherjee, 76, known as a canny political strategist more than an economic reformer, is likely to opt for a "common man" budget for the fiscal year starting April 1 -- laden with food, fertilizer and fuel subsidies, analysts said.
"We anticipate a sizeable boost to welfare spending, designed to protect the incomes of the poorest members of society," said Credit Suisse economist Robert Prior-Wandesforde.
Some 40 percent of the 1.2 billion population in Asia's third-largest economy live on less than $2 a day.
In a massive protest, tens of thousands of demonstrators converged on the capital New Delhi last Wednesday, demanding an end to rising food prices and underlining the challenge facing beleaguered policymakers.
Rishi Pal, a 52-year-old member of a farmers' union from the northern state of Punjab, said: "We need the government to control prices. Poor people can't feed their families."
India's hundreds of millions of poor -- who are the main supporters of the Congress party -- have been hit hardest by the surge in the cost-of-living, especially of groceries with food inflation running at nearly 11.5 percent.
To boost food supplies to ease inflation, Mukherjee is expected to focus on agriculture, providing incentives to set up better storage and irrigation facilities and help modernise antiquated manual farming methods.
As part of Mukherjee's move to increase supplies and fight inflation, he could announce a long-awaited road map for allowing foreign direct investment for retail, analysts say.
He is also expected to earmark funds for a right-to-food programme awaiting parliamentary passage.
The government may also step up spending on India's dilapidated roads, ports, and other infrastructure to lessen transport bottlenecks that fuel inflation and threaten growth.
But even though Mukherjee is expected to reaffirm the government's commitment to economic reform, it is expected to duck making any big-bang moves.
"With the government rocked by scandals and worries about loss of support from the poor because of high inflation, I don't expect any risk taking," said Deepak Lalwani, head of India investment consultancy Lalcap.
When the government, led by arch reformer Manmohan Singh, 78, was swept back to power two years ago, investor hopes were high it would move decisively to open up the still inward-looking economy.
But the string of scandals, including a telecom scam believed to have robbed the government of billions of dollars, internal discord and inflation has put the government on the back foot -- sapping its ability to make bold moves.
However, analysts do expect Mukherjee to stick to the government's commitment to narrow the fiscal deficit which at 4.8 percent is the highest among the so-called BRIC emerging market powerhouses of Brazil, Russia, India and China.
But the challenge of narrowing the gap in the country's finances may be tough.
"Pruning the fiscal deficit is tricky, especially when the economy is showing signs of a slowdown," said HDFC Bank chief economist Abheek Barua.