Populism is back: election results may bring alterations in the budget

The just came out election result may definitely compel the government to add populism into the coming budget. For the UPA, the result doesn’t give any hope, and necessary corrective actions may be launched to put the UPA back into the race track for Parliamentary election 2014.

            Budget 2012 is an ideal event to energize the UPA politically. Congress, as the main party of the UPA is dehydrated after the shocking rejection by people of different states. If the party has done a good political planning to remain in the fray for election 2014, it may chalk out populist strategies rather than concentrating on reforms, fiscal discipline and economic growth. Given the quantum of set back and short time at disposal, it is not surprising if the political leadership opts for a populist budget by making slight alteration in the already prepared one.  

            The Congress now needs a mega pro- election programme like the NREGS to prop up its image. If such a programme is introduced right now, then only its political benefits will be extracted by 2014. Food security programme is a rewarding one if the government has done enough home work. Hence, there is every chance for the programme to be introduced in this budget as a pilot project in ultra poor districts of the country.

            Two constraints are there for the government to introduce populist measures in this year’s budget. First is the worsening fiscal scenario and this may limit the government to refrain from lavish on such programmes. Fiscal discipline is the most important priority of the budget and it is interesting to see how far the government could target political gains without compromising fiscal health. Second is that the budget preparation is already on the completion mode hence, the scope of significant change is limited.

            If the government selects populism, the most import reform measure that it may postpone will be that on diesel subsidy front. Diesel prices may not be touched, but tax on diesel engine cars may be hiked. Subsidy reforms may be the first one to be sacrificed for the Congress not to be weak at least in the UPA. On the other hand, there is every chance that government may hike excise duties and service taxes to enhance revenue.

            Good politics is often bad for the economy and this conflict may be reinforced in the coming budget. In this respect, the budget may be designed as a political shock absorber, pushing reforms and economic priorities into the back seat.