At the heart of the Budget is the macro economic problem of too much deficit, which has resulted in turn in too much inflation and even cornered banks cash, elbowing out industry.
High deficits will willy-nilly translate into the external sector in the form of higher imports and hence higher current account deficits. But how much can the FM deliver politically? Can he raise taxes, can he cut subsidies and how much might hamper growth and hence tax collections.
In an interview with Lata Venkatesh of CNBC-TV18, Raghuram Rajan, professor, Booth School of Business, University of Chicago and economic adviser to the Prime Minister of India, points out some of the elements of a good budget for India and bringing in larger sections of the corporate world into the tax net.
He explains that it is no longer possible for politicians to get away with fiddling with growth. He warns about complacency on crude prices, despite an ease in the tension between the US and Iran.
Here's an edited transcript of the interview with CNBC-TV18. Also watch the accompanying video.
Q: What is your definition of a good budget?
A: I think for sure we have to be far more careful about expenditure, especially if some of the expenditure that is coming, is cast in stone - expenditure like on food security. If we are going to spend much more on food security, this is a good time to make a bargain.
More spending on some of those measures, but less spending on some of the other subsidies that we have. For example, fuel price subsidies, including on items like kerosene. Of course, that hits against the political environment and we have to see what is possible there.
Second, I would argue that we need a better way of distributing these subsidies and therefore a strong statement that allows us to start to thinking in significant ways of direct cash transfers rather than the way we get subsidies now, including for food security. Those would be important measures on the expenditure side. We have to rein in some of the stimulus we put in place, post crisis.
On the revenue raising side, I would hope that we focus more on broadening the base. Get more people who have not being paying taxes, get more companies that have not been paying taxes, into the tax net. Also focus on how we can raise user-charges across the board, where the user-charges are full- for example, power. But less on raising the marginal tax rate on salaried people, because that is the easiest to collect.
I would also look to see strong signals that something like the GST. We make a push for it again and again, and it all runs into the wall of political constraint. But I think our politicians cannot get away any more by saying