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.