On February 28, when Yashwant Sinha walks into the Lok Sabha carrying a briefcase in his hand, a lot of things will look familiar. His task, for one. This will be his fifth budget, and again for the fifth time, industry will expect Sinha to crank up the economic engine by tackling structural reforms. And once again Sinha will find that balancing the government's income and expenditure got a lot more difficult. Therefore, again, there will only be incremental reforms proposed in the form of a budget.

Still, this may be the best time for Sinha to ram through a 'difficult' budget. Why? First of all, inflation at about 2 per cent is at an all-time low; forex reserves are pushing an historic $50-billion mark; global oil prices are off their recent peaks, foodstocks at 60 million tonnes are more than sufficient, but most of all the war-wary nation seems to be in a mood for sacrifices. If Sinha waits, he would have lost a great opportunity. Next year's budget (2003) will likely be made with an eye on the following year's general elections. That means instead of slashing subsidies and controlling its non-productive expenses, the government would actually attempt to buy votes with popular sops.

There's a bigger urgency for Sinha to act now. Unlike his past four years, 2002 is frighteningly grim. The slowdown in economy has never been so severe in his tenure; fiscal deficit as a percentage of the gross domestic product will touch the 5.2 per cent level versus the projected 4.7; tax collections will fall short by Rs 10,000 crore; exports growth in real terms is stagnant; non-oil imports are touching a new low; industrial growth has slowed to a bare 2 per cent; and the financial sector could just be waiting to implode.

Given all that, what can Sinha do? Rather, what must he do? BT spoke to a cross-section of people, including economists, industrialists, and policy-makers to put together Sinha's Budget Agenda 2002. Here's how it looks:

AGRICULTURE: If there is one sector of the economy that has been completely bypassed by the reforms process, it is agriculture. The best thing for Sinha to do here would be to tax agricultural income, free inter-state movement of goods, eliminate fertiliser subsidies (it only helps inefficient fertiliser producers), and issue coupons for the public distribution system. ''But none of this is likely to happen because it is such a sensitive subject,'' says D.K. Srivastava, a professor at the National Institute of Public Finance and Policy. What could happen is that Sinha increases allocations to various agricultural schemes, and announces new schemes aimed at rural poverty alleviation. As for taxing agriculture income, he wouldn't touch it with a barge pole.

INDUSTRY: Ideally, the finance minister should complete the second generation of reforms. That will mean completing the controversial labour reforms, suggesting measures to lower transaction and power costs-the highest in the world-announcing policy measures to build world class infrastructure and reducing taxes both on the direct and indirect side. Says R.S. Lodha, President, FICCI: ''The acceleration of economic growth through an increase in the savings and the investment rate will have to be the primary objective of the macro-economic and budgetary policy.'' Moreover, contends Shanti Ekambaram, Executive Director, Kotak Mahindra Capital, ''An increase in expenditure towards infrastructure projects is likely to lead to an increase in employment and also contribute to an increase in the tax revenues of the government.''

But again all that is unlikely to happen because of the government's precarious financial situation. What's more likely is that Sinha will lower the rate of peak corporate tax from 35 per cent to 30 per cent to bring it in line with individual tax rates, and possibly restart the Investment Allowance Scheme scrapped in 1991, which allows a company to keep aside an amount equivalent to 25 per cent of its total capital investments and use it to buy plant and machinery and repay capital loans. He might also just abolish the minimum alternate tax (MAT)-a long-term demand of the industry ever since former finance minister P. Chidambaram reintroduced it way back in 1996-97. According to a finance ministry official, amalgamation and de-merger norms may see some major changes.

TAXES: Given the current slowdown, there's no way the Finance Minister can rely solely on the manufacturing sector for income. Hence, the services sector, which accounts for more than half of the GDP, may be slapped with fresh or higher taxes (an increase from 5 to 10 per cent). But not too many new services will be ensnared in the tax net, simply because the Centre has agreed to allow states to tax 51 services. Personal income-tax rates will not be touched, although simplification of administrative procedures, eliminations of tax exemptions, and streamlining tax administration for better tax collection will be some areas of focus in the budget.

As far as Excise duties are concerned, says S. Madhavan, Partner (Indirect Taxes), PricewaterhouseCoopers, Sinha can further rationalise the three special excise duties-6, 24, and 30 per cent-to a single special Excise duty, while leaving intact the central value added tax (Cenvat) at 16 per cent. Another way to raise revenues could well be to bring in the small scale sector (SSI) under the tax net.

Customs duty structure is set to witness major changes as Sinha is likely to outline the roadmap for restructuring of duty rates in accordance with the Arvind Virmani Committee Report. The finance minister has already set a goal of reducing by 2004 the peak import duty rate of 35 per cent to 20 per cent. For starters though, he may cut the rate to 30 per cent and reduce the number of slabs from four to three.

FISCAL SITUATION: By far the finance minister's biggest bugbear is the burgeoning fiscal deficit. As Stanley Fischer, Senior Advisor to the Managing Director, International Monetary Fund, points out, ''India's fiscal deficit at 10 per cent of the GDP (state and the Centre combined) is very, very high and is clearly unsustainable.'' Concurs Saumitra Chaudhury, economic adviser at the rating agency ICRA. ''Fixing the fiscal deficit itself will have a growth-inducing fall-out,'' he says. Which means financial jugglery may be employed to ''contain'' fiscal deficit at 5.2 per cent. There is little he can do to cut expenditure because around 80 per cent of it is committed to subsidies, interest payments, salaries and pensions. More importantly, he has to make greater allocation for the defence services-just in case.

FOREIGN DIRECT INVESTMENT: To bring in higher FDI, Sinha must announce concrete measures aimed at second generation of reforms. Some of those could be labour reforms, changes in laws to allow faster recovery of loans, and generally a more friendly bureaucratic environment. A large scope for inflow of FDI and technology lie in the SSI sector, which contributes around 40 per cent of the Index of Industrial Production (IIP), but changes in status quo are unlikely.

EXPORTS: The current slowdown in exports is mainly due to a shrinking of world markets especially that of the US. But some other issues relate to poor quality of products, infrastructure, cost of capital, and poor marketing. Merely depreciating the currency is unlikely to lead to any sharp increase in exports. Says S.K. Saraf, Vice President, FIEO: ''The finance minister should reduce the customs duty on raw materials and components, which in some cases is higher than those borne by finished goods.'' Sinha may or may not oblige, but he may reschedule tax exemptions to exporters.

ADMINISTRATIVE PRICE MECHANISM: The government will also formulate the post-APM excise and custom duty structure for the petroleum sector. Under the new mechanism, it is proposed that for 2002-03 the government levy an excise duty/countervailing duty of 32 per cent on petrol and aviation turbine fuel, and 16 per cent on all petroleum products. For subsidised products like kerosene, domestic LPG and naptha for power and fertiliser sector, it is proposed that the excise duty rates should be either zero or at best equivalent to 8 per cent.

Like Fischer of IMF recently said, there is no doubt about what needs to be done. The question, however, is whether the government can muster enough political will to take the bull by its horns. We, Mr Sinha, are waiting.

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