New Delhi: Finance Minister Jaswant Singh would have to resort to a tight-rope walk of blending populism with harsh tax reforms in the forthcoming budget, following stiff opposition from Bharatiya Janata Party (BJP) to many of the proposals suggested by the Kelkar panel.

Singh, who is in the process of finalising the nitty-gritties of the budget, has already made it clear that as Finance Minister, he was committed to "put more money into the common man's pocket and housewife's purse" besides ensuring "higher purchasing power for the poor".

With Assembly elections in 10 states and general elections next year, it is unlikely that Singh would venture into the tough "big-bang" tax reforms, including lifting all exemptions as envisaged in the reports of task force headed by his advisor Vijay Kelkar, industry sources said.

The Kelkar panel had suggested that its direct and indirect tax proposals, including lifting all exemptions and rationalising tax rates, might be implemented either in one go or phased out in three years.

As the Rajnath Singh committee appointed by BJP, rejected many of the direct tax proposals that may have adversely affected middle class and trading community, sources said it is quite logical that the proposals would be implemented in phases and that too in diluted form.

Fiscal deficit, estimated at 5.3 per cent of gross domestic product (GDP), is a major area of concern as highlighted in the mid-year economic review and this could be tackled only by increasing revenue and squeezing spendings, particularly subsidies and interest outgo.

Centre's fiscal deficit was restricted to Rs 86,269 crore till December, amounting to 63.7 per cent of the budget estimate of Rs 1,35,524 crore for 2002-03.

The deficit was under control mainly due to 17 per cent growth in tax revenue at Rs 1,03,844 crore till December as against the estimated Rs 1,72,965 crore for the entire fiscal.

But it would be up to the deftness of Jaswant Singh on how he handles the difficult fiscal situation, as he would have very little leverage in doing away with some of the populist measures in a year that has witnessed the worst drought for decades and assembly elections, some of which are crucial to the BJP.

The economic think-tank of BJP has already dubbed the Kelkar panel recommendations as going against the interests of the vulnerable classes and it is apparent that the Finance Minister would be wary of touching upon the proposals on lifting exemptions on savings and housing loans, abolition of standard deduction and bringing agricultural income into the tax net, sources said.

This is evident from the remarks of BJP president M Venkaiah Naidu that the Finance Minister has assured that he would consider the Rajnath committee's proposals while finalising the budget.

In this context, sources said one cannot expect major changes barring some tinkering with personal income tax and the thrust would be on indirect and corporate taxes.

Even in corporate tax, Singh would not have much leeway as he would have to encourage growth at a time when industry and exports were looking up.

On indirect tax, sources said there was the likelihood that the roadmap laid down by the Kelkar panel regarding phased reduction of customs duties to 10 per cent for raw material and 20 per cent for finished products would be broadly adhered to in the budget.

The time table for excise reduction would be more or less the same.

With states geared up for implementing value-added tax from April, the budget would bring in more services under the tax net besides allowing states to collect and appropriate the proceeds from certain services to improve their revenues.

The 10th Plan has chalked out an ambitious 8.0 per cent growth in 2002-07 and this requires stepping up of gross budgetary support to plan expenditures, especially for the infrastructure sector.

Sources said this means that Singh would have to mop up additional revenue or cut non-plan expenditures, both of which are going to be difficult, as they require some harsh and unpopular measures including cutting down on subsidies.

But with revenue collections looking up and disinvestment gaining momentum in recent months, Singh would not find it to difficult to provide he additional resources required, particularly for infrastructure.

PTI