The officer, however, is fairly confident that the department will not have to make a refund: there will be plenty of opportunities to recover tax in future. It's an old trick that taxmen often pull out to get their numbers. Last few years, the going was good and they didn't have to try it out. This time, with growth down and the boys going on strike, they are back at it.

Even if they do their bit and close the year with a tax collection that's not too far from the target, it may not be easy for the FM and his team to spin a credible story on March 16. There are too many moving pieces, too many assumptions.

Officials of foreign funds, who control the destiny of the Indian stock market, are betting on fiscal consolidation simply because government finances are under great strain and the FM cannot take too many liberties. But with the growth engine beginning to sputter, demand for new loans and money supply slowing down, and politics turning more hostile, one wonders whether fiscal discipline would be the top priority.

They can always repeat what they did last year: underplay expenses, mask oil subsidy, project fat earnings from divestment, and aim for a fiscal deficit of say around 5.1% of the nominal GDP. This could be backed by projections of additional revenue from a fresh auction of telecom spectrum, plans to cast the service tax net far and wide and hike excise duty.

The number that's arrived from all this will be put across as a small and acceptable slippage from last year's budget estimate of 4.6% - a figure that was declared more out of bravado and heroic assumptions like oil prices would fall - and an improvement over the actual FY12 deficit (which could be anywhere between 5.6% and 6% with food and fertiliser subsidy overshooting by 35,000 crore and 40,000 crore, respectively).

But what if the new Budget team (devoid of star economists) chooses to present a more realistic and therefore a less impressive picture? It will be interesting to find out how they contain the deficit and keep market borrowings at an acceptable level while pursuing transparency, factoring in oil subsidy for the full year, absorbing food and fertiliser subsidy based on FY12 actual levels and providing for the Food Security Bill.

They don't have too much elbow room. Dalal Street has become as sensitive a constituency as agriculture. One can well expect how it will react if a cut in securities transaction tax is tagged along with a proposal to either hike short-term capital gains tax or introduce tax on long-term capital gains.

Besides, too many questions will crop up. What's the crude price that will be assumed to calculate the oil subsidy? What if the Iran fiasco boils over? How much of the crude price hike can be passed on to local consumers? Will Didi, who can be as unpredictible as Iran and Israel, budge and let them hike petrol and diesel prices?

What will be the incremental cost of a food security programme? Can New Delhi time the market to pull off a disinvestment programme? Have they learnt from the ONGC share auction? How much will they earn from a possible telecom auction? By how much will government borrowing overshoot? Is there a chance of a farm loan waiver announcement in the course of the year, the impact of which will be felt in next year's pre-elections Budget?

A firm promise to implement the Direct Tax Code and a negative list for service tax -- which the hopeful will interpret as a precursor to a Goods & Services Tax regime - may help to keep credit rating agencies at bay. But it can't hold back unforgiving financial markets from asking questions they think are obvious. The real guessing game will begin after the Budget is tabled, not before it.

Source: Economic Times, India,  dated 12/03/2012