Govt to keep an eye on polls, prices in budget

By Surojit Gupta

NEW DELHI (Reuters) - Finance Minister Palaniappan Chidambaram is expected to use his annual budget address on Friday to prime the economy ahead of general elections scheduled for 2009, but he won't throw away fiscal targets for electoral gains.

Chidambaram, a pro-reform politician, will read out the fifth and final budget of his left-leaning coalition's term against a backdrop of slowing but still impressive economic growth, accelerating inflation and an uncertain global economy.

The government by law has to cut the federal budget deficit to 3 percent of gross domestic product in the next fiscal year that starts on April 1 from 3.3 percent or lower expected for the current year.

"It is an election year and he has the flexibility to address some populist concerns," said D.K. Joshi, economist at domestic ratings agency Crisil. "The fiscal situation is good and that gives him enough legroom on the expenditure front."

Spending is likely to focus on the sluggish agriculture sector, healthcare, education and infrastructure to spread the benefits of 8-9 percent economic growth from urban and wealthy voters to the 60 percent or more of the 1.1 billion population toiling in rural areas.

With tax receipts up nearly 40 percent this fiscal year, the minister might phase out a 10 percent surcharge on corporate tax and on income tax of higher earners, analysts say.

He might raise the exemption limit on personal income.

Rapid growth is not necessarily a mass vote-catcher in India, as the opposition Bharatiya Janata Party found to its cost in 2004, but inflation is historically a vote-loser.