According to a ministry of labour study, small companies, mainly exporters, created around a quarter of a million jobs in the three months to March, compared with the half a million jobs they cut in the preceding three months. Some analysts say that European stores that were directly and indirectly being supplied by Indian exporters, have finally worked their way through sizeable inventories and may look to re-order and restock.

The UPA didn't lose any time after coming to power--in the first two weeks itself, most ministers spelt out their intent. The budget will likely translate this intent into print.

Many of these changes are likely to find place in part A of the budget speech. The budget is traditionally divided into two parts. Part A sets out policy and part B focuses on taxes and spending. Given that he hasn't had much time to understand the potential impact of tax changes, Pranab Mukherjee, a veteran politician, may choose to play safe and not call for any dramatic changes in tax laws.

The budget will look to revive growth either by increasing government spending on infrastructure and populist social sector programmes or by stoking private demand. While doing so, it will likely strive to achieve a balance between the politics of populism and the need to reassure investors, within the country and without.

Indications to this effect are evident in the statements of most ministers on the day they took charge, and some of what they said could well find its way into Mukherjee's speech. For instance, the petroleum minister has spoken of a gradual and measured move to market pricing; the telecom minister, of the imminent auctioning of licences for so-called third generation or data-rich telecom services; and the human resources development minister has said that legislation allowing foreign educational institutions to operate in India would be pushed through.

It is also almost certain that Mukherjee's speech will echo the key points of President Pratibha Patil's speech on 4 June to both houses of Parliament. This speech is delivered every time a new government takes charge, is prepared by that government's ideologues and thinkers, and lays out its five-year agenda.
Patil's speech mentioned growth, fiscal prudence, energy and environment security, and the need to continue spending big money on the social sector. She also sought to link economic growth and the government's commitment to combat social deprivation.

"High growth is necessary to provide the government the capacity to expand opportunities for employment. It is necessary to provide resources to increase outlays in education, healthcare and infrastructure to meet the needs of all regions and all people," she said.

Implicit in this statement is the political justification for economic reforms.
On Thursday, Mukherjee himself reaffirmed his pro-reform credentials when he told a meeting of state finance ministers in a first of its kind pre-budget exercise: "We have to deliberate on ways and means to bring back the economy to higher growth trajectory without fiscal profligacy. We have to resume the process of fiscal consolidation at the earliest."

Plan B
Though the context of the budget is set in part A of the speech, popular attention has always focused on the segment detailing tax changes. It is apparent that Mukherjee will move the ball forward on the implementation of the goods and services tax (GST), a uniform tax across India which is scheduled to come into effect from 1 April. The move is facing some opposition from states ruled by Congress rival, the Bharatiya Janata Party (BJP), but analysts say the GST will aid the cause of business. It was originally conceived when the BJP-led National Democratic Alliance was in power in the 1990s. If the UPA is successful in its attempt to stick to the April deadline for GST, it would have helped put in place the single biggest tax reform initiative that will economically unify the country.

Some analysts also expect Mukherjee to create a direct tax code. This will help codify the country's income- and corporate-tax regime and obviate the need for frequent amendments.

Still, there will be some changes in part B. Given the crisis in trade and signals from the new commerce minister, the budget will definitely include some tax incentives for exporters. And there is certain to be some change in the excise duty as part of the government's larger effort to encourage manufacturers to make green products.

What then?
The most visible impact of a big-bang budget will be on sentiment, especially among foreign investors. The stock markets have usually reacted instantly and impulsively to budgets. In 1997, for instance, after P. Chidambaram presented his so-called dream budget, they reacted euphorically. A boost to the stock markets may be just what the middle class needs to recover some of the personal wealth it lost over the past year. And higher spending on social and infrastructure programmes will revive demand in the economy, albeit with a lag. All that will translate into more political currency for the government.
Still, things could change quickly.

Oil prices are firming up and the consequent impact on inflation, especially when there is a considerable amount of excess liquidity in the economy, can quickly alter the macroeconomic landscape.