Finance Minister Jaswant Singh presents an interim Budget on Tuesday amidst mounting pressure from the Bharatiya Janata Party to hike income tax exemption limit to Rs 100,000 and to merge 50 per cent of dearness allowance with basic pay of government employees -- keeping an eye on the forthcoming Lok Sabha polls.

The Mini-Budget 2004-05

Singh, who will present a vote-on-account for government expenditure for first four months of the next fiscal, would have to resort to some tight rope walk, to contain fiscal deficit particularly when there is increasing pressure from the BJP to provide these sops to woo the middle class, that forms a chunk of its voters.

But finance ministry officials, though not averse to raising the income tax exemption limit marginally, are none too comfortable with the proposal to merge 50 per cent of DA with salary as it would involve a huge outgo.

As it is, the fiscal deficit is under pressure because of the Rs 12,000 crore (Rs 120 billion) giveaways in the mini-Budget on January 8 that cut peak customs duty by five per cent and abolished four per cent special additional customs duty.

But top party leaders including Deputy Prime Minister L K Advani are reportedly of the view that it would be politically not correct if the government employees were denied a salary hike that too ahead of elections.

Topping claims of a feel-good factor in the economy, Singh is widely expected to present a politically appealing interim Budget for the election year, political sources said.

At the same time, the budget would also step up public investment in agriculture and infrastructure to boost economic growth and employment, but leave tax rates untouched.

Singh is expected to lay emphasis on bringing about a second Green Revolution by increasing public investment in rural infrastructure so as to sustain the possible double-digit growth in farm output on the back of good monsoon this fiscal.

He has earmarked a total package worth Rs 50,000 crore (Rs 500 billion) for the next three years to boost agriculture sector.

The interim Budget will announce programmes aimed at wasteland development, minor irrigation, assistance for cooperatives and promote agri-processing, cold chains and modern abattoirs.

Nabard has been asked to work out details for creation of an Agricultural Infrastructure and Credit Fund to implement the programme by extending loans at 2 per cent lower than PLR.

In addition to the Rs 50,000 crore package, there are proposals to revitalise the cooperative sector. Agriculture Minister Rajnath Singh has proposed a pre-election package of Rs 14,500 crore (Rs 145 billion) in this regard which is aimed at providing cheaper cooperative loans to farmers.

On the back of an unprecedented 42.68 per cent exports growth in December last year, the government is also toying with the idea of liberalising export credit in a bid to reduce transaction costs.

Though Singh might leave this to the Reserve Bank of India to work out the details, he is expected to outline this liberalised policy in the interim Budget.

Major incentives for the infrastructure sector are also underway in the form of cheaper credits for both term loans and working capital to projects in power generation, seaports, airports, roads, tourism, telecommunications and urban infrastructure.

A consortium of IDBI, IDFC, LIC, ICICI Bank and SBI has been designated for policy, procedural and financial closure of investments of Rs 50,000 crore over the next three years.

The interim Budget is likely to contain a portion of the expenditures that would go towards agriculture and infrastructure sectors.

In a bid to woo farmers, middle-class and corporates, the finance minister has already announced a mini-Budget in several tranches in January.

Singh proposed Rs 1,10,000 crore (Rs 1,100 billion) investment in agriculture, infrastructure and SSI sectors and the interim Budget may contain details of the schemes which are to be operationalised from April 1.

Cashing in on the "feel-good" factor after 8.4 per cent GDP growth in the second quarter of 2003-04, he had announced major giveaways worth Rs 10,000-12,000 crore (Rs 100-120 billion) mainly by slashing customs and excise duties on a number of capital goods, intermediaries, raw materials and hi-tech items.

Keeping in line with the Kelkar Task Force recommendations on tax reforms, Singh has ensured that elections do not come in the way of government's efforts in bringing down peak customs duty, which was slashed by 5 per cent to 20 per cent besides abolition of 4 per cent special additional duty.