The UPA government had little to worry then about its spending spree. It was voted back power at the Centre in 2009 and is now readying for polls in 2014.

High growth rates have helped. And, if I may add in a lighter vein, having a lucky finance minister may have also helped, P Chidambaram told Parliament while presenting the UPA government's pre-election Budget in 2008-09. He had sops for everyone: loan waiver for 40 million farmers, huge tax reliefs for the middle class, excise cuts to make all products cheaper and a hefty increase in outlays for government's welfare programmes.

The UPA government had little to worry then about its spending spree. It was voted back power at the Centre in 2009 and is now readying for polls in 2014. Things have changed dramatically in a span of four years. The global economic slowdown coupled with one year of domestic policy shutdown has dented India's economic performance. Growth is forecast at 5% in 2012-13, the lowest since 2002-03.

Chidambaram spoke of the ground reality at the K Subrahmanyam Memorial Lecture earlier this month. "During 2004-08, we were able to provide for virtually everything that we desired, but also for exceptional items of expenditure such as the agricultural loan waiver scheme. We were also able to reduce the fiscal deficit from 4.5% in 2003-04 to 2.5% in 2007-08.

When there is a slowdown, the consequence is the exact opposite," he said. Rightly, he has promised a responsible Budget. Wary of a sovereign ratings downgrade, the government appears to dispel the notion that it would go on a spending binge and woo the voter with liberal handouts.

Surely, the Budget would have sensible measures to boost growth, but some intelligent populism cannot be ruled out. At least the government would make sure that its proposals do not hurt anyone. Take farmers first. Will the government announce another farm loan waiver? Members of the Congress have raised a pitch for a write-off, saying it would help the party win elections.

In 2008-09, the government waived farm loans of Rs 60,000 crore. A similar waiver would be imprudent as government finances are in a bad shape. Banks cannot afford to take a hit either. Farm yields are lagging despite increases in wages and open-ended subsidies, irrespective of outcomes.

The best way to boost yields and alleviate agrarian distress is for the government to step up public investment in agriculture. It will not have worry then about wooing this large vote bank. But Harvard-educated lawyer Chidambaram needs to convince his partymen.

The next big constituency is the middle class that has been battling inflation. In 2008-09, the government changed income-tax slabs to provide a tax saving of over Rs 44,000 to individuals with a yearly income of up to Rs 5 lakh. This was possible because the government did not tinker much with tax slabs after 2005. However, frequent meddling with the slabs since 2009 leaves little room for another big overhaul.

The alternate option is to increase the tax-exempt savings limit of Rs 1 lakh a year, available on contributions to select savings schemes. A higher exemption limit will encourage people to invest in financial assets and improve financial savings. For most people, PF contributions account for a large part of the tax-exempt limit, leaving little incentive for investment in other savings schemes.