Finance minister Pranab Mukherjee may turn focus on health, education, rural infrastructure, agriculture and water conservation in his budget for the next financial year by stepping up spending by 12 per cent in a bid to bring the economy back on high growth trajectory.

When he rises to present the fourth full budget in continuum on March 16, Mukherjee is likely to announce Rs 4,94,532.64 crore spend from his budgetary resources on development projects to be carried out by centre and states.

In effect, his budget spending on planned projects of the United Progressive Alliance (UPA-II) government is likely to go up by a modest Rs 52,984.64 crore. These projects are aimed at fueling economic growth and speeding up job creation in rural and semi-urban areas.

Constraints of resources and the need to rein in expanding fiscal deficit may not allow him to expand gross budgetary support (GBS) by Rs 80,823 crore as planned earlier.

Prime minister Manmohan Singh’s one-line advisory to the finance minister apparently is to begin the process of fiscal consolidation and bring deficit to manageable levels without compromising on growth stimuli, a top official told Financial Chronicle on Wednesday.

Planning commission deputy chairman Montek Singh Ahluwalia had mooted GBS of Rs 5,21,840 crore, which would have meant 18 per cent rise in budgetary resources to planned projects of centre and states over the 2011-12’s budget estimates of Rs 4,41,547 crore.

On the revised GBS of Rs 4,79,860 crore for this financial year, the rise in budgetary resources support would have been 9 per cent. But the constraints on borrowings may not support this kind of spend by central ministries and state governments through flagship projects like Bharat Nirman.

While the finance minister may focus on ‘spending on right projects’ that can earn maximum social dividend, he may not be able to make huge increase in GBS to dream projects.

The ‘very modest increase in revenue inflows’ owing to the slowdown in the economy and a drop in export revenues due to extraneous factors such as the US and euro zone crises are going to cap expenditure.

“We would have loved to increase budget support to major states and central projects. But then, the numbers wouldn’t add up,” said an official on the condition of anonymity.

This is in line with the government thinking that expanding of fiscal deficit to over 5 per cent was not limited to this financial year alone. Prime minister’s economic advisory council led by C Rangarajan clearly pointed out on Wednesday that trimming deficit to 4.1 per cent as projected in the medium-term fiscal policy statement might not be possible. Rangarajan’s review of economy, released on Wednesday, also cited huge spending, possibly on food security and medium and higher education in the next financial year. The prime minister and the finance minister have apparently decided to keep the increase in budget support to central plan and states at a modest level in the first two years of the 12th plan, i.e. 2012-13 and 2013-14. “But, budget spending would see sharper increase in the last three years of the plan,” said the official who did not wish to be identified. Still the finance minister may manage to dole out a major financial package for Jammu & Kashmir, whose wage bill is on the rise owing to a huge recruitment drive taken up by the Omar Abdullah government. Sikkim may also get higher allocations for reconstruction of basic infrastructure that was ravaged by the recent earthquake.

Constraints of resources notwithstanding, the finance minister may manage to find huge resources for agriculture, health and education sectors that have been the areas of thrust for the UPA government. Water resources management may also be added to this list of priorities given the focus of the 12th plan approach paper on this area. The spending on the agriculture sector — especially on inputs, farm loans, infrastructure and food grains management — will be in sync with the projection of 3 per cent growth during 2012-13. This will be over and above the growth expected in this financial year as well.