Clearly, the one thing that he has to do is is to keep the stock markets in good humor.
India's current account deficit has reached a record of 5.4 per cent of GDP, which has to be bridged by volatile foreign fund flows into the stock market. Any unpopular or unfriendly measure could result in an exodus of foreign funds which could significantly put the rupee under pressure. He might not want to introduce another GAAR type measure which is harmful to foreign investors.
The Finance Minister has to continue to sell stake in public sector undertakings for 2013-2014 as well which would help him reduce the fiscal deficit. Unless the stock markets are buoyant, he would be unable to sell stake of PSUs at attractive prices.
Since taking over as Finance Minister from Pranab Mukherjee, P Chidambaram has done more than enough to ignite the markets. This ensured that the benchmark indices rallied and ended the year 2012 with gains of a whopping 27 per cent.
Reports are already floating around that the Finance minister plans to tweak the securities transaction tax apart from luring foreign investors.
But, the Finance Minister will have to do more than deliver capital market specific reforms. He will have to ensure fiscal consolidation and announce more measures to help the current account deficit. He would also have to lay an emphasis on infrastructure development.
The markets are going into the Budget expecting big initiatives from the Finance Minister. Only when there is complete reform measures to develop infrastructure projects, reduce fiscal and the current account deficit and help fight inflation, we would see the markets getting fresh legs for a further rally.
The Finance Minister has little choice but to please the markets at this time. Whether he does exactly that, time will tell.