Finance Minister P. Chidambaram's swan song will haunt his successor. As he highlighted his achievements in controlling the fiscal and current-account deficits on February 17 during the vote-on-account, the governments last budget before elections due by May, he also outlined a rather optimistic vision for 2014/15.

Chidambaram drew upon dividends and profits of Rs 88,188 crore from state-run companies and also dipped into non-tax revenue to rein in the fiscal deficit at 4.6 per cent for 2013/14. He cut plan expenditure as well, a move that hasn't found favour with some economists.

"Lower plan expenditure, which accounts for 30 to 35 per cent of the governments overall spending, will have a direct impact on economic growth, future tax collections and fiscal deficit targets," says Siddhartha Sanyal, Chief India Economist at Barclays. "The cut in plan expenditure cant be continued like this."

Analysts have raised doubts over Chidambarams calculations and assumptions. "The bigger issue is on the expenditure side. We have three huge subsidies, and the new government will face a big challenge," says Samiran Chakraborty, Chief Economist, Standard Chartered Bank India. Chakraborty says the excise duty cuts announced in the interim budget will also pose problems for the next government. "They have opened a Pandoras box. There is an expectation the cut will continue beyond June 30. Other sectors would also raise similar demands," he adds. In the interim budget, Chidambaram cut excise duties on a few sectors such as automobiles, capital goods and consumer non-durables.

The new finance minister will have two options to keep the fiscal deficit under control. One, cut back on expenditure. Two, increase expenditure - which is essential for growth - even at the cost of slippages and look for alternative sources of revenue. The FRBM Act mandates a reduction in the fiscal deficit of about 0.6 percentage points in each of the coming three years to reach three per cent of gross domestic product by 2016/17.

In a slowing economy, with tax revenues on a slide and the tax-to-GDP ratio falling, the new finance minister can either revise tax rates, expand the tax base or ensure better compliance. Indias tax-to-GDP ratio reached its peak in 2007/08 at 11.9 per cent and then slid to 9.7 per cent two years later. In 2012/13, the ratio was 10.2 per cent. But, it is still one of the lowest in the world.

The new finance minister would have to continue with the diesel price decontrol policy to keep fuel subsidies under control. But curtailing expenditure on welfare programmes such as the Mahatma Gandhi National Rural Employment Guarantee Act and the Food Security Act will be difficult. "Schemes like MNREGA and the Food Security Act are holy cows which cant be touched," says Abheek Barua, Chief Economist at HDFC Bank. He says Chidambarams obsession with keeping the fiscal deficit below 4.8 per cent is turning out to be dangerous for the economy. "Just because he announced a 'red line, he cant make the job of the next finance minister tougher," Barua adds.

Additional reporting by Manu Kaushik, Research inputs by Jyotindra Dubey