'Some vision, but lacklustre numbers', the Financial Express, 27 February, 2004.

The Budget maybe read in three parts even if the FM had not intended it that way. They are: a review of the current state of the economy, a presentation of expenditure and policy proposals, and a statement of the principal numbers on public revenue and expenditure.  

In an opening gambit, the FM asserted that the country's macroeconomic situation is better than it has been in twenty years. While, the current state of the economy is bouyant indeed it needs to be established what part of it is due to the government's policy and what part of it is due to the monsoon. The FM made two other points in the first phase of his speech. That there is an international perception that India is doing well. And that it is an endeavour of his party to make India a "leading economy of the world". Both these claims need to be scrutinised. For instance, the FIIs may find Indian stock market a happy hunting ground given their size, which enables them to influence market outcomes, and the quite extraordinary deal that they have here regarding the absence of capital gains tax and the facility of capital account convertibility both discriminatingly offered to their Indian counterparts. Naturally then the FIIs would find Indian attractive, even as vase swathes of this country see an indifferent future. This is so because agriculture and the urban informal sector which are hugely relevant to a large number of Indians is irrelevant to the FIIs. In the FM's construction then India is doing well if the rest of the world thinks so. While this is not always incorrect, it is not particularly helpful right now, and above all in a budget speech betrays some cravenness to the priorities of foreign capital. Next, the NDA's dream of making India a leading economy of the world. This is altogether laudable, but the issue is how this is do be done. However, while the FM did not spell this out, his proposals, are certainly in synch with this aspiration. I look at this in the next section. 

Now the proposals. I must state at the outset that I do not find them disagreeable. They may be collected under two broad heads, a concern for agriculture and a recognition of the usefulness of IT in government. The concern for agriculture is reflected in the INFAC Fund aimed at building infrastructure and the instructions to banks to lend at less than the prime lending rate for industry apart from easing collateral requirement. Also, the plan to revitalise the co-operative sector is likely to most affect agriculture too in that most of India's co-operatives are located in the rural sector. In this focussed approach to agriculture the FM has shown himself to have the vision to identify the necessary link in making India "a leading economy of the world". For about a decade now the rural sector has generally got ignored in the reforms initiated since 1991. The second strand in the FM's vision is to recognise the importance of IT in tax administration. This along with the simplification of customs procedures is an important innovation even though one would have hoped for a precise plan to raise the share of direct taxes in India's GDP, abysmally low in comparison to the leading economies of the world.  

Finally, the numbers. Numbers must ultimately be a large part of our evaluation of a budget. The Budget Speech contains, naturally, only the barest of details so we can only be sketchy in our assessment at this stage. Mr Singh took great pleasure in remarking that, for the financial year just drawing to an end, both the fiscal deficit and the revenue deficit finished at levels below those targetted. He also went on to announce the estimates for 2004-5. These are estimated to be lower than what has been achieved this year. So what does all of this mean? Well, the better than estimated performance on the deficits this year is hardly surprising as the economy had performed better expected. As for the lower figures for the two deficits in 2004-5, that they do not add up to much by way of fiscal consolidation, an aim the FM had stated at the very outset as one of the lodestars of his government. In particular, the estimated Revenue Deficit for 2004-5 is yet unacceptably high.