The Hindu Business Line : A straight bat approach

Finance Minister, Mr P. Chidambaram's budget is a little like gulli cricket — it has stuck to the mid-on and mid-off, defined by compulsions of coalition dharma, the national common minimal programme and the need for fiscal rectit ude.

I HAVE been told that the great batsman-cum-communicator, Mr Sanjay Manjrekar's batting style was largely influenced by years of playing Mumbai's gulli cricket which forces you to play your shots only between mid-on and mid-off.

Mr Chidambaram's budget reminded me of the straight bat approach of Manjrekar. It stuck to the mid-on and mid-off, defined by compulsions of coalition dharma — the national common minimal programme and the need for fiscal rectitude.

The budget has scrupulously stayed faithful to the promises of the CMP. The impressive innovations were SPV for infrastructure (Rs 10,000 crore initial commitment), the funding of the employment guarantee scheme through cash and food and the urban renewal fund.

The presentation of the union budget to parliament and its prior secrecy is a statutory requirement. The budget speech however is no longer simply a presentation of proposed expenditures, and planned revenues.

It is the one time when Finance Ministers turn poetic, and articulate on policies on various topics ranging from poverty, labour, employment, and even the environment and culture. It is a little bit of dream selling!

Although the nail-biting suspense on tax rates is considerably reduced, the drama remains. Excise and customs changes still cause sleepless nights for a few businessmen.

But in a world dictated by global, rather than local trends, anticipating budgets has become less difficult. This time, it was heartening to see the budget going beyond just promising higher allocation for social sector investment and focusing on delivery of social sector schemes.

The greater role for Panchayati Raj and the mechanism to monitor the outcome of such schemes were long overdue.

Another positive aspect was initiating the process for Mumbai's development as a regional financial hub. The budget has also proposed several steps for strengthening the textiles sector, which will help in leveraging the quota phase-out opportunity.

The corporate sector finally got parity in its tax rate with the income tax for highest bracket. But after taking into account the surcharge and changes in depreciation, the tax burden on corporates will not come down much, and may even increase a bit.

The focus on the common man has meant some compromise on fiscal consolidation. The FM has taken leave of the FRBM (fiscal responsibility and budget management rules) path for FY06.

There is also a danger that tax collection targets might prove to be ambitious yet again. (You can ban the gutkha, but can you really ban deficits?)

The fiscal trend again underscores the inherent deficit bias in a federal democratic system — since the expenses benefit target groups, but the financing has to be borne by a large number of existing and unborn taxpayers (that is financing through market borrowing.) To be fair to the FM, the fiscal deficit is also driven up by the finance commission recommendations and the decision to take disinvestment outside the budget. Hope that the FM shows a greater respect to FRBM in his next outing.

(The author is Chief Economist, Aditya Birla Group.)

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