The Hindu Business Line : BACK TO POPULISM OF YORE

A nation expecting a dramatic script for the economy in the new fiscal will feel a little let down by the Finance Minister's proposals and outlook. The Minister's speech was awash with the kind of rhetoric and populism that marked Budgets of yore when the only points of departure lay in the combination of taxes and handouts in the name of social sector spending. The ghost of that age of handouts haunts Mr Chidambaram's Budget justas the same problems continue to dog the country. That is a pity because the current nature of growth should have motivated a fresh set of policy responses specifically aimed at putting in place delivery mechanisms for public investments. The emphasis, in short, should have been on "outlays and outcomes," in the Minister's pithy phrase used in last year's Budget speech; unfortunately, the focus is on outlays alone.

The burden of the Minister's song is that agriculture, job creation, infrastructure are falling behind. In the last Budget, he derided jobless growth; this year he uses the rubric of Bharat Nirman to describe a "paradigm shift" that will use the resources generated by the growth engines to bring basic amenities to those dark areas sidestepped by the rest of the country speeding along. Theoretically, that makes sense if the rise in gross capital formation is used to expand growth. But the Minister means nothing more than to increase the budgetary allocations for a slew of existing programmes and some new ones that are clones of the old. In fact, eight flagship programmes of the United Progressive Alliance will get the bulk of this allocation, representing a 43.2 per cent jump over the last year, from Rs 34,927 crore to Rs 50,015 crore. Impressive as these allocations are, the Budget should have also had some mention of efficacy in spending. Last year, the Minister spoke of outcomes in the same breadth as outlays adding that the latter do not necessarily mean the former and that people were concerned with the outcomes. Well, this time around, even that verbal commitment is missing.

Perhaps the fact that the tax-GDP ratio has risen from 9.2 per cent in 2003-04 to 10.2 per cent in 2005-06 coupled with a fiscal deficit of 4.1 per cent may account for the surge in social sector spending. But the best intentions may turn into unproductive investments if projects are not benchmarked for quality and delivery. The rest of the Budget is par for the course; the cluster development concept for new industry townships as a means of dispersing industry seems interesting. On the tax front, the Budget plays spoilsport, increasing the service tax to 12 per cent and widening the net in view of the sector contributing 54 per cent to GDP. Peak rates of Customs duties have been lowered to 12.5 per cent from 15 per cent. Such a move should fit in with the new regime of SAFTA and also help the economy through imports with the growth impulse neutralising any negative impact.