The Hindu Business Line : Headroom well used

At first glance, the Budget for 2008-09 smacks of the kind of populism associated with governments eager to curry favour with the voter on the eve of an election. That is how one is likely to view Mr Chidambaram’s generosity towards small and marginal farmers, who will have their entire bank debts written off, towards pensioners, who get some more concessions, and tax-payers, whose personal income-tax exemption limit has been hiked. But the measures are not populist in the traditional sense; they have a rationale and do not divert resources from more essential needs, like the populist policies of yore did.

A stunning three-year economic performance has enabled the government to fund the handouts without derailing its finances. The fiscal deficit has again beaten Budget targets (3.1 per cent against an estimate of 3.3 per cent), and the revenue deficit at 1.4 per cent is on track to the target of 0.5 per cent. The tax sops and hikes in budgetary spending are part of the “headroom” that Mr Chidambaram thinks high growth has given him to experiment with policies to sustain GDP rates. Leaving more money with consumers should stimulate slipping consumer demand. Indirect tax cuts, too, have been deployed for the same purpose: to stimulate investment and consumption demand. So CENVAT has been reduced on all goods; and Customs and excise duties cut on select items from 10 per cent and 16 per cent peak rates respectively. Although polices cover the same ground — agriculture, IT, industry and small enterprises — the difference lies in greater attention to institution-building and accountability, though the Finance Minister has not stressed this latter aspect as much as he should have. Thus an Irrigation and Water Resources Finance Corporation with private sector and multilateral funding is planned, and the Rural Infrastructure Development Fund gets more funds. Also on the anvil are a national fund for transmission and distribution reform in the power sector to cope with this “bane” of the sector, SWANs (State-Wide Area Networks) and one lakh Internet-enabled broadband Common Service Centres to broaden connectivity. For the first time, a body to launch a world-class skill development programme is mentioned — though it is not clear why the Finance Minister wants it to be “non-profit”.

The Budget is not a pastiche of expedients motivated by the contingencies of individual stakeholders. Every allocation is accounted for by the Budget — except the Rs 60,000 crore of debt waiver. Neither in his speech nor in the press conference later did the Finance Minister elaborate where the money is to come from, apart from asserting that he would find it. That is an unnecessary mystery and mars an otherwise noble effort.

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