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Raghuvir Srinivasan

YOU have to grant it to the man. Given the pulls and pressures of a coalition that leans heavily on Left support, the Finance Minister, Mr P. Chidambaram, has managed to keep a delicate balance in his Budget.

You can say that it is rural and agriculture oriented, that there is no sop for industry which is in the midst of a growth phase, that the imposition of a education cess is retrograde, that the 40 per cent growth budgeted in corporate taxes is ambitious and unrealistic, and so on.

Balancing act

Yet, it all adds up to a good, if a trifle delicate, balance at the end when you consider the few significant positive measures that he has initiated. The increase in FDI limits for telecom from 49 to 74 per cent and on insurance from 26 to 49 per cent are two examples.

Remember, Parliament passed the Insurance Regulatory and Development Authority Bill barely five years ago only after the then government conceded to the demand of lawmakers to reduce the FDI limit from 49 per cent to 26 per cent. This should put the significance of the increase now in perspective.

Look at the other positive proposals. The grant of a 150 per cent deduction for R&D spending to the automobile industry (it would have been more impressive had he extended such a concession across the board), reduction in excise duty to nil on tractors and computers, exempting from tax those with a taxable income of under Rs 1 lakh (which amounts to nothing in these days of high salaries; some draw that as salary in a month!) and the continuation of disinvestment, albeit in a lower profile.

A stop-gap Budget

Of course, he could have done more for industry to keep up its growth momentum but then remember that this is for all practical purposes only an interim budget. For one, there is just over eight months left for this fiscal and two, Mr Chidambaram had only a month to finalise the Budget. Therefore, the scope for any radical proposals to carry forward the reforms were limited.

This also probably explains why he has chosen not to consider the recommendations of the Kelkar Committee on direct taxes. The implementation of the recommendations would have entailed a large-scale revamp of the taxation structure including phasing out of exemptions, which would have proved controversial.

In fact, a major feature of the budget has been the absence of controversial proposals that would have been difficult to handle, politically speaking. Of course, the transaction tax of 0.15 per cent imposed on the securities market deals is generating some controversy now but then, this was a proposal from the market itself. The objection now is only to the quantum of the tax and not to the tax itself and will, hopefully, be sorted out.

The return of disinvestment and privatisation to the economic agenda with Mr Chidambaram describing them as "useful economic tools" is significant but again, he has balanced this by focussing on the restructuring of ailing public enterprises and committing funds to rehabilitate at least two of them this year — Hindustan Antibiotics and ITI. Clearly, the Finance Minister has taken adequate care to keep out contentious proposals for another time.

Watch out for the next one

The next Budget due another seven months from now will be the one to watch out for. This Government would have, hopefully, settled in by then and Mr Chidambaram would also have had the time to study the economy more closely. The remaining months of this fiscal are crucial and will hold the answer to whether the Finance Minister will have elbow room to experiment with fresh reform proposals.

The signals as of now are not too propitious though. After starting with a bang, the monsoon has cooled off, especially over the critical States of Rajasthan, Madhya Pradesh, parts of Andhra Pradesh and the Vidarbha region. Precipitation in the last three weeks has been below normal in these areas, which is a cause for concern as the sowing of the kharif crop is delayed.

The "feel-good" sentiment in industry is also waning for diverse reasons and the absence of any positive proposals in the Budget aimed at industry is only accelerating it. The Finance Minister has a lot riding on the continued growth in industry as he has budgeted for a 40 per cent growth in corporate tax revenues this fiscal.

Thus, for more reasons than one, the next Budget will be a challenging one for Mr Chidambaram and it remains to be seen if the reformist streak in him is allowed to dominate or is subdued. This is, of course, assuming that all remains well on the political front till then.

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