The Budget was being keenly watched for what it would say on the issue of fiscal deficit and whether the government would stick to the path of consolidation in the face of challenges.

Look into any Finance Minister’s speech over the past two decades and there are usually enough mitigating circumstances to chuck their self-imposed discipline and excuse deviations. There are always external and internal challenges — droughts or floods, economic slowdown or shocks. Some finance ministers yield to the temptation and their governments and the economy pay a heavy price later. The experience of UPA-2 was instructive in this regard.

In that backdrop, Jaitley sticking to the laid down path and keeping to the trend of reducing fiscal deficits was welcome.

That he has done this even while hiking capital expenditure and rural outlays by significant amounts is deserving of credit. He has set a fiscal deficit target of 3.2 per cent of GDP for fiscal 2017-18 and has committed to bringing it to 3 per cent in the following year.

Markets are always keen to know the net borrowing figure of the government for the next fiscal.

That the net market borrowings would be only ₹3.48 lakh crore, much lower than ₹4.25 lakh crore last year will also be viewed positively.

Ten-year bond yields, which have been around 6.40 per cent, can be expected to soften and set the stage for further easing of interest rates in the economy.

The slightly disappointing aspect in the Budget was the measly ₹10,000-crore allocation for capitalisation of public sector banks.

Of course, there was a statement that more would be provided if necessary. Something similar was done last year too, after the government allocated about ₹25,000 crore as capital. Even that was considered inadequate.

It appears that this type of allocation is part of a conscious strategy to let banks struggle for capital and demonstrate they deserve it by improving their performance while also trying to convince the markets that there is a back-stop facility from the government in the event of an emergency.

Given the kind of problems being faced by banks with their loans, perhaps something more explicit on capitalisation ought to have been mentioned in the Budget. While the announcement of action being contemplated against loan defaulters who flee to other countries (a veiled reference to Vijay Mallya) is welcome, it is likely to be largely symbolic.

The bad debts problem is not going away any time soon — a point conceded in the Economic Survey that preceded the Budget.

This is because improvement in the financials of the corporate sector and economic growth are some distance away.

Sooner or later, the government will have to start taking difficult decisions as provisioning for banks increase with the ageing of debts and they will need more capital.

Write-offs will be inevitable and some losses have to be borne. The Finance Minister missed the opportunity to lay this on the table clearly.

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