Finance Minister Pranab Mukherjee’s bold gamble of letting the fiscal deficit slip out of his hands may still have paid off had he articulated a vision for economic reforms in the debut Budget of the United Progressive Alliance II (UPA II) government. A further fiscal stimulus of Rs 40,000 crore, through additional Plan expenditure for rural infrastructure, has pushed the gross fiscal deficit of the Centre (6.8 per cent of GDP) and states (4 per cent of GDP) to double digit levels for 2009-10, a throwback to the early 1990s.

Deep deficit, shallow response make hope, market sink

The unambiguous mandate that the Congress-led UPA received in the general elections had re-ignited expectations of systematic reforms over the next five years. Mukherjee did not manage expectations well and missed an opportunity to showcase UPA II’s commitment to bold actions on several fronts — be it disinvestment, labour flexibility, targeted subsidies or structural tax reforms.

On cue, the Bombay Stock Exchange Sensitive Index (Sensex) tanked 870 points or 5.83 per cent, the sharpest fall ever on a Budget day.

Mukherjee’s speech had all the accompaniments of a Budget that he would have presented 25 years ago. Old-fashioned but shrewd, the Finance Minister showered benefits on all stakeholders: marginal tax sops for the salaried, excise duty cuts on a host of items — from LCD panels to gems and jewellery — retaining excise, customs and service tax rates at existing low levels and, surprisingly, giving a bonanza to the upper middle class by doing away with the distortionary 10 per cent surcharge and doubling the threshold on wealth tax of 1 per cent to Rs 30 lakh.

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