The seventh budgetary policy statement of the National Democratic Alliance government presented to Parliament as an “interim Budget” in the run up to a general election, by Union finance minister Jaswant Singh, has tried to be popular without being too populist, correct without being too cautious, gently nudging the feel-good feeling but stopping short of bravado.

There’s something for the middle class, something for investors, something for cow worshippers, something for file-pushers, something for small businesses, something for big business. The core constituents of the Bharatiya Janata Party have been taken care, and what’s more, the deficit numbers look decent!

Mr Singh could have claimed that he will deliver an year of 8.0% growth, but he chose to moderate that by suggesting that the year would end up with 7.5% to 8.0% growth. He was expected to turn his speech into an election manifesto but he shied away and spent more time reviewing the record of the NDA in office rather than its promise for the next term.

Jaswant Singh

If there was an element of abandon in an otherwise cautious statement it was on account of the decision to merge dearness allowance of government employees, to the extent of 50% of pay, with basic pay. This too, as it has since been clarified by his officials, was in keeping with the recommendations of a Pay Commission appointed by the previous United Front government. Nothing out of the way.

There were political pressures to make promises with respect to direct taxes, and Mr Singh has eschewed populism thereby indicating an intention to study what should be done. The market moving number was the fiscal deficit ratio and here he has done the correct thing signalling an intent to be fiscally responsible. To be able to increase spending on infrastructure, agriculture and rural development and yet be able to reduce the fiscal deficit in the run up to an election is quite a feat. Mr Singh has been helped in this effort by four elements: first, the defence expenditure falling short of Budget estimate, for the fourth year in a row; second, a decline in the food subsidy enabled by the fall in interest rates and the consequent saving in the books of the Food Corporation of India; third, increased direct tax revenues thanks to higher growth; and finally, increased inflows into the coffers via disinvestment proceeds. Two items of savings on the expenditure side, two items of earnings on the revenue side, and the magic is done.

While Mr Singh gets full marks for fiscal deficit reduction, his effort on the revenue deficit side is less impressive, even though it sticks to the knitting provided by the Fiscal Responsibility and Budget Management Act. The FRBMA says every year the government will bring revenue deficit down by 0.5% and by 0.5% has Mr Singh brought it down. If he had tried even 0.6% he would have got more kudos, just for showing that intent of extra effort.

While the markets have responded negatively, and partly on account of concerns about what the finance minister’s diktat to public sector banks will mean for their bottomline, the fact is that within the bounds of constitutional propriety he has done his bit for the markets as well. Especially the extension of long-term capital gains tax exemption for listed equities for another three years.

There are then the sector specific measures waiting to be done that have been done. The decision to consider tonnage tax for shipping, the tax exemption for outsourced business of an ancillary and auxiliary nature, the exemption from capital gains tax for agricultural land acquired by government, gestures to sugar and tea industries.

An important consideration shaping Mr Singh’s budgetary stance is the need to increase capital formation in the country. The widening of the scope of fiscal benefits to power sector, the assurance extended on the future of the Industrial Development Bank of India and the initiatives to strengthen rural development are clearly aimed at augmenting capital formation in the country. If all this can be assured with a lower revenue deficit, and the devil not bedevilling the detail, no one can really complain!