There were plenty of advance indicators of the Budget vision and no real deviations from these. Rural development and infrastructure are areas where the government hopes to put its money where its mouth has been. Agricultural credit and insurance, rural infrastructure, and health and sanitation are areas getting attention. Road building gets a big boost, as does other infrastructure. A long list of expenditure allocations, as one would expect from any coalition in a large, heterogeneous democracy. The Planning Commission gets 25% more money: it will be interesting to see what it accomplishes. Indirect and direct taxes to continue their slow march to rationalisation, with mostly fewer and lower rates (especially customs duties), simpler structures and continued tries at base broadening. Nothing unexpected or untoward.
There were several nuances, however. Several items illustrated the new concern with building human capital at different levels, from the creation of new medical institutes, to making the Indian Institute of Science in Bangalore truly world-class, to trying to revive and upgrade the ITIs, and those rural knowledge centers. Second, there were several proposals for financial sector reforms, all to continue to improve India?s ability to attract and allocate capital effectively. A nice image offered here was of Mumbai as a future regional financial hub, halfway between London and Tokyo: more power to this vision. Third, continued rationalisation of support for the ?small scale sector,? including its gradual morphing from protection into encouragement of the broader category of small and medium enterprises, is a good sign. Complementing this was an indication that manufacturing competitiveness, more broadly, will get some attention.
There was nothing to upset the Left allies: no real action on labor law reform, or industrial exit. Also on the down side, fiscal and revenue deficits are slated to grow slightly, though with promises of a return to the FRBM track. With no indication of how the government proposes to improve its efficiency or effectiveness on this count. It was announced that the Planning Commission will measure outcomes of major projects: how this is done will be interesting to see. On the revenue side, improvements in tax administration are still the key to raising the tax-GDP ratio. On this score, the quote from Thiruvalluvar was somewhat bland (about health, wealth, produce, happiness and security), much less dramatic than last year?s, on walking ?the path of honour and courage.?
Interestingly, the biggest rise Mr Chidambaram got out of the MPs was with his tax of 0.1% on bank cash withdrawals of over Rs 10,000 in a day, to track potential black money. I foresee many withdrawals of Rs 9,999. My guess is that there are better ways of tackling the problem, including strengthening reporting requirements and monitoring systems in the financial sector, within government, and elsewhere. Perhaps it was a bit of fun to liven a safe, serious budget with solid potential, put together by a talented team.