There were four challenges before the finance minister: a) High fiscal deficit, up from 2.5% of GDP in FY08 to 5.7% in FY12, due to huge increase in expenditure of 110% in the 5 years; b) Current account deficit ? 1.3% of GDP in FY08 to 4.6% in FY13; c) High inflation ? CPI has been around 10% in the last three years; d) Loss of investor confidence due to retrospective tax amendments and a badly designed GAAR. The savings rate dipped to 30.8% of GDP in FY12 from 36.8% in FY08 and investment slid to 34% in FY12 from 38% in FY08.

All this resulted in the GDP growth rate coming down to 5% this year against the 9.3% in 2011. Our only hope was the assurance given by the finance minister to contain fiscal deficit and his credibility and past record of having delivered pragmatic Budgets.

The finance minister has delivered his deficit targets cutting back on expenses, mainly plan expenditure in FY13 by R1,00,000 crore, compensating a much higher (+35%) subsidies bill and sending a strong message that India?s credibility and sovereign rating would be protected at all cost. The measures to increase diesel prices and create inflation-indexed instruments would hopefully reduce gold demand. Inflation may come down due to a reduced fiscal deficit. By formalising the Shome panel recommendations, he has boosted investor confidence.

However, what is disconcerting is the inadequate provision for subsidies on oil and fertilisers. For the past few years subsidies of one year were being pushed to the next and FY13 is no exception. Fully accounted, the oil subsidy would go up by R60,000 crore and fertiliser subsidy by R40,000 crore, taking the fiscal deficit to 6.2%. The subsidy outlay for FY14 will also have to be higher by R1,00,000 crore to clear all claims.

Setting unrealistically high revenue targets has become a norm in successive Budgets. Even in FY13, indirect tax revenue is below estimates. For FY14, increase is estimated at 19%! This has led to perverse and coercive tactics being adopted by revenue authorities. Tax collection should not degenerate into tax extortion. Even appeal/litigation takes 10-15 years and this has resulted in the tax administration being branded as ?hostile? to investors and this Budget has not changed much.