The annual pre-Budget meetings of the finance minister with different stakeholders are by now an integral part of the Budget preparation. While some may question the usefulness of these meetings with trade unionists, agriculturists, industry representatives and economists, for me they represent a necessary consultative process. I have had the privilege of having participated in these meetings from three sides: from the DEA, when as an economic advisor during 1991-95 I had the task of organising some of them; as part of the industry delegation when I was CII?s chief economist (2004-06); and now as an economist heading Icrier. This somewhat unique three-way perspective assures me that finance ministers take these meetings seriously and often use them to crosscheck the efficacy of suggestions. I only wish that better preparations could be made from both sides and the duration of the meetings be increased to three hours instead of the present two. I say this because I have noticed that there is often a lack of response to some simple query raised either by the invited representatives or the minister himself (for example, the actual revenue collection from petroleum taxes and Centre?s share in them), and the time constraint does not permit a full discussion on any specific issue that is raised and on which the minister or senior officials present may need some clarifications or others may have relevant additional inputs.

In this year?s meeting with economists, there was a fair?some would say surprising?degree of agreement among several of those present. Some economists suggested that the finance minister would do well to leave direct income tax rates untouched, and no one opposed it. These collections have shown remarkable buoyancy with increasing gains from better compliance and better third-party information available to the tax authorities. The additional direct tax revenues, it was further suggested, should be used to rationalise?and reduce in some cases like petroleum?the incidence of indirect taxes. Taxes constitute up to 57% of the total price of petroleum products, by far the highest tax imposition on them anywhere in the world. So, in these days of historically high global oil prices that are likely to remain at these levels, it would be worthwhile considering a reduction in these taxes.

In anticipation of the success of Tata?s Nano, more than one economist suggested a further increase in the R&D setoff to corporates, including a direct capital subsidy over and above the 150% tax exemption currently available. This merits serious attention by the finance minister as more and more Indian companies will have to depend on product and process innovations to not only win greater shares in global markets, but also expand the demand base in domestic markets. I want to further suggest that those private companies that collaborate with public sector R&D and technology development establishments be given a higher incentive, as this will help rejuvenate the capacities that already exist. Suggestions to provide venture capital funds some additional incentives to support innovation, and to simplify the system of affording them tax benefits by notifying a short negative list of sectors in which these benefits will not be available, are also worth examining in this context.

It is clear that this government?s focus on maintaining high levels of social expenditure will, if anything, become even sharper in this pre-election Budget. This is indeed laudable, and I did not hear any voices of dissent at this year?s meeting. However, several economists did point to the need for improving the efficiency of these expenditures and ensuring that they actually benefit the targeted groups. This will require the introduction of a proper system of vouchers for education and healthcare. These will place direct purchasing power in the hands of the actual beneficiaries, give them choice, and?importantly?bring competitive pressure to bear upon public sector providers, especially in fields where the quality of delivery has been worsening.

The finance minister is supportive of these ideas and is positively inclined towards the introduction of smart cards for the public food distribution system. But, according to him, there are no takers for these proposals in state governments. This became evident to me from a recent interaction with one chief minister of an otherwise progressive state; the concept of vouchers and smart cards is not understood by the state-level political leadership. Chief ministers cannot distinguish between allocating monies for schemes and ensuring that these actually achieve the outcomes they are expected to yield. This will require a significant concept selling campaign. The finance minister will do well to allocate some funds for raising overall awareness of these concepts and mobilising the relevant civil society agencies to take the message to state leaderships. That will be a real contribution to the cause of performance-based budgeting, which is what the finance minister wants to establish.

?The author is director & chief executive of Icrier, a Delhi-based thinktank, and member of India?s National Security Advisory Board