Budget 2008 is both populist and popular. Chidambaram has certainly heeded Edmund Burke?s words, that ?mere parsimony is not economy. Expenses and great expenses may be an essential part in a true economy.? The substantially enhanced Gross Budgetary Support for the Plan, coupled with massive outlays for agriculture, education, health and skill development has scant respect for parsimony. We can only hope that the outcomes are acceptable and they will play an essential part in a ?true economy,? to create virtuous cycles of high investment and growth. Like all Budgets, the conjuncture and configurations are important. Elections look to be sooner than later. Coming back to power is more important than pursuing sound economics. The configuration of continued economic buoyancy, rising revenues and multipliers generated from years of continuing fiscal stimulus increases room for maneuver. Balancing the objectives of growth with stability and populism with progress is never easy. The need to secure near term gains coupled with irritating coalition politics and looming elections compounds the problem.

So let us look first at some of the pluses.

First and foremost, a recognition that food security and improved farm incomes is central to our growth and social cohesiveness. The emphasis on agriculture is welcome. So is the emphasis on irrigation, optimum inter basis water use, research and development, and allied activities like horticulture. One hopes that these do get implemented even with a time lag.

Second, recognising the advantages of demographic differentials and social tensions from rising unemployment, the priority in extending the access to educational opportunities at multiple levels with skill inculcation as well as vocational training, is timely. Nonetheless, the policy reforms on education remain unaddressed, like incentivising private investment in education, encouraging competition and more importantly, fully implementing the recommendations of the Knowledge Commission particularly constituting a truly independent regulator.

Third, calibrating the tax rates has been sensible. The marginal reduction in excise, apart from giving a fillip to the manufacturing sector will help align the roadmap for a GST in 2010. Raising the slab for income tax exemption is appropriate, but should now be inflation indexed. The corporate tax, particularly the realised rate, is modest and needed no break. Withdrawal of the transaction tax is sensible and while some irritants on the fringe benefit tax (FBT) has been removed, there was a case for its elimination. What is however disappointing is that surcharges and cesses have continued when tax buoyancy afforded an opportunity for their elimination. The financial contingencies that led to their imposition is long over.

Fourth, designing a system for monitoring outlay outcomes as well as fiscal and qualitative evaluation of pubic outlays is logical. Capacity building, particularly in states that would implement investment, would be important. To start with:

* Moving forward on statistical system upgrades to improve the monitoring of the economy.

* Development information management: paying attention to the decrepit statistical and management information system (MIS) at all levels of government, but especially state and local.

* Well-thought out e-governance strategies. Not just putting records online or using e-mail, but systematically integrating software and data warehousing in public officials’ workflow for transparency, accountability, and most of all efficiency.

Among the clear negatives are:

* No sensible person can support a loan waiver of Rs 60,000 crore. Even looking at the indebtedness of farmers, there could have been other ways like moratorium, long-term re-scheduling, and asking banks to re-lend without repayment. Reintroducing the forgotten culture of loan melas and waivers at a time when we are seeking to align our banking practice to the best international practice is a major setback. Besides the burden should have been borne by the Budget. This has broader implications for other sectors like power, water supply and pubic utilities. We have lectured at length that political subsidies or socially desirable expenditure must be borne by the Budget, rather than by commercial entities themselves. Goodbye to all these principles and preaching.

* The Economic Survey may as well not have been presented. Not one word from the difficult reform agenda called Policy Options finds even a sneaking mention in the budget.

* None of the complex issues of more transparent fiscal accounting, reckoning the huge off balance-sheet liabilities, and subsidy rationalisation are sought to be addressed. Leaving them to the XIIIth Finance Commission is passing the buck to successors. Obviously the Prime Minister’s repeated reference to many of these issues has made no difference.

* Finally, issues of regional divides, growing inter regional differences and enhanced poverty entitlements referred to in the Economic Survey find either no mention or remain inadequately addressed.

In conclusion, one is reminded of what Keynes said: ?the day is not far when economic problems will take a back seat where they belong, and the arena of the head and heart will be occupied by our real problems ? the problems of life, of human relations, of creation, of behaviour, and of religion?.

One cannot always be ruled by the head.

Budget 2008 is straight from the heart.

The author is former senior bureaucrat