The whole debate on austerity is trivialising an important issue, namely, the importance of savings and policies relating to them in India?s short-and medium-term growth prospects. It is interesting that Kaushik Basu, the Chief Economic Advisor designate, has a savings growth explanation for India. Now, that it is accepted that India has been growing for some decades and there are different explanations for it, Kaushik argues that from the mid-seventies Indian growth went on a higher track on the back of a break in the savings function sourcing a higher growth.

I remember, in a draft plan discussion, the PM questioned the need for a higher savings rate and facing the argument that the East Asian countries had higher savings than us. Then, the PM turned to an economist friend, who was the Chief Economic Advisor at that time, and said to me that the finance ministry had been claiming that our savings rates are higher than the East Asians. Taken aback, I could only say that the PM cannot waste his time quarreling on merely fact-based issues. Thereafter, I sent back a small table to the PMO which must have been lost in some under secretary?s file. Turning to the present, the Chinese savings rate is at least a quarter higher than ours even after being discounted for conceptual and measurement differences. It is interesting that their industrial growth rate has picked up to very high levels, even though their export decline is more severe than ours. Their stimulus is based on investment in infrastructure and strengthening export capabilities. It is sourced in their own savings as, unlike us, there is no exchange constraint given high reserves.

Government capital formation in India has fallen tragically in the year when the stimulus was required, namely from last September. It is 21% lower than in 2008-09 as compared to 2007-08. The Finance Minister has bravely targeted an increase in government investment of a substantial magnitude in the budget for 2009-10.

Examining the details of the Chinese stimulus or for that matter President Obama?s stimulus, all available on the internet, public-private investments dominate and run into hundreds of billions of dollars. All of them require a public presence, more so in a depression when market profit expectations are low. The notion that reforms consist of reducing agricultural tariffs and asking insurance companies to come back to India is funny. Raising public resources is at the heart of giving the stimulus and industrial production a push.

It is quite obvious that the consumption part alone will not achieve the desired goals and we will keep on arguing whether our growth rate is 6% or 6.5%, until the cows come home.

As the green shoots become stronger, the requirements for reducing the interest rate at present as low as 1 or 2 % will become a binding constraint on our exporters. The PM and his Economic Advisor, one of our expert central bankers and the last and the present Governors of the central bank have all been implicitly and explicitly arguing that there can be no question of reducing the interest rate since we have to fund the overhang of government?s consumption to finance market borrowings and the central bank will have to play the treasury-support role.

It is strange but there has been no media reaction to the PM?s and Finance Minister?s calls to raise resources. In fact, the Budget itself has a number of interesting suggestions, particularly in the macro economic framework, fiscal policy and strategy statements?all required under FRBM. The larger context is the framework of the economy integrating with global economy in an economic and fiscal reform mode. Tax policies are detailed in this context, including better business and technologically efficient methods of tax administration. The well-known ongoing efforts at simplifying and widening the tax base are at the background and the CENVAT, GST and the Direct Taxes Code are all there and will enhance effectiveness.

But there are many out of the box ideas. ?Introducing a new package of presumptive taxation to encourage voluntary compliance by small businesses.? This seems new. ?Presumptive assessment? is a transitionary method, particularly since its imposition may in fact also help better accounting practices being adopted if assessments based on ?presumptive characteristics? are contested by the tax payer. In these cases, since the assessed would have to submit accounts, that would be a desirable outcome in itself. The Central Board of Excise and Customs in India introduced in 2009 a production-based levy for pan masala and gutka sectors which are unorganised and hazardous stimulants and this ?was a huge success? according to the chairman.

In a distorting trade epoch which to an extent all depressions will be, it is possible to bring in policies of inverted tax structures in a measured and phased manner. India?s budget papers, for the 2009-10 stimulus describe this policy as indirect tax rates compensating for ?deeper cuts on finished goods as compared to their raw materials?. Peak tariff rates, set by reform of the tax system, are not changed but tariff rates are reduced on specified inputs, components and capital goods. The opposite may be justified in a distorted agricultural economy, for example. These are seen as purely temporary and transitional measures, and as part of the reform of the tax system it is projected that an attempt will be made eventually; ?Review custom duty exemptions and move to a uniform duty structure to eliminate inverted duties.? Meanwhile resources are raised.

Somebody has to give the message that there are no free lunches. Even the buffet breakfast is included in the room rate.

The author is a former Union minister