In the last two years, the Government of India has been basking in the glow of unprecedented growth. It has been asserting with some confidence that the economy has moved on to a higher growth trajectory 8 per cent and more compared with the earlier 5 to 6 per cent. In his budget speech, Union Finance Minister P. Chidambaram made it a point to emphasise that such high growth rates are necessary to address the problems of poverty, malnutrition, illiteracy, and ill health. And the way to make the growth more inclusive is to pay greater attention to agriculture and rural infrastructure to raise the incomes of the rural population that has been hit by the poor performance of the farm sector. Unexceptionable as the diagnosis and the sentiment are, the effort in the budget clearly falls short of the rhetoric. Perhaps the Finance Minister felt that he could not risk any adventurous move when the going was good but this argument for doing little has left both the growth and the equity constituencies dissatisfied. One virtue of the budget is the success in fiscal consolidation achieved through revenue buoyancy resulting from the high growth rates. While containing the revenue and the fiscal deficits below the target should help in moderating inflationary pressures, it also offered a chance to embark on a bolder path, but that opportunity has not been seized.

The two critical areas for sustaining the high growth rates of recent years are infrastructure and agriculture. With just marginal improvements in infrastructure, the growth rate has surged impressively but this situation is clearly not sustainable even over the medium term. While the railways have turned in a heartening performance, power, roads, ports, and airports remain major constraints, particularly with the projected growth of the manufacturing sector. The budget has provided for little in these areas beyond four ultra mega power projects, the promise of completion of the golden quadrilateral, and encouraging public-private partnerships through increased viability gap funding. A bolder initiative such as the use of a part of the foreign exchange reserves for infrastructure funding without monetary expansion, as suggested by the Deepak Parekh committee, could well have been announced, but that innovative approach is still being examined. The second major constraint is agriculture whose poor performance in the last three years has been masked by the robust growth in services and in industry. Growth rates of less than 3 per cent on the average over the last six years have left rural per capita incomes virtually stagnant in contrast to the increasing incomes in other sectors. The budget rightly laid emphasis on agriculture as the vital area and outlays for programmes on increased farm credit, irrigation, watershed management, seeds supply, `training and visit' types of extension services, agricultural research, and encouragement to food processing represent a substantial rise from the previous levels. Yet the allocations pale before what is needed to make up for years of neglect of the farm sector and, as the noted agricultural scientist, Dr. M. S. Swaminathan points out, the budget fails to provide a strategy for agricultural renewal.

Agriculture does not merely represent a constraint on growth. Sustaining the livelihoods of half the population, it is also the most important area where progress is necessary to make growth more inclusive. A welcome feature of the budget is the substantially higher allocation for the safety net schemes, including the eight flagship programmes such as the Bharat Nirman and the National Rural Employment Guarantee Scheme, apart from a new insurance scheme for landless labour. Leakages and corruption have been endemic in such income transfer programmes but the Right to Information Act should in course of time bring in greater transparency and accountability at the implementation level. The Finance Minister needs to be commended for stepping up the funding for education by 34.2 per cent and for health and family welfare by 21.6 per cent. The plan to address the problem of dropouts after the eighth standard by offering 100,000 merit-cum-means scholarships of Rs.6,000 a year should enable students who come under pressure to join the labour force to support their families to continue in school. Upgrading the industrial training institutes is a worthwhile project but the budget disappoints insofar as higher education is concerned. The need to both expand higher education and improve the infrastructure and the quality of teaching is apparent and brooks no delay.

In the area of taxation, the most notable feature is the cut in the peak rate of customs duty from 12.5 to 10 per cent. This should introduce a greater element of competitiveness in the Indian market and moderate inflationary pressures. In the area of excise, by seeking to hold the price of cement down through the device of differential taxation based on the selling price, the Finance Minister has introduced a measure of needless complexity that goes against the general trend towards simplification. The extension of the service tax to a few areas such as commercial renting and the fringe benefit tax to employee stock options even while keeping the rates unchanged is something that industry can live with. The increase in the dividend distribution tax from 12.5 to 15 per cent, however, is bound to have a negative impact on market sentiment. The raising of the income tax exemption limit by Rs.10,000 is no more than a token gesture to the individual tax payers while the corporate tax structure has been left unchanged except for removing the surcharge on small and medium enterprises with an income of less than Rs.1 crore. The long-awaited reform of direct taxes and the putting in place of a simpler system with fewer exemptions and moderate rates has been put off yet again with a promise to introduce a new income tax code in Parliament later this year. Overall, the budget is somewhat of a disappointment, with an incremental rather than an imaginative or innovative approach.