UPS’s first full budget after a comfortable return to power can be based on two different premises:

• The first and easy option is to treat it as an expression of thanks to the electorate.
  
• The second is to focus on long term issues and attempt needed corrections that could not get attention earlier and set the course for bold reforms.
  

Succession of finance ministers since 1991 - Dr. Manmohan Singh, P Chidambaram and Yashwant Sinha - not political heavy weights, preferred by and large, the second course. Manmohan Singh boldly decided to embark on a major departure from conventional budget-making and gave a new economic policy. The economy was liberated from decades of state control through permits, licences and quotas.

Chidambaram and Yashwant Sinha continued with the task of simplification, rationalisation and substantial reduction in taxes and duties. They also succeeded in taking the states along with them exemplified by the uniform value added tax and moving towards a single tax on goods and services.

Chidambaram also proved to be a 'lucky' finance minister with the economy booming and revenue receipts doubling to Rs.525,098 crore in just four years from 2004-05 under his lead. This surge enabled the government to step up substantially investments on agriculture, infrastructure, urban renewal… as also on the social sectors.

Global meltdown has impacted severely the Indian economy: growth rate slowed down; tax receipts were affected; gross tax revenue in the budget estimates for 2008-09 at Rs.687,715 crore registered a decline of around Rs.60,000 crore; revised estimates showed the figure at Rs.627,949 crore. The decline extended to corporation and income taxes, customs and excise duties.

The three stimulus packages announced, committing large additional resources and widespread reliefs, necessitated higher level of borrowings than estimated (Rs.319,472 crore against Rs.113,000 crore).

The seasoned politician Pranab Mukherjee has chosen to play safe. His budget has opted to step up massively investments in agriculture, infrastructure and social sectors. Concessions were given in direct taxes, especially for senior citizens and women, along with a rise in IT exemption limit by Rs. 10,000 for other individual taxpayers and withdrawal of the 10 per cent surcharge on personal income tax and the abolition of the fringe benefit tax – all welcome to the urbanites.

Though the Economic Survey, presented a couple of days earlier, dwelt at length on wide-ranging reforms and more liberalisation, including disinvestment of public sector enterprises designed to raise revenue of Rs.25,000 crore a year, the budget had none of these. With rates of excise duties cut as part of the stimulus package, the prospects for a handsome increase in revenues do not appear bright. The budget thus provides for market loans of close to Rs.400,000 crore. This will impact on two areas:

• The first one will be on fiscal deficit: after the consistent work done that helped the country to reduce fiscal deficit from a high 5.9 per cent of GDP in 2002-03 continuously to 2.7 per cent in 2007-08, it has shot up to 6.0 per cent in 2008-09 and is estimated to increase to 6.8 per cent in the current year. This high level of deficit can impact severely on prices. The painstaking efforts taken during several years on containing fiscal deficit and conformity to the commitments to fiscal responsibility and management have received a severe set back.
  
• Such heavy borrowings will crowd out the private sector in accessing bank funds. This, in turn, will result in interest rates moving up.
  

Subsidies and interest payments continue to top revenue expenditure. For over a decade, IE has been voicing concern over the mounting burden of public debt, in turn taking away a big chunk of revenue receipts. (In fact for a decade till 2006-07, debt servicing costs were higher than revenue receipts. The welcome change in this trend seen in the last couple of years, will get reversed with the massive borrowing programme of around Rs. 400,000 crore and uncertain tax receipts.

Innovative and drastic measures can be taken often in times of crisis. 1991 was one such when Manmohan Singh - Narasimha Rao opted for a bold new thrust. Mukherjee - Manmohan Singh should have taken bold to embark on such a bold thrust at the present moment when the economy is not in great shape. Any drastic measure taken could better be understood at this crisis period. Bold structural reforms, including big ticket disinvestments, could have been attempted. This would also have helped reduce mounting public debt.

Manmohan Singh often used to say that you cannot spend your way to prosperity. Is someone listening?