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There is a growth deceleration problem in the economy. There are not many takers for the Central Statistical Organizationís 4.4 per cent real gross domestic product growth in 2002-03. The final figure will probably be just over 5 per cent. The Budget does not provide real GDP growth figures. But the budget for 2003-04 will probably have a nominal growth figure of around 12.5 per cent, 7 per cent real and 5.5 per cent inflation. It is a separate matter that 7 per cent growth in 2003-04 will not be achieved and the final figure will be a shade over 6 per cent. Budget estimates for revenue and fiscal deficits will accordingly go haywire. While there are reform issues in lifting the economy out of the band of between 5 per cent and 6 per cent, it is unrealistic to expect such liberalization to be announced through Part A of the budget speech. Implementation of most reforms involves other ministries and states. Hence, the finance minister has virtually told the country to expect reforms, if they happen, outside the budget. This includes the notional figure for disinvestment receipts. Barring assurances about better regulation in stock markets and bailouts to institutions like the Unit Trust of India, Industrial Development Bank of India and Industrial Finance Corporation of India, the budget thus becomes a revenue andexpenditure exercise ó Part B of the speech. Contrary to popular impression, the finance minister has little control over expenditure. Ninety per cent of expenditure (including interest payments, subsidies, defence expenditure and pension) is determined exogenously.

Moreover, the National Democratic Alliance government has a target of increasing defence expenditure to 3 per cent of GDP (from the present 2.5 per cent) and security threats have strengthened this argument. Thus, if the finance minister wishes to rein in expenditure and the fiscal deficit, that can only be done by slashing non-plan capital expenditure.Degrees of freedom are limited to revenue, and within that, to taxes. The Kelkar task force reports are around and have also been referred to by the president in his address to Parliament. However, having made the strategic mistake of setting up the Rajnath Singh committee, the finance minister cannot ignore its recommendations, especially in an election year. Barring procedural simplification, accepted as desirable by most people, and the pre-determined transition to value-added tax and service taxation, all other Kelkar recommendations are out.

The budget will owe more to Mr Rajnath Singh and less to Mr Jaswant Singh. Agricultural income taxation is out, standard deduction is in and the threshold increases to Rs 75,000. Exemptions and incentives remain, especially on savings, housing, educational loans, infrastructure, special economic zones and backward areas. Interest rates on small savings cannot be touched. Duty exemptions for small-scale industry stay at Rs 1 crore. Dividend and long-term capital gains tax are scrapped. The 2003-04 budget is as transparent as can be.

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