Economics is all about trade-offs and that’s true for any budget exercise. Finance minister Pranab Mukherjee had two options — either provide a stimulus to the economy or tread the path of fiscal conservatism.

Mukherjee, living up to his one-time association with Indira Gandhi, decided to go with Keynes and presented a budget with the objective of pushing up the growth rate to at least 9 per cent per annum by rolling out a budget aimed at providing a stimulus to the economy.

Though he did not mention any timeframe for achieving the target, the intent of reaching higher growth is capable of lifting the mood in the economy, which grew by 6.7 per cent last year after four years of 8 per cent-plus growth.

Discount the gyrations in stock indices — it has always been difficult to meet the expectations of people keen on capital gains through the year — and criticism by political opponents, Mukherjee has chosen to stay on the path of spending his way out of trouble.

As he stuck to Keynes, visible with the total expenditure crossing the 10,00,000 crore mark, the finance minister pulled the fiscal deficit — the difference between government’s expenditure and non-borrowed receipts — up to 6.8 per cent of GDP, the highest in 18 years.

Though fiscal purists will be unhappy with the ballooning deficit, Mukherjee might not have had much of a choice as the writer of the Congress manifesto had to deliver on the promise of inclusive growth.

The corporate sector, which once used to frown upon too much focus on Bharat, has begun to speak of inclusive growth, a condition for higher sales and, hence, higher profit on investments.

Attempts to achieve inclusive growth — over 144 per cent expansion in NREGA allocation, enactment of national food security act to provide 25 kg rice or wheat per month to the BPL population at Rs 3 per kg — can improve standard of living in rural areas.

Mukherjee, however, could have gone a bit further and affected more lives by opening up the scheme to people marginally above the poverty line. In an economy, where more than 60 per cent people spend less than Rs 20 a day, the poverty line cannot be the sole criterion for separation. Attempts at universalising a leak-proof public distribution system, where the people have the right to opt for the benefits or stay out, would have yielded better results.

The budget scores on its rural focus and Mukherjee’s promise of more allocation for rural roads, rural electrification and rural housing will not only improve living conditions, it will also give the economy a push. Higher outlays for highways, railways, power and urban renewal will add to the multiplier effect and can result in a faster-than-expected economic recovery.

But Mukherjee will have to worry about bridging the government’s income and expenditure gap. The budget documents suggest that the government will have to borrow over Rs 450,000 crore this fiscal to balance its books. There is a genuine concern that such huge borrowings by the government will constrain the corporate sector’s money-raising plans and may end up pushing interest rates.

Mukherjee may argue that a sovereign government can keep borrowing but he would have been better off had he made more efforts to increase tax collections. Given the size of the Indian economy, the tax to GDP ratio is still very low – around 11.5 per cent – and Mukherjee could have been bolder with his tax proposals.

It is true that the abolition of 10 per cent surcharge on income tax for people earning more than Rs 10 lakh per annum and the hike in income tax exemption limit have given the salaried class something to cheer about. Similarly, the business community has welcomed the abolition of the fringe benefit tax and commodities transaction tax.

Mukherjee, however, has a long unfinished agenda on taxation. Although he has set a road map for structural changes in direct taxes by promising to release the new Direct Taxes Code within the next 45 days and in indirect taxes by accelerating the process for the introduction of the Goods and Services Tax (GST) from April 1, 2010, the tradition of missing deadlines makes these announcements suspect.

Signalling the government’s reluctance to pursue big-bang reforms, Mukherjee stressed in his budget speech that banks and insurance companies will remain in the public sector. Against a Rs 25,000-crore divestment target set by the Economic Survey, Mukherjee’s budget has a modest Rs 1,120-crore entry in the receipts column.

By relying heavily on borrowings to bridge the income-expenditure mismatch, the finance minister has taken a huge gamble expecting that the high spending will result in higher growths, which, in turn, will generate higher tax revenues and fill up the coffers.

But if the economy fails to take off – the developed world is still reeling under recessionary trends – the country is headed for a doom: low growth and high debts.