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Arun Jaitley’s maiden budget has to be judged against the backdrop of two competing phenomena. First, the economy is at the crossroads. There are some tentative signs that the economy is about to embark on the long road to recovery from the travails of the past. On the other hand, the Iraq crisis has pushed up fuel prices across the board. The prospect of a dismal monsoon has also caused inflationary pressures to increase. Second, this is the first major economic policy statement of the new government. Mr Jaitley had to show that the slogan of “Acche din” was not an empty electoral promise. A large majority expected Mr Jaitley to come up with a big bang budget which would provide a big stimulus to the economy.

The actual budget will come as a disappointment to this group because it is devoid of any bold or big ideas. However, this does not necessarily mean that it is a bad budget. Mr Jaitley has managed to incorporate several small positives without rocking any major boat. In keeping with the Bharatiya Janata Party’s promise to promote infrastructure, the budget has allocated a large amount to road construction and a smaller amount to ports. Rural power infrastructure also gets additional funding. Another welcome initiative is the large allocation to rural warehousing. This will make the supply chain more efficient and will help reduce inflationary pressures in the long-run. A bold step is the increase in foreign direct investment limits in insurance and defence production. The tax regime has been kept more or less stable. There are only two small changes in direct taxes, with the personal exemption limit for all income tax payers being raised slightly and greater incentives being provided to savers. Similarly, there has been only a minor tinkering with indirect taxes. Customs duties on some inputs have been reduced in order to make domestic production more competitive. Not surprisingly, excise duties on tobacco products have been raised. The absence of any increase in indirect taxes implies that the budget will not contribute towards inflationary pressures.

There are also several negatives in the budget. Perhaps the biggest negative is the absence of detail in many items or complete omission. The most important of these is perhaps the estimates of revenue receipts and subsidy levels. The budget assumes that tax receipts will grow at just below 20 per cent. P. Chidambaram presented a comparable estimate in the interim budget, roundly criticized by the BJP for being unrealistic. What has changed? Similarly, Mr Jaitley mentions that subsidies would be reduced through reform of the public distribution system and the Food Corporation of India, but does not spell out the nature of these reforms. No mention is made of the government’s policy towards disinvestment of public sector enterprises or of when the goods and services tax will be introduced. No roadmap has been provided about the nature of the government’s fiscal policies during the next five years. In spite of these negatives, a first reaction must be to give Mr Jaitley at least a passing grade.