This budget marks a watershed. For years, from 1995 onwards, the Congress had difficulty in winning elections. Its first decisive victory in a long time was in the 2009 general elections. It took some time after that to shed its electoral insecurity. In those days of the search for power, it returned to its populist, socialist roots; it blew up a lot of money on social programmes, especially on subsidies and employment programmes. To finance them, it had to run rising fiscal deficits. They cause inflation, but it was comfortable with that. The United Progressive Alliance budgets from 2005 till 2010 mirror these compulsions.

They have waned now. The general election is three years away. The social service programmes are fully funded; despite all help from politicians, local governments are finding it difficult to spend the money allocated. The Opposition is in poor shape, so the Congress is not nervous about elections, and did not need the finance minister to bribe voters. His fellow ministers who run spending ministries can be demanding; but he had a windfall from the 3G spectrum, so he had no difficulty in meeting their demands.

The economy can give headaches, but it is doing well; at any rate, the people in the government are satisfied with the way it is growing. Inflation is a problem. Macroeconomically, taming it would require a lowering of the budget deficit. But if the Economic Survey is a guide to their thinking, the policymakers attribute inflation to causes which do not require a macroeconomic response — prices are raised by local monopolists trading in non-cereal food products, inflation is being imported from abroad, India is bound to experience inflation because, as it gets richer, its prices must approach prices abroad, and so on. So the consensus in the government was that the budget should not be stimulating or deflating, but broadly revenue-neutral. Even if the fiscal deficit remained unchanged in absolute terms over the coming years, its ratio to gross domestic product was going to come down from 6.4 per cent last year to 5.1 per cent this year, and further to 4.6 per cent next year as the GDP grew. In another three years, it could be down to 2 per cent — a level that could be financed from currency issues, without issuing any fresh debt. So the finance minister did not have to worry about the economy.

Having been thus relieved, he decided to listen to fellow ministers, and to the businessmen who make a beeline to the finance ministry before the budget. This year has seen sharp inflation in food products, especially non-cereal ones; so Pranab Mukherjee gave his assent to many projects concerning coarse cereals, fodder, transport, storage and distribution. And he brought down customs duties on a number of items.

There is no hard evidence that Indians are holding large amounts of money in tax havens abroad. But the minimum level of paranoia amongst Indians is high. Every once in a while someone begins howling about billions in black money stashed away abroad. This year it was the report of Global Integrity. Whenever the prime minister goes to G20 meetings, his fellow leaders talk about businessmen evading taxes. So the finance minister asked his taxmen to get active, and to negotiate agreements with other countries on double taxation and information exchange.

Excise duty exemption is high enough to keep out small manufacturing firms. But there are many small firms in services; they are often harassed by tax collectors, who raid them and disrupt their business. The finance minister has listened to their plaints, and freed all non-corporate businesses with a turnover below Rs 60 lakh from audit. The idea is good; but it is difficult to see why the businesses have to be unincorporated to be exempt from raids.

Service tax began by being levied on a number of services, which finance ministers have expanded every year. Now the finance minister wants to start a debate whether all service providers should not be taxed save those in industries on a negative list. It is not as if they are not being taxed. They all pay income tax provided their income is high enough; it is only service tax they do not pay. The number of service providers in this country is enormous; almost half of the workers are supposed to be working on their own account, including casual labourers, peddlers and pavement sellers. The finance minister surely cannot contemplate bringing them into the tax net.

He is fond of extending taxes to ever more goods and services, and then giving abatements. This is really equivalent to multiplying the number of tax rates, and it extends duties to products that bring little revenue. It makes little sense to have a duty of 1 per cent on diapers. It is equally stupid to tax something, for instance taxis which seat 13 passengers including the driver, and then to give a refund. Ambulances built in a factory used to get such a duty refund till now; now they will be exempted. Why was an ambulance taxed only if it was built in a factory? And what suddenly made it deserving of exemption? Why does bamboo pay 10 per cent import duty if it is to be used for agarbatti, and 30 per cent otherwise? How does a customs officer know whether the bamboo would be used to make agarbatti or not? Suppose he decides it is not going to be so used; can he be persuaded to change his mind by some instant gratification?

Newspapers have long been allowed to import high-speed printing presses free of duty. That is understandable, since politicians would naturally seek to befriend press owners. Presumably, one of them whispered to the finance minister over dinner that when the newspapers came off the press, there were machines that folded them, packed them and got them ready for despatch; mail-room machinery was just as deserving of concession as printing machinery. So now, Mukherjee has exempted mail-room machinery. But why just high-speed machinery? Why not slow presses used by small printers of magazines?

It is difficult to avoid the conclusion that there is considerable arbitrariness in the proposals. If it were some other minister and not Pranab Mukherjee, it would have raised worse suspicions. A visitor to the finance ministry can still hear the juicy story of a predecessor of Mukherjee who reduced an excise duty after a rendezvous with an attractive woman. And then, the finance minister talks of simplifying taxation, but goes on complicating it in fact. Nor is the justification for exemptions and rebates always clear. For example, the film industry is one of the country’s biggest money-spinners; there is no reason why it should not pay import duty on film rolls.

To misquote the finance minister, it is the big favours like Raja’s that make news, but it is often in petty favours hidden in the budget speech that big money lurks. He talked about petty reforms. But the favours he introduced would complicate tax regulations. A decade hence another finance minister would simplify them, and be hailed as a reformer. He would owe his ascent to his pragmatic predecessor.