Dull is good

P. Chidambaram did not have an easy task. The budget for 2013-14 had to achieve several pressing but potentially conflicting goals. Perhaps, the finance minister's most important objective was the need to contain the fiscal deficit. Successive years of government profligacy resulted in a huge public debt and a possible downgrading by ratings agencies. It is also imperative to revive the growth process since the rate of growth is at its lowest level in a decade. Finally, with the national elections just round the corner, minimal political compulsions had to be satisfied.

How could a fiscally responsible and contractionary budget possibly stimulate the growth process or permit any degree of populism? Surely, something had to give? Somehow, Chidambaram seems to have squared the circle. He has performed a delicate balancing act by attempting to take only tiny steps towards achieving each of these objectives. So, the budget estimates indicate a small reduction in the fiscal deficit. Surprisingly, there are no harsh doses of additional taxation. Since the budget also contains some measures to stimulate the capital goods industry, the budget is mildly growth-friendly. Finally, there are some sops for the middle and lower income classes combined with a mild increase in the tax burden of the rich. Importantly, the finance minister has resisted the temptation to move too far along the populist route.

The most pleasing announcement has been the revised estimate for the fiscal deficit for 2012-13. This is marginally lower than the estimate presented by Pranab Mukherjee around this time last year. This is still a most creditable achievement because it has been achieved despite a fall in the GDP growth rate — this must have resulted in a corresponding fall in tax revenue collections. This suggests that the finance minister has been able to restrict government expenditure to below the budget estimates, possibly because of recent policy measures aimed at reducing the subsidy burden. The potential long-term benefits of a reduction in the subsidy bill cannot be overestimated.

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