Outside the Congress party and its allies, no one seems to like Pranab Mukherjee’s Budget, apart from those who gain from increases in personal income-tax exemption limits and elimination of surcharge. This includes capital markets. Such negative sentiments are based on unrealistic expectations. If con is antithesis of pro, Congress is the antithesis of Progress. For five years between 2004 and 2009, UPA-I introduced no significant reforms and the economy chugged along at around 8.5 per cent. That was before external financial crisis reduced real growth to 6.7 per cent in 2008-09. (That’s not quite what happened, there was hike in interest rates too. But one is talking about perceptions.) However, despite doing nothing, the UPA was voted back. That’s vindication of the UPA’s economic policies, a mandate for continuity, stability and prosperity and inclusive growth. (With the BJP imploding and regional parties complicating matters, that’s not quite what happened. But one is talking about perceptions again.) The emphasis on agriculture, NREGS (including Rs 100 a day entitlement), National Food Security, Bharat Nirman, empowerment of weaker sections, welfare of minorities and Unorganised Workers Social Security Bill, was therefore expected; perhaps even JNNURM, Rajiv Awas Yojana and NHDP. This left-of-centre positioning shouldn’t floor us. It’s the aam aadmi agenda.

Where will the resources come from? Rare is the Indian who objects to deficits now. Instead, the prescription (including from industry) is deficits are fine, as long as there is special dispensation and exemption for my sector. Isn’t that what the rest of the world is doing? Not quite, because the Indian concern is with revenue deficit (not fiscal deficit), that is, composition of expenditure and off-budget items. Deficits have costs, both through inflation and high interest rate regimes. They stab you in the back, not in the front and somehow the former seems preferable. If that’s the case, why are we now reacting adversely to a fiscal deficit of 6.8 per cent (share of GDP) and revenue deficit of 4.8 per cent in 2008-09? Figures may actually be higher, depending on what happens to GDP growth. Typically, budgets don’t give figures on nominal (forget real) GDP projections. They have to be worked out backwards, from deficit figures. This is one of the first budgets that explicitly has a nominal GDP growth figure of 10.05 per cent, probably based on something like 7 per cent real growth and around 3 per cent inflation (as measured by GDP deflator, not CPI or WPI. However, note that though the basket of commodities and weights are different, GDP deflator-based inflation has moved in tandem with WPI.). Seven per cent real growth may seem optimistic, but isn’t implausible, certainly in the second half of 2009-10. So-called green shoots can be seen.

... contd.