The Finance Minister has presented this year's budget on the 28th of February as usual. Many people have criticized it. In fact almost everyone in the newspapers or on TV has been commenting on how the budget this year has been bad for industry, has ignored inflation and has paid lip service to agriculture. However there is much that is heartwarming and progressive in this year's budget document. The Finance Minister declared clearly that the country is showing impressive growth and that the government will do nothing that will detract from this growth being seen in manufacturing and services.

Firstly, the budget has not been a populist one. This year we have important state elections coming up, the most important one being the one in UP. The stakes are high, and therefore there should have been a strong incentive to push for some popular items which most politicians think fetch votes. However, we see nothing of this kind in the budget. There are no mega schemes announced, no actions proposing more money to some people, no new subsidies and no special packages for states going in for elections. In fact there is nothing of what we have seen in previous election year budgets where all sorts of constituencies were addressed with an eye on their votes.

Secondly the budget signals a positive change in the mindset of our political class. In this the most important thing to my mind is the clear focus on e governance. The goal is to improve efficiency, convenience, accessibility and transparency in Government functions and take public services to the common citizen. The allocation to e-governance has gone up from Rs.395 crore in 2006-07 to Rs.719 crore in 2007-08. The budget also seeks to encourage e-governance action plans at State levels, and has increased the allocation for such support from Rs.300 crore in 2006-07 to Rs.500 crore in 2007-08. E governance takes away the most significant power a politician has, that of getting ration cards issued, driving licenses made and many other favours extended. Electronic transactions drive away this source of corruption and can easily be tracked to ensure delays don't happen. For politicians, in a politically charged atmosphere to give up this powerful tool, is a welcome sign.

Thirdly, the budget declares with great clarity that tax collections have gone up. However, it shows that while tax revenues have increased in the last few years, governments have not increased expenditure in the same proportion. That is why we find that the revenue deficit has come down and so has government borrowing. This is reflected in the fiscal deficit, which is now well under control. In his speech, the Finance Minister thanked those who had complied with tax laws and helped the government reach a record revenue collection figure. Normally, what is expected is that the government would use this achievement to increase revenue expenditure and get away with it. The graph below explains the phenomenon.

Fourthly, the budget has acknowledged the problem of persistent price rise and said that this is a result of increase in money supply and also a shortage in production. However, while the government is concerned, it will wisely not take any ad hoc measures to reduce this burden. With sound fundamentals and good fiscal management, this price rise will only be temporary and go away by itself. The budget also admits that a part of the problem is on account of rising prices of foodgrain and pulses. It rightly then declares that measures had already been taken to reduce import duties, increase interest rates and ban export to reduce domestic prices. Price rise is cyclical and reduces by itself. Also while current inflation might be at 6.53 per cent, the average inflation has only been 5.4 percent. The graph below shows how the cost of living has gone up in the recent past. It also shows how inflation has been higher in Andhra Pradesh compared to other states in India. It also shows that states, where spending on the Rural Landless Guarantee program has been high, have seen higher price rise too.

Fifthly, the budget has significant increases in expenditure on health and education. It acknowledges the fact that government is the agent primarily responsible for provision of education and heath care in the country. A growing economy needs an educated and a healthy population. For this it is important to provide schools, encourage enrolment and ensure students don't drop out of school. That is why the budget announces scholarships for those studying from class 9 to class 12. In health again the signal the budget sends is important. That health care must be treated as a whole and attacking specific diseases does not solve the problem. There is indeed no point in simply eradicating small box while a large population continues to die of Tuberculosis. Complete health care, with a focus on prevention, is what the government needs to provide.

However, having said all these things in favour of the budget, there are certain issues on which the budget seems to suffer. On taxes, this budget seems to be pulling the exercise of harmonisation back. There is no way in which a harmonized tax structure could allow for differential levels of taxation on differently priced cement. It also cannot explain why import duties on pet foods for cats and dogs should go down arbitrarily from 30 percent to 20 percent. The budget then adds that duties in watch dials and movements as well as umbrella parts will reduce from 12.5 per cent to 5 per cent. It also reduces duties on biscuits. It is this very adhocism that has been the cause for distortions, bribe seeking and uncertainty. It was such a great opportunity for the Finance Minister to push hard for cutting tariffs. All coalition partners were extremely concerned about inflation and would have agreed to any measure taken to bring down prices. It is in this context, that the budget fails to leverage the existing political environment and really push for a drastic opening up of the economy and harmonisation of taxes.

Amir Ullah Khan is Fellow at the India Development Foundation