Imphal, July 08: Before we discuss the Union Budget 2004-05 presented in Parliament today by the Union Finance Minister P Chidambaram, we may briefly recall the background to the Budget.

The legacy of the NDA Government is, it left India with a strong foreign exchange reserve and respectable growth rate, although it left certain transitory issues of the agriculture sector unattended.

People were looking forward to the new budget for (a) it would indicate in which direction and how the reform process would continue; (b) it would reflect the economic mind of the new Government; (c) it would chart a scheme for addressing the issues of the rural sector; and (d) it would give direction to the strong growth and utilize high foreign exchange reserves.

Experimental?
Given the strong growth and high foreign exchange reserves position, the UPA Government inherited and an atmosphere where it could boldly experiment with further and contextual reform efforts.

Besides, the circumstances needed the Finance Minister to address the pressing problems of the firm sector.

The main objective of the new Budget is stated to be achieving growth with equity and stability.

In other words, it promises to ensure continuity of the high growth phase of the Indian economy while at the same time endeavoring to reduce poverty and without allowing prices to rise.

Overall the focus of the budget is on education and rural sector.

It does not propose any major changes in tax structure.

The question :
The interest of the Budget to us lies on whether it has got strength or not.

Overall, we would say that the Budget is tentative at best.

How do we say so? First, given the favorable fiscal position and satisfactory growth rate, it is now the right time for the Union Government to usher in the next phase of taxation reforms as a major component of ongoing economic reforms.

But the Finance Minister has postponed any decision on tax reforms.

Secondly, given the same favorable circumstances as mentioned above, it should have given a clear signal on trade policy.

But, in the guise of waiting for a new export and import policy, the Finance Minister has delayed any reforms in this sector as well.

Thirdly, the Finance Minister could have been absolutely transparent in his policy for the rural and firm sector.

Here again his announcements are only tentative.

Further, despite all the talks against disinvestment by the UPA, the Government has not made any definitive statement in the Budget on this issue.

The Finance Minister has tried to conceal all indecisiveness by promising tax reform measures in next year's Budget and announced the formation of Investment Commission, National Manufacturing Competitiveness Council, Task Force for Reform of Co-operative Banks and National Horticultural Mission.

One subtle but significant announcement in the Budget is the announcement of creation of a Backward States Grants Fund.

This reminds me of the debate and political economy maneuvers in India during the 1970s regarding the extension of fiscal help to backward States.

In the beginning, backward States were identified for helping in industrialization.

But this generated a subtle move by the more advanced States for identifying industrial backwardness at the level of either development blocks or districts.

Ultimately the whole approach came down to helping the backwards districts/blocks of the richer States only.

The present move to create a Backward States Grants Fund is equally interesting.

Some States of India have been maintaining covert reservations about the creation of separate department and funds for the development of the North-Eastern part of the country.

With the creation of the new Fund, the focus of attention for helping backwardness will slowly move away from the North-East towards States like Bihar and Orissa.

Some positives:
The Budget has got two aspects which would positively impinge on growth in the long run.

First, the emphasis on primary education is needed and significant.

If properly implemented it would go a long way towards removing poverty.

Secondly, it is also announced that 100 ITIs (Industrial Training Institutes) would be upgraded each year for the next five years.

This would enable a broader access to technology by the common masses.

Overall :
The Union Budget for the year 2004-05 presented by Chidambaram is only tendential and not definitive.

It does not push reforms forward nor does it really boost the firm sector through public sector efforts.

All this is indicative of the internal and yet unsettled bickering within the UPA coalition.

The strength of the Budget, however, lies in its focus on primary education.

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