What a positive yawn! If it weren't for some wild ones in the stock market (who created some artificial volatility by dragging the index down 1 per cent before ending it up 1 per cent), one would not have known that Tuesday was India Budget day.
Which is as it should be - and it shows that India, despite changing governments, is continuing with the strategy of slow and steady economic reforms. This Budget has consolidation of the tax regime (good), recognition that there were some bad taxes last year (e.g. fringe benefit and cash withdrawal taxes - very good), expenditure consolidation and greater concentration on investments (have to wait and see for the effects, but a good sign nevertheless) and an onward march towards fiscal prudence (excellent - especially since the temptation to increase spending more than growth was resisted).
All in all, not a populist Budget at all; rather, a boring, pedestrian Budget with a vision of a new, emerging India. Right on.
Perhaps my enthusiasm is great because of my fear of what might have been! There were enough reasons to worry about the knee-jerk populism of this United Progressive Alliance government.
Nursed in the lie that the Bharatiya Janata Party lost the last election because growth was not benefiting the teeming masses, the UPA leaders and advisers have been beating the drum about how India needed to change course, its policies needed to be oriented towards the aam aurat etc.
Forget about fiscal deficit we were told; instead, take the fortune of the temporary 8 per cent growth and increase tax rates and increase expenditure even more. The finance minister's Mr Chidambaram's response: get real, guys, the 8 per cent growth is not only not temporary, it can, and should, be increased.
The nattering Left's suggestions: the government should beat a steady retreat from support of policies for the rich people (translated, software and industry). Instead, it should go forth into areas that may have been appropriate in the Bharat at the time of independence: e.g. concentrate on agriculture because that is where the people are (wrong - more than half of rural incomes originate from non-farm activities), government employment programs (wrong again - in 2003, unemployment rates in India were at a historic low), job reservations for the schedule caste/schedule tribes in the private sector, continued high and high ground role for the government in the affairs of its citizens, no more privatisation, etc.
These suggestions were conveniently ignored by the FM. The first hint that signs they were a'changing came about a month ago, when (in a "small step for reforms but a giant step for the Congress party) the UPA government took on the Left by steaming ahead with a joint public-private partnership in the reconstruction of Mumbai and Delhi airports.
Not only did the government implement this partial privatisation, but in a bold move, it did so only after some required "cleaning" up of the bidding and award process. This good governance and seemingly pro-rich policy of the government was objected to by the Left, especially its unelected coffee-smoking contingent. They announced a nationwide strike.
This ill-conceived left strike was first broken by their very own - the elected communist leadership of West Bengal. Further, this elected left, with elections due in the next three months, quickly announced plans for the privatisation of their very own Kolkata airport!
It appears that the massive failure of the strike provided a lot of backbone to the reformers within the UPA - hence, Budget 2006/07. Far from announcing any increase in tax rates, or sock it to the rich childishness, the Budget makes a genuine attempt to come to grips with the reality of India circa 2006: A fast developing middle class economy, with greater interest in economic growth and equality of opportunity - and not, most emphatically not, in the "in the name of the poor" platitudes of yester-year.
Which means stable and low tax rates, a decline in the fiscal deficit, and with a significantly greater share of expenditure going towards infrastructure investment - both physical and social.
Far from moving away from the industry (as per the recommendations of the UPA and communist left), the Budget rightly suggests that there is no reason why India cannot be a major industrial power - and to begin with, a leading player in the global small car market.
That industry is India's future is part of the correct vision contained in Budget 2006-07. It is inappropriate to think of India as a poor, agrarian economy. Rather, the economy, and especially its people, are on a march towards a destiny that should have been rightfully theirs a good quarter century ago.
It was refreshing to note that the Budget recognises that 8 per cent GDP growth is here to stay - and the recognition that while the government has the power, it should resist all temptations to screw things up. The Budget does not quite lay the groundwork for 10 per cent growth - as yet - but it does signal that 8 per cent is to be expected, and appreciated, and that the Budget would certainly not be responsible for derailing the Indian economy.
The finance minister was also more than right in stating that these were interesting, unusual and extremely fortunate times to be an Indian, especially an Indian in position of influence. Even only ten years ago, very few Indians, let alone the rest of the world, was talking about India as a budding economic power, perhaps even a future economic superpower.
Most Indian intellectuals still talk about the great Indian poverty - this land of hopeless and helpless individuals. In this environment of naïve and nattering negativism, it is truly heartwarming to see Mr Chidambaram realistically talk of a concrete foundation to the (future) Indian castle.
They don't talk about Budgets in mature economies. What needs to be done in such economies is well known, and made well known beforehand. This trend was first started by the opposition National democratic Alliance government.
The UPA government, in its somewhat bumbling and often baffling ways, has continued with the policy of consolidation of the economy. It is now braver and wiser - who knows, maybe it will soon start implementing policies that will get the Indian economy on the 10 per cent growth path that the original reformer, Dr Manmohan Singh, now envisions for India. I would bet on it.
Surjit Bhalla is MD, Oxus Research & Investments
