In this context, I have, and also perhaps because of having worked in the Ministry of Finance during the 1991-95 period, always believed that the budget in an emerging economy is the right occasion to make significant policy announcements. I prefer this approach because inclusion of major policy announcements in the budget demonstrates the capacity of the government to coordinate across different ministries and bring them in line with its major goals and objectives. This reduces the lead time in designing and implementing the proposals and puts the Ministry of Finance in the leading role for economic policy making as it should be. This also gives the necessary confidence to markets that required measures for stimulating private investment are already on the anvil and will be effective sooner rather than later. On this count, this budget falls somewhat short. But fortunately, the Finance Minister has given enough signals and indications of the direction and areas in which such reforms may be expected in the near future. These include inter-alia, the change in the nature of the fertilizer subsidy, the dismantling of the administered oil price mechanism, code for direct taxes, the medium term fiscal direction from the Finance Commission and better targeting of subsidies etc. Let us hope that these required structural reforms will be implemented in the near future by the respective line ministries.

It is good to see that the budget does lay down a time path for restoring fiscal norms and rein in the fiscal deficit. I would of course been happier if some specific measures were spelled out for achieving the goal of bringing the revenue deficit down to zero by 2012-13. It seems that the government is also contemplating monetizing almost half of its borrowings in order not to push up market interest rates. I am sure the RBI was consulted on this in advance as this directly affects its monetary policy stance in the coming months. This could be a risky course to take and the Government and the RBI will have to be constantly vigilant to prevent any inflationary expectations from building up. Perhaps it may be better to monetize early when the inflation is still near zero rather than wait for later when the festival season demand, better Khariff prospects and a positive turn around in external conditions may begin to exert an upward pressure prices. The key of course is to combine constant vigilance with readiness for decisive action for nipping any unwanted trends in the bud. Releasing government food stocks in anticipation of higher demand to prevent food price inflation is a good example of such action.

The simplification of the direct tax structure by removing the cesses, exemptions and taxes which were clearly inefficient and unwelcome is most welcome and so is the rise in presumptive tax limits. Hopefully some extra effort can be put in the by the CBDT to popularize this instrument as it can make life easier for the SMES. Bringing in the legal profession under the service tax net is a long due measure and so was the inclusion of rail and water transport services. Raising central excise rate from 4 to 8 per cent is the right step towards achieving three tier excise structure. My suggestion would be to have a zero, 8 and 12 per cent and do away will all other rates. The customs duties still look quite complicated and need to be urgently rationalized.

I have often argued that there is a loose inverse correlation between the stock market reaction to the budget and its intrinsic merits. And on that count this budget passes muster! But could it be that the markets are saying that not enough has been done to stimulate private investment? And in response the finance minister is asking for being given the benefit of the doubt. We will surely know by the time the next budget is presented. That is the space for restoring confidence and with it the basis for returning the economy to a higher growth path.