Reading beyond the numbers: India's Budget 2004

Similarly the left parties of the ruling United Progressive Alliance (UPA) were also equally apprehensive: would the Finance Minister Mr. P. Chidambaram respect their views and cater to the needs of the more deprived? After all, partly harbouring this very suspicion is what led to some of them supporting the ruling alliance from the outside than by a formal agreement.

Lo and behold, the actual budget turned out to have satisfied both camps, at least for the time being. The market rallied, albeit marginally, and the left have not threatened any serious retaliation.

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A budget of US$ 105 billion couldn't really have been better balanced between the business communities of the cities and the remaining two third of the population that live in rural India. In fact, the fine balancing was only possible because the new government is fortunate to have inherited an economy that is already on a accelerated growth path, having registered 8.2 percent GDP growth last year. However, this climate of an economic boom is largely generated and enjoyed in the cities, which is why rural India voted so glaringly against the incumbent despite the apparent feel-good environment.

Industries like software services and business process outsourcing (BPO), driven by global growth, growing at a 30 percent annual rate. Mortgage housing, clocking an equally similar rate of advance driven by rising domestic affordability. And mobile telephony adding 2.2 million new subscribers every month are just few examples of sectors that are registering blistering surge. They are also largely responsible for switching the Indian economy to an auto-pilot mode. Helping balancing of policies lot easier for the government.

All that the finance minister Mr. P. Chidambaram had to do is reinforce and help sustain this momentum through a little bit more of the same. So he raised the foreign investor's limit on telecommunications from 49 percent to 74 percent, civil aviation from 40 percent to 49 percent and insurance from 26 percent to 49 percent. This will hopefully aid the flow of foreign direct investment (FDI) beating the measly US$3billion of last year.

He also provided a revenue target for privatisation, underscoring that it will be selective in nature, thus satisfying the desire of the communist in the coalition, but more importantly signalling to the market that reform and liberalisation is still on the cards.

Perhaps the most important pledge made at the budget was the resolve to balance it by 2009, adding stability to the declared economic reform process of growth reinforced by equity. Balancing the budget has good future implication. For a starter it helps build confidence with foreign investors who are putting money in the economy, it also promises lower interest rate structure in the future on the back of the government competing less and less for the precious personal savings pool. Historically debt for the private sector had always been at a high cost, hopefully with lower borrowing needs by the government will ensure the cost coming down.

While India's urban based economy, if we can call it that with a bit of levity, is on more or less in self generating momentum, the rural economy is still in backwater and needed desperate reviving. Interestingly, despite the communist influence with the government and the Congress's new found base for a mandate, the budget was not exactly promising to throw money at the rural sector. There wasn't an obvious thank you note in the form of free largess to the rural electorate. Instead, more thought and effort is been promised on the efficacy of the existing rural programmes. In a recent speech the Prime Minister Dr. Manmohan Singh stated, "You have sought a change in the manner in which this country is run, reform of administration to improve the quality of services will be our immediate priority. We will pursue economic reform but we cannot forsake the obligation of running a government that works for the people."

Rajiv Ghandi had once commented, that 85 percent of rural programmes are lost in leakage through corruption and inefficiency, perhaps a touch exaggeration but the current government believes that the number is not too far from the truth. It is this that Dr. Singh's government wants to put right. Montek Singh Ahluwalia, a seasoned senior bureaucrat who had just returned from the IMF to join the Planning Commission refers to "subsidiarity" as a means of providing better and effective governance through devolving decision making authority to the most appropriate level. This means delegating authority to the level of the village Panchayat, the most basic elected unit in a Indian village. The hope is that it will do lot better than the decisions made in Delhi or at least it can't do any worse than the present system- ineffective, remote and prone to corruption.

Chidambaram, through his more effective policies on education, health care, agriculture and food for work programmes in rural India has this vision of bringing the 700million people from the villages of India connect with the cities. He strongly believes that they must be bought into the growth net interacting with the other vibrant parts of the economy. He has imposed a 2 percent surcharge on tax to raise an extra US$ 1billion for developing education in rural areas. The budget also had the usual populist measures of easier rural credit and subsidised prices for the poor.

Businesses are pleased to see the emphasis in bringing rural India into the mainstream. Why shouldn't they be? As it means bolting on the demand of an additional 700 million people to the existing buying capacity of the urban middle class. This is really the new frontier of consumer India that had already excited the private sector, long before the current government saw the light by winning this election. The cigarette giant ITC of India is on a ambitious plan of bringing rural India on-line by placing a computer connected to the net at every choupal (village meeting place), through which the villagers can check prices and transact almost all their needs from cooking oil to tractor. If successful, which really means overcoming the initial keyboard phobia, but having just voted electronically this shouldn't be a major problem, the results can be phenomenal. Other businesses also see this potential and are waiting to leverage of the Government's initiatives.

The last budget of Mr.P Chidambaram in his previous incarnation in an earlier government was billed as a "dream budget" with lots of tax cuts and concessions, this one was nowhere near. But then he is not really kick starting a moribund economy, he has fortunately inherited a buoyant one, all he has to do now is nourish it further and build more equity in the wealth distribution process. For the time being, India's future success will be more through better execution of the existing policies than crafting new ones. The modus operandi is likely to be the two economist at the helm Messrs Singh & Chidambaram maximising returns within given constraints while Mrs.Sonia Gandhi will ensure that equity prevails with no erosion to her mandate.

Ghalib Chaudhuri, a former investment banker, is currently managing partner of Octavian Associates, an independent consulting practice based in Singapore.