IContrary to expectations, the budget gave a lower priority to economic reforms while not neglecting it altogether at a time when the world economy is hit by an economic slowdown. Finance Minister Pranab Mukherjee explained that short-term and medium-term challenges for the Indian economy are 'to lead the economy back to the high GDP growth rate of 9 per cent per annum at the earliest.'

This, he said, is to deepen and broaden the agenda for inclusive growth benefiting the backward sections and to re-energise the government, improving delivery mechanisms. The total outlay on social and rural development is Rs 71,000 crore ($14.2 billion approximately). Of this the National Rural Employment Guarantee Scheme (NREGA), whose popularity earned electoral dividends for the UPA government, gets a massive allocation of Rs 39,100 crore ($7.82 billion).

This is a 144 per cent hike over last year's outlay on the programme. The high level of budget expenditure is supported by a hike in fiscal deficit to 6.8 per cent of GDP. Mr. Mukherjee admitted that this level of deficit is a matter of concern and promised to address the issue in right earnest to come back to the path of fiscal consolidation at the earliest.

Asserting the budget was laudable, Prime Minister Manmohan Singh assured Members of Parliament that the proposals touch all sections and have in view long-term goals. Though his announcement that the public spending will lead to a high fiscal deficit of 6.8 per cent left a deleterious impact on the stock market on the budget day, Mukherjee said that this issue would be addressed later. He said the government would come back to the path of fiscal consolidation at the earliest.

Speaking later to business leaders, Mukherjee said the government was committed to come back to the higher growth path as fast as possible. He said the growth has to be inclusive and not just confined in statistical terms. The finance minister said investment in areas like rural infrastructure and agriculture will give the desired growth rates in a shorter span of time, compared to other segments.

He said that the Finance Ministry would strive hard in the next two fiscals to bring down the fiscal deficit to 4 per cent.

On disinvestment, Mukherjee said the government was committed to divesting its equity in public sector enterprises, but will retain a minimum of 51 per cent equity in these entities. On concerns that the government's huge borrowing would deplete the market of liquidity for corporate borrowers, he said that the borrowing programme would keep in mind the requirements of the private sector. The finance minister said that the aim was to achieve at least 9 per cent of GDP available for investment in infrastructure by 2014.

The taxation proposals in the budget aim at mobilising a moderate amount of an additional Rs 2,000 crore ($400 million) through changes in indirect taxes. On the personal tax front, the middle class has a reason to cheer. The tax exemption limit is raised by Rs 15,000 ($300) a year for senior citizens to Rs 2, 40,000 ($4,800). Women tax payers have their tax ceiling raised by Rs 10,000 and now don't have to pay tax up to an amount of Rs 1, 90,000. Other category of tax payers also get a tax exemption of Rs 10,000 a year. The decision to remove the 10 per cent surcharge above Rs 10 lakh ($20,000) per annum on all tax payers is aimed at reviving demand for the manufacturing sector which is facing a crisis currently.

The business houses have not taken kindly to the decision to leave the corporate tax unchanged though Mukherjee says the immediate focus would be to accelerate domestic growth as the global recession is still to end. The corporate houses had anticipated lowering of tax structure to leave them with adequate funds for investment.

The finance minister mentioned about the possibility of the economic downturn persisting in the current financial year (April 1, 2009 to March 31, 2010). The short-term measures already taken to counteract the negative fallout of global slowdown on the Indian economy had included the provision of three focused stimulus packages in the form of tax reliefs to boost demand and increase expenditure on public projects to create employment and assets, he explained. The apex bank, Reserve Bank of India, has also taken a number of steps to facilitate the flow of public funds to meet the needs of productive sectors.

Presenting the budget proposals for the year 2009-10 in Lok Sabha, Mr. Mukherjee pointed out that the policies in a medium-term perspective would have to pay attention to sustain a growth rate of at least 9 per cent per annum over an extended period of time.

There is also a call to strengthen the mechanisms for inclusive growth for creating about 12 million new work opportunities per year he said, adding that the government aimed to reduce the proportion of people living below poverty line to less than half from current levels by 2014.

He said efforts would be made to ensure that Indian agriculture continues to grow at an annual rate of 4 per cent.

The Budget Estimates (BE) for 2009-10 provide for a total expenditure of Rs 10,20,838 crore ($204.16 billion) consisting of Rs 6,95,689 crore ($139.13 billion) towards Non Plan and Rs 3, 25,149 crore ($65.02 billion) towards Plan expenditure.

The increase in Non Plan expenditure over BE 2008-09 is 37 per cent, whereas the increase in Plan expenditure is 34 per cent. The total increase in expenditure in 2009-10 over BE 2008-09 is 36 per cent.

The increase in Non Plan expenditure is mainly on account of the implementation of the Sixth Central Pay Commission recommendations, increased food subsidy and higher interest payment arising out of the larger fiscal deficit in 2008-09. Interest payments are estimated at Rs 2, 25,511 crore ($45.10 billion), constituting about 36 per cent of Non Plan revenue expenditure in BE 2009-10.

The total provision for subsidies are up from Rs 71,431 crore in BE 2008-09 to Rs 1,11,276 crore ($22.25 billion) in BE 2009-10. The outlay on Defence has gone up from Rs 1, 05,600 crore in BE 2008-09 to Rs 1, 41,703 crore ($28.34 billion) in BE 2009-10.

Explaining the government's concept of inclusive development, Mukherjee said that the National Food Security Act will ensure that every family living below the poverty line in rural or urban areas will be entitled by law to 25 kilos of rice or wheat per month at Rs 3 per kilo.
Mukherjee also announced a landmark food security programme which should go well with the rural masses.

'I am happy to announce that the work on National Food Security Act has begun in right earnest,' he said in his budget speech. This will ensure that every family living below the poverty line in rural or urban areas will be entitled by law to 25 kilos of rice or wheat per month at Rs 3 a kilo. The government proposes to put the draft Food Security Bill on the website of the Department of Food and Public Distribution for public debate and consultations very soon.

Summing up the budgetary proposals, Dr Manmohan Singh later told the media that the government was doing all that was necessary to give an impetus to the economy.

'There are medium term concerns that the growth momentum of the economy must be restored notwithstanding the decline in the international demand for our exports. The road to do that is to strengthen infrastructure investment both in the public sector and in the private sector through the PPP route. The budget does that admirably well,' Dr Singh said.

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