In the end Mr. Chidambaram could not resist the temptation of doing some bean counting, and dwelt at inordinate length on a plethora of minor tax and spending changes that he could very well have left for his fellow parliamentarians to glean from the budget papers. But despite that the basic philosophy that guided him in the preparation of the budget came through loud and clear.

With the economy doing very well, tax revenues buoyant, and the revenue and fiscal deficits both decisively on the way down there was no need to take any decisions that would either affect the political stability of the government or ruffle the feathers of the public.

Within this 'don't rock the vote' approach, the finance minister has done some welcome fine tuning — the peak rate of customs duty has been brought down from 15 to 12.5 per cent and most duties on raw materials have been brought down much further and excise duties have been made to converge further on the median central VAT rate of 16 per cent. The government intends to intensify its direct assault on poverty by increasing the allocations for and its eight pronged Bharat Nirman programme.

Finally he has attempted to ease the plight of farmers by lowering interest rates on crop loans and farm credit, and of the aged poor by increasing the central pension from Rs75 to Rs200.

Mr. Chidambaram's approach would have been irreproachable, if the economy had been in even a semblance of balance already. But it is far from being so. The budget therefore needs to be measured against a second yardstick — to what extent has it sought to remove the structural flaws in the economy and in the centre's finances so that the economy can achieve its full potential. By this yardstick the budget has done absolutely nothing.

It is true that the share of investment in the GDP has risen by a quarter from 25.3 per cent in 2001-02 to 30.1 per cent in 2004-05. But the increase is entirely in the private sector. Private investment is going into industry, trade, services and housing; only a small part has gone into infrastructure and that has been confined mostly to the telecommunication and ports sectors. This boom in private investment is not only continuing but gathering strength, but it will prove short-lived if the infrastructure continues to deteriorate at the present rate.

Chidambaram is aware of this and has sought to dispel fears by emphasising the government's achievements in this field. But to do so he has cited absolute figures and carefully refrained from comparing these with the country's actual needs. For instance the installation of 35,000mw of power generation capacity in the 10th Plan — 7,000mw a year — is indeed a record. But in terms o the country's needs it does not compare with the 4,000mw a year that was installed during the Seventh Plan. Between 1985 and 2005 the economy has almost quadrupled in absolute size and the demand for electric power has grown even more rapidly. To equal the Seventh Plan's achievement the installed capacity should be going up by closer to 9,000mw a year. The truth is that even at 7,000mw a year investment in power generation continues to fall behind the country's growing needs. The situation with regard to roads is infinitely worse.

A Ponzi
The decline in the revenue and fiscal deficits is also good only on the surface. The more than 7.5 per cent growth of GDP in the past three years has imparted a welcome buoyancy to tax revenues. This has allowed Mr. Chidambaram to bring down the revenue deficit to 2.6 per cent and the fiscal deficit to 4.1 per cent of the GDP.

But as in the case of infrastructure these figures only draw our attention away from the fact that for years this and its predecessor government have been running a Ponzi scheme — borrowing to service past borrowing — on a truly grand scale.

This is because, as the budget documents show, debt serving now exceeds the entire current revenue of the central government. Mr. Chidambaram is therefore borrowing not only to finance development expenditures but also to pay the salaries and pensions of the central government's employees.

The last three year's revenue growth has eased this crisis somewhat — so much so that if all goes well the government will at last be able to pay all of four crore civil servants' salaries out of its own money. But one would have to sustain a 7.5 per cent growth rate for 50 years to get to the point where even the entire salary and pension bill can be met from current revenues.

The only way to do this, and allow borrowed money to be actually invested in roads, ports and power plants, is to cut back the government's non-development expenditure drastically. This means cutting government subsidies, notably on fertilisers foodgrains and petroleum products. But on this Mr. Chidambaram has said not a word.

Had he implemented the Rangarajan panels' recommendations on petroleum product pricing alone, he would have raised Rs40,000 crore for the exchequer without putting any significant burden on the public. But faced with the Left's obduracy on the issue of subsidies he has chosen discretion over valour.

* The author, a noted analyst and commentator, is a former editor of the Hindustan Times, The Economic Times and The Financial Express, and a former information adviser to the prime minister of India. He is the author of several books including, The Perilous Road to the Market: The Political Economy of Reform in Russia, India and China, and Kashmir 1947: The Origins of a Dispute, and a regular columnist with several leading publications.