The inadequate fiscal management of the present government is evident in the figures for the current fiscal year, which indicate a very large overall fiscal deficit of 6.5 per cent of GDP. This is despite having already increased several administered prices, and also having forced Public Sector Enterprises to cross-purchase "disinvested" shares to the tune of Rs. 7,500 crore under the "Buy-back" scheme. The most significant point is the increase in the revenue deficit by more than Rs. 12,000 crore, largely because of shortfalls in tax revenues.

The proposed Budget does not really offer any substantial fiscal correction to remedy this unsustainable situation. Rather, the fiscal deficit has been reduced by the simply accounting expedient of moving 75 per cent of small savings collection - amounting to Rs. 25,000 crore - directly to State Governments. Other capital expenditure is to decline in real terms, which is a recipe for worsening recession in an already depressed industrial environment.

Additional revenues are to come mainly from indirect taxes, and the diesel price hike, which will increases prices of most goods consumed by ordinary citizens. The resulting inflation will disproportionately affect the poor.

The budget has very little to offer in terms of real economic revival. The Finance Minister expressed his concern about agriculture deceleration and the decline in per capita foodgrain production, but central plan outlay for agriculture and allied activities is actually projected to fall compared to last year's budgetary outlay. The concern for the poor and for social expenditures is expressed by simply putting the responsibility on to gram panchayats, which are not functional in large parts of the country, especially where such spending is most needed. Similarly, there are no measures designed to reverse the industrial recession, except for the across-the-board customs surcharge, which is likely to have mixed effects for industry. The critical role of the state in boosting demand in periods of recession appears to have been forgotten.

This also makes the tax revenue projections in the Budget unrealistic. The large shortfalls in tax collection in the current year were the result of the recession, and unless economic revival is ensured, the anticipated additional revenue mobilisation through direct and indirect taxes in unlikely to materialise.

In any case, all the new taxes are in the form of surcharges, which are not shared with the States, so they add to fiscal centralisation. They also contribute to the continued shortage of resources for the State governments, which are mainly responsible for crucial expenditures on education, health, power and transport infrastructure.

The main incentives in the Budget are for the capital markets and for accelerating the process of mergers and acquisitions. Since these generally increase industrial concentration and reduce industrial employment, it is difficult to see the justification for such measures at this time. Indeed, financial expansion in this context may lead to a diversion of investible resources away from the real sectors, thus aggravating the economic decline.

The various incentives offered to foreign and NRI investment also encourage the trend to centralisation and buying up of existing companies rather than attracting fresh investment which involves the expansion of productive capacity. It will thus accelerate the process of transfer of ownership/control of Indian productive assets to non-residents.