THE FINANCE MINISTER HAS BROUGHT down the fiscal deficit, cleaned up accounting by eliminating ‘below-theline’ items, unified the rates of tax on goods and services, even while giving away Rs 26,000 crore of direct taxes, offering companies a lower surcharge on their incomes and individuals, higher slabs for higher rates of income tax.
   Exceeding the targets of fiscal rectitude suggested by the Finance Commission, the government plans to bring the fiscal deficit down to 5.5%, 4.8% and 4.1% of GDP over 2010-13. This would ease pressure on interest rates, as the competition between the government and the private sector for bank loans would turn tame.
   The FM achieves this feat primarily by compressing non-plan expenditure: it goes up by a mere 4% over the revised estimates (RE) for 2009-10. Hopefully, the decline in budgeted subsidies reflects a determination to free petro-fuel prices, as recommended by umpteen committees. Tax revenues go up by 14% over 2009-10 RE, thanks to reimposition of import duty on crude and refined petro-fuels, a 2% hike in excise duty to bring it on par with service tax, and expansion of the service tax scope, on top of strong economic growth. Of course, this rise in taxes is higher than the projected increase in nominal GDP of 12.5%, a return to the pre-crisis trend for India’s tax/GDP ratio to rise steadily.
   The government also hopes to mop up Rs 40,000 crore from sale of shares in public enterprises and Rs 35,000 crore from auction of telecom spectrum. These add up to 1.1% of GDP.
   Plan expenditure is slated to move up 18.4% over RE, more than twice as fast as total expenditure (8.5% over RE). This is a welcome move, one that would raise the share of investment in government expenditure. And, India’s infrastructure cries out for a lot of investment. The macro framework is turning stable, making room for the government to turn its attention to other reforms: enabling land acquisition for infrastructure, foreign investment in retail & insurance, ending political patronage of power theft and reform of political funding.