Since a larger reduction in the fiscal deficit has to be ensured along with a significant decline in aggregate government spending, the budget estimates have been liberally conceived.

Pranab Mukherjee, the Union Finance Minister, was caught in a dilemma while formulating the budget proposals. First, he was under compulsion to reduce the fiscal deficit to 5.5 per cent of the GDP in 2010-11 from the revised 6.7 per cent this year and as much as 7.9 per cent if the petrol and fertilizer bonds are taken into account. At the same time, he had to ensure that the growth process was not inhibited by partial withdrawal of stimulus packages and reduced non-Plan revenue and Plan revenue expenditure. This required a balancing act. The objectives are now sought to be achieved through optimistic reckoning of the growth in tax revenues and new levies.

While net receipts from indirect and direct taxes will be only Rs.20,000 crore it is overlooked that new indirect taxes will fetch as much as Rs.46,500 crore, the cess on coal contributing Rs.3,000 crore. This does not take into account the loss of revenue from concessions to new projects aimed at providing cold storage and cool room facilities, construction of warehousing facilities and the like.

There will also be additional revenue for Rs. 6,000 crore from the hike in Minimum Alternate Tax (MAT) rate. But this will be offset by the revenue loss for a similar amount due to exemption from tax of limited investments in long term infrastructure bonds.

The relief to individual assessees due to a widening of tax brackets even with no change in exemption limit will be sizable at Rs.21,000 crore. The larger disposable incomes will help assessees manage the increased cost of products carrying higher import and excise duties.

Liberal estimates

While the reaction in stock markets to the budget proposals has been favourable, there is opposition to the restoration of levies on petroleum products that will bring in Rs.26,000 crore. Since a larger reduction in the fiscal deficit has to be ensured along with a significant decline in aggregate government spending, the budget estimates have been liberally conceived. Thus gross tax revenue will be rising by 17.94 per cent to Rs.746,651 crore from Rs.633,095 crore (2009-10 RE) or an increase of Rs.113,556 crore.

Net tax revenue will be rising modestly to Rs.5,34,094 crore from Rs.4,65,103 crore or by Rs.68,991 crore. As non - tax revenues will be higher by Rs.35,927 crore, aggregate revenue receipts will rise to Rs.682,212 crore from Rs.577,294 crore or by Rs.104,918 crore. On the former occasion, total revenue receipts increased by Rs.37,035 crore.

With larger revenue receipts, the Finance Minister could raise non-Plan revenue expenditure by 6 per cent to Rs.735,657 crore from Rs.695,689 crore (2009-10 BE). Plan revenue expenditure will increase by 15 per cent to Rs. 3,73,092 crore from Rs.325,149 crore, the revenue deficit will thus be declining to Rs.276,512 crores from Rs.3,29,061 crore (2009-10RE) and Rs.282,735 crore (2009-10BE) respectively.

The content of non-Plan revenue expenditure will be different as interest charges will be rising by Rs.56,460 crore against the increase in total revenue non-Plan expenditure by Rs.84,575 crore. Defence Services will account for Rs.14,039 crore and other services Rs.27,560 crore. The increase under the latter could be achieved as expenditure on subsidies will be declining by Rs.13,484 crore.

Total capital expenditure will also be rising to Rs.1,50,025 crore from Rs.1,16,448 crore. The share of non-Plan capital expenditure will be higher at Rs.92,058 crore against Rs.49,697 crore (2009-10 BE) partly due to an increase in defence capital expenditure by Rs.19,092 crore, other non-Plan capital expenditure will be rising by Rs.23,269 crore and Plan capital expenditure will account for Rs.11,216 crore additionally.

With larger debt and non-debt receipts, net borrowing through market loans will be lower at Rs.3,45,010 crore against Rs.3,98,411 crore (RE) and Rs.3,97,957 crore (BE) respectively. The fiscal deficit will thus be Rs.3,81,408 crore against Rs.4,14,041 crore (RE) and Rs.4,00,996 crore(BE) respectively, working out to 5.5 per cent, 6.7 per cent and 6.8 per cent respectively. The lower fiscal deficit in percentage terms is also facilitated by a more pronounced growth in GDP expected in 2010-11.

Whether the tax revenue estimates will be fully realised is not clear as the levies on petroleum products have been criticised by opposition parties and two allies of the UPA government. Though the Revenue Secretary has asserted that only the earlier cut in duties has been restored, it is recalled in certain circles that the UPA government was even earlier hesitating to increase selling prices for petrol and diesel modestly. It was then felt that any such upward adjustments by the Union Ministry of Petroleum and Natural Gas would accentuate inflationary pressures.

It is asked how a hike in import and excise duties is now proposed as it will have a similar inflationary effect on the economy. The Prime Minister and the Finance Minister for their part have been asserting that the additional revenues are required badly and inflation rate will not be rising uncomfortably on this score. It remains to be seen whether there will be a slight rollback of the increase in duties.

Bourses buoyant

The reaction in stock market circles has been favourable and the BSE index has registered a net rise of 500 points since the budget proposals were announced.