After giving up the effort to absorb the numbers tumbling out one after another in the finance minister's Budget speech, one thought struck me.

Sir Humphrey Appleby does not work in the ministry of finance, and Jaswant Singh is far from being a James Hacker (of Yes Minister fame).

Remember how Sir Humphrey would persuade Hacker to withdraw measures by describing them as "bold"?

Singh's Budget, widely anticipated to be "soft" ahead of the next year's election, on the contrary, contains many bold measures, which the average finance minister would eschew in similar circumstances.

To name just a few, the cut in small savings interest rates by 1 per cent, increase in the retention prices of fertilisers and the acceptance, in principle, of the Kelkar Committee recommendations on direct taxes despite the criticism by a committee appointed by Singh's own party.

But this apart, to me, one statement (in the unexpectedly long speech), which exemplified the distance we have travelled, pertained to gold. The import duty has been cut from Rs 250 per 10 gm to Rs 100  --  and the finance minister talked of his ambition to make India a major international gold trading centre.

What a change from the time, just a few years back, when gold import was not allowed and the smugglers were laughing all the way to their banks!

Another feature of the Budget could also be considered "bold"  --  or, depending on the viewpoint, foolhardy. This is the question of the intractable fiscal deficit. At least in his speech, the finance minister seemed almost benign about the level of the deficit which, persisted with long enough, would surely be inflationary. (One question  --  do the MoF and Reserve Bank of India now tacitly accept that, in our fiscal situation, high interest rates are as much a cause of the deficit, not so much the other way round?)

As it is, the 12-month rise in the wholesale price index has gone up from just 1.2 per cent in February 2002 to over 5 per cent a year later.

I have been looking at the composition of the change in the index and it is clear that the rise has been fuelled much more by primary goods  -- no surprise in a year of drought  --  and fuel prices.

Manufacturing inflation has also gone up but nowhere near by as large a percentage as in the other two segments. One expects that oil, and therefore fuel, prices will come down once the confrontation in Iraq gets over  --  in any case, we can do very little about it.

As for agriculture output, the last decade's history shows that the output in this segment of the economy has gone up and down in alternate years. If the pattern holds, 2003-04 should witness a significant rise in output; in any case, there are enough buffer stocks to control the price rises (what will be more difficult to control would be the increase in the minimum support price in an election year).

This apart, this year's fall in grain production and therefore in the buffer stocks should have led to a larger fall in food credit. As it is, the fall in the year to February 7 seems disproportionately low at Rs 4,500 crore (Rs 45 billion).

This leads me to the issue of interest rates. In particular, following the 1 per cent cut in the administered small savings rates, is a drop in bank interest rates likely? The finance minister himself has expressed concern in his speech at the cost of money to most borrowers other than the top rated companies. He seems to think that a ceiling of 2 per cent over PLR should help reduce the cost of funds to the weaker/smaller borrowers.

But even at this ceiling, and the inflation rate at about 5 per cent, the applicable interest rate implies a real cost of 7 to 8 per cent  -- which does seem too high. Nor is a further fall in nominal interest rates likely, first, because of the inflation number, and, second, because, even after the 1 per cent drop, administered interest rates remain higher than what banks are paying.

I have referred earlier to the acceptance, in principle, of the recommendations of the Kelkar Committee as regards simplification of the tax structure and elimination of the host of deductions. Not much has been done on this in the present Budget  --  indeed, quite the contrary.

The standard deduction and surcharge provisions have become more complex; and the new LIC scheme giving 9 per cent return to senior citizens adds yet another subsidy which would direct savings in particular instruments. (This apart, has anybody imagined the complexity of determining the subsidy? It is worth recalling that the issue of ERAS subsidies has still not been sorted out 10 years after the scheme was discontinued).

The Reserve Bank of India's Report on Currency and Finance 2000-01 had estimated the growth maximising rate of inflation at 5 per cent. It had also argued that a 1 per cent fall below this threshold leads to decline in output by 2 per cent below potential.

Now that we are close to the inflation rate, should we see much stronger growth in the next fiscal year? I am hopeful  --  there are already signs of a pick-up in economic activity, in output of the capital goods sector, in demand for bank credit etc. If, in addition, agriculture output also grows, we could be back to 6 per cent to 7 per cent GDP growth in 2003-04. Good luck to you Mr Minister!

While looking at the big picture, I am tempted to make two points:

• Every budget introduces new schemes and initiatives, this time, for example, in the infrastructure and health care sectors. Do we ever abandon/discontinue any schemes which have not delivered the expected results? If so, I have not seen much evidence of this. Or, are there really "no full stops in India"?
• The other thought too is administrative, not economic. Fund raising dedicated to specific projects, like the cess on petrol and diesel to fund highways, and the implementation of these projects by separate entities divorced from the typical government department culture, seem to lead to efficient project implementation  --  the progress on the Golden Quadrilateral and the Delhi Metro are shining examples of this phenomenon, which we need to consciously replicate elsewhere.
  

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