A government that completes its full term cannot help but go through a cycle in its Budget-making strategy.

The first year is typically full of rosy visions and grand plans. Promises are made and schemes are proposed that have little relationship to the system's capacity to deliver.

People are inevitably frustrated and begin to speak in dire terms about 'implementation.'

By the fourth year, pragmatism has come to the fore and there is a much more accurate assessment of what can be done and how much should therefore be attempted.

A fourth-year Budget must be judged appropriately. It must exploit all the opportunities that the economic environment realistically offers. It must reflect the government's collective learning on what works and what doesn't and how quick the payoffs are.

And, very importantly, looking ahead to the elections, it must balance the use of economic policy to win votes against the prospect of coming back to office and having to deal with a fiscal mess.

On these yardsticks, there is little question that this has to be judged as an excellent fourth-year Budget. This year sees the best macroeconomic conditions the country has had in a long time.

There is reasonable growth in industry and services, low inflation and interest rates and large protective buffers of food and foreign exchange.

The combination provides an opportunity for the government to push ahead with a relatively ambitious programme to strengthen the momentum.

The success of the highways programme, which has certainly been the government's biggest credit-earner on the economic front, must reassure it that expanding the programme and committing more resources to it cannot but pay off, and fairly quickly at that.

More so, from an implementation point of view, the institutional framework to facilitate private participation seems to be functioning reasonably well in this sector. This gives the government scope to significantly leverage its resource commitments with private sector funds.

The industrial recovery of the past year is closely related to the increase in construction activity.

Highways contributed but so did housing, a sector that has been upbeat since the initiatives of the 1999 Budget, but which really blossomed in the low interest rate environment of the past year.

But, there was an added payoff. Construction is relatively labour intensive, which means that many jobs were created, which boosted the demand for consumer goods.

Given the adverse agricultural scenario last year, the creation of large numbers of jobs in rural areas surely contributed to mitigating the impact of the drought. This is probably why, even though agricultural activity declined substantially, industry and services stayed quite buoyant.

So, construction contributes to the industrial recovery and puts many people to work, which cannot but help politically.

But, many people are quite concerned about the impact that increasing spending in this activity without addressing the bigger question of excessive spending will take public finances even closer to the brink.

Without diminishing the very serious long-term implications of the state of government finances, I would argue that the short-term likelihood of fiscal collapse is not that great.

This Budget estimates a fiscal deficit-GDP ratio of 5.6 per cent in 2003-04, compared to the revised estimate of 5.9 per cent for 2002-03. The implicit assumption of nominal GDP growth is, therefore, 11.3 per cent, which is fairly typical.

On the basis of current inflation rates, this can be broken up into real GDP growth of 6.5-7 per cent and inflation of somewhere around 4.5 per cent. But, to accurately assess the realism of the deficit estimate, we have to look beyond aggregate GDP and into the implicit assumptions about sectoral growth.

This is needed because of a very strong disparity in the tax burden across sectors, which I have been commenting on for a long time now.

Industry, which accounts for about 25 per cent of GDP, contributes several times that fraction of total revenues. The point is that, for a given rate of GDP growth, the mix between industry, agriculture and services will determine the level of revenue collection.

Comparing 2002-03 and 2001-02, the latter apparently showed higher GDP growth, but most of that came from agriculture; industry was very sluggish in 2001-02.

Despite the faster GDP growth, revenue collection was far weaker, precisely because industry was depressed.

Against this background, from the revenue estimates in the Budget, it is possible to work out the implicit assumption of the industrial growth rate.

The bottom line is that industrial growth of 6.5-7 per cent during 2003-04 should allow the government to achieve its revenue targets.

As was argued above, the construction emphasis in the Budget, along with some of the other initiatives, will provide a quick boost to industrial activity. So, this is not at all an unreasonable expectation.

Since expenditure rarely exceeds Budget estimates, a reasonable assessment of the deficit is that, barring prolonged economic upheaval, the Budget estimate is realistic and achievable.

The government has clearly drawn on its experience. It is leveraging the impact of its expenditure strategy to generate revenue buoyancy.

There are many more examples of this kind of leverage, but space is running out. I find one particularly interesting. The dividend tax was abolished, but a distribution tax was imposed in its place.

From the shareholder's perspective, this probably makes no difference. But, let's look at this in the context of the recently enacted Securitisation Law. As banks repossess assets from defaulters, they are going to be looking for people who can take these over and run them.

So, a large supply of assets is going to emerge. How does one create a demand for them?

Well, you try and encourage companies, who have a lot of cash but not much interest in expanding their existing business lines, to look for diversification opportunities.

Theory would suggest that these are precisely the companies who pay out large dividends. So, discouraging payout is a way of steering them in the direction of looking for expansion through acquisition.

The supply of such assets created by the Securitisation Act is consistent with the demand that is likely to be generated by the distribution tax.

In sum, my early assessments of the Budget lead me to the conclusion that it satisfies the three benchmarks I laid out above.

Pragmatism, learning from experience as to what works and what doesn't and exploiting opportunities are qualities to be commended, whether in government or in cricket.

Both as an economist and a cricket fan, this was unquestionably a great, great weekend.

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