Editor's note on Budget 2008

You may be a Harvard Graduate, one of the finest legal minds in the country and even an old hand at budget making, but when you are also a politician with political masters and, worse, an election to win, then you have no choice but to set aside whatever your rational mind may dictate. That, to a large extent, explains why Finance Minister P. Chidambaram's hand may have been forced over loan waivers to farmers-a staggering Rs 60,000 crore in all. While that explains Chidambaram's political compulsions-general elections are due next year, possibly later this year itself, and Indian voters have a track record of voting incumbent governments out of power-it does not justify the UPA administration's decision to turn the Union Budget into a vote-gathering exercise.

"Stand up and be counted for the farmer of India," Chidambaram chided Business Today when the magazine met him a few hours after he presented his fifth consecutive Budget under the UPA administration. BT is more than in favour of the government doing something for the farmers and the farm sector-after all, that's the only economic engine that hasn't been firing properly in an economy that's otherwise roaring. But the problem with Chidambaram's largesse this time around is that it doesn't target any of the fundamental problems-like irrigation, better seeds and farming practices and access to markets-that ail agriculture. The farmer, thus, has even less incentive to improve because the government will bail him out. Similarly, the Sixth Pay Commission will inevitably increase the government's wage bill, but-like in the case of farm waivers-it is not evident where the money for this will come from. The Budget is silent on both counts. Therefore, Chidambaram's deficit figures may be way off targets.

That said, Budget 2008-despite not removing FBT and the increase in short-term capital gains tax-could help stimulate the economy. Particularly, Chidambaram's decision to increase income tax exemptions across the board will put more money in the hands of consumers that they can then spend on small cars, two-wheelers and certain food items that have become cheaper due to excise duty cuts. The Sixth Pay Commission, whose report will be tabled by March 31, will also fatten the wallets of thousands of Indians. The key to Chidambaram's calculations is continued economic growth; if the growth accelerates beyond 9 per cent a year, Chidambaram-or whoever the next Finance Minister is-will have less of a mess to deal with in the years ahead. Otherwise, his proposals may come back to haunt the economy.