Dr Jayaprakash Narayan, national coordinator of Loksatta, reviews the Union Budget of India, 2007.

Mr. Chidambaram enjoyed great advantages while presenting this year's budget.   The growth rate is impressive, and by all accounts sustainable in the medium term.   Revenue increase is the highest in recorded history.  Fiscal deficits are at last being contained.  Savings rate is almost one-third of GDP.  And the government is politically stable.

Considering these advantages, the FM seems to have squandered a priceless opportunity to set a new direction, and give concrete shape to the vision of inclusive growth.   There are no serious errors of commission, but errors of omission are aplenty.  True, there are no new taxes except the 1% additional surcharge on all taxes for secondary and higher education. Import duties have been slashed.   The emphasis on agriculture is necessary and justified, but not matched in action.

What are the errors of omission?

First, the actions on agriculture are inadequate.  Focus on seeds, more credit and replenishing ground water reserves and improving water harvesting is welcome.   But there are other glaring areas which remain unaddressed.  Most farmer suicides pertain to cotton growers.  The unfair advantage to OECD farmers on account of high farm subsidies ought to be neutralized by increasing import tariff on cotton.   The real challenge of agriculture is establishing market linkage and creating value addition to agricultural produce to enhance rural incomes.   Credit cooperatives are still under stultifying government control, and over 60% of farmers have no recourse to institutional credit.   Aggressive measures to restructure and liberate cooperatives along with cash support are necessary.   The Budget failed to act on all these fronts.

Second, the effort to improve ITI's infrastructure is welcome.  But there are millions of educated youngsters who lack skills and are unemployed.   Despite high growth rate, employment in organized manufacturing sector remains stagnant.  Even I.T. and other sectors are handicapped for want of skilled workers.   A massive national programme for skill promotion is vital today.   The FM failed to address this issue of employment and skill promotion.

Third, FM did initiate a modest social security scheme for the unorganized poor.   But it is too modest to make an impact.   92% of our work force is in unorganized sector.  Out of the nearly 40 crore such workers, FM's proposals touch only 15 million families, of which 7 million will get support this year.   This is too anaemic an approach to make a serious impact on the plight of the unorganized workers.

Fourth, while Education allocations have increased, and school enrolment has improved, outcomes are far from satisfactory.   In healthcare, even allocations are paltry, still stubbornly remaining below 1% of GDP.  And there is no effort to create new incentive mechanisms to guarantee quality healthcare to all.   As a result, despite rhetoric on social sector, allocations are insufficient and outcomes are poor.  The Budget failed to address these fundamental issues.

In infrastructure sector, power and urban transport pose formidable challenges.   Power sector net losses are about Rs. 26,000 cr. per year, and subsidies touch almost Rs. 40,000 crore.   Distribution improvement with local participation is the key.   The budget indicates that the government has thrown up its hands in despair in this vital sector.  In urban transport, low cost, effective choices need to be incentivised and promoted.   No such effort is discernible in the Budget speech.

Handicrafts sector has been plagued by years of neglect and decay.  Support to a few handloom clusters is welcome, but insufficient.   A national programme of diagnostic survey of all handicraft clusters, and support by way of credit, technology, infrastructure, skills and marketing are critical.   If revival of certain handicrafts is unlikely, then promotion of alternative skills and reemployment are necessary.   The Budget does not explore these options.

There is huge migration to big cities, and villages are getting depopulated.   A concerted effort to promote in situ urbanization to provide amenities and services and encourage local migration through market incentives is necessary.   The Budget simply ignores this mounting challenge of unchecked migration and rise of urban poverty.

The real estate boom has further boosted the black economy.  A comprehensive approach to provide house sites and housing to urban population, and promote open transactions to curb the menace of black money is needed.   For instance, long term capital gains tax on land can be significantly reduced.  The FM left this whole sector to realtors and land grabbers, allowing serious distortion of market prices and continued real estate bubble which could seriously undermine our economic gains.  

Finally, the Budget did not pay any attention to the economic aspects of governance challenges.   A nation-wide land survey and digitization of records are needed; the police forces needed to be modernized to meet the growing challenges in a humane and effective way; the court system needs to be expanded and made accessible.   All these need significant investments and incentives and support to states.  The Budget ignored these sectors while making allocations.

All in all, a great opportunity has been squandered.