This year's budget is about 2008-09, not 2007-08

Anyone commenting on the budget more than ten days after it has been presented risks being thought a bore. But I am going to be brave. I think there's a case for a relaxed view of the budget after the frenzied coverage on and around budget day.

The Union budget has become something of a spectator sport- like the World Cup one-dayers. There is a huge build-up of interest ahead of the event. You have saturation coverage in the visual and print media on the day of the budget and a couple of days thereafter. Then the budget vanishes from view.

Is this a problem? I think so because it's hard to get a handle on the budget without spending a little time on the budget papers. The sort of hurried analysis and comment we have now can be misleading- and, in fact, it gives finance ministers a chance to manipulate public opinion.

The budget analysis in some ways illustrates the classic problem of the information age: too much data and too little understanding. We were,perhaps, better off in the old days when there was no Internet and no business channels on TV and the budget papers were available as hard copy. The newspapers then dissected the budget over several days and it was possible to have an informed assessment. Now, we have instant judgements delivered on budget day- and zero analysis thereafter.

This is not going to go away. Finance minister P Chidambaram has been quoted as saying that the budget should be regarded as no more than a statement of government accounts. I doubt that the media is in a mood to listen and tone down its coverage. The budget is big bucks for the media, so they have an interest in perpetuating the hype.

I touch upon this problem in my latest ET column. This budget was supposed to be all about aam admi. The finance minister was supposed to have failed on reforms but succeeded in doing a lot for the social sectors. Look carefully at the budget numbers and you find very little to support this claim.

Read my full article in ET here.

But that begs the question. If the finance minister did not push reforms- especially in terms of reducing tax rates- and if he did not do much on the expenditure side either, what did he do at all in the budget? Not much, I am afraid. That may seem strange considering that the economy is booming and so are tax revenues. Surely, the FM could afford to cut tax rates or spend more?

The answer to the puzzle lies, I think, in the revenue projections for 2007-08. The FM shows tax revenues rising by just 17% in the coming year compared to 28% in 2006-07. That does seem too conservative. Assuming tax revenue growth just a little lower than in the current year- say, 25%- would have placed another Rs 28,000 crore the FM's disposal. He could then have allocated a great deal more for Plan capital expenditure, an item greatly neglected in budgets in recent years.

For those not familiar with the jargon, Plan capital expenditure is public investment of the sort that will have payoffs in future (as distinct from capital expenditure for maintenance purposes or in areas such as defence). How can you expect agriculture to do better if you don't invest in a big way in irrigation, dryland development, extension services, etc? You can't say you care for aam admi and then ignore public investment in agriculture.

So, if he has revenues at his disposal, why on earth did the FM not spend where required? Here's my explanation. I believe Mr Chidambaram is looking ahead to his next budget for 2008-09. The Sixth Pay Commission recommendations will be out in 2008. In his next budget, the FM will have to make a significant provision for higher salaries in government. Besides, elections will be round the corner and higher spending on various social heads will be required.

In other words, the FM will have step up expenditure significantly next time. While doing so, he has to meet the FRBM Act target of 3% for the fiscal deficit for 2008-09. For 2007-08, the deficit is projected at 3.3%. I suspect it will be lower- closer to 3%. But, to keep the fiscal deficit at 3% in the following year, he needs the cushion in revenues that he gets by not spending heavily this year. He keeps expenditure in check this year by simply under-estimating revenues.

For Mr Chidambaram, the FRBM targets are sacrosanct. He would like to go out next year in a blaze of glory as the FM who kept the nation's tryst with the FRBM target for 2008-09. That would explain the numbers we are seeing in the budget this time on the revenue as well as expenditure side.