The best feature of this budget is that it has carefully done nothing to damage the growing momentum of private investment in the economy despite pressures from the Left to raise the tax-GDP ratio.

The budget presented by Mr Chidambaram was cautious to the point of being timid. But the virtue of a major policy pronouncement can often lie not in what it does but what it does not do. The best feature of his budget is that it has carefully done nothing that could damage the growing momentum of private investment in the economy, and India's growing allure as an investment destination for foreign investors.

That is no small achievement. For ever since the budget-making exercise began Mr Chidambaram has been under pressure from diametrically opposed ends of the political spectrum. While the Left and sections of the Congress party itself have been pressing him to honour the commitments made in the 'common minimum programme' (CMP) and substantially increase outlays for education, health, nutrition and employment generation, economists and industrialists have been urging him to fulfil his promise to boost investment in infrastructure.

As if that were not enough, the government's tax revenues fell Rs8,700 crore short of last July's estimates and, only weeks before the budget had to be presented, the Twelfth Finance Commission took another Rs26,000 crore bite into its revenues on behalf of the state governments. Since the Left was also pressing the government to raise the tax-GDP ratio by 1.5 per cent there was widespread apprehension that he would try to bridge at least a part of the gap between revenues and outlays by raising the effective rate of taxation.

Mr Chidambaram did no such thing. Instead he lowered customs duties and rationalised excise duties to bring Indian tax rates more in line with those prevailing in East Asia; extended the scope of the service tax, gave income tax relief to the lower middle classes while eliminating exemptions for the higher income groups, and rationalised corporate taxation in a manner that has both marginally increased tax yields, and left the corporate sector very happy. It was therefore no surprise that the Sensex rose a hundred points in the hour after the budget was presented.

At the same time he dwelt at great length on the various initiatives that the government launched under the CMP last July, and allocated substantially larger sums under each head of expenditure. To finance a substantial increase in investment in infrastructure Mr Chidambaram unveiled a strategy of public-private sector co-operation that should, if all goes well, minimise costs and shorten the gestation period of the projects dramatically.

All in all therefore, the budget has unveiled a remarkably sophisticated strategy for achieving the twin objectives of growth and equity: the state will reserve its resources for those areas of investment in which the private sector will not, or cannot invest. It will partner the private sector in areas where investment is essential but the paying capacity of the consumers is not sufficient to make the investment immediately profitable. Finally it will leave profitable areas of investment, such as telecommunications, to the private or the corporatised public sector.

To pave the way for the change Mr Chidambaram announced a spate of policy changes and legal enactments . These included passing the Electricity Act, raising the FDI ceiling in telecommunications, opening up the construction sector to foreign investors, announcing the creation of 'special purpose vehicles' to carry out public-private joint ventures in infrastructure industries, deregulating investment decisions by the commercial banks, and making the reform of urban land and development laws a precondition to receiving central investment in urban renewal.

To those accustomed to parsing budgetary allocations in excruciating detail to arrive at conclusions about the role the state intends to play in the economy, there is something unsettling about this new approach to pubic investment. No longer can one say with any degree of certainty how much power generating capacity will increase by, how many more kilometres of roads will be built, and above all, how much money will be invested. This is because it will shift the initiative in planning new investment from the state to private investors.

But the shift was, if anything, long overdue. For the earlier dirigiste approach, apart from being both time consuming and wasteful, has long served its purpose. It made some sense when the private sector was too small and too inexperienced to take up large infrastructure projects and there was no vast pool of international capital to draw upon to finance investment. It makes no sense whatever today.

If the budget is less than wholly satisfying, it is because the government has been too cautious in making much needed structural changes in the economy. For instance Mr Chidambaram made a pointed reference to subsidies, but his budget contained no effort whatever to cut these down. In fact, he went some way to give the impression that it did not consider cutting them down an essential prerequisite to reducing the revenue deficit.

As a result, he made no reference to the root and branch reform of the public distribution system, the elimination of movement controls on foodgrains, and the replacement of ration cards and the PDS with food stamps. The omission was all the more noticeable because he had announced a pilot project to test the feasibility of making the change last July.

By the same token, he made no mention of eliminating either the fertiliser subsidy although he knows perfectly well that four fifths of these go to the manufacturers and not the farmers. Instead he asked us to wait till naphtha and fuel oil are replaced by natural gas as the feedstock for the fertiliser plants. Needless to say, he also made no mention of the subsidy on kerosene despite the fact that more than half of it is used to adulterate diesel or smuggled to Bangladesh and Nepal.

Nor did Mr Chidambaram mention social insurance, which is a far surer and cheaper way of improving the lives of the poor than the Rural Employment Guarantee Scheme. As for completing the 383 incomplete irrigation and hydel projects that now litter the country, all that the centre has allocated for irrigation and flood control is Rs584 crores. Nine tenths of even this paltry sum goes into paying the salaries of the irrigation department's employees.

* The author, a noted analyst and commentator, is a former editor of the Hindustan Times, The Economic Times and The Financial Express, and a former information adviser to the prime minister of India. He is the author of several books including, The Perilous Road to the Market: The Political Economy of Reform in Russia, India and China, and Kashmir 1947: The Origins of a Dispute, and a regular columnist with several leading publications.