A fortnight after the budget was presented, both its strengths and weaknesses have been analysed to death. What has not received the attention it deserves is its likely impact upon the economy, upon the poor whom it is primarily meant to serve, and therefore upon the political fortunes of the Congress party.

The best feature of the budget is that it has carefully done nothing that could damage the gathering 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 was under pressure from diametrically opposed ends of the political spectrum.

The relief that Mr Chidambaram's balancing act generated was reflected in the hundred point rise in the SENSEX in the first hour after his budget speech, and in its continued climb to 6,900 on the back of heavy inflows of foreign portfolio investment in the week that followed. Today the economy is all set to register a 10 per cent growth in industry, and a 7.5 to 8 per cent growth of GDP in 2005-06. If the experience of the mid-'90s is anything to go by, this will create enough new jobs to absorb the entire increase in the labour force in the next year or more.

The shortcomings of the budget lie in what it will do to the economy a few years down the line. Its most disturbing feature is that instead of tackling the structural problems of the economy it has virtually turned its back upon them. The most obvious example is its refusal to even touch the problem of subsidies. What is worse, Mr Chidambaram's silences, even more than the cautious and tentative tone of his few remarks, showed that the government had no intention of winding up even the least justifiable of all subsidies, namely that on fertilisers.

Despite the fact that four-fifths of this subsidy goes to manufacturers, Mr Chidambaram made it clear that we would have to wait till the fertiliser plants switched from fuel oil and naphtha to natural gas to reduce it. By implication, therefore he told the nation that no fertiliser plants would be allowed to close down, and no change in their ownership was contemplated.

Mr Chidambaram also made no mention of his government's promise in the Common Minimum Programme (CMP) to free agriculture of controls, and target food subsidies more precisely to reach the intended beneficiaries. He made no mention of the 'pilot scheme' to replace ration shops with food stamps that he had announced last year. Instead, he talked in vague terms about increasing 'local' procurement in deficit and nearly self sufficient states in order to reduce transport costs. Once again , the unspoken message was that ration shops were here to stay. It is, therefore, no surprise that the subsidy bill is expected to increase yet again to Rs47,500 crore, which, is almost exactly half of the revenue deficit.

The government's wholesale surrender to the Left on the issue of equity versus growth is, if anything, even more disquieting. In the weeks before the budget it had unveiled ambitious plans to invest very large sums in energy, roads, railways and urban renewal. But pressure from the Left and the National Advisory Council to increase expenditure on health, education and employment generation at any cost left the finance minister with no option but to earmark another Rs26,000 crore for these sectors and find the money by cutting planned investment in fixed assets. This has made a mockery of the plans that were announced only weeks earlier, as well as of the pledge the UPA gave in its CMP to enhance public investment in the infrastructure.

The government has tried to turn crisis into opportunity by floating the idea of public- private partnerships to fund infrastructure projects. A 'special purpose vehicle' will be set up, with an annual lending ceiling of Rs10,000 crore to provide long-term capital for projects where the rate of return may not be high because of the limited paying capacity of the beneficiaries. To attract private, and particularly foreign capital into infrastructure, he has accelerated legal and institutional reforms in the fields of power generation and distribution, urban development, banking and finance.

If everything were to go as the government hopes - if the additional outlays on health, etc, really reach the poor, the SPV is up and running quickly, and thousands of crores and billions of dollars are attracted into infrastructure projects - then the government's gamble will be crowned with success and we will remember this budget as the turning point at which India showed the world that it is possible to give market- oriented economic reforms a human face.

But one has only to articulate these hopes to see just how high is the risk of failure. India's track record in its dealings with foreign investors is far from good, and it is worst in the infrastructure sector. Enron and the failure of all the seven remaining fast track power projects has put foreign and domestic investors off power. The failure of all the
22 original highway building proposals from foreign investors to go through has done the same for roadways. The stop-go shenanigans surrounding the Bangalore international airport has put investors off airports; and the fate of the Tata-Singapore Airlines domestic airline project has made them leery of investing in this sector.

These perceptions are changing, but it will still be some time before investors feel the same degree of confidence in the sovereign commitments of the Indian state that they feel in China. Till then the hiatus in private infrastructure investment will continue.

Since both education and health are state subjects, and since the states adamantly refuse to account for how they spend the resources that are transferred to them by the centre, all that the latter can do is to give the additional money to them and hope that they will use it better than they have during the past fifty years. Some states may, but judging from their past record, most will not.

As for rural employment generation, the bill that is now before the Parliament will create a statutory entitlement to central funds but will not give the centre any power to prevent its abuse. What is more, since the money will be coming directly from the centre and not out of a block transfer of resources to the states, their governments too will be free from any vestige of obligation to limit outlays and ensure that the money is spent well.

It is, therefore, highly probable that in the medium-term the UPA government will be able to deliver neither growth nor equity. The former will come up hard against an infrastructure barrier and, quite possibly, rising interest rates in a few years, and the latter will remain a victim to the predatory politics that we have created in our country, which ensures that somewhere most plan allocations end up in the pockets of political intermediaries and their favoured henchmen.

Mr Chidambaram's second budget only confirms the lurking suspicion that the UPA government has been on the wrong track from the start. The government would have had the money for both infrastructure and the social sectors if it had tackled subsidies in a determined way. It could have alleviated rural distress by using the lion's share of the savings to complete the 383 unfinished irrigation and hydel projects that litter the countryside. It could have delivered health benefits and old age security to the poor by developing a comprehensive, largely self financing, social insurance scheme for the unorganised sector. And it could have delivered guaranteed rural employment in through a combination of food-for-work programmes and the devolution of rural development to the panchayats.

But the Left was opposed to these initiatives because they all involved sharp departures from the status quo, and the government caved in.

In his book, Beyond Left and Right, political philosopher Anthony Giddens has described how in the age of globalisation the old Right has become the new Radical Left, tearing up established institutions root and branch, while the old Left has become the new reactionary Right, defending them with blind resolve. That is what the Indian Left is doing today.

* 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.