Chidambaram left no one in doubt that this was a stopgap budget. He therefore used it to make a statement of how the government intended to achieve its twin, and seemingly irreconcilable objectives.

For more than five weeks, corporate India has shivered, wondering how a government, even one headed by a renowned economist like Manmohan Singh, and a fiscally conservative finance minister like P Chidambaram, was going to reconcile the extravagant promises of redistribution made by its common minimum programme, with the imperative to stimulate growth, generate more productive employment, and further liberalise the economy in order to make it internationally competitive. On 8 July, the finance minister gave what was, on the whole, a reassuring answer.

Chidamabaram left no one in doubt that this was a stopgap budget. By the time parliament passes it, almost half of the fiscal year, which runs from April to March, would be over. He therefore used it to make a statement of how the government intended to achieve its twin, and seemingly irreconcilable objectives.

By far its most important feature was that the budget did nothing to dampen the spontaneous recovery that is taking place in industry. After seven lean years in which rate of industrial growth seldom went beyond five per cent and at one point briefly dropped to zero, industrial growth revived in 2002-2003 to end at an average of 6.9 per cent. In April this year it rose sharply to 9.6 per cent. With a large amount of private investment already in the stream, there was every reason to expect industrial growth to touch 9 to 10 per cent this year. Chidambaram did nothing to put a brake on the momentum of growth.

On the contrary, he lowered import duties, brought down peak rates of domestic indirect tax making them converge on the VAT rate of 16 pe rcent, raised the minimum exemption limit for the income tax to take account of inflation, closed a few loopholes in taxation and marginally increased the tax rate on services. None of this was either unexpected or destabilising. "We had already discounted all of this in our calculations before the budget was presented," said industrialist Subodh Bhargava, a former president of the Confederation of Indian Industry.

Where Chidambaram broke new ground was in the plans he unveiled for the future. He made it clear that while being committed to the United Progressive Alliance's promises to provide water sanitation, education and health for all and to repair the neglect of agriculture, he would not be throwing money at the schemes and agencies that are entrusted with these goals. He was fully aware that the problem in these areas was not a lack of money but neglect, a lack of accountability and corruption. Thus nearly all the schemes he announced involve merging several of these schemes to find the money and targeting them better to the intended beneficiaries.

The reform of administration that is needed to achieve this consolidation and improve the targeting of social services presents a daunting task, especially as most of the subjects - education, health and agriculture - fall within the purview of the state governments. Chidambaram therefore made it clear that his government deos not intend to do things in a hurry. Achieving these goals, he said, would take the full five years of the UPA's term in office.

Finally, Chidambaram left no one in any doubt that the goal of generating sufficient employment could not be achieved without stepping up the rate of industrial and agricultural growth. This required a sharp increase in investment to sustain the growth of demand in the economy. Chidambaram made it clear that the government would step up public investment sharply, and would do so by reducing infructuous government expenditure , ie, the revenue (current account) deficit.

He paved the way for this by notifyng, and thereby turning into law, an act of parliament passed by the previous government that requires the central government to reduce the revenue deficit to zero by 2008-2009. This, he said, would create ' fiscal space' amounting to three per cent of GDP - the permissible fiscal deficit under the new law, to increase investment under the five-year plans. The lion's share of this would be devoted to upgrading and breaking bottlenecks in India's antiquated infrastructure.

A close look at the budget estimates shows that thanks in part to reforms made by the previous government, Chidambaram is well on track to reduce the revenue deficit. This came down from 4.4 per cent of the GDP for the central government in 2002-2003 to 3.6 per cent last year. Chidambaram has vowed to bring it down to 2.5 per cent this year and a close look at the revenue and expenditure forecasts shows that the estimate is a realistic one. This will release at least Rs. 300 billion for investment in the infrastructure next year.

Despite these obvious strengths, the budget has received mixed reactions from corporate India. The main reason is Chidambaram's decision to levy a 0.15 per cent transaction tax on all deals in the stock market.

With a service tax, and brokers' fee, players in the market fear that the total burden on transactions will severely discourage short term (read speculative and arbitrage) trading. This realisation brought the Sensex down 65 points within minutes of the announcement on 8 July. The tax may be desirable on several grounds, not least because it will curb speculation. But there can be no doubt that if it brings share prices down it will make it a little more expensive for the private sector to raise money for investment in the stock market. Market players feel that the damage can be repaired by levying the transaction tax only on the sellers and not the buyers. The government may take their views on board in the debates that will follow.

* 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.