The finance minister has done a tough balancing act in his Budget 2005-06. He has substantially increased the Plan Outlay (by 25.5%), put a heavy focus on infrastructure spending especially in rural areas, boosted health spending by 22%, raised agricultural credit by 30%, reduced custom duties, corporate tax rates and simplified personal income tax. All this has been done while bringing down the fiscal deficit marginally.

The clear focus of the FM has been on Bharat Nirman or a new deal for rural India which accounts for an overwhelming proportion of the country’s population and of the poor and the unemployed.

This is reflected in a number of proposals throughout the Budget speech. Increased spending on building rural infrastructure is likely to consolidate growth momentum in more ways than one.

First, by creating employment and income in rural India, it is likely to increase demand for industrial goods. Second, development of infrastructure in rural areas will help in attracting investment and facilitate rural industrialisation, generating further jobs and incomes in that process.

Given the size of India’s rural economy, the effect on national incomes and growth could be significant. These proposals would also help growth trickle down faster and become more broad-based.

The FM has also responded to the challenge of meeting the growing infrastructure deficit with the announcement of NHDP III, national urban renewal mission for seven large cities, and creation of a special purpose vehicle for mobilising foreign exchange reserves for infrastructure development.

While augmenting the supply of funds is a welcome step, perhaps there is need for a constant supply of viable projects.

While there are glaring gaps in the supply and quality of infrastructure available in the country, there is need for creation of a body of professionals to identify and develop viable infrastructure projects that could be taken up for implementation by public or private sector.

In the absence of such a body, infrastructure development is not taking off in a big manner. May be a projects group could be set up in the ministry of finance itself to ensure that all the funds earmarked for infrastructure development do get invested in high priority projects.

While addressing the challenges of rural economy and core development, the finance minister has also paid attention to carrying forward the revival of internationally competitive Indian manufacturing.

There are many proposals to strengthen the competitiveness of industry including a new scheme for SSI competitiveness, enhanced allocation for textile industry upgradation fund, cluster development, recast of sugar industry, incentives designed to make India a world leader in pharma and biotechnology with support for innovative activity, public-private efforts for skill development, among others.

Lowered corporate tax will also hopefully further improve the investment climate. The only controversial proposal is of withdrawal tax that may turn out to be counter-productive. In short, it is a good and balanced budget and generally meets the expectations.