It is, therefore, heartening to see them in the first (though much like a second interim) budget of the new government. Since the people sought “a change in the manner in which this country is run”, and since the finance minister declared, “I shall make every effort to be true to that mandate”, one hopes that a few modifications will be made to the budget when it takes the final form.

It is advisable not to amend the FRBM Act, and stick to the original date (2007-08) to wipe out the revenue deficit. That would give the present government tremendous credibility plus a chance to show in the last year of its term (2008-09) that it has consolidated the gains in terms of improving investment by perhaps generating a revenue surplus — a situation that would make it difficult for any populist canvassing by other political parties, when the next election is around.

The need to generate revenue surplus assumes importance when one takes seriously the central idea of the United Progressive Alliance’s Common Minimum Programme (CMP), namely maintaining a growth rate of 7-8 per cent per year for a sustained period. Ideally, this should be achieved via investment rates of 10 per cent or more of GDP from the public sector and 22 to 24 per cent from the private sector. Also, sooner the Centre could achieve zero revenue deficits, more will be its moral strength to persuade states to follow suit.

Education cess will bring some Rs 4,000-5,000 crore in a full year.

The whole of the amount is earmarked for primary education, including providing a nutritious cooked midday meal. On this very vital initiative, since the cess payers will be more or less the entire Indian public, the finance minister should provide at least some detail on how the money will be spent and with what monitoring and control mechanisms in place. He should make it clear that this fund’s misuse is the worst sin, since it is like stealing from the poorest and hence will be severely punished. The minister might even announce special punishments applicable to those who misuse the funds from the cess.

The proposed Investment Com-mission “will have the broad authority of the government to engage, discuss with and invite domestic and foreign businesses to invest in India.” Once more, I shall say what I have been saying for a long while — give a clear role to the Indian missions abroad in regard to foreign direct investment and trade promotion. It requires a meeting of minds between the FM and his esteemed colleague across the other block to work out a clear set of economic goals and targets for our dutas.

It is heartening indeed to know that we will soon have a National Manufacturing Competitiveness Council, which will be asked to suggest measures for enhancing competitiveness in the manufacturing sector. The finance minister perhaps should clarify that the measures will not be in the nature of subsidies and sops. It is perhaps not quite necessary to offer suggestions to FM on his tax proposals, given the following assertions: “Seven months from now there will be another budget, and there will be an occasion to visit the subject of tax reform” and “It is my intention to align India’s tariff structure to those of ASEAN countries. Eventually, there should be a uniform rate of tax on goods and services.”

Most tax proposals in the budget are fine and are in the desired direction to help raise competitiveness, investment and employment. The one modification that would go well in the spirit of investment promotion is to reduce the corporate income tax to 30 per cent (of course the cess of 2 per cent is additional). In addition, it would be nice to make a pledge that in tune with rising income tax revenue from individuals, next round of reform would consider generous tax slabs, lower rates and a movement towards few exemptions.

One area that deserves attention (best perhaps in the next full budget) is how to put a plug on the crores and crores of black money generated in residential sales transactions. It is common knowledge that capital gains from sales of houses and house sites are understated and a lot of cash changes hands. The finance minister and his team should think of some independent and reasonable ways of computing the tax, without regard to the actual sale price and then lo and behold, the country might be rid of one more instrument of black money generation (just as the present Prime Minister when he was the finance minister eradicated gold smuggling and the attendant black money by allowing its free import with a modest duty).

The author, formerly with the National University of Singapore and the World Bank, is Professor Emeritus of GITAM Institute of Foreign Trade, Visakhapatnam. He can be reached at bhanoji@vsnl.net