Yashwant Sinha's budget has been taken badly by the markets, with the Sensex plunging. There are reasons for the markets to be disappointed-there have been no sops to the capital markets so far as capital gains are concerned, there was no announcement on buyback of shares, and no increase in the creeping acquisition limit allowed to promoters -- all widely expected.

And from the markets' point of view, insult has been heaped on injury by the Rs 5,000-crore increase in excise duties, together with the across-the-board hike in customs duties, all of which will add up in increasing prices, and thus lowering demand.

Yet, at the same time, Sinha has increased the budget support for the plan by Rs 11,372 crore, an increase of 18.8 per cent. The total plan outlay for the infrastructure sector has been stepped up by 35 per cent. Administrative procedures have been streamlined for the infrastructure sector, tax holidays given, a guarantee scheme evolved for freeing the large outstandingdues of state electricity boards, and provident funds freed to invest 10 per cent of their incremental funds in private sector infrastructure projects.

In other words, not only has budgetary support been extended to infrastructure, but private sector investment also has been wooed. So far as the budgetary support is concerned, what the finance minister has done is to spend more on investment, providing the "kickstart" , but in a way which is vastly different from that expected. The resources have been garnered by increased customs and excise duties, which together yield around Rs 8300 crore extra. The government has, therefore, given with one hand what it has taken away with the other.

What does this strategy mean for growth? First, there seems to be little sense in increasing customs duties across the board -- if certain industries were facing competition, a case existed for protecting them -- but the catch-all hike merely increases costs all round. Coupled with the hike in excise, this would amount toa cost-push inflation. But the rise in prices may not happen immediately. It has been argued that if the fiscal deficit does not increase, it does not amount to pump-priming, and there is merely a re-allocation of resources in the economy.

And the current budget has kept the fiscal deficit more or less at the same level of GDP, if allowance is made for the savings effected as a result of increasing the retirement age of government employees. While the re-allocation argument carries weight, there is one extra dimension.

The multiplier on account of increased consumption spending is lower than the multiplier on direct government spending on investment. Last year, too, the government tried to "kickstart" the economy, and Chidambaram's tax cuts ensured that consumers had more money left over for spending. Unfortunately, consumers chose not to spend, and businessmen not to invest. Sinha accordingly chose the safer route, which is direct government investment.

Resources for investment have been garnered fromunwilling private investors, and will be invested directly by the government. Taking the fiscal deficit of Rs 91,025 crore at 5.6 per cent of the GDP for 1998-99, the projected GDP works out to Rs 16,25,446 crore, compared to the GDP of Rs 14,15,491 crore worked out on the basis of the revised estimates for 1997-98. That means an increase of 14.8 per cent in the nominal GDP.

Given the fact that a growth rate of over 5 per cent is extremely unlikely this year, that means the finance minister already assumes an inflation rate of around 10 per cent. The budget is, for a change, certainly not a gamble on growth. Sinha has opted instead for the safer alternative, that of ensuring that the government has the resources at hand for investment. In all fairness, the finance minister had little option in the matter.

Increasing the deficit would have sent interest rates through the roof. As it is, the sanctions as a consequence of the nuclear tests would raise interest rates. Moreover, there is nothing whatsoever inthe budget that would give a boost to exports. It had been widely expected that the depreciation in the value of the rupee would be sufficient to protect domestic industry, at the same time boosting exports. But the higher duties would result in increasing costs, a disincentive for increasing exports.

With exports growing currently at only 2 per cent, the balance of payments could be under severe strain soon, particularly in view of the drying up of foreign inflows, including multilateral funds.

However, the centre has made certain bold announcements. These include the decision to wind up sick units, the freeing of insurance to the domestic private sector, and the decision to keep only a 26 per cent stake in non-strategic public sector units. An attempt has been made to revise the declining trend of investment in agriculture and infrastructure. All these show that the government seems to have decided to use the budget to signal its intention to seriously do something about the long-term problems of theIndian economy, without, of course, doing much to reduce subsidies.

Unfortunately, however, there is no certainty that these birds in the bush will materialise, while there is definitely no bird in industry's hand this year. Two months of this fiscal have already gone, and government investment is notorious for being done during the last quarter of the fiscal year. On the contrary, higher customs and excise duties bite immediately.

Most important, the budget has not provided the psychological boost so necessary for increasing business confidence. Taken as a whole, the growth momentum is unlikely to be regained this year.