The unconcealed reality that “polls are coming” is written all over P Chidambaram’s budget for the year 2008-09.

As the finance minister has announced an unprecedented amount of benefits for the rural economy and has also pleased the urban middle class, it is clear that this last budget of the UPA government before the Lok Sabha elections will win many hearts.

The biggest announcement of all, though for many it was no surprise, is that banks will waive off Rs 60,000 crore agricultural loan given to the farmers till December 2007. Nearly three crore small and medium farmers and one crore bigger farmers will benefit from this. For the small and marginal farmers the entire loan amount will be waived and for others a small part will be waived.

For the crisis-ridden agriculture sector, this will come as a welcome tonic. For the social sector, the finance minister has raised allocations significantly under many schemes covering health, education, drinking water, irrigation etc. The focussed attention on these sectors underlines the fact that real and meaningful economic growth is dependent on the performance of these sectors.

The salaried class would be a happy lot as Chidambaram has rewarded this honest group of taxpayers with a hefty benefit. He has raised the exemption limit and raised the slabs for applicable tax rates. As small cars and two-wheelers will become cheaper due to duty reduction, consumers have more reasons to cheer. As robust growth in the economy has filled the coffers with tax revenue and income tax and corporate tax have gone up by 42 per  cent in 2007-08, it was not very difficult for the finance minister to be liberal with his dole.  

The stock market initially did not take the budget kindly because of the increase in short term capital gain tax.

The correct implication slowly sank in that the damage is much smaller than the possible gain, because more money in the hands of middle class would mean more investment in the capital market. Except for the loan waiver, Chidambaram has made matching provisions for each and every increase in grants in the finance bill. This means that he has managed to get funds within the budget for all increased provisions. That is why he is confident that the government’s expenses will remain within its means and the budget deficit will remain within the prudent limit. The budget will also boost economic growth because more the government spends, the more people earn and spend, resulting in greater economic activity. Clearly, the finance minister’s “political” budget also makes good “economic” sense.