The Union Budget of 2008-09 witnessed a clear shift towards increasing allocations to address the nation’s poor education and healthcare indicators, alleviating growing rural distress and boosting GDP growth. The agricultural sector has received special attention from the government due to stagnating agricultural production and increasing rural indebtedness. The highlight of the budget is the complete debt waiver for small and marginal farmers coupled with a one-time settlement (OTS) scheme for other types of farmers that would cost the ex-chequer Rs 60,000 crore (Rs 1 crore=US$250,000). The government’s emphasis on greater public investment in irrigation and continuation of the crop insurance schemes are expected to raise the growth rate of farm output to the desired 4% level and protect farmers from the adverse impact of globalization. Increased agricultural expansion would arrest rising inflation, which has primarily been an effect of lower food supplies.

The government is faced with the challenges of employment generation, particularly in the rural sector. The UPA launched the National Rural Employment Guarantee (NREG) scheme in 2006 to generate jobs for thousands of rural unemployed people. This year’s budget is slated to provide a further boost to rural employment generation by extending the NREG to the country’s 596 rural districts at an outlay of Rs 16,000 crore, provided there is adequate restructuring of the delivery mechanisms at the grassroots level to ensure the funds reach the intended beneficiaries.

Private consumption, which is already high due to rapid economic growth and rising income levels, would be further boosted due to an increase in the threshold exemption limit. The government can look forward to increased tax compliance and higher revenues due to the restructured tax brackets, which would enable it to increase its spending on other social sector projects. The government has managed to adhere to its fiscal deficit targets due to higher tax collections. While fiscal deficit stands on course at around 3.1% of GDP as against targeted 3.3%, this FRBM target for 2008-09 of 2.5% will provide further impetus. However, higher revenues have camouflaged the effects of off-budget items such as oil bonds and inefficient food subsidies on government finances.

Savings and investment rates remain extremely healthy and are a testimony to the efficient deployment of resources. However, the budget missed the opportunity to open up the retail sector to foreign investment and increase FDI limits in sectors such as insurance and banking. Though the budget stressed the continuation of listing of CPSEs to “unlock their true value and improve corporate governance”, it avoided the issue of divestment of minority stakes in these enterprises.