Jaswant Singh is in the market for an instrument that can measure happiness. The patrician 65-year-old former cavalryman who quit as a Major in the Central India Horse Regiment would like nothing better than to create a Gross Contentment Index (GCI) that reflects the happiness of people. Finance ministers are not supposed to be swayed by state-of-mind metrics such as contentment, but Singh, the 25th man to hold that post in India, isn't your everyday fm. Not for him jargon such as Gross Domestic Product, the value of all goods and services produced within a country's borders, or Fiscal Deficit, the difference between what a government earns and what it spends. Attribute that to the fact that he isn't an economist by training. Or attribute it to his oft-articulated desire to make a difference to the quality of life of Mr & Mrs Bharat-something that owes more to his almost entirely rural upbringing in Jasol village in Rajasthan's Barmer district and his status as a failed farmer than political compulsions. If the economy does well, his reasoning goes, it should make a difference at the individual level. Ergo, a measure of how contented people are would be as accurate a measure of the finance minister's performance as GDP growth.

The budget he presented on the morning of February 28, his first, is Singh's means (or part of it) to achieve the happiness-objective. Displaying the strategic acumen of a Sun Tzu in identifying variables that need tweaking, the subtlety of a Mozart in marrying form and content (particularly evident in the composer's piano concertos), and the smoothness of a single malt whisky-Singh is partial to all three, Sun Tzu, Mozart, and single malt-the minister has come out with a financial statement of intent that is, at once, vote- and business-friendly and which should, if everything else falls into place, result not in the 8 per cent GDP growth the Prime Minister speaks so fondly of, but a respectable 6 per cent-plus. What's more, Singh's budget seems to say, we'll do that and be happy about it. Central to the man's budget is what he terms the Paanch (five) Priorities: poverty eradication, infrastructure development, fiscal consolidation, and an emphasis on agriculture, and manufacturing.

Consumers should be happy because the budget leaves them with some more money to spend, courtesy income tax sops, and will result in a reduction in the prices of a clutch of products-small cars, for instance, will now cost around Rs 10,000 less. Businesses should be happy because consumers are and that will sooner than later, translate into an increase in demand for their products and services. Businesses should also be happy because Singh has tried to make a positive difference-with real gifts in some cases; lagniappes in others-to most industries. Anyone who has got anything to do with the capital markets should approve of Singh's efforts to infuse life into the close-to-moribund bourses. Foreign investors should be pleased with the hike in Foreign Direct Investment ceilings. The Keynesians can't have reason to complain-there will be substantial government investments in infrastructure, Rs 60,000 crore to be accurate. The reformists-Singh is clearly one; in his first stint as finance minister, for all of 13 days in May 1996, he signed a counter-guarantee with Dabhol Power Company-can spot enough glimmers of hope in the budget; the introduction of Value Added Tax from April 1, 2003, and the restructuring of state debt is one. And conservatives in the Bharatiya Janata Party to which Singh belongs, ideologues in the party's backers such as the Rashtriya Swayamsevak Sangh, and allies can take heart from the Finance Minister's statement-of-intent-not-action approach to hard reforms and Dr Vijay Kelkar's recommendations, although the increase in the price of fertilisers will worry them a bit. The International Monetary Fund school of economists may have reason to carp at Singh's seeming indifference to India's rising fiscal deficit-estimated to nudge 5.6 per cent of GDP in 2003-04, the second highest consolidated fiscal deficit in the world, after Turkey's-but as one of the minister's aides puts it, "he isn't unduly worried by the fiscal deficit; he is more concerned about the real and felt benefits of the fiscal policy." "All this effort is for their total well-being," Singh said at the beginning of his 196-paragraph 135-minute speech, the longest in recent history. By the end of it, the smiles were as wide.

Salarymen And Industry, Rejoice!

The party may not last long, but it has certainly begun. The second edition of the BT-Indica Research Index of Consumer Sentiment revealed that in January 2003, the Indian consumer was much more confident than she had been six months ago (See What's On Her Mind?, Business Today, March 2, 2003) and that she was waiting for a sign that it was indeed, alright for her to go out shopping, spend money, go on holiday and generally have a good time. Singh may have provided just that.

His budget was missing the anticipated sops to the agriculture sector apart from a broad-brush philosophical statement of intent about the need to launch a second agricultural revolution. As the Finance Minister spoke, it seemed as if his munificence was targeted at a consuming segment that is every marketing organisation's bread and butter-salaried executives earning between Rs 1,00,000 and Rs 5,00,000 a year. Not only did the segment see an increase in their discretionary income by the end of his speech-courtesy a higher income tax exemption, no tax on dividends, and no capital gains taxes on equity transactions-it saw the prices of several products come down as well. Yes, petrol and diesel would cost more but air-conditioners, cars, tyres, carbonated beverages, and a clutch of other products would cost less, and appreciably so. And they could continue to claim tax benefits on their housing loans, something that the idealistic Dr Kelkar suggested be done away with. Never in recent history has a budget struck a chord with the salaried class as Singh's budget has. Indeed, the man has stuck to his promise-articulated again in the course of his speech-of putting extra money in the hands of housewives. "The budget package is pro-middle class and the salaried class will take home more money than before," says Mukesh Butani, National Head, Global Tax Advisory Services, Ernst and Young.

For a man who refused to meet with industry lobbies (he believed the budget-making process had been transparent enough with both the mid-year review of the economy and Dr Kelkar's report being posted on the finance ministry's website), Singh sure has managed to make most businessmen happy.

Indian companies believe it is the quality of the country's economic infrastructure and its traditional high cost of capital that prevents them from being globally competitive. The Finance Minister's allocation of Rs 60,000 crore to infrastructure projects has met with their approval, as has his decision to prune the interest rate on public provident fund and small savings instruments by 100 basis points, something that should result in a similar reduction in interest rates. "I believe this budget will lead to growth," says Ashok Soota, President, CII. "It has a great focus on infrastructure." Industry is thrilled enough with these steps to actually gush over Singh's endorsement of the Electricity Bill, waiting to be cleared by Parliament for 24 months now, and his decision to extend the mega power project status to all power projects that meet the criteria. "This would be a major reform in the power sector," says Firdose Vandrevala, Managing Director, Tata Power.

If that addresses the issue of global competitiveness, the rationalisation of excise duty (down to three slabs of 24 per cent, 16 per cent, and 8 per cent) and the introduction of a unified vat (Value Added Tax) regime at the state level should take care of the procedural hassles of doing business in a country like India where states have their own unique tax laws.

Singh has also struck a popular chord with industry by focusing on India Inc.'s winners or winners-in-the-making, sectors such as information technology, biotechnology, pharmaceuticals, tourism, telecommunications, and healthcare through a mix of tax holidays, sops on research and development spend, and lowered tariffs on import of equipment. "The larger task of the budget is to provide growth impetus and a window for India's undoubted entrepreneurial energies," says R. Seshasayee, Managing Director, Ashok Leyland. "(These are) currently hamstrung by poor infrastructure, excessive pre-emption of taxes, and bureaucracy." According to Seshasayee, Singh's budget does that admirably.

For the record, Budget '03 also halved the 5 per cent surcharge on corporate taxes, but India Inc. was so busy gushing over every other aspect of Singh's presentation that it wouldn't have mattered even if it hadn't.

The Quest For Growth

Economist, he may not be as he reiterated, time and time again in the course of a television interview soon after presenting the budget, but Singh possesses too astute a mind not to have worked out the details of how his manoeuvrings will result in that Holy G all finance ministers seek, growth. His reasoning: the emphasis on infrastructure should result in a Keynesian payoff down the line; up-beat consumers should consume more, resulting in increased demand; and a confident industry will increase investments, creating more jobs. Put simply, the Finance Minister is betting that all this will result in growth and that growth, in turn, will render the fiscal deficit irrelevant, if not next year, then a few years later. "This is a pro-growth budget that still manages to widen the tax base," says P.K. Basu, the Singapore-based Chief Regional Economist of investment bank CSFB. Nor does the high fiscal deficit worry economy-watchers like Andrew Holland, Executive Vice President, DSP Merrill Lynch. "I am not concerned with the high fiscal deficit," he says. "It has always been high and it is manageable."

Not everyone is as sanguine. The budget lacks a clear reforms design, says Ruchir Sharma, Managing Director, Morgan Stanley, who believes industry's irrational exuberance stems from its relief at some of the harsher recommendations of Dr Kelkar not being implemented. That could well be the case. All is not well with the power sector-India added less generating capacity in the past five years than it did between 1988 and 1992-and nothing Singh has talked about will change that. And Paul Rawkins, a Senior Director at Fitch Ratings, believes "the (growing) fiscal deficit underpins the lack of political will to address fiscal consolidation. With growth slowing and a general election due in 2004, the government is caught in a difficult dilemma: on the one hand, it is anxious to pump-prime the economy but, the parlous state of public finances means that it has virtually no room to do so." The political will (or lack of it) that Rawkins refers to is evident in Singh's silence on issues such as user charges and labour reforms and his talk of lowering the burden of subsidies on one hand while simultaneously raising food subsidies to around Rs 28,000 crore. Keep going down this path, warn people like Rawkins and Sharma, and the fiscal deficit could keep increasing. Growth may be the only way out.

-additional reporting by Vinod Mahanta

WHO DID HE LISTEN TO? Finance Minister Jaswant Singh must have been torn between the Kelkar panel's ideal recommendation on taxes and Rajnath Singh's populist take. Guess who won?

Vijay Kelkar: Pat on the back Praised, But Just That Singh's budget speech acknowledged Dr Kelkar's fine work. The former finance secretary's report may have been Jaswant Singh's personal template for tax reforms but when it came to implementing it as budgetary proposals, Singh fought shy of going the whole nine yards. Ignoring Dr Kelkar's hard-take on tax rates and exemptions, he was content to incorporate suggestions such as scrapping dividend tax and long-term capital gains tax on Indian equities. He did accept, in toto, the man's recommendations on procedural tax reform by moving towards a "trust-based green channel system" that debunks the older discretionary set-up by replacing it with a modern it-enabled system built around truly random checks. Rajnath Singh: A happy man The Rajnath Effect Ultimately, BJP General Secretary Rajnath Singh seems to have had his way. Not only has he be able to prevent the removal of existing exemptions (including the one on housing loans), but he has also been able to impress upon the minister the need to provide more-such as the one on money spent on children's education. Expectedly, Jaswant Singh has avoided the knotty issue of taxing agricultural income, although he has gone against Rajnath Singh's suggestion and abolished long-term capital gains tax. Otherwise, the minister seems to have walked the tightrope between the party's interests and the need for prudent tax reform rather effectively.

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