On the eve of the budget, industry and the stock markets undergo a state of siege. An annual balancing feat of revenue and expenditure assumes ominous undertones. Like the citizens of the erstwhile Soviet Union, who had to scan the official Communist party organ Pravada to read between the lines to decipher the going-on in Kremlin, trial balloons floated in the media on various tax proposals are devoured voraciously. So used are we to approaching the budgeting exercise with trepidation that even a status quo on the provisions of the previous budget would be a reason for relief. This mindset was understandable in the pre-reforms era, when, with a stroke of a pen here and a strike there, the finance minister could reward and punish industrialists in and out of favour with the party in power. But its prevalence even today is totally puzzling when there are ample indications of the path that the government perforce has to take in view of the various trade accords and reports of different committees on various aspects of reforms in the sphere of taxation and subsidies. Our expectations from the budget are so modest that even some tinkering in income tax slabs and exemption limits is a cause for celebration. Where we should demand bold action, we are content with tepid proposals. Instead of lower personal taxes and a concurrent elimination of the exemption route through various savings instruments, as proposed by the Kelkar Committee, we accept a via media of higher exemption limit and clubbing of the various tax-saving sections, forgetting for a moment that many of these instruments are tax deferment vehicles, floated to feed the insatiable appetite of the various social welfare yojnas of the government.

The eagerness to compromise is understandable in view of the nasty habit of finance ministry bureaucrats to throw up unpleasant surprises. Last year, the securities transaction tax brought the stock market to a near standstill. Finally, Chidambaram, who had so famously dismissed off the stock market in his previous innings, had to back off by distinguishing between delivery and non-delivery-based transactions. This year, he has wisely left the stock markets untouched, save for a slight increase in STT. One of the previous budgets proposed the unpopular Minimum Alternate Tax. This time, there is the Fringe Benefit Tax. Like MAT, which mistakenly assumed the zero-tax status of a company to tax evasion, the finance minister believes that the perks lavished by companies to retain employees and win new business is wasteful expenditure, and needs to be curbed by bringing a percentage of it under the tax purview. Was this the pound of flesh that the Communist comrades propping up the government demanded as a quid pro quo to support reforms in the banking sector? Or, for changing the treatment of profit in the F&O segment from speculative to capital gains? Taking a view on a stock for a duration as short as one month is not speculative, but squaring of in the course of the day is. How is the corporate sector’s collective benevolence to its employees at odds with the socialism tenent of distribution of wealth to all? FIIs are the dominant players in the derivatives segment, but it is Indian investors who square trades during the course of the day.

The bottom line is that for all the declarations by finance ministers down the ages of their pious intent to instil financial discipline, the budget remains a political document. Otherwise, why would government after government force oil-marketing companies to sell petroleum products at subsidised rates but impose customs duties on crude imports and excise duties on the end products? Chidambaram, tentatively correcting this anomaly, admitted to the political nature of the exercise by stating in the budget speech that the pulls of the Twelfth Finance Commission and "changed pattern of devolution and funding" left him with "no option but to press the `pause’ button vis-à-vis the FRBM Act". So all the talk of zero budgeting and fiscal prudence is just that — empty gesture that does not factor in the external environment. But to his credit, Chidambaram has at least attempted to justify his cautious approach to withdrawing subsidies on food, fertilisers and petroleum products unlike PSU divestment, which has been sacrificed at the altar of political expediency.