The guiding principle of Budget 2010 was not only to improve growth, but also to make the growth process more inclusive and sustainable. Therefore, while the medium-term growth target has been pegged at 9 per cent, there are a number of initiatives to spread the gains, especially to rural areas and make faster growth less impinging on the natural resources and the environment.

The key announcements on both the expenditure and revenue side are along the expected lines. Fiscal consolidation and discipline has been pursued vigorously while keeping some stimulus in place.

While looking to reduce the fiscal deficit from 6.8 per cent of GDP in the present financial year to 5.5 per cent in 2010-2011 and 4.1 per cent by 2012-13, the finance minister has also indicated that the consolidated government debt would be reduced from 76 per cent of GDP to 68 per cent of GDP in four years time. This overall time-bound approach towards reducing the fiscal deficit and public debt is commendable and will help freeing up resources for the private sector.

On the spending side, the broad strategy of focusing on bridging the infrastructure gap, rural development and social sectors has continued.

As a result, the allocations have been increased for infrastructure development with focus on roads and power and government’s flagship schemes such as NREGA. Budgetary allocation for infrastructure has been stepped up to 2.5 per cent of GDP.

There are strategic and long-term allocations in the areas of renewable energy, environment and education. The overall budget size has increased by less than 10 per cent, which suggests that the government is serious about expenditure rationalisation after having provided a stimulus of almost 2.2 per cent of GDP through higher spending over the past three financial years.

Revenue proposals are also in the right spirit. Greater disposable incomes in the hands of the individuals, through further widening of the tax slabs would help in supporting consumption demand at a time when inflation, especially for foods products, is running in double-digits. Reduction in the surcharges on corporate taxes would also help reduce the tax burden of the sector, though this has to be balanced against the increase in MAT.

On the indirect tax front, a 2 per cent increase in the excise duty and widening of the service tax net are essentially aimed at moving towards the Goods and Services Tax (GST) regime next year. The government remains committed to simplifying the tax code.

The decision to implement the Direct Tax code to replace the Income Tax Act and subsuming of layers of indirect taxes into the GST regime will help in improving the efficiency of the taxation system and will help boost growth.

On the financial sector, the setting up of the apex-level Financial Stability and Development Council is commendable, as also the Financial Sector Legislative Reforms Commission. The move to provide more capital to public sector banks to bring their tier 1 capital to 8 per cent by March 2011 will help in providing more stability and confidence to the Indian banking system.

A worrying issue for banking remains the size of government borrowings at Rs 3.45 lakh crore for the next financial year, which is as large as last financial year’s record borrowings. This is going to pose a challenge for the RBI.