To analyse this Budget I think you have to look at it through the lens of what were the issues worrying global investors pre-Budget.

What issues had caused investors to sell down the market when the National Democratic Alliance government vacated office despite the appointment of Manmohan Singh as the PM and P Chidambaram as the FM. To my mind there were basically three economic issues over and above the political side.

First of all most investors were very worried as to whether the Chidambaram and Manmohan partnership would have enough leeway to implement reforms, given the strong influence of the Left in the United Progressive Alliance. Even if the PM and FM were diehard reformers, the Left would not let them implement anything significant went the refrain.

The second big issue to my mind was the fear that Chidambaram would be forced to invest huge sums in agriculture, healthcare and education. Subsidies would blow out and we would see a surge in poorly directed revenue expenditure. This would accelerate the deterioration in the fiscal.

Linked to the above was a third fear of the government being forced to raise large resources in the form of new taxation, which would lower the corporate sector profit share of the GDP, and hit consumption more broadly.

Looked at from the vantage point of these three concerns I think Chidambaram has actually done quite a reasonable job. The decision to raise foreign direct investment limits in insurance, telecom and civil aviation are very sensible decisions, which even the prior government was unable to muster the courage to implement. The decision to take out 85 items from the clutches of the SSI reservation vested interest group is again very commendable. As is the decision to amend and strengthen the debt recovery act.

Chidambaram also made positive noises about increasing FII/FDI limits in various other sectors as well. The continuation of the divestment programme albeit on a reduced scale, increase in FII debt limits and abolition of capital gains tax are other positives. The desire to continue with the SEZ concept (with its own special labour laws) is also positive.

The net of all the above, to me at least, is that the Left is not proving to be the huge stumbling block on reforms that some had feared. If Chidambaram and gang can get the above measures through then it clearly indicates that they have the ability to basically push ahead on reforms. The view of many of the old India hands that one should basically ignore the noise and focus on action would be vindicated.

As for the second and third concerns, clearly on expenditure despite droning on and on about agriculture and rural poverty alleviation there seems to be no dramatic surge in government expenditure.

Subsidies are actually dropping by Rs 6,500 crore (Rs 65 billion) and total revenue non-Plan expenditure has hardly grown. Where expenditure has grown (nearly 17 per cent) is on the Plan side.

Since he has hasn't gone overboard on expenditure, the taxation increase has also been very moderate. All the tax measures taken together add up to only a Rs 2,000-crore (Rs 20 billion) increase in the tax burden, one of the lighter tax hikes in recent memory.

None of the doomsday scenarios of Rs 10,000 crore (Rs 100 billion) being raised from transport operators alone, or hits to software and housing came to pass. I don't think many companies have any grounds to complain.

Thus on the three criteria mentioned above I don't think investors have much to complain. Chidambaram has clearly demonstrated that he has the ability to move ahead on reforms, will not spend indiscriminately and need not indulge in huge incremental revenue mobilisation, which can hurt profitability.

As for what was not very exciting, clearly his revenue assumptions look dodgy. Assuming 20 per cent growth in gross tax revenues and 40 per cent for corporate tax looks aggressive (nominal GDP growth at best 12-13 per cent) and thus the 2.5 per cent revenue deficit target is unlikely to be met.

What was more disappointing from my perspective was the lack of any real innovation on the taxation front. The Kelkar report seems to have been ignored, and not much mention of tax administration reform. Even on expenditure no real attempt was made to improve targeting or reduce leakages. Of course to be fair, the FM only had 45 days to present this Budget so we can hopefully expect a lot more on this front in February.

Nothing was mentioned about the oil sector and the plan to reform its excise and customs duty structure. The uncertainties in this area will just prolong and the government has to address this at some stage. The widening of the service tax net is obviously positive, but the government continues to exhibit a penchant for tinkering with duties at a micro-sector level.

The removal of excise on tractors and hike in excise on steel being two obvious examples. Having a uniform, transparent and stable duty regime, be it excise or customs, is something, which the government should work towards. You cannot do ad hoc tinkering if you want long-term capital investment.

There also seems to be some confusion on the turnover tax on financial instruments traded on a stock exchange, if applicable on non-delivery transactions then we could see a sharp contraction in trading volumes for a short period of time.

Also for the F&O segment the tax seems to be applicable on strike price and not premium paid which is illogical. The markets have largely come off based on this confusion.

Given the high regard in which Chidambaram is held, many people will be disappointed by the lack of a big bang feel to the Budget and the view that nothing very new was tried. One must however be aware of the time constraints the FM had and his own expressed view that radical change cannot be done in a hurried and piecemeal fashion.

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