A fiscal deficit of 6.8 per cent of GDP, up from 5.5 per cent postulated in February's Interim Budget, means an additional stimulus of nearly Rs 80,000 crore (Rs 800 billion).
No government, already saddled with a big public debt overhang, undertakes such spending unless it feels compelled by the circumstances.
A finance minister who believed that the worst of the economic slowdown was over would have moderated spending, and capped the deficit at last year's 6.2 per cent.
To not do that, and to provide for a significant step-up in spending (about Rs 67,000 crore more than indicated in February), implies a lack of faith in the revival of private demand and therefore the need for additional public spending stimulus.
It is interesting in this context that the nominal (ie real plus inflation) GDP growth assumed in the Budget numbers is only about 8.5 per cent - the slowest in a long, long while.
If the economy is indeed stuck in the slow lane and therefore in need of turbo-charging, then one cannot quarrel with the budgetary arithmetic. If not, the government has committed a serious error of judgment.
Deficit spending on this scale risks an international rating review with consequences for the rupee's external value, potential inflation down the road, and higher interest rates -which would have the unintended effect of crowding out private sector activity because of the increased cost of money.
Admittedly, the money market is ruling easy just now, and the impact of additional government borrowing will be at the long end, not in short-term rates that affect the cash credit market.
Also, inflation is not a live issue; and ratings are fallible and therefore possible to counter. So the government could make a case for what it has done. But one simply has to countenance the scale of the government's borrowing programme (up an astonishing four-fold from the Budget in February 2008 to this one, to nearly Rs 4 lakh crore) to realise that something extraordinary has happened, and that this is not sustainable.
The total spending by the government has increased in the last two years from Rs 7.1 lakh crore to Rs 10.2 lakh crore; almost the entire increase has been funded by additional borrowing. Suffice it to say that this level of deficit spending will make a lot of people uneasy, and eventual correction more difficult.
Among the various announcements in the Budget, the most encouraging is the commitment to introducing a dual Goods and Services Tax (GST) on schedule next year.
There is a lot of work to be done in nine months: Constitutional amendments, removal of tax exemptions, alignment of rates, and so on. But the big benefit is already visible, in that the government does not feel the need to take the excise rate back up (after halving it to 8 per cent in the last one year).
If the Central GST rate settles at perhaps 10 per cent (with the states levying another 4 per cent), then the manufacturing sector will enjoy a far more moderate tax regime than ever before. Although this subject occupied no more than one paragraph out of 139 in Mr Mukherjee's speech, it is the one that carries the greatest promise.
The finance minister needs to be complimented for getting rid of the fringe benefit tax, vexatious as it has been, and the commodities transaction tax (which was introduced last year but never implemented, perhaps because the government realised early enough that it was a bad idea).
He needs to be complimented also for promising to stop the harassment of tax payers as officials chase year-end targets, and for introducing other steps that will reduce the scope for tax disputes and arbitrary tax demands.
Taxpayers deserve to be treated with respect and consideration, not as economic criminals in mufti. As for the rest, there is the usual tinkering with tax rates on the margin.
The broad structure remains as it was; income tax payers have got token relief. The surprise is the abolition of the surcharge, which applies only in the upper reaches, in a difficult fiscal year.
As for the government's spending priorities, Budgetary support for the Plan has received a boost, and the share of capital investment in total outlay has gone up. There are bigger budgets for both education and health care.
On policy issues, it is disappointing that another committee will now go into the issue of freeing petroleum product prices from government control; this is simply postponing the obvious step.
The fertiliser pronouncement too suggests that familiar ground will be re-visited. Finally, there is the strange absence of numbers to back up the pronouncement on disinvestment; does this signify inaction, or is it the finance minister's hidden silver bullet?
