P Chidambaram's third Budget speech and his first as finance minister of the United Progressive Alliance government lived up to my expectations, at least.

It was full of little initiatives catering to a wide variety of interests, reflecting the essential heterogeneity of the political base of the ruling coalition.

There was nothing on the macroeconomic horizon that warranted any dramatic firefighting or crisis management. In the absence of such compulsions, Budgets in India tend towards the house-keeping variety. This one, broadly, conformed to that pattern.

My overall assessment of the Budget is positive, but the headline of this article is intended to convey a certain mixture of reactions. Let me begin with relief.

My main reason for being relieved by the Budget is that it did not, in any way that I could see, backtrack from the mainstream reforms agenda. There was ambivalence or pussyfooting as far as rhetoric went.

More significantly, several measures in the Budget were very much in the reformist mould. Chidambaram intends to collect Rs 4,000 crore (Rs 40 billion) by dilution of the government's stake in public enterprises.

Having come to expect that even a mention of sell-offs was taboo to this government, this came as a pleasant surprise. Foreign participation limits in telecom and airlines were raised. No hint of reversal there.

Interest rates on small savings were preserved. Again, when we were expecting some increase in these rates, simply holding on can be seen as an achievement for the reform viewpoint.

In an environment of rising interest rates, 8 per cent isn't that far out of line, anyway. And Chidambaram had already indicated that he would be bound by the constraints on deficits imposed by the fiscal responsibility legislation.

So, the revenue deficit in particular, is moving in the right direction -- downwards. All these indicators would reassure most people who were concerned about the reform agenda being held hostage by political compulsions.

I have two concerns with the Budget. One relates to what many observers suggested were the "themes" of the Budget -- rural resurgence and social upliftment.

Much attention was paid in the speech to various measures designed to reduce the income risks of rural households, through employment schemes, social security and, importantly, water supply, both through investment in irrigation and conservation measures. Every one of these is completely unobjectionable.

Similarly, a large amount of money, between Rs 4,000 crore (Rs 40 billion) and Rs 5,000 crore (Rs 50 billion), is going to be collected by way of a 2 per cent cess on central taxes, which will be dedicated to education. Both primary and vocational education will be the beneficiaries. Again, no objections to how the money will be used, even if there is some discomfort with paying the extra tax.

The problem is that in both these areas, everybody has been complaining about the total breakdown of the delivery mechanism, something that is in the hands of the state and local governments. Everybody also agrees, eventually, that putting more money into these systems without a radical overhaul is a waste.

If these are the big themes of the Budget, their probability of success is severely hampered by the weaknesses of the delivery mechanisms. To provide some reassurance that the extra money will actually deliver on the promises of the government and its common minimum programme, we need to understand how things will be done differently in these sectors. Business as usual at the state and local levels simply means that these themes will remain on paper.

The second concern is related to what appears to be extraordinarily-optimistic expectations of revenue growth. Total tax revenue is expected to grow by 24.7 per cent, in a scenario in which the finance minister explicitly mentioned that his direct tax proposals would yield increases of a measly Rs 2,000 crore (Rs 20 billion), while his indirect tax proposals (including service taxes) would be revenue-neutral.

Even considering the cess, this is a very buoyant response to the relatively-moderate GDP growth scenario underlying the Budget. Based on revenue responses more consistent with historical patterns, there is a reasonable prospect of substantial shortfalls in revenue collections.

At the tail-end of the speech, Chidambaram mentioned that he was looking at the quick recovery of tax arrears to plug the revenue gap. In other words, he is amenable to a plea-bargaining arrangement with people whose assessments are in contention, expecting to recover at least a fraction of what the government feels it is owed.

While no explicit number is put on the expected realisation from this source, indications are that it is quite substantial. If this doesn't pan out (no pun intended), fiscal discipline is going to become somewhat more difficult.

Finally, my reason for hope: I have to admit that it is a somewhat perverse one. I normally look at the appointment of task forces, committees, commissions, expert groups and so on with some scepticism.

They have their uses, but one often wonders if things couldn't have been done more efficiently without them. One of the highlights of the Budget speech was the large number of such bodies that were constituted.

I lost count, but at least three of them struck me as being quite relevant to the constraints that the finance ministry is trying to deal with them on a priority basis. One is on investment, another is on manufacturing competitiveness and a third on the efficient targeting of subsidies.

All three issues need quick solutions, which a tightly time-bound and appropriately manned body may be able to deliver in time for the next Budget.

As reluctant as I am to pin my hopes on this development, I think this is the right time and the right opportunity to put things off until substantial and acceptable solutions can be found. There is, of course, the possibility that this will not happen. That is where hope comes into play.

The writer is chief economist, Crisil. The views expressed are personal

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