The Finance bill was passed by the parliament recently. Many changes were solicited and made before its passage especially on the controversial fringe benefit tax. The bill (more commonly referred to as the budget) is the most important policy statement of the government. In a sense, allocations of money show where the government's priorities are. Therefore, the budget offers an opportunity to judge whether the big priorities proclaimed by the government in its Common Minimum Programme are in fact followed through with adequate funding to achieve the stated goals.

One the positive side of the budget has been the increase in allocations for both education and health under different programmes of the government. The allocations to the Sarva Shiksha Abhiyan are now to be routed through a non-lapsable fund called the Prarambhik Shiksha Kosh. The total allocation for SSA this year is at Rs. 7,156 crores. As the provision of a nutritious cooked meal could help to increase attendance, the allocation for the National Programme of Nutritional Support to Primary Education has been nearly doubled to Rs. 3,010 crores. Both these increases have been made possible through the cess levied on all taxes that will fund these programmes. Additionally, the allocation for the Integrated Child Development Scheme (ICDS) has been increased to Rs. 3,142 crores which will no doubt help the anganwadi centres and the children in these centres. However, while the plan to create a non-lapsable fund is interesting in that funds allocated will continue to be for education only (even into the future), the transparency of this fund needs to be monitored.

Scheduled caste and tribal students undertaking higher education will benefit through a grant of tuition fees and expenses if they gain admission to a specified list of institutions. This will help a few individuals who are unable to fund their studies even after gaining admission to these institutions, though specific details of the programme are yet to be announced. This is a step forward in addressing some of the access issues for these students. However, weeding out the 'creamy layer' within this section also needs to be looked at if this scheme gets misused in the future.

The government launched the National Rural Health Mission funded through a cess on tobacco and other products including paan, gutkha and cigarettes. The Department of Health and Family welfare's allocation of Rs. 10,280 crores is likely to go up considerably as soon as the cess from the NRHM is collected and disbursed in the year 2006-07. The stated objectives of the UPA are to increase healthcare spending to about 2-3 % of the GDP (from 0.6-0.8% presently) and this is a specific objective whose achievement needs to be monitored. Additionally, States need to ensure that the differences between health care in urban and rural areas are reduced; they also need to reduce maternal mortality rate and increase access to anti-retroviral drugs. When the last point is seen through the passage of the Patents Act, despite the amendments forced by the Left Front, drugs patented after 2005 are likely to witness dramatic price increases through rent seeking by monopoly producers. Whether a country like India can afford these increases needs to be considered.

As a response to the India Shining campaign, the Finance Minister outlined a whole programme of change called 'Bharat Nirman'. One of the objectives of Bharat Nirman was to construct 60 lakh houses for the poor by 2009. However, the total allocation to both the Indira Awas Yojna and the Valmiki Ambedkar Awas Yojna is just over Rs. 2,500 crores (only marginally higher than in previous years). The total allocation for each house to be constructed (assuming zero administrative costs) is Rs. 16,700! This either reflects an over-ambitious programme or a non-serious government. Indeed, all programmes of Bharat Nirman together are to receive only Rs.5500 crores, which suggests that the government is not very serious about its own much-touted programme. Contrast this with funding for the Housing and Urban Development Corporation HUDCO (a para-statal body not known for its transparent functioning), which has been increased by over Rs. 1,000 crores to Rs. 6,746 crores!

Another flagship programme of the UPA is the Pradhan Mantri Grameen Jal Samvardhan Yojna, which was promised Rs. 200 crores to de-silt tanks in five districts. Since that promise was made, a total of Rs. 5 crores was allocated for the programme and this year's budget has reduced the allocation to zero. The onus for this programme has apparently been shifted to the state governments. Similarly, the promise to increase micro-irrigation gets a funding of just Rs. 400 crores (slightly over Rs. 1000 per acre. How the finance minister plans to create micro-irrigation schemes at that price is really anybody's guess. It needs to be mentioned however that the Accelerated Irrigation Benefit Programme allocation - which funds large projects, and has been severely criticised by the Comptroller and Auditor General, has been increased by Rs. 2,000 crores to Rs. 4,800 crores.

There has been a noticeable and dramatic reduction in capital expenditure across all sectors in the budget in an attempt to bring the fiscal deficit down. For example, capital expenditure on agriculture falls 25%, and the capital expenditure on rural development is a meagre Rs. 4.79 crores Similar reductions are also witnessed in telecom (75%) and railways (25%).

When defence forces reaped a bonanze by a dramatic increase in the last budget, it was stated that the increase was necessary to fund long pending capital goods purchases. The expenditure this year has been further increased by 7.8%, and again it is stated to be for capital good purchases. The need for money for the defence forces is not in doubt. However, while using the security argument as a cover, the lack of transparency of purchases made by the defence (pointed out repeatedly by the Cromptroller and Auditor General), can cause substantial losses to the country. There is indication that these arguments are even impacting the budgeting process.

Another worrying feature of the budget has been the creation of special purpose vehicles (SPVs) with or without the levy of a cess. The reason given for the creation of SPVs often is that it will improve performance as budgets get linked with performance. However, one immediate negative outcome of these SPVs (including the Rs. 10,000 crore fund for infrastructure) is that they take away power from local (and sometimes state) governments and give this to para-statal bodies. While SPVs do offer a temporary solution, it does not address systematic failure of government and therefore their efficacy is subject to the same problems that are plaguing the government in the longer term.

Even the levy of a cess - instead of an allocation from tax receipts - for education and health reflect an inability of the government and more broadly civil society to prioritise human development, necessitating the use of special instruments that will fund this sector. Similarly the Rs.5,500 crores for the National Urban Renewal mission is to be routed through non-elected, non-accountable para-statals or SPVs like the Bangalore Metro and the Mumbai Trans Harbour link. The effects of the lack of transparency in decision making in these projects will only be felt later if they turn out to be financial or technical white elephants. Alternatives to such projects and funding structures need to be explored including routing them through local governments with adequate public consultation.

In addition, such grants should be given for specified outcomes rather than projects that are pre-decided by any one party. For example, a metro project should not be approved as it is a status symbol to be a 'world-class city' but given a grant only if it meets certain outcome at the lowest cost (like number of passengers per hour below Rs. X per trip without any subsidy). This will mean higher alternatives analysis including exploring a mono-rail, bus mass rapid transit as well as India's own sky bus programme.

Another example is the National Highways Development Programme, which is given an allocation of Rs.9,230 crores. This programme, like many others, uses the SPV route, bypassing the state and the local governments using a fairly heavy top-down approach to the development of the road network. While the central government needs to lay out the need for connectivity between particular points, there is a need for greater consultation with state and local bodies on routing, which can help reduce litigation and increase efficient outcomes.

The Highways Development Programme funded through a cess on petrol develops the road infrastructure of the country. However, one of the largest consumers of diesel (and one of the largest payers of this cess - the Indian railways) gets just Rs. 430 crores from this pool for railway bridges across roads where there are currently level crossings. The wisdom currently seems to promote road based transport rather than looking at significantly better long distance rail links with a network of roads connecting to these railway lines. A fuel cess if levied needs to look at the promotion of better outcomes (in terms of higher passenger numbers and freight volumes) rather than looking at the output (in terms of constructed road).

The Finance Minister has made a promise to increase the financing of the National Rural Employment guarantee scheme. However, when one looks through the numbers, there is actually a fall in the allocation for Sampoorna Gramin Rozgar Yojna (SGRY) by nearly Rs. 1,000 crores. It is compensated by a provision of Rs. 5,400 allocation for the National Food for Work scheme, but it remains questionable whether this allocation is just a method to offload the surplus food stocks at the Food Corporation of India godowns. During the implementation of any employment guarantee programme, it is important to create assets that promote job creating growth. The Maharastra Employment Guarantee Scheme is an example of one that helped the creation of rural assets through an employment guarantee scheme.

The budget, by allocating large amounts of funds for programmes like the National Food for Work programme and the NSPE, also makes a few assumptions regarding the readiness of different layers of government to accept and manage funds. Though local governments are gradually getting more funds through devolution and other schemes including the National Rural Employment Guarantee Act, very little is allocated for capacity building. The lack of funding for education and training will ensure that the non-elected programme officer will continue to wield considerable powers while the gram panchayat remains fairly toothless. Capacity building in terms of the ability to frame programmes, plan budgets, make allocations and manage conflict will significantly improve the delivery of the intended benefits of programmes run and managed by the government. In addition, in the case of poor application of funds, the strident calls for reduction of government is likely to get louder when such a situation could have been anticipated and dealt with earlier.

While the budget makes a lot of noise about the poor and the marginalized, apart from the education and health, there is very little cheer for the development sector. It seems that the finance minister has paid lip service to development while allocating money quite liberally to other areas including urban renewal and infrastructure which are no doubt needed but do not help to create as many jobs as a rural employment guarantee scheme or provide relief through a comprehensive irrigation scheme. In addition, it is important to see the budget in a larger context where capacity building, enhancement of power of local government and routing of funds through the same has to be followed rather than one that reduces funding for local and state governments through deploying of special purpose vehicles and other measures. Until then, like the CEO of a leading company said on TV 'the budget makes a lot of noises to appease the left, but puts little money for it' the budget seems like a lot of hope, but little promise.