Enjoy the high, ignore the hangover

Finance minister Jaswant Singh''spre-election Interim Budget was widely expected to spread a feel-good glow amongvoters. The minister likes to say that he wants to increase ''gross nationalcontentment'' and put money into the purses of housewives. (Are you happy with the Interim Budget?)
Though Constitutional and Parliament rules keptthe FM from tweaking direct tax rates or making big promises, he''s tried hisbest. We have a feel-good budget.
But it could leave you groggy with ahangover. Rural voters will be showered with cheap credit for lower collateral;struggling tea and sugar producers will get their debt restructured and softloans; big city dwellers have been promised better infrastructure and Singhdoesn''t want portfolio investors to pay capital gains tax for another threeyears on long term investments -- that is, if they vote his party back to power.
The FM wants you to spend as you earn: your duty free holiday shoppinglimit has been more than doubled and the penalty for carrying excess baggage hasbeen cut.
Coupled with lower air ticket prices announced earlier and thedecision to let domestic carriers fly international routes, the NDA clearlywants you on a shopping binge, preferably at a duty-free outside India.
Will anybody be around to vote? Like all binges, this could peter out withdizziness or gout as the hidden costs of giveaways surface. Once they do, theycould wipe out the rosy projections for fiscal 2004-05.

In a fit of pre-electiongenerosity, Singh has taken 50% of the dearness allowance of babus employed byNew Delhi and lumped it with their salaries.
This means all salary-linkedallowances -- and pensions -- will get bumped up. The immediate cost of this payhike could be as high as Rs 1,500 crore for the Centre.
With Centralemployees getting hefty hikes, their chums in state governments will clamour formore. If states give in, as they did after the 1998 Fifth Pay Commission hike,governments could be lighter by as much as Rs 8,000 crore.
The effect ofthis hike will carry on for years as India''s army of babus goose-step intoretirement, pockets bulging with pension cheques. Who cares? With electionsthree months hence, the idea is to get the votes of the Centre''s 3.5million-plus employees, not just count pennies.
One of the BJP''s maincampaign planks will be bijlee, pani and sadak (BJP, in other words): power,water and roads. Road building is on track, funded by fuel cesses.
Today,Singh said he''d extend sops to new power projects and to SEBs taken over byprivate investors to 2012 instead of 2006 and cut taxes on turbine fuel -- if hegets another stint in North Block.
Water is a state subject, but thegovernment will upgrade Central canal systems and fund improvements in urbanwater supply. The NDA wants to expand in Assam, UP, Maharashtra and TamilNadu.

Unsurprisingly, Singh hasannounced debt restructuring and soft credit for tea and sugar, big in theseareas.
For Rajasthan, where the BJP is now in power, Singh has announcedan international airport, irrigation works and development schemes for desertareas.
The minister, by the way, is from Rajasthan. For all this,investors are spooked by the fine-print, like the sharp 44% cut in the budgetedsubsidy on cooking gas and kerosene from last year''s Rs 6,300 crore.
Withsops cut, gas and kerosene should become dearer, but which pre-electiongovernment will allow that? So, state-owned oil companies will have to fund thesops out of their pockets.
Last year, these companies shelled out about Rs5,700 crore on sops which North Block refused to cover. With lower budgetarysupport in 2004-05, the hit could be worth more than Rs 9,000 crore next fiscal.Messrs Singh and Naik are pulling in opposite directions: one is cutting off theexchequer''s support for subsidies, the other refuses to hike retail prices.
The oil companies, caught in the crossfire, lose big time. Ironically, twoof these companies are up for privatisation and Singh wants to sell some equityin IOC, ONGC and Gail to raise Rs 14,500 crore by March 31.
With policieslike this, don''t bet on the sanctity of those numbers. Whenever ministers talkabout ''social responsibilities'' of financial institutions, bankers get chills uptheir spines.

Singh could give them pneumonia.Directed lending -- where banks and FIs are told who to lend to, and at whatrates by the government -- is back with a vengeance. Mr Singh wants state-ownedbanks to lend cheap to farmers and dilute collateral norms.
The farmsector is untaxed and poorly administered in most parts of the country. Intothis thicket of credit risk, bankers are being asked to ride out with sackfulsof cash, armed with the blessings of a committee to examine bad debt issues.
The big losers in today''s market fall, unsurprisingly, were oil companiesand state-owned banks.
Singh has taken credit for fiscal consolidation,and the numbers on his Budget look good. The fiscal deficit for 2003-04, now4.8% of GDP, could settle around 5% by fiscal year end, lower than last year''s5.4%.
What''s more encouraging is a fall in the revenue deficit, from about4.4% of GDP to 3.6% now, with a fair chance of dropping below 2002-03 levels.We''d love to attribute this to leaner government, but the explanation is moremundane.
Revenues have jumped, driven by higher corporate sales andprofits; spending on food sops has fallen because the government has shed muchof 65 million tonnes of grain it was carrying; low interest rates have createdroom to swap high cost debt held by states with lower-interest bearingsecurities and some defence spending budgeted for 2003-04 has been rolled overfor next year.

This is par for the course:finance ministers deserve to get lucky sometimes and Mr Singh deserves thereturns from the rain fuelled run-up in the economy.
Like a loyal soldier,Singh has done his bit for his party with a please all budget. But he''s landedhimself in double jeopardy. If feel good works, he has to come back to clear upwhat could be a messy economic situation. If it doesn''t, he and his friends, areout of jobs.