This is the most responsible budget possible

Finance minister Pranab Mukherjee has scripted possibly the most responsible budget one could sew together, keeping in view the promises of a government that won its biggest election victory in the last two decades and the need to keep the growth momentum on an even keel.

The task could not have been particularly enviable, in an international environment of possibly the worst financial meltdown since the Great Depression of the early 1930s, and a domestic fiscal scenario of revenues seemingly having reached a plateau and with expenditures that seem to be going north unabated.

The problem has been compounded not least because the cabal of central government officials, constituting a small elite of this billion-plus economy, have decided to award themselves rather generous pay hikes all across the board.

The political compulsions on  Mukherjee must have been considerable. There is little doubt that given the kind of mature politician, and true survivor, that he has been over the past four decades, the importance of initiatives like the National Rural Employment Guarantee Scheme (NREGS) and the loan waiver for his party's political victory would not have been lost on him.

Self-proclaimed fiscal conservatives have been systematically haranguing this scheme, arguing that this is a fiscal waste. But all reports from the ground level, from remote areas in faraway Jharkhand or Rajasthan, seem to suggest that where the government machinery is somewhat sensitive, and the stakeholders alert, the scheme seems to be doing rather well.

It is, therefore, very much laudable that Mukherjee has increased the allocation on NREGS by a whopping 144% to Rs39,100 crore. Another vital initiative pertains to the new National Food Security Act that is expected to be brought in shortly.

It is a shame that more than 60 years after Independence, almost 77% of the population lives under the rather insubstantial limit of Rs20 per person per diem. India is home to the maximum percentage of abysmally poor, destitute, and homeless people. Almost 50% of children in the age group zero to five are malnourished. It is in this context that the forthcoming Food Security Bill that will ensure entitlement of 25 kilos of rice or wheat at Rs3 per kilo to every family living below the poverty line assumes special significance.

Such initiatives as listed above are bound to affect the government's bottomline. The fiscal deficit of the Centre is expected to widen to a 16-year-high of 6.8% of the GDP. The combined fiscal deficit of the Centre, states, and local bodies is likely to be rather in the range of some 10.5% to 11%.

This is possibly on the high side, but the time has now come when the polity must resolve to have zero tolerance for high levels of destitution and malnutrition, even if some conservatives would regard this as fiscal profligacy. The finance minister has been sensitive to the requirement of minorities and the welfare of workers in the unorganised sector.

Of course, it goes without saying that the crying need of the hour is a stepping up of investment, particularly in rural infrastructure. Nearly 60% of the country's population resides in the villages and is principally dependent on the agriculture sector, but the unfortunate truth is that the share of agriculture in the country's GDP is now barely 18%, down from a figure of about 55% a half century ago.

It is this that is at the heart of the deep and widening income disparity that the country is confronted with. The only way to at least assuage, if not reverse, this process would be to substantially step up public investment in the agriculture sector as well as to generate employment opportunities in the rural areas.

The author is professor of economics at the Delhi School of Economics.