Optimistic assumptions, or just guesswork.

The annual tamasha, the central Budget, has been presented and was greeted with a vault of 486 points in the stock market index, the Sensex. Why the euphoria? Because it was a nothing budget, a bit of this and a bit of that, but no big announcements. That was such a relief that, along with the promise of keeping the fiscal deficit at 3.2%, it resulted in a collective exhalation of breath, followed by jubilation. Jaitley promised to restrict market borrowing to Rs 3.48 trillion, net of buyback. Since the government is the largest borrower, an increase in government borrowing sucks liquidity out of the market and puts upward pressure on interest rate. The vast amount of money deposited in banks during demonetisation, coupled with restricted government borrowing, means an excess of funds to lend, so that interest rate will remain soft. But, some people are already questioning the Finance Minister's arithmetic. Estimate of Rs 725 billion from disinvestment looks too optimistic, while revenue expenditure has been probably understated by Rs 100 billion. The budget has allocated Rs 1.29 trillion for rural development, Rs 10 trillion for farm credit, Rs 524 billion for welfare of Dalits, Rs 432 billion for the North East, Rs 570 billion for agriculture and allied activities and Rs 480 billion for MGNREGA. Any or all of these could demand more spending. The bond market signaled that it does not believe interest rate will fall. Yield of benchmark 2026 bonds increased slightly from 6.41 to 6.43%. To be fair to the Finance Minister, he had to prepare the budget 2 months before the end of the financial year on 31 March so he does not have the final figures for the year, so he has had to assume a lot. The budget estimates that tax receipts will rise from Rs 17 trillion to Rs 19 trillion. Demonetisation has caught a lot of people with black income in the income tax net while the Goods and Services Tax, or GST, will increase indirect tax collections. Only 1.5% of 1.25 billion people pay income tax, the number has actually fallen from 270 million in 2002-03 to 190 million in 2014-15, although tax collection has increased from Rs 369 billion to Rs 2.58 trillion. That is because 93% of Indians earn below Rs 250,000 a year and there is no tax on agricultural income. The tax:GDP ratio is only 16.6%, lower than other BRICS nations and the ratio of taxpayers to voters is less than 10%. Over 500 million people are between 25-54 years of age, a large chunk of whom should be paying income tax. Of them around 251 million are women. Only 27% of women in India work, the number is declining. GST will have 5 rates, from 5 to 28%, with added cess, so could decrease consumption. GST will catch the informal sector in the tax net, so some relief has been provided. A lot of this sector will not survive, which will increase unemployment. Which may increase spending on the social sector. Lots of unknown unknowns.