A Las Vegas budget.

The first budget presented by the new Finance Minister Nirmala Sitharaman on 5 July shows her to be a gambler. "Sitharaman raised excise duty and road and infrastructure cess on the auto fuels by Rs 2 per liter each to raise over Rs 28,000 crore (Rs 280 billion)." She is betting that the price of crude will stay at the present level or may even fall. Oil prices are fluctuating because of uncertainty caused by the trade war between the US and China, although talks are set to resume following a meeting between US President Donald Trump and Chinese President Xi Jinping at the G20 meeting in Japan. Falling global growth is likely to reduce demand for oil. Shale oil has made US the largest oil producer and will soon make it the largest exporter of oil, ahead of Saudi Arabia. Despite sanctions on oil shipments from Iran and Venezuela the price of oil is holding steady, making Sitharaman optimistic. However, situation in the Middle East could easily get out of hand. Iran is threatening to seize a British vessel in retaliation for Britain seizing an Iranian tanker off the coast of Gibralter. If Iran's oil export is completely choked off it may react by attacking tankers passing through the Gulf, as it has shown already. Trump said that the US will not use ground troops against Iran, but it may have no choice if Iran attacks Saudi Arabia which shares a long border with Iraq. Shia Iran and Sunni Saudi Arabia are implacable enemies and Shias are a majority in Iraq. Saudi troops are no match for Iranian forces. The second bet made by Sitharaman is that retail inflation, which was 3.05% in May, will remain below the target of 4% set by the government despite high fuel prices. The government earned Rs 11 trillion in the last 5 years by heavily taxing fuel and is unwilling to break its addiction. Unfortunately, the monsoon has been somewhat reluctant so far this year so food production could easily fall. In an effort to increase income of farmers, the government has already increased the minimum support price (MSP) for several crops which may result in higher prices for consumers. The third bet by Sitharaman is a decision to finance government spending by borrowing in foreign currencies abroad. She is betting that the US Federal Reserve will lower its Funds rate. Yields on the benchmark 10-year government bonds fell to 6.66% because supply of bonds will decrease. She is also betting that the rupee will remain strong relative to dollar which will make repayment easy. At the same time the Economic Survey called for lower interest rates in India which may discourage foreign investors from buying Indian bonds. A strong rupee is not in our interest, wrote Prof A Panagariya. With so many bets the Budget would be at home in Las Vegas rather than in the Indian parliament. Gambling with the economy is gambling with our lives.