Finance Minister Pranab Mukherjee has pleased the "aam aadmi" (common man) but made the "khaas aadmi" (the elite) unhappy in his 2009-10 budget proposals. Constrained by the global recession and domestic economic strains, he has provided a much awaited further stimulus to the economy by raising plan expenditure by as much as 25 per cent in real terms. 

Much of these funds will go to the social sector schemes that have been so successful in propelling the Congress party back to power like those guaranteeing 100 days of work for each rural family and Bharat Nirman, the grand national reconstruction programme. 

But the stock markets - the "khaas aadmi" - have given him a resounding thumbs down by forcing a key index to crash by a whopping 900 points during the day. The meltdown was mainly the result of unrealistically high expectations from investors, who had led an initial surge in markets. 

The abolition of much-criticized fringe benefit tax and commodities transaction tax had little impact on a market that complained about the lack of a clear road map on divestment, fears of the impact of the huge fiscal deficit and the absence of any bold policy announcements on foreign direct investment - like their entry into the insurance and retail sectors. The increase in the minimum alternate tax from 10 percent to 15 percent of book profits added fuel to the fire. 

The extreme reaction of the stock markets is in line with the equally extreme rise in the key, sensitive index (Sensex) as soon as elections results were announced. The anticipation was that a United Progressive Alliance (UPA) government minus the Left parties to prop it up would mean all stalled economic reforms would be back on track. 

The Economic Survey's outline of a road map for this process added further to these expectations. But the fact is that these days the government does not always present all its policies in the budget. 

Petrol and diesel prices, for instance, were hiked just before the budget. Similarly, finance ministry officials already clarified that a road map for disinvestment was being finalized and would gradually be unveiled during the year. There is no doubt that the exchequer would need to raise more funds to meet its expenditure given the low revenue accruals expected from direct taxes this year. It, therefore, has to seek funds from the disinvestment route and the 3G spectrum auctions later this year. 

The finance minister's effort to provide sops to the hard-pressed middle class by removing the 10 percent surcharge on personal income tax and marginally raising the exemption limit for all categories of tax payers is unlikely to enthuse this segment. The exemption limit needed to be enhanced significantly to provide some more relief to the salaried segment of society. 

His proposals, however, aim at a larger constituency in both urban and rural areas by targeting the creation of 12 million jobs annually. The outlay on flagship schemes like the rural job guarantee scheme and Bharat Nirman have been raised substantially in recognition of their impact on the electorate. 

Similarly, the election promise of providing 25 kilograms of foodgrains at Rs.3 per kg to those below the poverty line is being fulfilled by launching work on the Food Security Bill. It has often been said that the budget is as much about politics as economics and this year's budget proposals are a clear reflection of this statement as the UPA tries to show the people that they will not forget their election promises. 

As for infrastructure, Mukherjee has once again not mentioned the amount that will be made available for this crucial sector. He has, however, made it clear that there will be no shortfall in funds, while highlighting the fact that infrastructure financing agency and banks can support projects with a cost of Rs. 100,000 crore ($.20 billion). 

The big question in this budget, however, is the huge fiscal deficit of 6.8 percent as compared to 2.5 percent in the budget estimates of 2008-09 and 6.2 per cent in the revised estimates. The finance minister has clearly voted in favor of growth rather than looking at retaining the fiscal responsibility targets of the past. 

He has opted to live with the high fiscal deficit as have many other crisis-hit economies in the past year, in order to provide sufficient public spending to spur growth. The total expenditure in 2009-10 has crossed the threshold of Rs.10 lakh crores ($200 billion) for the first time since independence.

The resulting huge deficit has been left as a Rubicon to be crossed later as Mukherjee has opted to aim for higher growth this year. This is clearly the right course of action in an economy battered by the hurricane of global recessionary trends, even if the stock markets are taking a contrary view. 

(Sushma Ramachandran is an economic and corporate analyst. 
She can be reached at sushma.ramachandran@gmail.com)