Many have commented on the latest Union Budget. They may be divided into two types, namely, sectional or sectoral and macroeconomic. The sectional/sectoral reaction is on predictable lines.

Those who benefit from the tax proposals welcome them; those adversely affected want them to be withdrawn.

But, in the ultimate analysis, what is important is the broad picture emerging from the Budget about its impact on output, prices and employment, familiar topics of macroeconomics.

Attention has been given to them by economists and former finance ministers. However, even in their well-considered comments, there are certain points which need to be corrected.

It has been well said that there are no elements in the Budget for substantial economic growth. It has also been pointed out that economic growth is a function of investment. The crux of the matter is that growth is a function of increasing investment.

Under the Hansen-Samuelson Hypothesis, for the country to be on a continuous growth path it will not help if the investment this year is of the same order as the previous year. It has to be more, year after year.

Secondly, those who argue for pump-priming -- expenditure by the government for the sake of stimulating demand -- overlook its effects on private investment.

Government investment in a sector can displace private investment. There is also the familiar 'crowding out' effect due to the competition for funds.

For the country to benefit, what is relevant is total investment of both the private and public sectors. It is not enough if the government increases its capital expenditure if it is neutralised by a fall in private capital formation. This is what has happened in the past. Total investment in the private sector has been minimal in recent years.

The Economic Survey for 2002-03 has documented the sluggish investment rates in both agricultural and industrial sectors.

On agricultural investment it says: "The decline in the share of investment in agriculture as per cent of GDP from 1.6 per cent in 1993-94 to 1.3 per cent in subsequent years has been an area of continued concern. This decline was attributed to near stagnation or fall of public investment in agriculture since the early nineties. Year 2001-02 is likely to be a turning point as public investment had touched Rs 4,794 crore (Rs 47.94 billion) which was significantly higher than the previous five years (sic)."

One does not understand why it should be a matter of concern for so many years with no action being taken!

The data show that, at constant prices, the amount of gross capital formation in the private sector declined from Rs 13,082 crore (Rs 130.82 billion) in 1999-2000 to Rs 12,768 crore (Rs 127.68 billion) in 2000-01 and rose to Rs 13,263 crore (Rs 132.63 billion) in 2001-02.

The corresponding values for the public sector are: Rs 4,222 crore (Rs 42.22 billion), Rs 3,919 crore (Rs 39.19 billion) and Rs 4,794 crore (Rs 47.94 billion), respectively.

One has to examine the net figures which are not available in the Survey. Between 1999 and 2002 while the public sector investment rose by Rs 572 crore (Rs 5.72 billion) that of the private sector increased by a paltry Rs 181 crore (Rs 1.81 billion).

What is more telling is the data on the annual sale of tractors and power tillers. The former declined from 2,73,181 units to 2,25,280 units and the latter from 16,891 units to 13,563 units, during the three years.

The Green Revolution of the last century was characterised by large-scale private investment in agriculture, particularly in wells, tube wells and farm equipment, although it was confined to a few states only.

Also it was sustained by substantial R&D efforts in adapting high-yielding seeds of foreign countries to Indian conditions.

This year's Budget allocations for R&D in agriculture is small compared with the massive requirements. There was euphoria in the past about the country having become resilient to monsoon failures. One does not hear of it any more.

Incidentally, it also brings to notice the cardinal principle that any theorising about growth being a function of investment has to reckon with the exogenous factor of the role of rains in determining the economic fortunes of the country.

The high level of projected fiscal deficit at 5.6 per cent in 2003-04 following the 5.9 per cent in the previous year has been a matter of worry for inflation watchers.

After remaining subdued for quite sometime, the inflation rate has started rising in recent weeks.

The cut in direct taxes may release more purchasing power to withstand a price surge to some extent, supported by any reduction in the prices of consumer goods that may be passed on by manufacturers, consequent to the fall in customs and excise duties, in respect of certain commodities.

But these do not mean much to the masses below the poverty line -- 260 million at the end of 1999-2000 -- who are living from day to day, worried about where the next meal is going to come from.

The truth of the matter is that the low level of inflation rate seen in the recent period is a red herring for policy makers.

Due to the high level of prevailing prices caused by the past bouts of inflation, the average consumer has stopped buying such goods as textiles.

This is evident from deserted shops during the festival season. So it is no consolation to him to be told that the inflation rate is low.

The data on employment generation in the Economic Survey makes dismal reading. The annual growth rate in employment is estimated to have declined from 2.67 per cent in 1983 to 1993-4 to 1.07 per cent from 1993-4 to 1999-2000.

Quoting from the report of the Special Group set up by the Planning Commission: "Employment elasticity of output has gone down from 0.52 over the years 1983 to 1993-94 to 0.16 over 1993-94 to 1999-2000. This decline in employment elasticity is observed in most sectors except in transport, financial service and real estate."

Has it anything to do with the leakages from expenditure on development schemes about which Rajiv Gandhi had spoken?

The situation is even more dismal than what is portrayed by the data. We have the phenomenon of disguised unemployment or underemployment, a concept formulated by the late Joan Robinson and popularised by a United Nations study on the economic development of underdeveloped countries in the last century.

It is the phenomenon indicative of surplus labour, that if a section of the workforce is withdrawn there is no decline in output. Today it may be as much true of the public sector in this country as of agriculture, which the UN study cited by way of illustration!