A taxpayer in hand...

From the 'grand plan' of 2001 to this year's 'disappointment', was a long journey, mostly a difficult one. This Union Budget has happened in tough times: recession, defense costs, a year of calamities, the fallout of 9/11. Given this, the overall direction of the Union Budget is not a bad one.

The best thing I can say about it is that it steps a bit away from populism. From the Railway Budget's reduction of cross-subsidies, to the Union Budget's rationalization of petrol and cooking gas prices. Good, especially if the government can hold its own in the face of the likely backlash ahead.

But the tax-the-rich idea is also populism. The 'rich' include the successful-software exporters. Going back on commitments of a 10-year tax holiday, there is a 'temporary' tax on 10 percent of revenue this year. Now, this is no great tax burden, nor is it great revenue, but it sends a signal: We can not fully trust the government. We can not make plans, projections or valuations based on their promises. Who knows how temporary this will be? That it would not be 30 percent next year after a border skirmish?

There are positive steps. Manufacturing becomes more viable: the inverted tariff structure goes away, and the zero-duty regime gets pushed back to 2005. But prices would not fall. Mobile handsets get a bit cheaper, but over three-fourths of all those colorful handsets will remain gray.

Part two of the tax-the-rich idea is an old refrain: a taxpayer in hand is worth ten in the bush. Squeeze him! This Budget does. Thanks to its inability to increase the tax base, the ITO squeezes more and more from hapless salaried citizens who declare taxes and file returns, while leaving out 98 percent of the population. Yes, the modern world-from the US to China-picks up much more of its income from taxes than India does. But by moderately taxing most of their citizens. Not by squeezing the honest two- percent.

If the ITO could increase its taxpayer base by two percentage points more, it could double its income tax collections. That is easier said than done, thanks to inadequate IT and other systems, and poor standardization or access to other department databases. It is an uphill task to implement their theory mandating tax returns from owners of credit cards, property, et al. (Yes, listing phones in the ITO's luxury hotlist is silly, but that's another story.)

An executive summary for the government: standardize your databases, share them across your divisions, use IT effectively, and pick up people who should be paying taxes. Treble the tax base this year. Match that with other reforms. You can tax agriculture income a little, start charging a bit for electricity, plug 'power distribution' leaks, and cut subsidies further. And you will take bigger steps toward bridging the deficit than with fiscal gymnastics, or penalizing salaried professionals for doing well in India.