Finance minister Ram Sharan Mahat had no choice but to give the army and police hefty increases in the budget. The army got a 17 percent raise to add up to Rs4.52 billion, about Rs445 million of which is to be spent on hardware. The police (including the armed police) allocation went up even more: 27 percent over last year to Rs5.79 billion. Of that, Rs500 million is for equipment like guns and helicopters. The total security budget is now Rs10.31bn?ten percent of the total. I had little choice, Mahat told us. The Maoist activities have been harming the economy, they have targeted industrial production.

What this means is less money for health, education and other services. It is a Catch-22, the most effective weapon against the insurgency is development, but there is less money for it because more is diverted to fighting rebels. The test of the budget is the implementation. And that depends entirely on the insurgency. On that also hinges the ability of the government to keep investors that are already in the country, and attract new ones.

Despite pressures to keep the deficit narrow, projected to be about a third of the total Rs99.79 billion, Mahat has managed to address one of the main problems faced by exporters. He has decided to introduce the pass book system and make duty refunds at the customs points rather than from the central coffer?a system that has been a total failure. Back payments are to be handled by issuing exporters five-year debentures at a five percent interest rate.