Once again, the budget season is upon us. For years budget speeches have been romantic exercises with grand gestures and sweeping policy announcements. Sadly, there were no fiscal or monetary incentives to promote desirable goals and pursue worthy policies. And without such incentives, and given the inertia of the political system, most grand gestures remained pious proclamations. The two recurring themes over the past 12 years of budgeting have been reduction of fiscal deficits and the health of capital markets. As usual the media are full of speculation and wishful thinking on both the issues. The truth is, the finance minister FM) has very little room for manoeuvre in dramatically reducing fiscal deficits. That is why the actual deficits exceeded budget estimates by 1.1 percent of GDP on an average during the past three years. Given the fiscal rigidities, it is unlikely that the FM will be any more successful this year. As budget estimates are increasingly fanciful, what is projected in the budget speech will at best be a case of hope triumphing over experience. Similarly, our obsession with capital markets has distorted our perceptions of the real economy. Irrational exuberance and stratospheric market capitalization are no substitutes to real wealth creation and employment generation. Our own experience of the rollercoaster rides of the past decade, and the plight of global capital markets are testimonies to this disjunction between stock prices and economic fundamentals. And yet, even now much of the public discourse is centred round fiscal deficits and capital markets.Instead, it would be worthwhile to examine what the FM can realistically do to stimulate growth and strengthen economy with the instruments available to him. Happily there are a few positive factors facilitating determined action now. Interest rates are low by our standards. While growth rate has slackened, it is still higher than in most world economies. India not only maintained moderate growth despite poor monsoon this year, but there are signs of accelerated growth next year. Manufacturing is again looking up. In the housing sector, the robust policies of the past few years paid off and there is a construction boom. All indications are that the incentives to build homes will continue. Similarly impressive work has been done in laying roads, and over 7000 km of highways are expected to be completed ahead of schedule. This rapid execution is a new experience in a country plagued by perpetual delays.What more can be done to stimulate growth within the broad fiscal compulsions? There are four sectors in which high returns are possible at relatively low cost. First, agricultural research in two areas is vital. Productivity increase in drylands is a necessary condition to combat rural poverty. Similarly only value addition in agriculture can improve rural incomes and shift sizeable workforce to non farm sector. Our agricultural research infrastructure is impressive, but underutilized. An additional investment of the order of Rs 1000 crores per year in these two areas in a focused manner will yield very high returns.Second, we should build on the successes in housing sector. There are still many more hurdles to construction activity. Most poor people have no clear titles to valuable land. The work of the Peruvian economist Hernando de Soto clearly established how the poor are denied precious capital for want of land titles. In most states, land surveys have not been conducted after the British left. Land records are outdated. Computerization of existing records will only improve data storage and retrieval, but is no substitute to clear titles. High and varying rates of stamp duty for property transfer have dampened construction, or pushed much of the activity underground. Uniform and reasonable duties in all states, and repeal of urban land ceiling laws in all states are necessary to stimulate greater activity. These are state subjects, but strong incentives from the union will be of great help. Third, our justice system is in a mess. We have only 10 magistrates per million population, as opposed to the OECD norm of 110. We can easily increase the number of trial courts with honorary magistrates at the lowest level at a marginal cost. For all of India, it is possible to have 30000 such local courts at a total cost of Rs 600 crore per annum. The Union can devise a centrally sponsored scheme with matching grants to states. This modest investment will transform the grassroots scenario and improve rule of law immeasurably. Once there is better enforcement of rights, small investments and entrepreneurship will flourish. Fourth, Kerala, Tamil Nadu and AP have shown that population problem can be effectively addressed even without any fundamental changes. Focus on health delivery, sustained campaign approach, and literacy improvements can dramatically reduce birth rates even amidst poverty. Happily, last decade has seen significant literacy growth even in the large northern states. Judicious incentives, basic infrastructure for family planning services and vigorous campaigns will certainly slow down birth rates in a short span. The Union can again use incentives specially designed for states with high population growth. Given the fiscal rigidities and political compulsions with elections due in 20 months, there is no point grand-standing. Prudent, sensible and well-directed policies backed by strong central incentives to ensure effective implementation in states are affordable, and will accelerate growth significantly. These goals are politically palatable, and they can be pursued even after the budget presentation.