India gets populist election budget, loan waiver to farmersFebruary 29th, 2008 - 8:56 pm ICT by admin
By Arvind Padmanabhan
New Delhi, Feb 29 (IANS) Promising to spur growth with equity, India’s Finance Minister Palaniappan Chidambaram Friday unveiled a Rs.7,508 billion/$185-billion national budget that includes a massive loan waiver for farmers and hikes social sector spending, all aimed at winning popular support for impending elections. The one-time loan waiver of a whopping Rs.600 billion ($15 billion) to cover an estimated 40 million farmers was among the main highlights of Chidambaram’s fifth straight budget - a feat which he said had equalled that of Prime Minister Manmohan Singh who as finance minister presented the country’s first of the five reform-oriented budgets from 1991.
Both Manmohan Singh and ruling United Progressive Alliance (UPA) chairperson Sonia Gandhi hailed the budget as “outstanding” and “revolutionary” - one that addressed the needs of the larger sections of society while keeping the focus on growth.
“The finance minister has done a very good job. He has kept the fiscal deficit and the revenue deficit under control,” said the prime minister, and termed the budget pro-agriculture, pro-investment and growth-oriented.
“Today is a very happy occasion. I congratulate the UPA government and Finance Minister P. Chidambaram for it,” Sonia Gandhi said, while specifically calling the loan-waiver scheme a “revolutionary” step.
The finance minister said India’s growth story that has been the cynosure of the world would continue and the Congress-led UPA government was rounding up its five years in power with a “record performance” in maintaining “sustained GDP growth with distributive justice.”
He said even though various agencies had predicted an economic growth of 8.7 percent for the current fiscal, he was optimistic of achieving 8.8 percent, with services and manufacturing being its main drivers.
“In fact, the first half of 2007-08 returned a growth of 9.1 per cent,” he said.
“The Indian growth story so far has been an absorbing and inspiring tale,” he said, but expressed disappointment at the pace of expansion of the farm sector, despite a fine start in agriculture at the beginning of this fiscal.
However, latest official figures show that the growth had come down to 8.4 percent for the third quarter of the current fiscal that Chidambaram ascribed to “considerable turbulence” in the rich countries.
Even though the opposition dubbed the various welfare proposals as an eye-wash, many of its leaders privately acknowledged that some of Chidambaram’s proposals were politically hard to oppose. But industry leaders hailed it as a good job done given the compulsions on account of impending elections.
“The finance minister has managed to address the triple challenge of growth, inclusiveness and sustainability very astutely,” said Sunil Bharti Mittal, president of the leading industry lobby, the Confederation of Indian Industry.
But the capital markets, which have traditionally been rather harsh on budgets, once again gave thumbs down to the proposals with the sensitive index (Sensex) of the Bombay Stock Exchange closing with a loss of 245 points or 1.4 percent.
As Chidambaram began to read out his 105-minute speech in the Lok Sabha, the lower house of parliament, it became clear that the focus this year would be on populist schemes - particularly in the backdrop of forthcoming polls in several states and the general election, expected later this year or early next year.
He said the National Rural Employment Guarantee Scheme, a revolutionary welfare scheme that was launched by Manmohan Singh to guarantee 100 days of employment to one member of a family in some 300 districts, would be extended to the entire country.
“Education and health are the twin pillars on which rests the edifice of social sector reforms,” he said, as he stepped up the outlays for the two areas by 20 percent and promised 6,000 high-quality model schools across the country.
Some of the finance minister’s main proposals included a hike in the exemption limit on income tax, that should please the middle class, similar sops to women and senior citizens and a reduction in peak central value added tax (Cenvat) to benefit some sections of industry.
For the corporate sector, while he sought to keep the direct tax rate unchanged, some sops in indirect taxes in the form of lower customs and excise duties were proposed for specific industries like automobiles and pharmaceuticals.
His proposals are expected to result in some items like cigarettes, both filter and non-filter ones, becoming costlier - a boost for the strong anti-tobacco lobby - while some others like small cars, breakfast cereals, pharmaceuticals, American diamonds and sports goods will become cheaper.
“Once upon a time India, together with China, accounted for 50 percent of the world’s output. We must regain our position and it is within our capacity to do so,” the finance minister said.
“Our work in government is, every day and every hour, a discovery of the path to reach our goals: Full employment, abolition of poverty and elimination of inequality,” he said, outlining the budget’s priorities.
“These goals can only be achieved by a considerable increase in national income and our economic policy must therefore aim at plenty, and equitable distribution. We must produce wealth, and then divide it equitably.”
He also announced three new Indian Institutes of Technology (India’s widely recognised institutions of excellence) for Bihar, Andhra Pradesh and Rajasthan, taking their total to 10, 16 central universities in various states, two schools of architecture and scholarship schemes for the socially underprivileged people.
Chidambaram also spoke of challenges facing the economy, especially inflation, and said the increase in capital flows from overseas was adding to the problems that required better management of such money in the short term.
“Keeping inflation under check is one of the cornerstones of our policy,” he said, adding his government would remain vigilant and make swift adjustments to ensure growth with price stability.
He, however, said that farm credit had doubled in the past two years, proposed a finance corporation for irrigation and water resources to fund major projects in these two areas, and proposed a massive loan-waiver scheme that will benefit 40 million, mainly “small and marginal” farmers.
“All agricultural loans disbursed by scheduled commercial banks, regional rural banks and cooperative credit institutions up to March 31, 2007, and overdue as on December 31, 2007, will be covered under the scheme,” he said.
This move alone is estimated to cost the system Rs.600 billion ($15 billion).
With India set to making massive orders for military hardware over the next few years, the finance minister also stepped up defence allocation by around 10 percent to Rs.1,056 billion ($26.5 billion).
“I have assured the raksha mantri (Defence Minister A.K. Antony) that any further amount needed for defence forces, especially for capital expenditure, will be provided,” he said.
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