Trade and development report update: April 2024
The report forecasts global economic growth to 2.6% in 2024, barely above the 2.5% threshold commonly associated with a recessionary phase. The report says the prevailing focus on inflation overshadows
Economy
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A good scheme, but not good enough'
The two major farmers' organisations in the State, the Karnataka Rajya Raitha Sangha (KRRS) and the Karnataka Prantha Raitha Sangha (KPRS), have welcomed the loan waiver scheme for small and medium farmers announced in the Union Budget, but have made it clear that it falls far short of addressing the serious agricultural crisis that they say the State is in. "A positive step, but incomplete,' is how G.C. Byya Reddy, General Secretary of the KPRS, described Union Finance Minister P. Chidambaram's scheme that offers to waive the crop loans taken from commercial banks, regional rural banks and cooperative credit institutions by small and marginal farmers up to March 31, 2007; and for other farmers offers a one time settlement scheme on loans overdue on December 31, 2007 with a 25 per cent rebate if the remaining 75 per cent is paid. "The loan waiver should have been extended to all sections of farmers other than big landlords as it is only a very small section of small and medium farmers who get loans from banks. A majority of them borrow from informal sources as banks do not consider them creditworthy,' Mr. Reddy told The Hindu. Only 26 per cent of the total farming community is covered by institutional credit, he said. Input costs "Not bad but not good either,' KRRS president K.S. Puttanaiah told The Hindu. "The Budget will not stop farmers from committing suicide as it does not address the problem of increasing cost of inputs, labour and other expenses that are pushing up the cost of cultivation and of living for the farmers. There is no talk of an agricultural policy,' he said. ] According to him, an estimated 10 lakh to 15 lakh agricultural families would be benefited by a crop loan waiver of about Rs. 15,000 crore. "However, this is only a temporary solution, not a permanent one,' he said.
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Chidambaram takes care of tigers
The declining tiger population in the country figured in the budget proposals for 2008-09 with the government announcing a special package for the conservation of the big cats. "The tiger is under grave threat,' Union Finance Minister P. Chidambaram said, while presenting the budget estimates in Parliament on Friday. Mr. Chidambaram said that in order to redouble the government's effort to protect the tiger, there was a special allocation of Rs.50 crore for the National Tiger Conservation Authority. The bulk of the grant would be used to raise a special armed Tiger Protection Force. In the last budget the Minister announced an expert committee to study the impact of climate change on India and identify the measures that would be taken in the future to deal with climate change. "Even while adhering to the principle of common but differentiated responsibility, we can and we must do a number of things in our self-interest,' he said, while advocating the need for promoting clean technology, reviewing fuel emission and efficiency regulations. He said India could replace wood with solar energy as the fuel of common use, and encourage the use of gas which is the most benign hydrocarbon.
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Rs 50 cr to save tigers
In a way, the Budget speech of the Union Finance Minister for 2008-2009 was unique. India's national animal tiger managed to find way in Chidambaram's speech when he recognised that the figure of 1411, the official number of tigers in the country, was alarming. "The number 1,411 should ring the alarm bells,' is how Chidambaram voiced his concern over the depleting number of tigers in the country as he announced a special grant to save the animal in the Budget 2008-09. Presenting a new ray of hope for the endangered specie, the finance minister proposed an allocation of Rs 50 crore to save the big cat by raising a tiger protection force. "1,411 is the number of tigers in India. The tiger is under grave threat,' the finance minister said, adding that the grant to the National Tiger Conservation Authority (NTCA) would redouble efforts to protect the big cat. Bulk of the grant will be used to raise, arm and deploy a special tiger protection force and this is one effort that the majority of tiger conservationists in the country have welcomed.
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2.5 cr more children to be covered
Finance minister P. Chidambaram today gave a brief account of the progress made under the flagship programmes such as Bharat Nirman, which were aimed at boosting development in the rural areas. In his Budget speech, Chidambaram proposed to provide Rs 31,280 crore for Bharat Nirman as against Rs 24,603 crore in 2007-08. The minister said Bharat Nirman had made impressive progress in 2007-08. "At the current pace, on each day of the year, 290 habitations are provided with drinking water and 17 habitations are connected through an all weather road. On each day of the year 52 villages are provided with telephones and 42 villages are electrified. On each day of the year 4,113 rural houses are completed,' he said. The Budget proposed Rs 8,000 crore for the Mid-day Meal Scheme. The Mid-day Meal Scheme would now be extended to upper primary classes in government and government-aided schools in all blocks of the country. This would benefit an additional 2.5 crore children, taking the total number of children covered under the scheme to 13.9 crore. The focus of the Sarv Siksha Abhiyan would shift from access and infrastructure at the primary level to enhancing retention, improving quality of learning and ensuring access to upper primary classes. He said the model school programme, which aims at establishing 6,000 high quality model schools, would start this year and Rs 650 crore had been proposed for the scheme. Navodaya vidyalayas would be established in 20 districts that had a large concentration of Scheduled Castes and Scheduled Tribes. On the National Means-cum-Merit Scholarship Scheme, which was announced last year to enable students to continue their education beyond Class VIII and up to Class XII, he said 1,00,000 scholarships would be awarded and a corpus of Rs 3,000 crore built up in four years. The finance minister said pointing out that India has the opportunity become a knowledge society, he said following the Prime Minister's announcement an IIM had started functioning at Shillong, IISERs had started at Mohali, Pune and Kolkata and an IIIT at Kanchipuram. Referring to the government's promise to establish a central university in the uncovered states, he said 16 central universities would be established in 2008-09.
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India bails out small farmers in pre-election budget
India's Congress-led government announced on Friday a 15 billion dollars loan bailout for small farmers in a populist pre-election budget targeting the party's traditional poor rural supporters. Finance minister Palaniappan Chidambaram, releasing the budget for the year starting April 1 as India's blistering economic growth has begun to slow, announced a 600 billion rupees ($15.05b) relief plan. Some 30 million indebted farmers' loans would be fully waived and another 10 million would receive aid, said Chidambaram, who presented the budget ahead of nine state elections slated this year followed by national polls in early 2009. He pledged to wrestle down the fiscal deficit and tame inflation. But the lack of any big corporate incentives along with the debt giveaway dismayed the stock market which tumbled nearly 1.4 per cent.
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Rs 16,447-cr Budget allocation for NE
Riding on the back of a populist Budget, Finance Minister, P. Chidambaram today reiterated UPA Government's commitment for economic uplift of the north eastern region (NER), announcing a hike of Rs 2082 crore in Central allocation. The NER will continue to receive special attention and enhanced allocations. "I propose to provide Rs.1,455 crore to the Ministry, Development of the North Eastern Region (DoNER),' said the Union Finance Minister. The total Budget allocation for NER, spread over different Ministries and departments, will increase from Rs 14, 365 crore in 2007-08 to Rs 16, 447 crore in 2008-09, he announced. Although the Finance Minister spoke of special interest for development of NER, his words did not match the allocations. For instance, he announced a special centenary grant of Rs 20 crore to the Tocklai Experimental Station at Jorhat. The demand was for Rs 100 crore grant. The Tocklai Station at Jorhat of the Tea Research Association will celebrate its centenary in 2010. It is in the process of upgrading its facilities and expanding its activities to cover the NER, North Bengal and Darjeeling. A visibly agitated BPPF MP, SK Bwismutiary sought to interrupt Chidambaram on a couple of occasions, protesting meagre allocation for BTAD areas. The Finance Minister has also proposed to set up centres for development as mega clusters in handloom sector. The Government proposes to invest about Rs 70 crore in developing each cluster. An initial amount of Rs 100 crore was earmarked. Incidentally, both the projects are in Union Minister for State for Fertilizer and Chemicals, Bijoy Krishna Hendique's Parliamentary constituency. Meanwhile, the Special Purpose Tea Fund set up last year for re-plantation and rejuvenation has been earmarked Rs 40 crore. The fund popularly called the tea package was envisaged to bail out the sick tea industry. The NER and, especially, Arunachal Pradesh and the border areas face special problems that cannot be tackled in the usual course or through normal schemes. Hence, Government proposes to identify the urgent needs of these areas and address them through a special mechanism, he said, acknowledging the problems faced by the border State. "In order to jumpstart the process, I propose to set apart a sum of Rs.500 crore in a fund dedicated for the purpose,' said the Minister. The ambitious SARDP-NE, a programme envisaging development of road infrastructure, has been set a target of 300 km. Last fiscal, 180 km of road had been constructed. The Finance Minister also declared a special focus on saving the tigers. The number 1,411 should ring the alarm bells. "The tiger is under grave threat. In order to redouble our effort to protect the tiger, I propose to make a one time grant of Rs.50 crore to the National Tiger Conservation Authority. The bulk of the grant will be used to raise, arm and deploy a special Tiger Protection Force,' Chidambaram said. The National Aids Control Programme will be provided Rs.993 crore. Studies have shown that the prevalence rate of HIV and AIDS has come down from 0.9 per cent to 0.36 per cent, which is a matter of some satisfaction, he said. Meanwhile, allocation for flood control projects for the NER and Sikkim has been hiked to Rs 114.20 crore from Rs 58.39 crore. While there was no mention of the Majuli Protection Scheme, Pagladiya Project has been earmarked Rs 2 crore, a rise from Rs 1.29 crore. However, allocation for Indo-Bangladesh border works has gone down to Rs 484.23 crore from Rs 560.97 crore.
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PC budgets for early elections
Rs 60k-crore farm loan waiver, I-T exemption limit raised. P Chidambaram unveiled a Budget cleverly designed to win him many popularity contests. There were concessions on the income tax, reductions in customs and excise duties, and the mother of all farm loan waivers. While playing to multiple galleries, the finance minister also managed to reduce the fiscal deficit to lower than the target set under the fiscal responsibility law, and showed progress on the revenue deficit. Along the way, he designed his announcements so as to attack the twin problems confronting the economy: inflation (the excise and customs cuts will help lower prices) and falling consumer demand (lower tax rates for small cars and two-wheelers, and more money in people's pockets from the income tax concessions). Keeping in mind the Congressman's favoured
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Farm distress gets Rs 60,000 cr breather
DEBT WAIVER The loan waiver will benefit about 30 million small and marginal farmers. In an apparent move to appease the huge rural vote bank, the government today announced the biggest-ever agricultural loan waiver package that will cost the exchequer a whopping Rs 60,000 crore. The move will benefit about 30 million small and marginal farmers, whose debts worth Rs 50,000 crore will be completely waived, and about 10 million other farmers. Under this package, while all the outstanding unpaid loans of small and marginal farmers will be totally waived, the other farmers will have to repay only 75 per cent of the borrowed amount under one-time settlement arrangement. Announcing the largesse in his budget speech, Finance Minister P Chidambaram said the agricultural loans, which were restructured or rescheduled in 2004 and 2006, would also be eligible for loan waiver and concessional repayment through one-time settlement arrangement. All agricultural loans disbursed by the scheduled commercial banks, regional rural banks and cooperative credit institutions up to March 31, 2007, and overdue as on December 31, 2007, but not repaid till today, would be covered under this debt waiver-cum-relief scheme. The tillers of up to one hectare of land would be considered marginal farmers and those having one to two hectares of land would be deemed small farmers. The finance minister announced that the implementation of the scheme would be completed by June 30, 2008. The farmers would become entitled for fresh agricultural loans from the banks after the debt waiver or signing an agreement for repayment of 75 per cent amount under the one-time settlement arrangement. He, however, did not elaborate on how the banks would be compensated for the waived loans. Referring to the indebtedness of the farmers, Chidambaram pointed out that the government had appointed a committee under the chairmanship of R Radhakarishna to examine all aspect of this issue. "The committee had made a number of recommendations but stopped short of recommending waiver of agricultural loans.' The finance minister, however, sought to justify this populist move, maintaining that the government was conscious of the dimensions of the problem and was sensitive to the difficulties of the farming community. He also asserted that the government had carefully weighed the pros and cons of debt waiver and had also taken into account the resource position while taking this decision. Chidambaram told Parliament that notwithstanding some shortcomings, the growth of agricultural credit had been impressive. "We will exceed the target set for 2007-08. For 2008-09, I propose to set a target of Rs 2,80,000 crore.' he said. He thanked the commercial banks and regional rural banks which, together, accounted for between 75 and 79 per cent of agricultural credit disbursed during the year. Chidambaram said short-term crop loans would continue to be disbursed at an annual interest rate of 7 per cent, adding that an initial provision of Rs 1,600 crore had been made for interest subvention in 2008-09.
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Irrigation outlay raised 81%
IRRIGATION Outlay increased to Rs 20,000 crore. In order to provide more stimulus to the agriculture sector, the government has increased the outlay for irrigation projects by over 81 per cent. The outlay has been increased to Rs 20,000 crore for 2008-09, from Rs 11,000 crore for 2007-08. The Centre's contribution to the outlay is Rs 5,550 crore, up 44 per cent over the previous year's Rs 3,850 crore. The Centre's contribution will be disbursed to states in the form of grants. The government is investing heavily in the Accelerated Irrigation Benefit Programme (AIBP) and the Rainfed Area Development Programme (RADP), along with other water resources programmes. Under the AIBP, 24 major and medium irrigation projects and 753 minor schemes will be completed in this financial year, creating additional irrigation potential of 500,000 hectares. The RADP, with an allocation of Rs 348 crore, has been finalised for implementation in 2008-09. Under this, priority will be given to the areas that have not benefited from watershed development schemes. The centrally-sponsored scheme on micro irrigation launched in January 2006 has covered an area of 548,000 hectares under drip and sprinkler irrigation so far. With an aim to cover another 400,000 hectares, an allocation of Rs 500 crore has been made for 2008-09. Under the project, the states
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Politics over economics
This Budget asks and answers some rather big questions. Begin by asking the man in the street, and he will say that he is happy with Mr Chidambaram's Budget. And so the finance minister has dared politicians to criticize the farm loan waiver, and he might as well dare others to criticize the income tax cuts, if they care to. In other words, he knows that he has touched a popular nerve in both city and country. The second big question to ask, therefore, is whether economics can hope to prevail over populism, or whether political considerations always trump good economics. Certainly the UPA government's fifth and final budget gives unequivocal answers: it is a political budget from start to finish. And so a government led by economists and economic reformers has ended up bowing to political considerations and implementing over five years programmes that they may not believe in, but which they have to introduce and then find reasons to support. When a government led by such notables writes off Rs 60,000 crore of bank money, or 3 per cent of all bank loans, it is as well to remember the harsh words hurled at Devi Lal when he did the same; but since he was an unlettered kulak, he could be safely abused. The truth is that while farmers have been in distress, writing off loans makes every farmer who repaid his loan feel like a fool. What does that do to credit discipline? Also, the write-off does not end rural indebtedness because farmers owe more money to moneylenders. And if they got into financial trouble because farming does not pay enough, then the debt write-off is only a palliative and does not solve the underlying problem. So farmers who borrow again (if the banks are willing to lend) will also get into trouble again. But these are the questions that economists ask. There is also a question that lawyers might ask: how does the government tell the client of a private bank not to repay a loan, unless the government makes it up to the bank? And surely, the government is not about to start paying up to ICICI and HDFC and all the others, is it? The triumph of politics shows also in the national rural employment guarantee programme, which has been extended to all 596 rural districts, even though Rahul Gandhi who first demanded this realises now that the programme is not being implemented well. Another indicator of the soft state is the increase in the income tax floor from Rs 1.1 lakh to Rs 1.5 lakh (it is still higher for women and senior citizens). But even in the United States of America, people start paying tax at a lower income level of $3,400 (Rs 1.36 lakh), while in China the tax floor is $1,400 (Rs 56,000). India is poorer than both those countries, so why do people with higher income in a poorer country get away without paying income tax? The answer is that the government wants the urban, middle-class vote. The fifth indicator of politics trumping economics is the government's refusal to raise petrol, diesel and cooking gas prices to reflect their real cost. So the oil marketing companies have lost over Rs 70,000 crore on this account in the past one year. The way the government does its accounting, some of these figures do not show up in the Budget, even though the government will finally have to pick up the bill. If you add up the oil subsidy, the fertilizer subsidy, the extent of the loan write-offs that have to be made good and the money that has to be provided for the Pay Commission award, the total is huge. That brings up another big question: should the Fiscal Responsibility and Budget Management (FRBM) Act be scrapped? For this law seems to be having the perverse effect of making the government hide more and more of its expenditure and not show it in the Budget. The finance minister can then claim that he is meeting FRBM targets, when in truth he is not. Scrapping the law might encourage more honest budgeting. The last big question is whether governments can be trusted to be responsible with money. Note that taxpayers have paid up an average of 22 per cent more tax each year through the five Budgets of the UPA government