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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Concern over rising prices: Modernise agriculture (Editorial)
The economic growth rate is likely to be 8.7 per cent in the review year 2007-08 as per the Economic Survey report presented in the Parliament. Finance Minister, P Chidambaram expressed concern over continuous rise in inflation. The expected growth rate of 8.7 per cent is as per the trend of the economy, it is informed. The Survey recommends reforms for strengthening of the rupee and to check fall in industrial demand to achieve growth rate of 10 per cent. Finance Minister said that central government and Planning Commission both would have to come forward for the reforms in policies and institutional reforms so that in the coming decades foundation for higher economic growth could be laid. Concern was expressed on economic slowdown in America, effect of strong position of rupee, slow industrial production due to decreasing demand of consumer items and lack of basic facilities of commodity and social sector. There is need to meet challenges both at the central and the state-level. These policies of central government should be managed well and the inflation should be checked with a view to strong economic system. The states should also reform their system in government and semi-government services. Real rate of interest should be according to inflation and in this connection loan and share market should be made liberal. We are behind in agriculture sector. Efforts are on for reforms in this direction. The survey calls for removal of hurdles coming in the path of modernisation and advancement of agriculture. According to the review, investments and savings and debt and loans are decided through real rate of interest. With a view to control inflation, agriculture needs to be modernised. The survey says the government is committed to make the economy strong, to increase pace of development and economic growth rate. Efforts on checking inflation are being made and proper measures would be adopted in this connection.
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Sowing for a better harvest
SEEDS The Budget has announced a 150 per cent weighted average rebate on seed research and development. The measures # The finance minister has announced a 150 per cent weighted average rebate on research and development (R&D) of seeds. The context # Seeds are a key input and determines crop productivity, and improved seed quality alone can contribute about 25 per cent to the yield. Seed characteristics such as germination, high seedling vigour, and genetic purity are as important as other inputs. Thus, while fertilisers and water are important, the crucial input for increasing productivity are superior quality seeds. The impact # R K Sinha, executive director, All India Crop Biotech Association (AICBA) , the association of Indian agriculture biotech companies, said, "This is a welcome move.' Unfortunately, the FM has not granted infrastructure status to the seed industry which would have encouraged investments in the modernisation of seed processing plants, seed treatment and development facilities, godowns for storage, as well as transport and distribution. This, along with the creation of a dedicated Seed and Technology Development Fund, could have given clear signals to global and domestic industry to invest in agriculture. The industry hopes that during the year the government will "grant infrastructure status to the seed industry' and set up a "dedicated Seed Technology and Development Fund' for the long-term benefit of the farmer, industry, and economy.
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The writing on the wall
PAPER The industry may not pass on the excise duty cuts on writing, printing and packing paper to consumers. The measures # The excise duty on writing, printing and packing paper has been reduced from 12 to 8 per cent. Further, full exemption from excise has been provided for paper and paper products (for up to 3,500 tonnes) produced from non-conventional raw materials. The context # The paper consumption has been growing at 8-9 per cent in tune with the gross domestic product (GDP) growth. The 20 per cent increase in allocation towards education would further fuel the demand. However, paper prices have been rising continuously owing to a cost push from the rising prices of pulp and other raw materials. The impact # While welcoming the move to reduce excise duty, the paper industry remained non-committal on any price cut. "There has been an overall cost push in the raw materials such as pulp, coal, etc. The excise cut will help us absorb some of the cost push. However, a call on passing on the benefit of this cut will be taken only next week,' said R R Vederah, managing director, Bilt, the country's largest paper producer. Shares of paper companies, however, had a depressing day at the Bombay Stock Exchange. The share price of Bilt closed at Rs 136.90, down 1.55 per cent over the previous close. J K Paper's share closed at Rs 39.90, down 1.24 per cent over the previous day. "The 20 per cent increase in allocation towards education will fuel demand and induce further investments. I do not expect an immediate impact of the excise reduction on consumers and paper prices will depend on the overall demand-supply scenario,' said Pradeep Dobhale, president, Indian Paper Manufacturers' Association and chief executive of ITC's paper division.
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No relief for diabetes patients'
2.5 crore people likely to be affected by heart ailments due to diabetes Nearly 40,000 people lose their limbs every year due to the disease NEW DELHI: "Just the way the interests of 4 crore poor and marginal farmers have been protected by the Union Budget, Finance Minister P. Chidambaram should also have provided some relief to the 4 crore diabetes patients in the country who face the prospect of various serious ailments,' said Delhi Diabetes Research Centre president A. K. Jhingan in his reaction to the Union Budget on Friday. With diabetes likely to lead to heart ailments in about 2.5 crore of these people, renal or kidney failure in about 2 crore of them, loss of vision in about 1.2 crore, and with 40,000 people losing their limbs every year in the country due to gangrene caused by diabetes, Dr. Jhingan said there was a definite need for a fresh look at diabetes awareness, prevention and control. While the Union Government itself had admitted that diabetes had become a cause of national concern, it had done precious little to bring down the prices of drugs, testing equipment and test strips widely used by diabetes patients in the treatment and diagnosis of the disease, he added. Due importance "Just the way funds are allocated year after year for AIDS awareness and control, due importance should also be given for checking the spread of diabetes. But the Budget 2008-09 has remained silent on it,' Dr. Jhingan lamented. Pointing out that the reduction in excise duty allowed through the Union Budget some years ago had still not percolated to the consumers, Dr. Jhingan said a single diabetes test strip still costs over Rs.30 and insulin remains one of the most expensive available medicinal aids. As for the glucometer, he said, the prices still run into over a thousand rupees. "It is an irony that while the Centre provides glucometers free to those who have already lost their legs due to gangrene on account of diabetes, it has not tried to cut the prices so that such situations can be avoided,' he added.
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Eight lakh farmers to benefit in Haryana
A historic Budget for the
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"Punjab has been bleeding itself to feed the nation'
"Punjab has been bleeding itself in order to feed the nation. It has sacrificed both of its precious natural assets
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Loan waiver comes as a boon to farmers
The Union Budget's proposal to waive agricultural loans will bring some relief for farmers of the State. The farmers, who benefited from the loan wavier scheme of the previous Janata Dal (Secular)-Bharatiya Janata Party government in the State, would again benefit from the Centre's loan waiver scheme. There are 60 lakh small and marginal farmers in the State, according to the Agriculture Department. The Union Budget proposal to waive farm loans will benefit those amongst them who have taken loans from scheduled commercial banks, regional rural banks (RRBs) and cooperatives in the State. Of the 75.8 lakh farmers in the State, 36.55 lakh are marginal farmers holding up to one hectare of land. There are 28.13 lakh small farmers who have one to two hectares of land in their possession. The marginal holdings account for 48.2 per cent of the total holdings while small holdings account for 26.60 per cent in the State. Union Finance Minister P. Chidambaram offered a debt relief package f Rs. 60,000 crore in the budget (2008-09) to four crore farmers in the country. Under the one-time settlement scheme that will benefit large farmers, the government will give a rebate of 25 per cent on payment of outstanding loans. There are 11.11 lakh big farmers in the State. All agricultural loans disbursed by scheduled commercial banks, regional rural banks and cooperative credit institutions up to 31 March 2007 and overdue as on 31 December 2007 will be covered under the scheme. The implementation of the debt waiver and debt relief scheme will be completed by June 30. Indebtedness Indebtedness was one of the major factors for farmers' suicide and the agrarian crisis in the State. As many as 61.6 per cent of farmer households are indebted in the State against the national average of 48.6 per cent. In Karnataka, 73.5 per cent of farmer households who owned two hectares of land or less are in debt, according to the National Sample Survey Organisation (2005). Extended The Union Budget has proposed to extend the weather-based crop insurance scheme for the coming kharif season in the State.
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February a mixed bag for auto companies
Mar 1 February, which is generally a lean month for car manufacturers as prospective buyers tend to postpone their purchase in anticipation of excise duty cuts in the Budget, saw market leader Maruti Suzuki India Ltd (MSIL) register flat sales in the domestic market at 59,311 units as compared to 59,095 units in February last year. Two-wheelers continued their year-long trend of decline in sales with major Companies witnessing a single digit negative growth. Analysts however, predict that sales will revive with a reduction in excise duty, both on smaller cars and two-wheelers, from 16% to 12% and simultaneous reduction in prices by various manufacturers with effect from March 1. While leading car manufacturers like MSIL, Hyundai Motor India Ltd, Tata Motors and General Motors reduced prices between Rs 7,000 and Rs 20,000 depending on the models, two-wheeler major Hero Honda, TVS Motor and Honda Motorcycle and Scooter India Ltd have also announced reduction in prices by Rs 1,000 to Rs 2,500. During February 2008, General Motor India witnessed a growth of 80% at 5,563 units as against 3,087 units during the same period last year. Sales of premium car manufacturer Honda Siel Cars India (HSCI) also grew 7.2% to 3,774 units during this period as compared to 3,521 units in February last year. Even Skoda India witnessed a growth of 102% at 1,303 units as against 644 units in February 2007. This is in contrast to the two-wheeler industry that has once again failed to recover from the woes of high interest rate and liquidity crunch. Sales of Hero Honda declined 5.37% to 2,65,431 units in February 2008 as compared to 2,80,515 units during the same month last year and that of Bajaj Auto dipped by 8.4% to 1,59,508 units as against 1,74,220 units in February 2007. The entry-level 100 cc segment has been badly hit after high delinquency forced major banks to withdraw finance availability in certain clusters across the country. According to industry estimates, the segment witnessed a decline of about 13%, which had offset stable sales in the 125 cc segment and above, resulting in an overall dip of 10% in the motorcycle industry. No wonder, players are now shifting focus to executive and premium bikes as the segment is comparatively less price sensitive and is giving higher margins to all manufacturers.
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Do not rule out 9% growth, says FM
A day after presenting his fifth Budget in the UPA government, Finance Minister P Chidambaram said budgets did not win elections, unless they were properly marketed. In a detailed interview on Saturday, Chidambaram said he still aimed at nine per cent growth for the economy in 2008-09. He also indicated that the surcharges on income-tax should go, provided revenues remained buoyant. Excerpts from the interview: You have presented five budgets in a row and looking back at them, what would make you the happiest about them and what would disappoint you? My happiest moments would be that my batting average so far has been 8.8 per cent. That is the economy. What about the Budget per se? The Budget was intended to set the course and pace of the economy and I think we have done fiscal consolidation, although we can argue about some items below the line. I think we have demonstrated that moderate and stable tax rates bring better tax compliance. We have demonstrated what inclusive growth is, that instead of being fixated only on growth, we can use the growth process to promote inclusive growth. I think these are many of the happy memories of the last four years. The disappointment is that we should have taken the reform process forward faster. There are still large areas of the economy which are under government controls. And if these controls had been removed, the economy would have grown faster. In case this is your last Budget? I will be happy if this is my last Budget. There are other things to do in life. People are calling this as an election Budget. Is that the way to look at it? For the last few years, every Budget has been an election Budget because every year is an election year. 2006 was an election year, 2007 was an election year, and 2008 is an election year. I think that is not a very correct way to describe it. I have presented the fifth Budget of this government and, according to schedule, the elections are in May 2009. So I would not agree that it is an election Budget. Will it help you win the elections? Budgets do not decide elections. It is how you communicate to the people what the Budget contains and what it wishes to do in the next year, which happens to be the election year. Take, for example, the Tamil Nadu state elections in 2006. It was the election manifesto which won the election. Likewise, a Budget, if it is communicated well to the people, can help win an election and what is wrong in that? You have done a Budget where there is a lot for the people, for farmers, for the middle class, tax payers, although companies are unhappy. So having done this, why not just go ahead and sign the nuclear deal and tell the Left if it wants to withdraw support, it can go ahead, as you now have something to go to the people with? These are the questions you need to address to the UPA leadership and the Prime Minister. I am only a finance minister. You have introduced many new taxes over the years and now you removed one of them, the banking cash transaction tax. I said so even when I introduced it. It is not a tax revenue raising measure. It is only a source of income issue. I would like to go back to your speech in 1997 when you said I propose to amend certain sections of the Income-Tax Act, to provide for the removal of artificial disallowances, travel and hotel expenses incurred for legitimate business purposes and you said it was a matter of simplification. So using that logic, why would you not do away with the fringe benefit tax, as a matter of simplification? I have explained this a number of times. I can deal with that expenditure as allowable or disallowable expenditure, which means I need discretion in the hands of the assessees. It was the assessing officer who enjoyed the discretion for many years until we brought in FBT. Now the assessing officer has no discretion. If this expenditure is made, you can take a base of 50 per cent or 20 per cent and we tax it. I think this is far better than leaving discretion in the hands of the assessing officer to decide whether the expenditure is allowable or to be disallowed. There is complication in FBT on employee stock options, for which industry might have come to you hundreds of times. I will take you into confidence. The FBT on employee stock options has been worked out in close consultation with industry CFOs. On the personal income-tax front, a tax payer may see halving of his income tax liability. If somebody makes Rs 5 lakh a year, he is earning Rs 40,000 a month. Most probably he lives in a city or a town. Rs 40,000 in a city or a town for a family is not a very large income. Of course, we have given him the tax relief, because compliance has increased, revenues have improved and I think moderation by adjusting the slabs will bring in more revenues. You will lose some of the revenue due to changes in the slabs. A large number of people move on to pay tax so that they can have a larger part of income on their balance-sheet and they can build capital. So when we move the tax slab, an assessee would not stop paying tax. He will still pay the tax that he paid the previous year and even build more capital for himself. So, we will get the revenues. You have assumed that income-tax revenue will climb by 18 per cent in 2008-09. It is a very reasonable assumption. People paying tax will continue to pay tax. They will simply comply better and I do not want to say anything more. They have been very nice to the Government in the past few years. Why should I say anything unkind about tax payers? Compliance will improve and I am sure everybody will comply better and we will get the revenues. That is our assumption and that is our assessment of the situation. There is no reason to assume that direct taxes will not grow at the same rate as this year. That is the question I have on corporation tax, because the trend in corporate profits shows a clear slowdown and is now running at around 15 per cent. Yet you assume a more than 20 per cent increase in corporation tax next year? I expect the demand to push up corporate toplines as well as bottomlines. There are signs that the global economy may slow down. Is it time to ensure that India keeps away from it by taking some measures? I said so in my speech that there is a slowdown especially in the consumer goods, and more particularly in consumer durables. I have identified various sectors - cars, two-wheelers, three-wheelers, paper and we have even cut taxes for buses and chasses. What about the corporation tax rate? Companies are doing well. They are making good profits. They are paying good taxes and it still works out to about 22 to 23 per cent effective tax rate for all companies. There is no reason to tinker with it this year. Why fix something which is not broken? You have been listing tax concessions that the government gives away. Would it not make sense to drop the nominal rate and remove some of the concessions? If you can get me agreement from the three chiefs of the chambers of commerce on which concessions can be removed, I will be very happy to do that. Every exemption provision has a lobby behind it. Let us now turn to the biggest announcement of the Budget, the farm loan waiver scheme. One of the questions is that it is meant only for those whose loans are overdue. But what about those who have sold their jewellery, land and have actually repaid the loans but will not get the benefit? So, what can I do about it? See it is always easy to pit one against the other. People will say what about those who borrowed from moneylenders. There is nothing I can do about it. There is no quantification of that
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Debt waiver: Banks may get cash-bond mix
BUDGET 2008-09 IMPACT DAY-2 No repayment of interest on outstanding loans. The Rs 60,000 crore farm debt waiver and relief package announced in the Budget may not be just in the form of special securities issued by the government, but involve actual money being reimbursed to them. The banks may have to forgo all interest on the outstanding debt amount. The package is only aimed at recovering the principal amount of the loans extended to nearly 40 million small and marginal farmers across the country. In addition, farmers availing of the loan waiver and relief package may have to agree to some conditions, including committing to not seeking debt relief again for a fixed period of time. The banks will be reimbursed over three years from June 30, 2008. In effect, the Rs 60,000 crore may be given in at least three annual tranches. Similarly, the bond component may also be spread in tranches till 2011. Senior government officials told Business Standard that the impression that public sector banks will lose out due to the debt waiver is misplaced. "Banks will actually get strengthened as they now stand to get back at least their principal amount, which otherwise is currently shown as bad debt on their balance sheet. The additional liquidity will help them', he said. However, officials said that the exact details of the debt waiver programme, the biggest hand-out in India's history, will take some time. "There are several options (to compensate banks without burdening the fiscal). We have four months to work that out. The details will be finalised', they added. The rationale for June 30, 2008 being set as the deadline for implantation of the debt waiver and relief scheme is that the loans had to be cleared by that date. The scheme applies to loans disbursed by scheduled commercial banks, regional rural banks and co-operative credit institutions up to March 31, 2007 and overdue as on December 31, 2007. Also read on Page 2: Sharad Pawar asks farmers not to repay money-lenders