Well before Finance Minister P Chidambaram made that familiar annual stride into Parliament House, most analysts had predicted that the Union Budget for 2008-09 would be structured to please the electorate – after all, it is the last Budget of the United Progressive Alliance (UPA) government, before general elections next year.
On the face of it, that is precisely what the minister seems to have done. With one eye clearly on populist ambitions, he announced significant relief for rural farmers and taxpayers alike with the aim to boost consumption, while also raising public spending on education, rural economy and healthcare.
Chidambaram’s Budget presentation began with the macro-economic announcements: the Eleventh Plan started on a robust growth. The economy grew over 8 per cent over 12 successive quarters since 2005, said the minister. He added that gross budgetary support is to be raised to Rs 243,386 crore, an increase of more than Rs 38,000 crore from the current level.
Under changes in the IT slabs, he raised the threshold of exemption for all income tax assesses from Rs 1.1 lakh to Rs 1.5 lakh. Every income tax assessee is also to get minimum relief of Rs 4,000. New tax slabs: 10 per cent for Rs 150,000 to Rs 300,000; 20 per cent for Rs 300,000 to Rs 500,000; and 30 per cent for above Rs 500,000. For women, the income tax limit goes up from Rs 1.45 lakh to Rs 1.80 lakh. In case of senior women citizens, it increases from Rs 1.95 lakh to Rs 2.25 lakh.
On the indirect taxes front, among other measures, specific parts of set-top boxes and specified raw materials for use in IT and electronic hardware industry have been fully exempted from customs duty – this could favourably impact the consumer durables segment.
In a major step to alleviate the suffering of debt-ridden farmers, Chidambaram announced a complete waiver of loans for marginal farmers owning land up to one hectare and small farmers owning land up to 1 and 2 hectares. Agricultural loans given by scheduled commercial banks, regional rural banks and cooperative credit institutions up to March 31, 2007, and due for December 31 that year, will be covered under the waiver scheme to address the problem of indebtedness. Overdue agri loans amount to Rs 50,000 crore under the waiver, and Rs 10,000 crore under the one-time settlement (OTS).
Staying with agriculture, the budget provides Rs 32,667 crore for food subsidy under the public distribution system (PDS). As a new initiative for efficient delivery of foodgrains under the PDS, smart cards are being introduced in Haryana and Chandigarh, on pilot basis.
Calling the education and health sectors “the twin pillars on which rests the edifice of social sector reforms,” the finance minister announced 20 per cent increase in budget allocation for education and 15 per cent for the health sector.
India’s economy grew 9.6 per cent in fiscal 2006-07. But advance estimates by the Central Statistical Organisation (CSO) had indicated a moderation in the growth rate to 8.7 per cent in 2007-08, mainly on slower growth in manufacturing and agriculture sectors.
Warning that any slowdown in the already fluctuating farm sector will hurt the economy, the Economic Survey had earlier decried the loss of dynamism in the agriculture sector, where it projected a slower 2.6 per cent growth this fiscal. “Any deceleration in the growth of the agriculture sector is translated into a lower overall GDP growth,” the Economic Survey for 2007-08, which was tabled in Parliament on February 28, stated.
The Economic Survey also expressed concern over the lower growth of the farm sector vis-à-vis non-agriculture sectors. The agriculture, forestry and fishing sector is estimated to grow at 2.6 per cent during 2007-08, as against the previous year’s growth of 3.8 per cent, it said. The decline in the share of agriculture sector in gross domestic product (GDP) continued, with a decline from 24 per cent in 2001-02 to 17.5 per cent in 2007-08.
The survey attributed the deceleration in the growth of the farm sector to slackening in the growth of Rabi crops. “With area under cultivation remaining constant, improving the productivity of crops is necessary to strengthen the farm sector,” it said.
Projecting an 8.7 per cent growth in the current fiscal, the Economic Survey said the government should ensure non-inflationary growth along with speeding up of reforms for sustaining nine per cent expansion in gross domestic product. “Maintaining growth rate at nine per cent will be a challenge, and raising it to two digits will be an even greater one.”
While there are mixed reactions from industry to the finance minister’s presentation (the banking sector is reportedly displeased over the massive loan waiver package. “Who will pay for it?” analysts are asking), leaders of Indian industry by and large hailed Railway Minister Lalu Prasad Yadav’s fifth consecutive Railway Budget as forward-looking and people-friendly, though some quarters exhibited misgivings on some issues.
“The forward-looking Railway Budget 2008 will create a win-win situation for all – the railways, the wagon manufacturers, the heavy industries, and the common man,” said Confederation of Indian Industry (CII) in a statement.
“With the past experience of the railways, clearly demonstrating that pragmatic policies and aggressive planning can give substantial benefits to the railways, its consumers and the national economy, the industry expects a sustained, proactive and still more ambitious approach from the railways towards growth,” the industry body said.
The Federation of Indian Chambers of Commerce and Industry (FICCI) said the budget was anti-inflationary. It also welcomed the provision of investing Rs 1 trillion ($25 billion) for public-private partnership (PPP) to upgrade and modernise the Indian Railways.
“The railway minister has introduced several new procedures that will hopefully facilitate private sector participation in the railways, particularly in the design and development of newer models and types of wagons,” FICCI said.
FICCI President Rajeev Chandrasekhar welcomed the railway minister’s announcement of cuts in passenger fares and freight rates, particularly on diesel and petrol by 5 per cent. “This is a good and strong anti-inflationary measure,” he pointed out.
Associated Chambers of Commerce and Industry of India (Assocham) also welcomed the five per cent reduction in freight rates for petrol and diesel, and 14 per cent reduction in freight rate of fly ash.
However, PHD Chambers of Commerce and Industry of India (PHDCCI) said: “There is need to ensure that the dedicated freight corridors are completed on time, but proper milestones for achieving the targets on time are missing in the budget.”
“With a moderate slowdown in economic growth and inflation expected to rise further, especially in essential items, and the recent petroleum price hike, it would have been prudent if freight tariff had been reduced across the board,” it added.
In the Annual Plan for 2008-09, the minister spelled out a total outlay of Rs 37,500 crore – the largest-ever Annual Plan so far. Thrust areas include enhancement of high-density network routes, improvement and expansion of traffic facility and network, construction of flyovers and bypasses, and upgrade of goods sheds.
Reductions & Concessions include 5 per cent reduction in freight rates for petrol and diesel, 14 per cent reduction in freight rate of fly-ash, 30 per cent discount on entire traffic in place of incremental traffic booked from goods shed, increase in discount on incremental traffic booked from private sidings (from 30 per cent to 40 per cent), and 6 per cent freight concession for traffic booked from other states for stations in northeastern states.
Yadav’s Vision 2025 document aims at setting the roadmap for the coming 17 years with customer-centric and market-responsive strategic initiatives.
In a key initiative, the minister announced that public-private partnership schemes are to be launched for attracting an investment of Rs 100,000 crore over the next five years for developing world-class stations, rolling stock and other logistics. In addition, he proposed commercial use of railway land by Rail Land Development Authority to boost railway revenues.
FICCI welcomed the railway minister’s proposals for mobilising Rs 1 lakh crore out of this investment plan through the PPP mode. The chamber expressed confidence that the Railways’ initiative would generate huge opportunities for India’s private sector to participate in the entire experiment.
Union Budget 2008-09: Salient features
• Revenue deficit estimated at Rs 55,184 crore
• Fiscal deficit pegged at 2.5 per cent of GDP
• Fiscal deficit for 2008-09 estimated at Rs 133,287 crore, or 2.5 per cent of GDP
• Income tax exemption limit hiked to Rs 1.5 lakh; 10 per cent tax for income between Rs 1.5 lakh and Rs 3 lakh; and 20 per cent between Rs 3 lakh and Rs 5 lakh. Income above Rs 500,001 to attract 30 per cent income tax
• Exemption limit for women tax payers increased to Rs 180,000, and for senior citizens to Rs 225,000
• Cenvat on all goods reduced from 16 to 14 per cent
• Central sales tax proposed to be reduced to 2 per cent from April ‘08
• No change in corporate income tax rates and surcharge
• Small cars, two- and three-wheelers, buses and their chassis to cost less
• Rs 60,000 crore agricultural debt relief package; complete loan waiver for small and marginal farmers; four crore farmers to benefit
• Rs 280,000 crore target set for farm credit in 2008-09; short-term crop loan to continue at 7 per cent interest
• Twenty per cent hike in education budget this year from Rs 28,674 crore to Rs 34,400 crore
• Sarva Shiksha Abhiyan will be provided Rs 13,100 crore; Mid-Day Meal Scheme, Rs 8,000 crore; Secondary Education Scheme, Rs 4,554 crore
• Mid-Day Meal Scheme extended to upper primary level in 3,479 schools
• 16 central universities to be opened in 2008-09
• Three IITs to be set up in Andhra Pradesh, Bihar and Rajasthan
• Target of Rs 2.80 lakh crore for agriculture credit set for the coming year
• Rs 20,000 crore for irrigation projects under Accelerated Irrigation Benefit Programme (AIPB), showing an increase of Rs 9,000 crore over last year
• National Horticulture Mission to be given Rs 1,100 crore in 2008-09, with special focus on coconut cultivation
• Rs 75 crore to be given to agriculture ministry for providing mobile soil testing laboratories in 250 districts
• Rs 644 crore for National Agriculture Insurance Scheme, which will be continued pending evolving an alternative crop insurance scheme
• Rs 230 crore will be extended as additional equity to developmental organisations looking after the welfare of SC, ST, socially and economically backward classes, and minorities
• Growth rate of agriculture estimated at 2.6 per cent during the current year
• Services and manufacturing sectors expected to grow by 10.7 per cent and 9.4 per cent, respectively
• Agriculture credit doubled in the first two years of the government to reach Rs 2.40 lakh crore by March 2008
– Nupur Chakraborty, executive editor, Images Retail