The Union finance minister of India P Chidambaram presented the annual financial statement of India, 2008-09, on February 29. As expected, the budget, being fifth in a row from the FM, focused more of its political mileage for the expected General Election in 2009.

Highlights of the Budget

DEBT WAIVER AND DEBT RELIEF
3 CRORE SMALL AND MARGINAL FARMERS AND ONE CRORE OTHER FARMERS WILL BENEFIT FROM THE SCHEME
To give a boost to the agricultural sector, the scheme of Debt Waiver and Debt Relief for farmers has been announced. All agricultural loans distributed by scheduled commercial banks, regional rural banks and cooperative credit institutions upto March 31, 2007 and overdue as on December 31, 2007 will be covered under Debt Waiver and Debt Relief scheme. 

For marginal farmers and small farmers there will be a complete waiver of all loans that were overdue on December 31,2007 and which remained unpaid until February 29,2008. In respect of other farmers, there will be a One Time Settlement (OTS) scheme for all loans that were overdue for the above period.  Under the OTS, a rebate of 25% will be given against payment of the balance of 75%.

Agricultural loans which were rescheduled and are restructured during 2004-06 as per the RBI guidelines will also be eligible for a waiver or an OTS on the same pattern.

The implementation of the Debt Waiver and Debt Relief scheme will be completed by June 30, 2008. Upon being granted debt waiver or signing an agreement for debt relief under the OTS, the farmer would be entitled to fresh agricultural loans from the banks.

Three crore small and marginal farmers and one crore other farmers will benefit from the scheme.  The total value of overdue loans being waived is estimated at Rs.50,000 crores and the OTS relief on the overdue loans is estimated at Rs. 10,000 crores

DEFENCE ALLOCATION ENHANCED TO RS. 105,600 CRORE
FM has proposed to increase the allocation for defence by 10 per cent from Rs 96,000 crores to Rs 105,600 crore. While presenting the Budget proposals for the year 2008-09 in the Lok Sabha, he assured that any further amount needed for defence forces, especially for capital expenditure will be provided. Top

750 CRORES FOR UPGRADATION OF 300 INDUSTRIAL TRAINING INSTITUTES
In anticipation of upgrading 300 more Industrial Training Institutes (ITIs) in 2008-09, Chidambaram proposed to provide Rs 750 crores in the Union Budget. He said that the upgradation of ITIs is proceeding apace. Under the World Bank assisted scheme, 238 ITIs are undergoing upgradation. Under the public private partnership scheme, 309 ITIs in 29 states have been identified with corresponding industry partners and agreements have been signed in 244 cases, he informed.

EXCISE DUTY CONCESSIONS FOR AGRICULTURAL SECTOR
To continue the buoyancy in tax revenues, the FM announced reduction in excise duty on agriculture related items. In order to reduce the cost of manufacture of cattle and poultry feeds, duty on vitamin premixes and mineral mixtures has been reduced from 30% to 20%. Duty on phosphoric acid has been reduced from 7.5 to 5 per cent. The duty on bactofuges is reduced from 7.5 per cent to Nil. This may increase the shelf life of milk and benefit the dairy industry. The minister further reduced the customs duty on crude and unrefined sulphur from 5% to 2%.

FUNDS OF RS. 10,200 CRORE CREATED TO INCREASE RESOURCE BASE OF NABARD, SIDBI & NHB
In order to increase the resource base of NABARD, SIDBI and NHB, Chidambaram proposed to tap into the resources of the scheduled commercial banks to the extent that they fall short of their obligation to lend the priority sector.  The FM observed that financial inclusion can be taken forward by expanding the reach of these three banks. To achieve this, he proposed to create the following funds :

MOBILE SOIL TESTING LABORATORIES TO 250 DISTRICTS WITH AN OUTLAY OF 75 CRORES
An announcement was made by the FM for setting up of one fully-fitted mobile soil testing laboratory each to 250 districts of the country before March 2009. While presenting the Union Budget 2008-09 in the Lok Sabha, the FM said a one time allotment of Rs 75 crore will be given to the Ministry of Agriculture to provide the mobile soil testing laboratories. In addition to this, 500 soil testing laboratories will be set up in the public private sectors during the 11th Plan with Government’s assistance of 13 lakh per laboratory. Top

Special thrust is being given to the revival of crops such as coconut, cashew and peeper under the National Horticulture Mission (NHM). An outlay of Rs 1,100 crores has been allocated for the same. NHM now covers 340 districts in 18 states and 2 Union Territories. An area of 2,76,000 hectares has been brought under horticulture crops and an area of 56,000 hectares of old plantations has been rejuvenated.

GOVERNMENT ACCEPTS TWO RECOMMENDATIONS OF COMMITTEE ON FINANCIAL INCLUSION
Chidambaram informed the House that the final report of the Committee on Financial Inclusion  has been received.  The Government has proposed to accept the following two recommendations:

Chidambaram said “Government’s policy of a careful and calibrated opening of  the financial sector has proved successful.  We shall continue to take measured steps”.  He further stated that banks will be encouraged to embrace the concept of Total Financial Inclusion. Government will request all the scheduled commercial banks to follow the examples set by some public sector banks and meet the entire credit requirements of Self-Help Groups (SHG) members,  namely income generation activities, social needs like housing, education, marriage etc. and debt swapping, he added.

20,000 CRORES FOR ACCELERATED IRRIGATION BENEFIT PROGRAMME
Government is investing heavily in the Accelerated Irrigation Benefit Programme (AIBP) and the Rainfed Area Development Programme and in the management and augmentation of water resources. Chidambaram said under AIBP, 24 major and medium irrigation projects and 753 minor irrigation schemes will be completed in this financial year. In 2008-09 the estimated outlay for the above scheme is Rs 20,000 crores with a grant component of Rs. 5,550 crores.

Chidambaram said Rainfed Area Development Programme has been finalized with an allocation of Rs. 348 crores. He said that priority will be given to those areas that have not been the beneficiaries of watershed development scheme.

The minister announced allocation of Rs 500 crores for the centrally sponsored scheme on micro irrigation. He said the scheme will cover 400,000 hectares under drip and sprinkler irrigation.

644 CRORES FOR NATIONAL AGRICULTURE INSURANCE SCHEME
Chidambaram announced Rs 644 crores for the National Agriculture Insurance Scheme (NAIS). He said the scheme will continue in its present form for Kharif and Rabi.

The minister announced that 50 crores will be allocated to Weather Based Crop Insurance Scheme that is being implemented as a pilot scheme in selected areas of five States. He said Government will continue to provide fertilizers to farmers at subsidized prices. Government is examining proposals to move to a nutrient based subsidy regime and alternative methods of delivering the subsidy.

The Special Purpose Tea Fund set up last year for re-plantation ad rejuvenation will be provided Rs. 40 crore. Similar funds will be provided to support other plantation crops such as cardamom with an outlay of Rs. 10.68 crores, rubber with Rs. 19.41 crores and coffee with Rs. 18 crores.

RS. 14,000 CRORE CORPUS PROPOSED FOR RURAL INFRASTRUCTURE DEVELOPMENT FUND
The Rural Infrastructure Development Fund (RIDF) is the main instrument to channelize bank funds for financing rural infrastructure, and it is quite popular among State Governments. It has been proposed to raise the corpus of RIDF-XIV in 2008-09 to Rs. 14,000 crore. It has also been proposed to operate a separate window under RIDF-XIV for rural roads with a corpus of Rs. 4,000 crore.

All phases of the National Highway Development Programme continue to make progress. The completion ratio in the Golden Quadrilateral is 96.48 per cent and in the North South, East West Corridor project is 23.36 per cent. Special attention is being paid to SARDP-NE, a programme devised for the North Eastern region. 180 kms of roads were completed in 2007-08 and the target for 2008-09 is 300 kms. It has been proposed to enhance the allocation for the NHDP from Rs. 10,867 crore in 2007-08 to Rs. 12,966 crore. Top

Your reaction on the budget
It’s a development budget. The perception was that this would be an election budget, a populist budget. And since it is a coalition government, the political partners would like to corner major railway lines and there would be regional mismanagement. But this has not happened. This is the fifth time in a row that the fares have not been hiked. Freight fares have also been reduced. In fact some categories have seen major relief. So it has addressed the trade, industry, farmer, general consumer. Top

But don’t you think the decrease in fares is with a view to election year?
No doubt this is with a view to election year. But it’s not that there is a drastic cut in fares. Also, if you see the last four budgets, the fares had not been hiked in spite of the increase in petrol, diesel and coal prices. In spite of that if you are managing a surplus of Rs 25,000 crore then this means there was a shortcoming earlier in the management. The perception was that to overcome the deficit, you have to run the Railways as a commercial venture and forget about the social obligations. Rakesh Mohan Committee had even suggested selling off of Railway colonies and surplus land. Without this, the Railways won’t survive. It’s now clear that that was a myth. Fares don’t matter much when it comes to railway surplus.

In spite of the increasing coal prices and reduction in fares, how has the Railways managed this huge surplus?
There were a number of sectors which had started preferring roads. Lalu Yadav has succeeded in bringing them back. In fact, if there’s one person who has benefited the most out of a process that started in 1991, it’s Lalu. The railways are on a stable track today. His scheme of 50 per cent rebate for freight on coaches which would as such have traveled empty during the return journey, is a big innovation. At least it’s a gain of 50 per cent revenue! They have reduced the freight charges of petroleum products by 5 per cent, which is quite substantial. The surplus that has been generated in the last four years is Rs 68,000 crore. Out of that, Rs 39,000 crore has been spent on development projects. So when you spend on development projects, your capacity also expands. . Vision 2025 also states that the trains of the future will be world-class. There are also plans to have a dedicated freight corridor. So there’s hardly any leakage of money in the budget, even though there are announcements like concession to women above 50. That will only create a goodwill. It’s goods movement that carries significance. For example,  in 2006-07, the earnings from passengers movement was Rs 17,224 crore. The earning from goods movement was 42,000 crore.

What are the major announcements as regards new lines?
These would be for North-East and Kashmir. These are of national importance. Their number earlier was four. Four more have been added. Of course there is dissatisfaction. But we are such a huge country, even god cannot perform miracle. This is a pro-development move. The annual plan of 2007-2008 was of 21,000 crore. Whereas the annual plan of 2008-09 is of Rs 37,500 crore. The money that is coming through internal process is more than Rs 21,000. So the health of the railways is improving.

Does the budget move in the direction of dedicated freight corridor?
Till now there was talk of an east-west corridor. Now they have started thinking of four more corridors. The project should be complete in the next five years. It can’t be accomplished overnight because it’s a huge investment. It was a matter of political will.

Is there any issue of concern in the budget?
One thing which I am concerned about is the private participation issue. It’s only about the metros which are already a profitable venture for the railways. It might meet the same fate as the airlines. There was the talk of open sky policy when liberalization started. That the regional imbalance will vanish, and hitherto untouched areas will get air connectivity. But nothing of this sort has happened. So private players are showing interest in those areas where there is profitability. But no player is ready to come forward for remote areas.

I have seen it in Konkan area. They will come up with dhabas. How will we create a world-class railway infrastructure if the private players are to open dhabas?

What has been the political reaction to the rail budget?
The BJP claims that the BJP-ruled states have been discriminated against. MPs from Karnataka are angry. They staged a dharna in the Parliament House. But this is politics. Because you can’t please everyone in a rail budget of such a large country. What should be seen is, whether it’s a step in the direction of a world-class railway or not, does it remove regional imbalance or not.

What benefit has Lalu Yadav ensured to his own state?
He has already ensured much for his state. Bihar has had a number of railway ministers. Lalu’s precursor Nitish Kumar had also done much for the state. Ram Vilas Paswan had created a railway zone in Hajipur. One thing Lalu has done is to start a new railway line for his sasural. Top

FICCI President, Rajeev Chandrasekhar said that this is a balanced budget that has taken care of both the growth of the economy and the political compulsions of out time. He added,  "I am convinced that the budget will continue to spur growth and FICCI hopes that the Prime Minister's statement at FICCI's 80th AGM that 9% growth is achievable holds true."

FICCI had recommended that for the common men and women of the country  the income tax exemption limit be enhanced from Rs. 1.1 lakh to Rs. 1.5 lakh. The Finance Minister has announced this and this will now give more purchasing power into the hands of people and boost consumption.

Industry had also requested that the government take measures to address the cascading affect of the Dividend Distribution Tax. In the budget, the Finance Minister has taken up this matter and the issue has been partially addressed. FICCI hopes that as we go ahead further modifications will be made to completely waive the cascading affect of DDT on multi-layered corporates.

The Finance Minster's major step in promoting hospitals and the healthcare sector in tier 2 and tier 3 cities of the country is also a very positive move. FICCI had urged the government to give a boost to the healthcare sector and now hopes that a further push will be given by granting 'infrastructure status' to the healthcare sector. Top

One of the major problems being faced by industry today is the severe skill shortage across sectors and at all levels. In this context FICCI feels that the Finance Ministers announcement of setting up a non-profit corporation for promoting skill development with an outlay of Rs 15, 000 crores is a fresh, new idea whose time had come.

Further, the Finance Minister in this budget has kept the peak rate of customs duty on non-agricultural products unchanged. This would help Indian industry in the face of the appreciating Rupee. FICCI also welcomes the decision to lower excise duties on a wide range of products and the across-the-board reduction in cenvat rate from 16% to 14% as this will give a boost to the manufacturing sector.

FICCI members from the pharma industry have expressed satisfaction with the government's decision to extend the tax benefit from in-house research to outsourced research.

The massive loan waiver, to the tune of Rs. 60,000 crores, announced for the farmers will serve its purpose only if parallel reforms are undertaken in the agriculture sector. Increasing agricultural productivity, strengthening agri-marketing infrastructure and rejuvenating extension services are essential to ensure that the farmers do not fall back into another debt trap in a few year's time.

FICCI has also welcomed the announcement on strengthening and deepening of the corporate bond markets. This would be particularly helpful for mobilizing funds for large infrastructure projects.

The removal of Banking Cash Transaction Tax as well as further modification of the Fringe Benefit Tax are also a welcome steps.

Finally, the announcement of a tax rebate on contribution by the youth for health insurance for their parents is a progressive move and is in line with FICCI's recommendation. Top