Budget'08-09

This year's Grammy Award for the Best Spoken Word Album went to US Presidential hopeful Barack Obama for 'The Audacity of Hope: Thoughts on Reclaiming the American Dream.' It's a pity that our Budget exercise unfolded a month after the Grammy's. For, Finance Minister P Chidambaram's budget speech would have easily aced out Obama's spoken word.

In his budget speech this year, Chidambaram chewed the cud of his own famous words of 1997: "I believe that boldness pays. I also believe that trust will beget trust, moderation will beget revenues and fairness will beget compliance", and topped it up with announcement of income tax concessions and farm debt waivers that have the potential to spur consumption and stimulate the economy, as also tilt votes in his party's favour in elections. His spoken words left the opposition bankrupt of ideas for criticism and they came up with the plain: "It is a poll-centric budget".

But economists would agree that polls are not there was a case for the government to reward honest tax payers, given the buoyancy in the exchequer's revenues. Despite heavily restructuring tax slabs, the government expects tax collections to increase by over 17 per cent in 2008-09.

The last time tax rates were revised was in 1997 and it is not out of place to rejig the structure a whole ten years later. Polls, in this case, are only incidental. In any case, which budget ahead of polls is not political. Are budgets not meant to be a political statement anyway?

In the process, Chidambaram has also managed to win some accolades from the industry by way of measures like duty cuts across a number of products, notwithstanding the tag of proposing a populist and election-focused budget. Dubbing it as an "election budget", India Inc said Finance Minister P Chidambaram has done a "remarkable job" to ensure that economy continues to grow at nine per cent, even as it was divided over loan waivers to farmers. Still, there were disappointments among captains of industry and investment banking over lack of concession in corporate tax and increase in short-term capital gains tax, with a few even fearing that the burden of loan waiver could be passed on to them.

Industry body FICCI President Rajeev Chandrashekhar said that they realize it was an election Budget, but a lot of aspects of it have confirmed that the Finance Minister has done a remarkable job. He added that Finance Minister has ensured that the growth momentum will 'continue and the industry was confident about maintaining the 9 per cent growth.

A number of industry players, such as retail-to-telecom conglomerate Bharti Group Chief and CII President Sunil Mittal even welcomed the move to waive loans of the farmers, although with some reservations. "We are delighted for million of farmers who have been given waiver...They deserve that salutation," Mittal said but, added in the same breadth a caveat that the move could send wrong signals. Echoing the sentiments, ASSCOHAM President and Videocon head V N Dhoot said that though the Budget would ensure growth momentum and Chidambaram had exceeded expectations of the industry, loan waiver was not the ultimate solution.

Others like Kotak Mahindra Bank Managing Director Uday Kotak even welcomed the decision to keep the corporate tax rates unchanged and proposal to hike the capital gains tax. "Corporate tax are at fair levels. An increase of five per cent on short-term capital gains will make people hold for medium term," he noted.

Those from the pharmaceuticals and automotive spaces were almost all praise. Ranbaxy Laboratories Chairman and Managing Director Malvinder Mohan Singh termed it as an extremely positive Budget, saying pharma industry was delighted at the excise duty cut and expected that the proposals in the Budget would be helpful in setting up health infrastructure.

Hero Honda Motors Managing Director Pawan Munjal said the excise cut on two and three-wheelers to 12 per cent from 16 per cent was a welcome move, even though some others said it was not right to put the two-wheelers and small cars on the same pedestal. Hyundai Motor India said the proposals are good for the auto sector, although the FM could have taken a few more steps for the bigger cars and exports. Honda Siel Car India also welcomed the Budget, broadly, but with a caveat saying the gap could widen further between small and big cars.

What Chidambaram has set out to prove is that good economics is good politics. While his political opponents were unable to berate the tax sops allowed in the Budget so much, they did find a handle to hang on to – the Rs 60,000 crore worth debt waiver and relief package to farmers. The main opposition party Bharatiya Janata Party kept repeating the question - how does the government plan to repay the amount to banks, which are the one that will be writing off outstanding farm loans.

Chidambaram, who maintained that he would let the country know about this at an appropriate time, has also said that this loan waiver was in effect a clean up of the books of banks that in any case would have been saddled with bad loans of an equivalent amount if it were not for the government package. The Finance Minister has, however, given his word that banks would be provided liquidity to the extent of loans written off over three years.
Whiling expressing confidence that the various proposals made for the agriculture sector, such as giving boost to agricultural credit, investment in agriculture, and provisions to invest in water resources, irrigation, national horticulture mission and crop insurance schemes, Chidambaram said that "the question that still looms large is what we :should do about the indebtedness of farmers. "

Chidambaram said that a committee under Dr R Radhakrishna examined all aspects of agricultural indebtedness and made a number of recommendations, but stopped short of recommending waiver of agricultural loans. "However, Government is conscious of the dimensions of the problem and is sensitive to the difficulties of the farming community, especially the small and marginal farmers," he noted before proposing the scheme of debt waiver and debt relief for farmers.

Later the Finance Minister told PTI Economic Service that apprehensions about the package leading to collapse of cooperative and scheduled commercial banks and would weaken the banking system were unfounded. Rather he exuded confidence that the budget would spur growth despite the fears of global slowdown.

When asked whether the loan waiver scheme could result in people deliberately defaulting on payments, Chidambaram retorted why was this question not raised when every political party demanded loan waiver. "When we do something then people ex-post facto wake up to issues of moral hazards. These are all invented criticisms. We are doing some thing which we believe is doable. UPA believes that a case has been made out for relieving the distress of the farmers. We, therefore, came to the conclusion that we must do a one-time debt relief. We have done it." Chidambaram also said this was not the first time that debt-relief was granted in this country and C Rajagopalachari did it in 1937.

One of the main planks that the opponents have embarked upon is on where is the provision for the loan waiver as well as the Sixth Pay Commission in the budget. The Finance Minister also said that the target for eliminating revenue deficit needed to be deferred by a year, even though the country's financial position has improved "tremendously."

In the current year, ending March 31, the revenue deficit would stand at 1.4 per cent, as against a budget estimate of 1.5 per cent, and the fiscal deficit would be 3.1 per cent, as against a budget estimate of 3.3 per cent, Chidambaram said. While anticipating further progress in 2008-09, he said that revenue receipts of the Central Government was expected at Rs 6,02,935 trillion and the revenue expenditure at Rs 6,58,119 crore. This would result into a revenue deficit of Rs 55,184 crore, amounting to one per cent of GDP. The fiscal deficit for the next fiscal is projected at Rs 1,33,287 crore or 2.5 per cent of GDP.

FM exuded confidence in achieving the fiscal deficit target under the FRBM Act, while noting he has also left some headroom for himself in this regard. For revenue deficit, he said he would meet the target of annual reduction of 0.5 per cent, but because of a conscious shift in expenditure in favour of health, education and social sector, it would need one more year to eliminate the revenue deficit. "In my view, this is an entirely acceptable deferment," he said.

About the Sixth Central Pay Commission, the Finance Minister said that the report would be submitted by March 31 and he was confident that it would meet the legitimate expectations of the government employees. Global credit rating agency Standards and Poor's said in a recent report that India's currently credit rating may go downwards after the sixth pay commission report. Its current credit rating reflects strong economic prospects, solid external balance sheet, and deep capital market that support a weak but improving fiscal position, S&P. The former Finance Minister and Member of Parliament Yashwant Sinha also said that the Finance Minister has neither provided for the loan waiver, nor for the imminent expenditure that would arise out of the Sixth Pay Commission, while observing that the recent Railway Budget had provided for the Pay Commission-related salary hikes.

According to the Finance Ministry officials, the impact of the Sixth Pay Commission recommendations was expected below 0.4 per cent of GDP, which was the impact from the fifth Pay Commission award in 1996. Given a budget estimate of Rs 53,03,770 crore of GDP for 2008-09, the impact could still be more than Rs 20,000 crore.

Chidambaram said he wants to create a seamless national market for securities because of differences among states on scope and applicability of stamp duty and proposed the Empowered Committee of State Finance Ministers to work with the central government to create a truly pan Indian market for securities that will expand the market base and enhance the revenues of state governments."

However, the proposals to hike the short-term capital gains tax from 10 per cent to 15 per cent and removal of tax benefits on securities transaction tax (STT) did not go well with the bourses and this, coupled with continuing weakness in global markets, sparked a huge sell-off that pulled down the benchmark Sensex by close to 1,500 points in four straight trading sessions starting with the Budget day. This coincided with close to Rs five trillion being wiped off from the investors' wealth or the companies' market value.

This is despite the analysts terming the budget proposals, including hike in capital gains tax rate, broadly positive for the capital market. Domestic brokerage firm Sharkhan's Research Head Gaurav Dua said it was overall a positive budget, given the political compulsions. However, the increase in short-term capital gains tax and no reduction in corporate tax are sentimentally negative for capital markets, Dua added.

Besides, no reduction in corporate tax rates and a loan waiver package worth Rs 60,000 crore announced for farmers have also contributed to the plunge, market observers said, while emphasizing that the key driver has still been the weak global cues.

Budget is positive for companies in the auto, infrastructure and pharma space and would positively affect the corporate bottomlines, analysts said, adding that increased capital gains tax would deepen the market by cutting down on the speculative part of the trading, as a higher tax would impact mostly the traders and not the investors. Kotak Mahindra Bank Managing Director Uday Kotak said global cues would continue to be the biggest driver for the Indian markets. Domestic inflation and interest rate regime would be the second biggest driver, followed by growth trend of the Indian economy.

Investment banking major J M Financial's Nimesh Kampani said he was not worried about impact of Budget on stock markets, adding that the market would stabilise and Budget would prove to be a non-event.

Commodity market has, however, voiced a stronger protest against the imposition of commodity transaction tax (CTT), which has been formulated on the lines of STT for the stock market.

While political opponents view the Budget as a tell-tale sign of early polls, the Indian industry feels that the annual financial statement is focused on inclusive and sustainable growth.

Chidambaram has said that the focus of the budget was to keep the country's economic growth story continuing, although it needs to be more inclusive and those having been left out of the growth story should feel that they are part of growth. "Growth is important. Budget is to make growth high as well as more inclusive," he said. Besides, the nine per cent growth in economy is a target and that remains the target, Chidambaram noted.

In fact, sustaining growth is the need of the hour considering the slowdown in developed economies, including the US - where fears of a recession are yet to subside. The Finance Minister's decision to put more money .in the hands of the common man or rather the middle-class will go a long way in increasing domestic savings as well as consumption. Savings rate in India is vibrant at more than 30 per cent of GDP and serves as an easy to dip in resource for government's investment requirements. It could well increase to 45 per cent in the year's ahead.

International consultancy firm KMPG too had earlier said that India should realign income tax slabs to attract more investments. Investments, which overtook consumption as the key driver of economic growth in 2003-04, has increased 20 per cent from last year's level, but the country needs some more reforms if it were to continue to grow by 9 per cent and above. It in this context that the Economic Survey, the annual report card on the state of the economy, asked the government to allow FDI in all areas of retail and increase ceiling on foreign investment in insurance to 49 per cent -- reforms that the UPA government's key Left allies are fiercely opposed to.

Chidambaram was also pragmatic when he proposed to increase service tax revenues by bringing in four services companies under the tax net. Increasing revenue from service tax will help the government reduce fiscal deficit to 2.5 per cent next fiscal, although the target of wiping out revenue deficit has been pushed back by a year due to the conscious shift in expenditure in favour of health, education and social sector.

A lower deficit will give India room to cut down borrowing costs and attract more foreign investment - both crucial if it has to bring in 500 billion dollars into the country's creaking infrastructure sector. The Economic Survey has said that the Centre should chip in with at least 37 per cent of the total cost.

The task on the government's hand requires all the more urgency give the slowdown in six core infrastructure industries to 5.6 per cent in April-December 2007, besides sluggishness in industrial production. Consequently, the GDP growth too slowed down to 8.4 per cent in October-December quarter of this fiscal compared to 9.1 per cent a year ago. Full year growth in 2007-08 is expected to

Although lower taxes would give companies more money to deploy for capital expenditure and increase efficiency and contribute to GDP advancement, Chidambaram has left corporate tax rates unchanged in the budget. This, the industry, said was expected. Since lending rates in the economy has been going down for now, the industry is not complaining much.

Not surprisingly, the industry chieftains called the budget mostly a populist one. In a survey conducted by international tax and advisory firm Pricewaterhouse Coopers a day after the budget, the finance heads of Corporate India has termed the Union budget for 2008-09 as 'populist', with a majority of top executives believing that economic reforms could have been pursued further. As per the survey, about 71 per cent of respondents said it would have a positive impact on broadening the indirect tax base, but about 76 per cent of the respondents felt that the increase in short-term capital gains tax is not justified.

The poll conducted in Delhi, Mumbai and Bangalore covered over 600 top-level officials from some of the country's largest businesses and officials included chief executives, chairmen, managing directors, chief operating officers, chief financial officers and non executive directors. Fifty five per cent said the budget has not taken meaningful steps to promote growth with low inflation and 95 per cent felt concrete steps have not been taken to address infrastructure problems.

Moreover, only 38 per cent of those surveyed said the budget contains 'significant measures to make India Inc globally competitive', while 62 per cent felt it does not have significant measures to make the country competitive. Still, a majority 51 per cent said the budget is 'positive for industry as a whole' whereas 49 per cent felt otherwise.

PwC said that going by the poll, the views about the budget are mixed. "Overall, when the budget proposals are looked at in the context of industry and current global scenario, there are mixed views about the true benefit that the same will bring," it pointed out. PwC's leader tax practice Dinesh Kanabar said, "Whilst it was always expected to be a populist budget, the key question has been whether the political compulsions would override economic reforms. "

"As the budget unveiled, the Finance Minister has done the tight rope walk with a fine balance by pleasing the aam aadmi and yet not burdening the exchequer significantly," Kanabar said.

Chidambaram has also indicated that the surcharge on income tax could go next. The individuals with income of more than Rs 10 lakh and corporate pay surcharge at the rate of 10 per cent and there was a strong demand from corporate houses to do away with surcharges.

"Last time anyone has set the tax rates was 1997. This time we have set the tax slabs. I am reasonably confident that these tax slabs are going to stay for long, long time, we have brought moderate taxes and reasonable tax slabs," Chidambaram said, adding that "If revenue buoyancy continues, I am sure the next Finance Minister, which I am sure would be from the Congress party, will begin to remove the surcharges. I think surcharges should go... may be in two steps or four steps."

Chidamabaram had changed the personal income-tax rates to 10, 20 and 30 per cent in: 1997-98 Budget, which was touted as "dream budget". Again it was Chidambaram who restructured the tax slabs in his Budget on February 29.

The rejig in tax brackets will benefit each taxpayer by a minimum of Rs 4,000 and up to Rs 44,000 a year -- which translates into a month's salary for a person with an annual income of Rs 500,000.

Another survey conducted by leading industry body CII termed the budget presented by Finance Minister P Chidambaram as people oriented, with majority of Chief Executive Officers opining that it focused on inclusive and sustainable growth.

This opinion poll said that 94 per cent of the CEOs surveyed, opined that the Budget 2008-09 was people oriented, while 76 per cent revealed that the annual financial statement was focused on inclusive and sustainable growth. Further, 72.5 per cent of the CEOs said the budget was growth oriented, but only 42 per cent opined it was reform oriented. The CEOs felt that there could have been further reform announcements in the area of financial sector, agriculture and infrastructure, it said.

Casting their opinion on the tax burden, 87 per cent of CEOs have revealed that the budget proposals would not increase the overall tax burden on the industry and economy.

To his critics, Chidambaram had this to say: "Every year there are elections in the country, 2006 was an election year, 2007 was an election year and 2008 is an election year. I have presented my fifth Budget... According to schedules, elections are in May, 2009. Budgets don't decide election agenda. It's how you communicate to the people... what Budget contains that can help win elections... and what is wrong in that?"

In the middle of turbulence in major economies in the world, India and China stand out performing quite well logging growth of about nine per cent. In fact, with the previous two years 'showing growth well above nine per cent, a slight deceleration to 8.7 per cent estimated for 2007-08 sounded quite a warning.

The Economic Survey, a report card of the government's performance listed several challenges faced by Indian economy, which can act as bottlenecks for sustaining growth.

So it pushed for reforms stating inflationary impact of foreign funds flow, a slowdown in the US, an appreciating rupee and sluggish infrastructure sector were major challenges before the economy.

"The new challenge is to maintain growth at these levels, not to speak of raising it further to double digit levels," it said.

Though Finance Minister P Chidambaram did not address the issues of further reforms highlighted in the survey, the government document had suggested a slew of measures that alone could help raise the growth to an ambitious double-digit level. "Raising growth to double digit... will require additional reforms."

These include opening all retail trade to foreign direct investment, hiking FDI in insurance to 49 per cent, allowing 100 per cent FDI in new private rural agricultural banks, selling up to 10 per cent equity of non- Navratna (cash-rich) PSUs.

Highlighting inflation as one of the major challenges for the government, the Survey stated the recent hike in fuel prices would add 19 basis points to the inflation rate projected at 4.4 per cent for the year 2007-08.

"Of late, the change in the structure of the economy and its more globalised nature has made management of inflation a complex task," it said, adding that the rising capital inflows will require monetary policy to playa more decisive role.

While the macro economic fundamentals continue to boost confidence, the decisive change in growth trend also shows that the economy was "perhaps not fully prepared for the different set of challenges that accompany fast growth".

The sub-prime crisis in the US may lead to additional capital flows into India and other emerging markets. "The situation of excess inflows is likely to remain, though the pressure on reserve accumulation and exchange rate appreciation is likely to ease," the Survey said.

In the longer term, the solution to excess capital inflows lies in deepening productivity gains and addressing the root causes like interest differential and build-up of expectations on the rupee.

The rupee appreciation of 8.9 per cent between April 3, 2007 and February 6, 2008 affected exports in some sectors with low import intensity. Besides the rupee impact, the US slowdown is also expected to hit the exports.

"The US economy is expected to slow down in 2008, consequent to the sub-prime crises. Most projections of the world economy suggest a moderate but not severe slowdown in world growth. This will impact both the demand for India's exports and the value of imports," it said.

It made out a strong case for policy reforms options that included allowing regulated private entry into coal mining, phasing out control on sugar, fertiliser and drugs and selling old oil fields to private sector.

It suggested private corporate investment in nuclear power, subject to regulation, and added that the state electricity regulatory commissions should notify rational and credible cross-subsidy for open access.

Underscoring the importance of fiscal deficit, the Survey said further reduction on this count could widen the space for monetary policy effectiveness. In the long term, a lower fiscal deficit will result in a reduction in the real domestic long-term interest rate of the economy and bring it closer to the global rates.

"A reduction in the fiscal deficit during periods of excess inflow also reduces the costs of any subsequent reversal of capital flows,"

it said, adding that in the short term, it can reduce the excess demand pressures created by the inflow of foreign funds.

Agriculture was one area where concerns raised by the Economic Survey were a pointer for the Budget, which addressed it abundantly. Though considered to be a poll-oriented step, Chidambaram announced a whopping Rs 60,000 crore loan waiver and relief- the largest in the country.

The Survey had warned that any slowdown in farm sector would hurt the economy. Its agriculture sector has lost its dynamism and the sector is expected to grow by a meager 2.6 per cent during the current fiscal.

"Any deceleration in the growth of the agriculture sector is translated into a lower overall GDP growth," it said.

Concern was also expressed over deceleration of growth in manufacturing and construction. These sectors which grew by 12 per cent in 2006-07 declined by about 2.5 percentage points in 2007 -08.

"The slower growth of consumer durables was the most important factor in the slowdown of manufacturing," it said. The Budget did announce measures to -boost the manufacturing by reducing excise duty from 16 to 14 per cent across-the-board.

Faced with a decline in growth in the face of trouble in the US, the Survey suggested a series of reforms including hiking FDI in insurance and retail sector to sustain the 9 per cent rate of economic expansion.

It wanted the hiking of the foreign equity in insurance business to 49 per cent. While the UPA Government had proposed raising the FDI cap in its first budget in 2004-05, opposition from the Left parties eluded consensus.

The Survey also asked the government to complete divestment of 5-10 per cent stake in previously identified profit making non Navratna PSUs.

On the banking sector, the Survey has suggested a 100 per cent FDI in greenfield private rural-agriculture banks.

Such a bank would be free to set up any number of branches in any rural or semi-rural area, the Survey said, adding that it would be free to lend to agriculture and allied sectors anywhere in the country and to any industry located in non-urban area.

It advocated 100 per cent FDI in retail trade including foreign branded, specialised retail chains like luxury brands, consumer durables and semi durable sectors.

It said the government should auction all loss-incurring PSUs that cannot be revived and list all unlisted PSUs by selling a minimum 10 per cent equity to the public.

Besides, it also suggested amendment of Coal Mines Nationalisation Act to allow regulated private entry into coal mining.

The pre-Budget document called for selling old oil fields to private firms to raise output, while prescribing a new bankruptcy law to facilitate exit of failed management. It made strong arguments for phasing out control on sugar, fertiliser and drugs.

In a bid to increase manpower efficiency, it suggested increasing work week to 60 hours from existing 48 hours and daily limit to 12 hours to meet seasonal demands through overtime.

On the transportation system, the Survey said public transport systems like buses in metros and large cities must be run by private companies that can use modern logistics and back office systems for planning routes and timings.

With international crude oil prices touching an all-time high of 102 dollars a barrel, the Survey advised privatisation of old oil-fields to raise output and reduce India's import dependence.

State-run firms Oil and Natural Gas Corp (ONGC) and Oil India Ltd (OIL) have seen oil output fall from old fields like those in Gujarat and Assam, and new technology will be needed to raise recovery.

India, which spent 48.389 billion dollars to import its crude oil needs in 2006-07, has already spent 48.02 billion dollars on crude imports in the first nine months of the current fiscal because of rise in international oil prices.

The surge in global oil prices had "a significant impact on the oil marketing companies and the Indian economy as India imports about 72 per cent of the crude oil requirement."

Rising foreign funds and global commodity price movement would exert pressure on inflation which the government so far has been able to keep a check on.

Even though the fuel price hike this month would add 19 basis points, inflation rate would remain lower at 4.4 per cent during the current fiscal, compared to 5.4 per cent in the previous year

However, government would have to maintain vigil on this front as price management is a complex task, particularly in the wake of oil breaching 100 dollar a barrel mark.

Reduction in tariffs on non-agricultural products has played an important role in bringing Indian inflation rate in line with the global rate. The Survey asked the government to maintain this policy.

So far as agriculture items are concerned, prices of essential and other items will playa critical role as poverty has come down and per capita income has risen But tariffs on farm products are high and modernisation of Indian agriculture and agro-processing is going at a slow pace which could also affect inflation. It is particularly so because food stills occupies a large portion of our consumption basket.

The Survey said government should incentivise fund mobilisation and bring comprehensive but simple policy and regulations for the infrastructure sector that requires Rs 20,00,000 crore.

"Despite efforts to accelerate the pace of infrastructure development, the demand for infrastructure services have grown even faster than the supply so that the constraints may have become more binding.

Infrastructure growth during April-December slowed down to 5.7 percent against 8.9 percent a year ago.

"The development of adequate infrastructure is a critical prerequisite for sustaining the growth momentum and to ensure inclusiveness of the growth process," it said.

"The long-term debt market should be developed to support infrastructure projects during the 11th Five Year Plan," the Survey said and pointed out that average nine per cent growth during the 11th Plan could be achieved only if infrastructure deficit was overcome.

The Survey expressed concern that growth in output of the infrastructure sector and its capacity, particularly power, has been relatively modest as compared to the robust performance by services and manufacturing.

It said the Centre would have to pump in more than 37 per cent of the 500 billion dollar funding requirement, while the private sector would have to pool in over 30 per cent.

Concerned over constant slippages in capacity addition target and rising subsidy burden, the Survey stressed on improving financial viability of power utilities, particularly in states, to overcome the crisis.

As per revised estimates, the gross subsidies for the power sector would grow to Rs 43,132.6 crore for 2007-08 as against the provisional figures of Rs 40,054 crore for 2006-07. The amount could rise to Rs 46,087 crore in 2008-09 As against the government claims of making concerted efforts to improve power situation, generation in the first nine months of 2007-08, the first fiscal of 11th plan period, decelerated from the previous year's level.

Growth in power generation slowed down to 6.6 per cent in April-December of fiscal 2007-08 as compared with 7.5 per cent in the corresponding period of 2006-07.

A dearth of skilled workforce is resulting in high attrition and cost push inflation - a trend that could hurt the economy, the Survey warned.

"Besides leading to higher wage cost which contributes to cost push inflation, skill shortage may also lead to eroding of price advantage in some of the tradable sectors of the Indian economy," it said.

The country is facing a shortage of skills in technology, outsourcing sector, semi-skilled labour intensive sectors such as manufacturing, and modern services like organised retail, civil aviation, construction and finance.

The enormous demand for professional education and employable skills cannot be met by the public sector alone, and the entry of private and non-government sectors such as recognised universities, education and skill development institutes under a professional, independent and credible regulatory system is essential for meeting the requirement, the Survey noted.

It suggested introduction of liberalised norms for the entry of reputed foreign universities in the country.

Painting a gloomy picture on external trade front, the Survey cautioned that the global slowdown, particularly in the US, will impact India's export growth in 2008-09.

"The outlook for exports in 2008-09 may not be as bright as in the past few years with lower projections in world GDP and world imports and exchange rate developments," it said.

India's exports stood at III billion dollars in April-December 2007, registering a growth of 21.6 per cent.

It said the two developments that need to be monitored are the fall in export growth to the US in general and fall in textile exports in particular to the BS and EU.

"Though exports to the US have already been slowing in 2006 and 2007, a further slowdown may be unavoidable, but may be relatively modest. The slower Indian economic growth in 2007-08, relative to 2005-06 and 2006-07, may also have a temporary dampening effect on capital inflows," it said.

Having turned around India's largest public sector entity into a profitable venture, Lalu Prasad who is always known as a charismatic leader for his vote politics has successfully registered his name among the successful managers and visionary corporate leaders for his unprecedented stint at the Railway Ministry.

It is a no surprise then that business schools around the world eagerly await to learn business maneouvers from the man himself. He created a history by turning a cash surplus before dividend of Rs 25,000 crore. "We take pride in the fact that our achievement, on the benchmark of net surplus before dividend, makes us better than most of the Fortune 500 companies in the world, the Minister claimed while presenting his and UPA government's fifth Railway budget, may be the last full budget before the next general elections. Armed with huge surplus, Lalu could uncork the bubbly for everyone, from passengers to coolies and give low-fare airlines run for their money.

Lalu also took a dig at the previous NDA regime and in particular his predecessor Nitish Kumar, who is currently the Chief Minister of Bihar, saying the dire straits the Railways were in prior to the UPA government is not hidden from anybody. The Railways were battling a deep financial crisis in which they (NDA) defaulted on the dividend payable to the government of India and were not in position to undertake timely replacement of overage assets.

"Today, after the financial turnaround of the organization, the same people are making tall claims, trying to take credit for the financial turnaround," Prasad said. His new mantra of developing projects on a public-private-partnership would generate new interest by the private sector and as a result of that the corporate governance leading to improved quality of services.

Presenting a budget ahead of next elections, Prasad slashed passenger fares of all classes and freight rates on petrol, diesel and fly ash while dispensing sops to students, elderly women and AIDS patients. Presenting the budget for 2008-09 in Parliament, his fifth, the minister continued his trend of not hiking passenger fares by giving a five per cent concession across-the-board for all long distance trains in second class and one rupee discount for fares of Rs.50 in these trains.

Under constant pressure from low fare airlines wooing middle class, the budget cut AC first class fares by seven per cent and ACII tier by four per cent. However, this would not apply in popular trains and during peak period when the reduction will be 50 per cent only. Rejecting criticism that it was an election-oriented budget and for the affluent, Prasad said this budget, like the earlier ones, had been prepared with an eye on the common man who also aspires for higher class of travel.

While proposing no across-the-board hike in freight rates, the Minister completed the process of rationalization by reducing the highest class from 210 to 200 which resulted in a five per cent reduction on ferrying petrol and diesel. The rate on carrying fly ash has been reduced by 14 per cent.

In a slew of goodies, Prasad announced introduction of 10 new 'Garib Raths' (common man's air conditioned trains), 53 new pairs of trains, extension of 16 pairs and increase in the frequency of 11 trains. The budget raised the concessional travel for women beyond 60 years from 30 to 50 per cent while it will continue at 30 per cent for elderly men. Free monthly tickets in second class for girl students up to 12th standard and boys up to 10th standard will be extended for girls up to graduation and boys up to 12th standard. AIDS patients travelling to nominated Anti Retro Viral Treatment (ART) centres for treatment will be given 50 per cent concession in second class passenger fares.

As a special gesture for Ashok Chakra awardees, Railways will give free passes to them for travel in Rajdhani and Shatabdi trains. A number of measures have been proposed to enhance passenger amenities that will seek to end long queues at ticket counters in two years by tickets through mobile phones, raising the number of unreserved ticketing system counters from 3,000 to 15,000 and automatic ticket vending machines from 250 to 6,000.

In yet another passenger-friendly measure, the budget proposes to upgrade all low and medium-level platforms in over 600 stations to high level. Multi-level car parking lots will be provided in 30 major stations and lifts and escalators will be made available at 50 major stations.

In the budget estimates for 2008-09, freight loading target has been kept 850 million tonnes. Freight, passenger, sundry other earnings and other coaching earnings have been pegged at Rs.52,700 crores, Rs.21,681 crores, Rs.5,000 crores and Rs.2,420 crores respectively. Maintaining an overall double digit growth, gross traffic earnings have been projected at Rs.81 ,80 1 crores reflecting an increase of Rs.9,146 crores on the revised estimates for the current year. An ad hoc provision of Rs.5,000 crore has been earmarked in anticipation of the 6th Pay Commission recommendations. Total working expenses will be Rs.66,590 crores and net revenue Rs.60,423 crores.

Cash surplus before dividend is projected at Rs.24,783 crore and the dividend payable for the coming year at current rate is estimated at Rs 4,636 crores. The annual plan size for 2008-09 has been fixed at Rs.37,500 crores, the largest ever outlay so far. Support from general revenues has been pegged at Rs.7,874 crores and internal resources at Rs.20,600 crores. In the current year, freight loading target has been revised to 790 MT at an expected growth in goods earnings of 14 per cent. In revised estimates, goods, passenger, sundry and other coaching earnings have been fixed at RsA7,743 crores, Rs.20,075 crores, Rs.2,637 crores and Rs.2,200 crores, respectively.

Expected net revenue has been placed at Rs.18,416 crores and surplus after payment of dividend at Rs.13,534 crores. Indian Railways today projected its gross traffic earnings to grow by over 12 per cent next fiscal, despite slashing passenger fares and announcing cuts in freight rates for select commodities and destinations. Presenting the Railway Budget for 2008-09 in Parliament, Railway Minister Lalu Prasad said: "Maintaining an overall double digit growth, gross traffic earnings have been projected as Rs 81,801 crore, reflecting an increase of Rs 9,146 crore on the revised estimates for the current year." Freight earnings are expected to rise by 10.38 per cent next fiscal to Rs 52,700 crore from the revised estimates of Rs 47,743 crore in 2007 -08.

This is despite the fact that Prasad announced various freight cuts like five per cent on petrol and diesel, 14 per cent on fly ash and six per cent for goods carried to the northeast. Freight earnings have been revised by Rs 800 crore for the current fiscal following an 8.2 per cent increase in freight loading in the first nine months, Prasad said. "Based upon the current trend, we have increased the budgeted target of freight loading for the year 2007-08 from 785 MT to 790 MT," the Railway Minister said.

Passenger earnings are projected to increase by eight per cent to Rs 21,681 crore next fiscal over revised estimates of Rs 20,075 crore in the current financial year, Prasad said. This despite a seven per cent cut in AC-I class fares, four per cent in AC-II class fares and five per cent reduction in second class mail/express train fares. In the current financial year, passenger earnings have registered an increase of 14 per cent in the first nine months, leading to revision in the revenue.

Lalu has also proposed a huge investment of Rs 2,50,000 crore in next five years for expansion, modernisation and upgrade of railway network, and said it will resort to public-private partnership model to part finance the schemes. "We have made a plan to invest Rs 2,50,000 crore within the next five years. For funding a large portion of this plan, use of internal resources and borrowings will be resorted to," he said. Admitting that it would be difficult to finance such a large investment programme solely from Railways' own resources and the minister has proposed to start many public-private partnership (PPP) schemes for attracting an investment of Rs 1,00,000 crore over the next five years.

These will include projects for provision of world-class facilities at metro stations, setting up state of the art rolling stock production units and construction of multi-model logistics parks.

Prasad also announced the Railways will invite global competitive bids for developing railway stations at New Delhi, Patna and Secunderabad, and Chhatrapati Shivaji Terminus in Mumbai. He said concessions would be awarded for developing these stations.

"We expect to attract an investment of nearly Rs 15,000 crore on these stations. Through open competitive bidding, PPP partners would be selected for setting up diesel loco, electric loco and rail coach factory at an estimated cost of Rs 4,000 crore," the minister said.

The concessions, committing an investment of about Rs 25,000 crore, are likely to be awarded in 2008-09 for various PPP projects.

Indian industry hailed the railway budget as pragmatic and futuristic, saying the ongoing rationalisation of freight rates and lowering of fares would boost the growth momentum. Terming the budget as anti-inflationary and progressive, the industry gave a thumbs-up to Lalu Prasad who, it felt, was on the right track by focusing on modernisation and expansion to transform the world's second largest transportation network into a modern and cost efficient entity.

Welcoming the lowering of freight rates on petrol and diesel cargoes, industry chamber Confederation of Indian Industry said, "This reduction will help offset to some extent the impact of the hike in fuel prices". However, oil companies are unlikely to pass on the benefits to the consumers as the gain on account of five per cent reduction in freight charges works out to a measly Rs 50 crore a year. FICCI Chief Rajeev Chandrasekhar said the announcement to cut rates by five per cent "is a good and strong anti-inflationary measure" .

It also welcomed the Minister's proposal for mobilising Rs one lakh crore for improving the network through public-private partnership mode, stating that this would generate opportunities for India's private sector. Assocham President Venugopal Dhoot said such measures would also help the Railways attract more traffic. The chamber, however, said some freight relaxations should have been extended to steel and cement industry as well.

While welcoming reduction in fares, the Centre of Indian Trade Unions said the Budget does not throw light on whether wages and social security of contract workers will improve, given the huge profits.

"There is also distinct lack of emphasis in building and strengthening railway stations in North East states and Jammu and Kashmir, where progress is very slow," CITU said adding that hopefully the Minister would improve his budget proposals in regard to improving services in ordinary trains and food quality.

Meanwhile, Lalu Prasad had some words of praise from Himachal Pradesh Chief Minister Prem Kumar Dhumal for approving the laying of Bhannupalli- Bilaspur-Beri line in the state, but the BJP leader flayed him for "ignoring" other "strategically important" projects. "Lalu did a good job by approving laying of new railway line on Bannupalli-Bilaspur-Beri section, a long-pending demand of HP," Dhumal said. However, he slammed the Railway Minister for "ignoring" other projects, particularly the broad-gauging of Pathankot-Joginer Nagar line and extending it to Manali for further connectivity to Leh. He said the project has a strategic importance vis-a-vis China. "China has built railway line up to Lhasa and keeping that in consideration, the broad-gauging of this line was strategically important," he said.

Down South, industry chambers were upbeat over the proposals of the Railway Budget. "The extension of rail network to the Ennore port is a step in the right direction, which will facilitate a choice in mode of transport to and from the port. Cargo freights has been untouched but at the same time the fare for the AC and Second Sleeper has been reduced," said South India Chamber of Commerce and Industry President M Balasubramanian.

The railway minister has literally done a miracle by turning the loss-making public sector monolith into a cash milching cow. The railways now boast of a new improved entity and promise to turn rail travel experience a luxurious and comfortable one. The outlined projects and expansion plans would definitely make a difference. However, this being the last budget of the present UPA government before the general elections puts a heavy rider on success of long-term projects that have been envisaged in the budget.

Finance Minister P Chidambaram announced a bonanza to income taxpayers in his Budget for 2008-09 by raising threshold limit and restructuring tax rate slabs that will benefit assessees by Rs 4,000 to Rs 45,000 annually, bringing cheer to the salaried class and other income taxpayers.

The threshold limit has been raised from Rs 1.10 lakh to Rs 1.50 lakh, ensuring a minimum relief of Rs 4,000 for every taxpayer.

Personal income upto Rs 1.50 lakh will attract no income tax, while income between Rs 1.50 lakh and Rs 3 lakh will attract a 10 per cent tax and incomes between Rs 3 lakh and Rs 5 lakh 20 per cent. Income above Rs five lakh will attract 30 per cent tax.

For an income of Rs 10 lakh a year, an individual would have to pay a tax of Rs 2,05,000, as against Rs 2,49,000 under the previous tax structure.

For women assessees, a similar income would attract a tax of Rs 2,02,000 under the new regime, down from Rs 2,45,500 previously, while the tax for senior citizens would drop to Rs 1,97,500 from Rs 2,36,000 earlier.

Analysts said income tax collection in the years ahead will exceed the corporate tax realisation, higher collection prompted the government to give big relief to tax payers, though elections is just by the way.

In the case of a woman taxpayer, the exemption will be up to Rs 1.80 lakh from the existing Rs 1.45 lakh whereas senior citizen will now have the exemption limit of Rs 2.25 lakh from Rs 1.95 lakh.

A deduction of Rs 15,000 under Section BOD has been allowed to an individual who pays medical insurance premium for his / her parents under the Rs one lakh savings limit.

Senior Citizens Saving Scheme 2004 and the Post Office Term Deposit Account have been added to the basket of saving instruments under Sec 80(C) of the Income Tax Act.

Government is expecting that the tax relief to taxpayers and other measures, including Rs 60,000 crore loan waiver to farmers would increase the demand for consumer goods and benefit the corporate sector and enable the government to achieve GDP growth close to 9 per cent next fiscal as well.

Chidambaram has expected that the taxpayers would spend saved money 50 per cent on savings and 50 per cent on consumption.

The budget has also proposed to enlarge the scope of deduction under Section BOC by including five-year term deposits with post offices and deposits in accounts under the Senior Citizens Savings Scheme Rules, 2004, within the ambit of eligible saving instruments.

In respect of the medical insurance premium paid by an individual to effect or keep in force the medical insurance of his parents, it is proposed to allow an additional deduction of up to Rs 15,000 (Rs 20,000 in case of senior citizens) under Section BOD. Further, the existing condition that parents should be dependent on the individual is proposed to be dispensed with.

Up to Rs 150,000	Nil
Rs 150,001 to Rs. 300,000	10
Rs 300,001 to Rs. 500,000	20
Above Rs 500,000	30

The finance ministry would also be evolving a centralized system to process refunds within a period of 4-6 months. Taxpayers would not get notices from a particular income tax official but would be served notices under a seal of an income tax department for evasion of taxes or for seeking any clarification.

With the new system in place, the tax payers would not be required to appear before a particular tax official with written reply but would be required to submit their return explanation without being physically present so that tax refunds can be processed without any delay.

Since tax compliance in the last two years on direct and indirect front have gone up by 40-43 per cent as against 22-25 per cent in last four years the government is therefore tempted to evolve a centralized system in eight to nine centres for processing quick refunds.

A centralised system of processing tax returns is expected to do away with the concept of jurisdiction of assessing officers, which has been traditionally followed by the CBDT.

I-T returns would be processed in BPO type of operations at centres, which are like to become operational in four to six months.

Besides announcing benefits to taxpayers, Finance Minister proposed to make it mandatory to provide Permanent Account Number (PAN) in additional transactions that would be notified later.

As a result of which, quoting PAN will be made mandatory for all transactions like buying of an insurance policy and relatively larger transactions at the post offices. This will strengthen third party information mechanism, and will enable the government to abolish bank cash transaction tax (BCTI) by April 1, 2009.

To curb tax evasion, the budget proposed that payments made other than by an account payee cheque or draft exceeding Rs 20,000 will be disallowed, and considered as income if paid in subsequent year. It is proposed to provide that such payments made to a single party in one day will be aggregated to determine whether the limit of Rs 20,000 is breached or not.

The budget, however, did not propose to change corporate tax rates or 10 per cent surcharge despite pressure from the industry and trade.

The budget has estimated that despite complaints of high rate of corporate tax rate, the effective rate of tax was only 21.91 per cent for the manufacturing sector, and 19.01 per cent for the service sector due to various exemptions available.

On corporate tax, Chidambaram announced to extend a weighted deduction of 125 per cent to an entity that makes a payment for scientific research to an approved Indian company whose primary object is to undertake scientific research and development.

However the company undertaking the scientific research shall not be eligible for any weighted deduction.

Chidambaram also announced to increase the security transaction tax (SIT) rate on short-term capital gains from 10 per cent to 15 per cent.

However, to partly neutralize the cascading effect of dividend distribution tax (DDT), it has been proposed that the amount of dividend on which DDT has been paid, received by a domestic holding company (holding more than 50 per cent nominal capital), shall be reduced from the dividends declared by the said holding company for the purposes of levying DDT.

The benefit is available only at one level, that is, the domestic holding company should not in turn be a subsidiary of any other company and the same amount of dividend cannot be reduced more than once.

On the demand of industry to rationalise the fringe benefit tax, the Finance Minister proposed exempt from FBT any expenditure or payment made through non-transferable electronics meal card, creche facility for children of employees, sponsorship of an employee sportsman and organising sports events for employees and maintenance of any guest house.

Value of fringe benefit on account of festival celebrations has been reduced to 20 per cent from 50 per cent.

To encourage investment in hospitals set up in areas other than metros and other specified urban agglomerations, a tax holiday for . five years is proposed provided they commence operations between April 1, 2008, and March 31,2013.

It is also proposed to extend the five-year tax holiday to two- three and four-star hotels located in the districts that have a world heritage site provided they commence operations between April 1, 2008, and March 31, 2013.

Tax holiday to oil refineries set up after April 1, 2009, is sought to be withdrawn.

The budget for 2008-09 expects tax receipts to grow by 16.9 per cent at Rs 1,38,314 crore in 2008-09; despite increased exemption limits for individuals. The corporate tax collections are estimated to grow to Rs 2,26,361 crore as against Rs 1,18,320 crore revised estimates for 2007-08, : though the government has decided not to revise rates for next fiscal.

Total direct tax receipts are expected to grow 20 per cent to Rs 3,65,000 crore next fiscal. On the impact of tax exemptions in direct taxes, Chidambaram said they would be "revenue neutral."

BOOST TO MANUFACTURING, GLOBAL SLOW DOWN DICTATE INDIRECT DUTY DIRECTIONS OF BUDGET

Perceptible signs of global slow down, moderation in domestic manufacturing and protection to domestic industry in view of appreciating rupee weighed heavily on Finance Minister P Chidambaram's mind when he retained or announced various cuts in indirect tax rates in the Budget 2008-09, the move which would result in the loss of Rs 5,900 crore to the Government kitty.

The next logical step in indirect tax reforms after the state level VAT in the form of Goods and Service Tax, proposed to be introduced from April 1, 2010, was also one of the considerations, when the Finance Minister cut excise duty rates across the board to 14 per cent from 16 per cent.

Analysts say that GST would be pegged at 14 per cent after service tax is increased to 14 per cent from the current level of 12 per cent in the budget next year.

However, the main reason behind slashing the excise duty rates was to spur manufacturing hit by rising interest rates, and unleash forces to neutralise the impact of any global slow down.

"The manufacturing sector is the backbone of any economy. It is consumption that drives production and it is production that drives investment. I believe there is a need to give a stimulus to the manufacturing sector," the Finance Minister said while presenting the General Budget for 2008-09 in Parliament on February 29.

Besides a 2 per cent general cut in excise duty on all goods, the Finance Minister proposed to lower the duty on all goods produced in pharmaceutical sectors to eight per cent from 16 per cent.

Excise duty on small cars, two, three wheelers, buses and their chassis will come down to 12 per cent from the current level of 16 per cent, while in case of hybrid cars the duty will be lowered to 14 per cent from the current 24 per cent.

However, in the software segment excise duty on packaged software would be raised to 12 per cent from 8 per cent to bring it on par with customised software, which will attract service tax of 12 per cent.

Non-filter cigarettes, which were enjoying favorable tax regime, will now be brought on par with filter cigarettes, which attract higher taxes.

Goods of mass consumption like compo sting machines, wireless data cards, packaged coconut water, tea and coffee mixes and puffed rice will be exempted from excise duty against the current level of 16 per cent.

The Finance Minister replaced ad valorem part of excise duty on unbranded petrol and unbranded diesel by an equivalent specific duty of Rs 1.35 per litre. As such, unbranded petrol will now attract only a specific duty of Rs14.35 per litre and unbranded diesel Rs 4.60 per litre.

Chidambaram clarified that this excise duty proposal will have no bearing on retail prices of petrol and diesel.

He also cut excise duty to eight per cent from the current 16 per cent on water purification devices, veneers and flush doors, certain packaging material and breakfast cereals.

Excise duty on certain varieties of writing, printing and packing paper will be cut from 12 per cent to 8 per cent.

Anti-AIDS drugs, Atazanavir as well as bulk drugs for its manufacture will be exempted from excise duty.

Chidambaram shifted an excise duty of one per cent, called NCCD, to cellular mobile phones from polyester filament yarn, which is the only yarn suffering this excise duty.

To encourage cold chain facilities, the Finance Minister withdrew excise duty on refrigeration equipment like compressor, condenser units and evaporator of certain level.

To bring parity between bulk cement and packaged cement, the former will now attract excise duty of Rs 400 per metric tonne or 14 per cent ad valorem, whichever is higher. Cement clinkers will be liable to excise duty of Rs450 per metric tonne.'

A number of think-tanks, including the Prime Minister's Advisory Council, have suggested cut in excise duties, especially on consumer goods to spur manufacturing.

High interest rates have impacted manufacturing, whose output growth slipped to 9.6 per cent in the first nine months of this fiscal from 12.2 per cent a year ago.

Referring to excise duty cuts on pharma, auto and other sectors, the Finance Minister said," These sectors are important because they are growth and employment drivers."

In post-budget interactions, Chidambaram also said that excise duty cuts would also provide a cushion to the economy from any adverse impact of global slow down. In fact, in his budget speech, he said," Since August 2007, the financial markets in the developed countries have witnessed considerable turbulence that has not yet abated. The consequences for developing countries are also not yet clear."

However, excise duty collections are not adding up to the Government's expectations in an otherwise tax buoyancy scenario.

So far as custom duty rates are concerned, Chidambaram refrained from cutting the peak duty rate to ASEAN level from the current 10 per cent as appreciating rupee has already made imports cheaper, taking away protection to domestic investors.

"Since April 2007, the rupee has appreciated against the dollar by 9.8 per cent. Consequently, the case for reducing the peak rate at this stage is very weak," he said.

The peak rate for non-agricultural products was 20 per cent in January 2004. Analysts said had there been not such a huge rupee appreciation, a cut in customs duty to the ASEAN level would have been possible.

However, the Finance Minister did announce a cut in customs duty in certain sectors to "provide a fillip to that industry or to promote value addition or to remove inversion or any other anomaly."

In this respect, Chidambaram proposed a cut in customs duty on Project Imports from 7.5 per cent to 5 per cent.

However, he also proposed 4 per cent special countervailing duty on a few projects in the power sector.

The Finance Minister also withdrew duty on steel melting scrap and Aluminum scrap from the current 5 per cent to "improve the supply of raw material".

Life saving drugs and bulk drugs used for manufacture of such drugs will attract lower customs duty of five per Cent against 10 per cent at present.

The Finance Minister also cut customs duty on specified parts of set top boxes, convergence products, specific machinery and raw materials for sports goods and certain raw materials for gems and jewellery and certain cattle feeds.

The Finance Minister also kept service tax rate unchanged but brought in services companies like stock and commodity exchanges, asset management firms offering unit-linked insurance plan, clearing houses and customised software makers under the levy.

"Fifty-five per cent of the GDP is contributed by services sector, which is a growing sector that must contribute its legitimate share to the exchequer," Chidambaram said.

In a bid to provide relief to small services providers, the Finance Minister also proposed to increase the threshold limit of tax exemption from the existing level of Rs 8 lakh to Rs 10 lakh. "As a result, about 65,000 small services providers will go out of the tax net," Chidambaram said.

He also clarified that money changers, persons running games of chance and tour operators. using contract carriage vehicles are liable to pay Service Tax, although it is widely believed that they need not.

With an aim to create common Indian market, Central Sales Tax, the levy imposed on trade of goods between states, is also proposed to be brought down to two per cent next fiscal against three per cent now. The duty was cut to three per cent from four per cent this fiscal and is slated to be eliminated from April one, 2010 when GST is proposed to be introduced.

Analysts believe that Service Tax rate would be raised to 14 per cent in next budget to make GST at 14 per cent, though there is no official confirmation in this respect and the Finance Ministry officials maintained that the rate depends on interactions with states.

Finance Minister P Chidambaram has increased the central plan outlay for 2008-09 to Rs 3.76 lakh crore from Rs 2.92 lakh crore (revised estimates for 2007-08) with special emphasis on social sector including rural development.

Among the sectors, the social services will receive the highest amount of Rs 95,919 crore, up from Rs 75,162 crore in the current financial year. Similarly, the allocation for rural development programmes has been stepped up to Rs 23,831 crore from Rs 21,147 crore, reflecting the priority of the government.

The budgetary support, which indicates the commitment of the union government towards funding of the central annual plan, has been raised to Rs 1.80 lakh crore, representing an increase of 16 per cent over the allocation for the current.

The Gross Budgetary Support (GBS), which includes transfers to states for funding the plan schemes, has been stepped up to Rs 2.43 lakh crore, representing an increase of Rs 38,286 crore over the allocation for the current year.

The GBS for 2008-09, which is also the second year for the Eleventh Five Year Plan, will by more than Rs 2.29 lakh mentioned in the plan document, Chidambaram said in his budget speech adding, "In our view, that will not be enough. Hence, I propose to increase the GBS to Rs 2,43,386 crore."

Pointing out that the Eleventh Plan has started on a note of robust growth, the Minister said, "Never before did we start a Plan with a first year growth rate on 8.7 per cent. Government regards the second year of the Plan as extremely critical to the success of the Plan. "

The Minister further said that 2008-09 would be a year of consolidation to place the ongoing programmes on a firm foundation, while improving monitoring and enforcing accountability.

Chidambaram also emphasized that the ongoing programmes should be measured in terms of outcomes and the targets achieved.

As regards sector allocations, the outlay for government's flagship Bharat Nirman project has been increased to Rs 31,280 crore from Rs 24,603 crore in the current fiscal.

Describing education and health as twin pillars of social sector reforms, Chidambaram has increased the outlay for them by 20 per cent to Rs 34,400 crore.

The Sarva Shiksha Abhiyan (SSA) has been provided Rs 13,100 crore, Mid-Day Meal Scheme Rs 8,000 crore and secondary education Rs 4,554 crore.

The focus of the SSA, the Finance Minister said, would shift from providing access and infrastructure at the primary level to "enhancing retention and improving quality of learning".

The Minister has also provided Rs 650 crore during 2008-09 to start a model programme for establishing 6,000 high quality schools in the country.

In order to increase' the access of SC and ST students, the government proposes to set up Jawahar Navodaya Vidalaya in 20 districts having large concentration of Scheduled Castes and Scheduled Tribes. In addition, 410 Kasturba Gandhi Balika Vidalaya will be set up in backward blocks of the country.

The allocation for the health sector will be increased to Rs 16,534 crore during 2008-09, representing an increase of 15 per cent over the allocation for the current fiscal.

The outlay for National Rural Health Mission, a major programme of the government to improve health delivery system in the country, has been fixed at Rs 12,050 during the current fiscal.

Similarly, allocations for the HIV / AIDS and Polio eradication programmes have been increased to Rs 993 crore and Rs 1,042 crore respectively.

In order to push forward the universalisation of the Integrated Child Development Services (ICDS), the Minister has enhanced the allocation to Rs 6,300 crore from Rs 5,293 crore in the current fiscal.

At the end of December, Chidambaram said, 5,959 ICDS projects and 932,000 Anganwadi and mini-Anganwadi centres were functional. The coverage under the programme has increased to 6.29 crore children and 1.32 crore pregnant and lactating mothers.

The minister also announced an increase in remuneration of Anganwadi workers from Rs 1,000 to Rs 1,500 per month, while for helpers from Rs 500 to Rs 750 per month. Over 18 lakh Anganwadi workers and helpers will benefit from increase in remuneration.

The Minister has also increased outlay for other flagship programmes of the government which include National Rural Employment Guarantee Scheme (NREGS), Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and Rajiv Gandhi Drinking Water Mission.

Pointing out that the NREGS will be rolled out in all 596 rural districts of the country; Chidambaram said "We will provide Rs 16,000 crore. Let there' be no apprehension in anyone's mind: as demand rises, more money will be provided to meet the legal guarantee of employment.”

The allocation for JNNURM, which aims at improving civic facilities in various cities, has been increased from Rs 5,482 crore to Rs 6,866 crore in the next fiscal.

For the Drinking Water Mission, the outlay will be raised to Rs 7,300 crore from Rs 6,500 crore. The scheme aims to provide safe drinking water to uncovered habitations and address the issues concerning quality of education.

The outlay for the Total Sanitation Campaign, aimed at improving hygiene among rural and urban poor, has been pegged at Rs 1,200 crore.

In order to make the economic growth more inclusive, the Finance Minister has increased the allocation for the Ministry of Minorities

The minister also announced an increase in remuneration of Anganwadi workers from Rs 1,000 to Rs 1,500 per month, while for helpers from Rs 500 to Rs 750 per month. Over 18 lakh anganwadi workers and helpers will benefit from increase in remuneration.

Pointing out that the NREGS will be rolled out in all 596 rural districts of the country, Chidambaram said "we will provide Rs 16,000 crore. Let there' be no apprehension in anyone's mind: as demand rises, more money will be provided to meet the legal guarantee of employment."

The allocation for JNNURM, which aims at improving civic facilities in various cities, has been increased from Rs 5,482 crore to Rs 6,866 crore in the next fiscal.

The outlay for the Total Sanitation Campaign, aimed at improving hygiene among rural and urban poor, has been pegged at Rs 1,200 crore.

In order to make the economic growth more inclusive, the Finance Minister has increased the allocation for the Ministry of Minorities from Rs 500 crore to Rs 1,000 crore in 2008-09 and promised to expedite the implementation of the Sachar Committee recommendations.

The Minister further said that the allocation for the Ministry of Women and Child Development will be increased to Rs 7,200 crore, representing an increase of about 24 per cent over the allocation made during the current fiscal.

As regard allocation to other sectors, the outlay for the energy sector has been stepped to Rs 93,815 crore from Rs 72,230 crore in the revised estimates for the current fiscal.

The outlay for the transport sector, including proposed expenditure on rural roads, will be raised to Rs 84,177 crore from 68,930 crore.

Similar increases have been noticed in other sectors including communication, agriculture and allied activities, economic services, industry and minerals.

Apart from making liberal allocation for the plan schemes, Chidambaram also promised to provide an additional Rs 10,000 crore for funding plan expenditure during 2008-09.

In order to encourage the central government agencies and states to perform better, the Finance Minister said, "The money — under Plan B — will be available to ministries/departments of the central government and state governments that achieve the physical and quality targets set under different Plan schemes."

The UPA government, which faces general elections next year, has provided a major relief for the indebted farming community in Budget 2008-09 by announcing a Rs 60,000 crore debt waiver package that would benefit four crore farmers.

Although the big-ticket announcement has been made to please the farmers before the next year's poll, the decision is definitely going to benefit the agriculture sector, which is battling with the stagnated production and fluctuating growth rate, as it would spur the investment in the sector by entitling the farmers for fresh farm loans.

Presenting the Budget, Finance Minister P Chidambaram announced a scheme of 'debt waiver and debt relief for farmers. About three crore small and marginal farmers are likely to be benefited from the debt waiver, while another one crore peasants are estimated to get relief under the scheme.

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 will be covered under the scheme.

As per the proposal, there will be complete waiver of all loans for marginal and small farmers that were overdue on December 31, 2007 and which remained unpaid until February 29, 2008. The total value of overdue loan being waived is estimated at Rs 50,000 crore.

Marginal farmers as defined under the scheme are those holding up to one hectare of land, while small farmers are those who have 1-2 hectare under their possession.

For other one crore farmers, the government announced a one time settlement (OTS) scheme, under which they would get a rebate of 25 per cent, if they pay the balance 75 per cent of their outstanding loan. The OTS relief on the overdue loans is expected to cost the exchequer Rs 10,000 crore.

The implementation of the debt waiver and debt relief scheme will be completed by June 30, 2008. The farmers would be entitled to fresh agricultural loans from the banks after implementation of the scheme.

The agricultural loans that were restructured and rescheduled by banks in 2004 and 2006 through special packages and other loans rescheduled in the normal course would also be eligible under the waiver and OTS scheme.

Announcing the package, Chidambaram had said: "Government is conscious of the dimension of the problem and is sensitive to the difficulties of the farming community".

Chidambaram also highlighted that growth of farm credit during UPA regime has been impressive and is poised to reach Rs 2,40,000 crore during 2007-08. The target of agricultural credit for the next fiscal has been set at Rs 2,80,000 crore.

The finance minister further said that the short-term crop loans will continue to be disbursed at seven per cent interest rate. He has made an initial provision of Rs 1,600 crore for interest subvention in 2008-09.

Apart from the farmers' Rs 60,000 crore package, the increased focus on irrigation was the major highlight relating to the agriculture sector in Budget 2008-09.

The outlay for irrigation has been raised from Rs 11,000 crore in the current fiscal to Rs 20,000 crore in 2008-09.

Finance minister highlighted that under the Accelerated Irrigation Benefit Programme, 24 major and medium irrigation projects and 753 minor irrigations schemes will be completed in this financial year, creating additional irrigation potential of 5 lakh hectare.

The outlay for 2007-08 was Rs 11,000 crore with a grant component of Rs 3,580 crore, Chidambaram said, adding these are being increased in 2008-09 and the estimated outlay is Rs 20,000 crore with a grant component of Rs 5,550 crore.

The Rainfed Area Development Programme has been finalised and will be implemented in 2008-09 with an allocation of Rs 348 crore.

Chidambaram noted that the centrally sponsored scheme on micro irrigation launched in January 2006 has brought an area of 5,48,000 hectare under drip and sprinkler irrigation within two years and proposed to allocate Rs 500 crore for the scheme in 2008-09 with a target to cover four lakh hectare areas.

With massive investment required to fund the irrigation projects, the Finance Minister announced setting up of 'Irrigation and Water Resources Finance Corporation' to fund major and medi