Opinion - Editorials   

The foreshadow of elections

Overshadowing everything else in the United Progressive Alliance government’s fifth budget presented by Finance Minister P. Chidambaram is the massive farm loan waiver and settlement amounting to Rs.60,000 crore. While the loans of small and marginal farmers are to be waived completely, in the case of other farmers, there will be a 25 per cent write-off. There is an obvious sense of election-eve urgency in the time schedule fixed for the completion of the waiver and settlement exercise by the end of June. From the standpoint of equity, given the depressed state of farming and the distress in the rural areas, the write-off would seem eminently justified as an income transfer programme. What would be less wholesome, however, is its impact on the banking system — the moral hazard it involves in weakening the obligation to repay.

On the other hand, to the extent that the government is going to be reimbursing banks for unrecoverable loans, it will be strengthening their balance sheets. For the farmers, it is a one-time benefit and is no substitute for the substantially increased investments needed in agricultural infrastructure, including irrigation that would make farming a secure means of livelihood. The impact of the scheme on the budget would become clear only when the mechanics of how the government proposes to provide Rs.60,000 crore to the banks over a three-year period — whether through outright reimbursements or through bonds — is made known. Historically, election-time concessions have proved ineffective in turning the tide of public opinion, but then in its sheer size and boldness this scheme dwarfs all that had been attempted in the past. Whatever the impact on the government’s finances or on the banking system, Mr. Chidambaram has clearly done his best for the farmers and, not coincidentally, for his party and for the UPA.

The other significant aspect of the budget is the increased spending for education, health and social sectors. The 20 per cent rise in the outlay on education and the 15 per cent on health are welcome measures that are aimed at correcting the historic neglect of these vital areas. The substantial step-up in expenditure on schemes for the Scheduled Castes, Scheduled Tribes, the backward classes, and the minorities addresses a long-felt need as well. The budget provides for Rs.16,000 crore for the National Rural Employment Guarantee Programme that is to be extended to all the 596 rural districts in the country this year. If this amount seems to fall short of the requirements, the Finance Minister has held out the assurance that enough funds will be made available to meet the legal obligation to provide work to everyone who needs it. Shortage of skilled labour is beginning to be felt in some areas and the proposal to upgrade the industrial training institutes is welcome. The starting of new central universities, three more Indian Institutes of Technology and two Indian Institutes of Science Education and Research (IISERs) should help in meeting the demand for quality institutions of higher learning in an increasingly globalised nation.

It is with justifiable pride that Mr. Chidambaram has spoken of the India growth story and the average of 8.8 per cent achieved during the four years of the UPA rule, but the budget also reveals a complacency about the recent slowdown in growth to 8.7 per cent that is not entirely warranted. Business sentiment is notoriously fickle and a succession of disappointing data could well turn the current optimism into gloom and hurt investment. It is some consolation that the budget has done little to hurt business sentiment, but it has also not paid the same attention to sustaining the growth momentum as it has done to the farmers and the social sectors. The raising of the exemption limit for income tax to Rs.1,50,000 is warranted in itself and while it is primarily a measure that will please the middle class, it will also increase consumer spending and provide some boost to industry.

Expectations of some across-the-board reliefs such as in corporate taxation to counter the slowdown in industrial production remain unmet. The lowering of the CENVAT rates, however, should help a substantial number of industries. The budget in addition addresses the concerns of specific industries such as commercial vehicles, two wheelers, small cars, pharmaceuticals, and paper. The Finance Minister has called a halt to the trend of lowering the peak customs duty on the ground that, with the appreciation of the rupee by 9.8 per cent since April 2007, no further reduction is warranted this year. The increase in the short-term capital gains tax from 10 to 15 per cent is meant to encourage investors to hold shares for longer periods but it may well end up turning stock market investments into a less attractive option.

In terms of governance, the emphasis on outcomes rather than on outlays is not entirely new. The allocation of Rs.10,000 crore under Plan B to provide additional funding to States based on their performance in implementing specific schemes is a strong incentive to meet the physical and qualitative targets. The proposal to develop bond, currency, and derivatives markets with appropriate regulations and to facilitate seamless trading of securities with uniform stamp duty rates across different States are significant steps in the area of reforms that otherwise remain untouched. In its overall impact, it would seem to be a fairly well conceived exercise that grants huge reliefs to the farming community and the middle class even as it counts on a reasonable prospect of continuing along the path of high growth.

Printer friendly page  
Send this article to Friends by E-Mail

Stories in this Section

The foreshadow of elections
Journey from Deoband — exacting but rewarding statecraft
A century-old riddle eludes an answer
The good within us could stop another Abu Ghraib
The culture of tax avoidance that shames Britain
Corrections and clarifications
Election-year budget
Commendable
On child labour
A legend

Copyright © 2008, The Hindu. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu