The world gives lecture on climate but if we tell them that we want the necessary fuel for nuclear energy to move forward, they refuse, he said Prime Minister Narendra Modi on Monday hit out at developed
A day after presenting his fifth Budget in the UPA government, Finance Minister P Chidambaram said budgets did not win elections, unless they were properly marketed. In a detailed interview on Saturday, Chidambaram said he still aimed at nine per cent growth for the economy in 2008-09. He also indicated that the surcharges on income-tax should go, provided revenues remained buoyant. Excerpts from the interview: You have presented five budgets in a row and looking back at them, what would make you the happiest about them and what would disappoint you? My happiest moments would be that my batting average so far has been 8.8 per cent. That is the economy. What about the Budget per se? The Budget was intended to set the course and pace of the economy and I think we have done fiscal consolidation, although we can argue about some items below the line. I think we have demonstrated that moderate and stable tax rates bring better tax compliance. We have demonstrated what inclusive growth is, that instead of being fixated only on growth, we can use the growth process to promote inclusive growth. I think these are many of the happy memories of the last four years. The disappointment is that we should have taken the reform process forward faster. There are still large areas of the economy which are under government controls. And if these controls had been removed, the economy would have grown faster. In case this is your last Budget? I will be happy if this is my last Budget. There are other things to do in life. People are calling this as an election Budget. Is that the way to look at it? For the last few years, every Budget has been an election Budget because every year is an election year. 2006 was an election year, 2007 was an election year, and 2008 is an election year. I think that is not a very correct way to describe it. I have presented the fifth Budget of this government and, according to schedule, the elections are in May 2009. So I would not agree that it is an election Budget. Will it help you win the elections? Budgets do not decide elections. It is how you communicate to the people what the Budget contains and what it wishes to do in the next year, which happens to be the election year. Take, for example, the Tamil Nadu state elections in 2006. It was the election manifesto which won the election. Likewise, a Budget, if it is communicated well to the people, can help win an election and what is wrong in that? You have done a Budget where there is a lot for the people, for farmers, for the middle class, tax payers, although companies are unhappy. So having done this, why not just go ahead and sign the nuclear deal and tell the Left if it wants to withdraw support, it can go ahead, as you now have something to go to the people with? These are the questions you need to address to the UPA leadership and the Prime Minister. I am only a finance minister. You have introduced many new taxes over the years and now you removed one of them, the banking cash transaction tax. I said so even when I introduced it. It is not a tax revenue raising measure. It is only a source of income issue. I would like to go back to your speech in 1997 when you said I propose to amend certain sections of the Income-Tax Act, to provide for the removal of artificial disallowances, travel and hotel expenses incurred for legitimate business purposes and you said it was a matter of simplification. So using that logic, why would you not do away with the fringe benefit tax, as a matter of simplification? I have explained this a number of times. I can deal with that expenditure as allowable or disallowable expenditure, which means I need discretion in the hands of the assessees. It was the assessing officer who enjoyed the discretion for many years until we brought in FBT. Now the assessing officer has no discretion. If this expenditure is made, you can take a base of 50 per cent or 20 per cent and we tax it. I think this is far better than leaving discretion in the hands of the assessing officer to decide whether the expenditure is allowable or to be disallowed. There is complication in FBT on employee stock options, for which industry might have come to you hundreds of times. I will take you into confidence. The FBT on employee stock options has been worked out in close consultation with industry CFOs. On the personal income-tax front, a tax payer may see halving of his income tax liability. If somebody makes Rs 5 lakh a year, he is earning Rs 40,000 a month. Most probably he lives in a city or a town. Rs 40,000 in a city or a town for a family is not a very large income. Of course, we have given him the tax relief, because compliance has increased, revenues have improved and I think moderation by adjusting the slabs will bring in more revenues. You will lose some of the revenue due to changes in the slabs. A large number of people move on to pay tax so that they can have a larger part of income on their balance-sheet and they can build capital. So when we move the tax slab, an assessee would not stop paying tax. He will still pay the tax that he paid the previous year and even build more capital for himself. So, we will get the revenues. You have assumed that income-tax revenue will climb by 18 per cent in 2008-09. It is a very reasonable assumption. People paying tax will continue to pay tax. They will simply comply better and I do not want to say anything more. They have been very nice to the Government in the past few years. Why should I say anything unkind about tax payers? Compliance will improve and I am sure everybody will comply better and we will get the revenues. That is our assumption and that is our assessment of the situation. There is no reason to assume that direct taxes will not grow at the same rate as this year. That is the question I have on corporation tax, because the trend in corporate profits shows a clear slowdown and is now running at around 15 per cent. Yet you assume a more than 20 per cent increase in corporation tax next year? I expect the demand to push up corporate toplines as well as bottomlines. There are signs that the global economy may slow down. Is it time to ensure that India keeps away from it by taking some measures? I said so in my speech that there is a slowdown especially in the consumer goods, and more particularly in consumer durables. I have identified various sectors - cars, two-wheelers, three-wheelers, paper and we have even cut taxes for buses and chasses. What about the corporation tax rate? Companies are doing well. They are making good profits. They are paying good taxes and it still works out to about 22 to 23 per cent effective tax rate for all companies. There is no reason to tinker with it this year. Why fix something which is not broken? You have been listing tax concessions that the government gives away. Would it not make sense to drop the nominal rate and remove some of the concessions? If you can get me agreement from the three chiefs of the chambers of commerce on which concessions can be removed, I will be very happy to do that. Every exemption provision has a lobby behind it. Let us now turn to the biggest announcement of the Budget, the farm loan waiver scheme. One of the questions is that it is meant only for those whose loans are overdue. But what about those who have sold their jewellery, land and have actually repaid the loans but will not get the benefit? So, what can I do about it? See it is always easy to pit one against the other. People will say what about those who borrowed from moneylenders. There is nothing I can do about it. There is no quantification of that
BUDGET 2008-09 IMPACT DAY-2 No repayment of interest on outstanding loans. The Rs 60,000 crore farm debt waiver and relief package announced in the Budget may not be just in the form of special securities issued by the government, but involve actual money being reimbursed to them. The banks may have to forgo all interest on the outstanding debt amount. The package is only aimed at recovering the principal amount of the loans extended to nearly 40 million small and marginal farmers across the country. In addition, farmers availing of the loan waiver and relief package may have to agree to some conditions, including committing to not seeking debt relief again for a fixed period of time. The banks will be reimbursed over three years from June 30, 2008. In effect, the Rs 60,000 crore may be given in at least three annual tranches. Similarly, the bond component may also be spread in tranches till 2011. Senior government officials told Business Standard that the impression that public sector banks will lose out due to the debt waiver is misplaced. "Banks will actually get strengthened as they now stand to get back at least their principal amount, which otherwise is currently shown as bad debt on their balance sheet. The additional liquidity will help them', he said. However, officials said that the exact details of the debt waiver programme, the biggest hand-out in India's history, will take some time. "There are several options (to compensate banks without burdening the fiscal). We have four months to work that out. The details will be finalised', they added. The rationale for June 30, 2008 being set as the deadline for implantation of the debt waiver and relief scheme is that the loans had to be cleared by that date. The scheme applies to loans disbursed by scheduled commercial banks, regional rural banks and co-operative credit institutions up to March 31, 2007 and overdue as on December 31, 2007. Also read on Page 2: Sharad Pawar asks farmers not to repay money-lenders
DAY-2 BUDGET 2008-09 IMPACT/ OIL AND GAS The exclusion of petroleum and natural gas from the broad category of "mineral oil' has put players in the oil and gas sector in a tizzy. Producers of oil and gas and refiners of crude oil were claiming an income tax exemption under Section 80-IB (9). The Budget proposes an amendment to this section, which says "mineral oil does not include petroleum and natural gas'. ONGC, the country's largest oil and gas production company, is estimated to save close to Rs 4,000 crore annually through this window. Companies slated to begin oil and gas production were planning to seek tax exemptions under this provision. "There is just no clarity on the issue. It contradicts commitments made under Nelp agreements. We will be formally seeking a clarification from the finance ministry,' said a senior official with Reliance Industries.
Rajkot company in talks with Australian firm. The Tata group may have set a trend in automobile history with the Nano, the world's cheapest car. Now, a Rajkot-based diesel engine maker is working on a small electric car with foreign collaboration that is likely to be priced at Rs 99,000. The manufacturer, Fieldmarshal Group, is planning to enter the small car market in partnership with an Australian technology- and project-development firm. The car, which appears to be a classic commuter vehicle, could have a maximum speed of 70 to 80 km and is being designed to have lightweight batteries and low manufacturing costs. Under the terms of the joint venture, which is to be signed soon, the Australian company will take the lead role in bringing international foreign investors for the project. The foreign collaborator has already developed a concept car specifically for the Indian market that could be manufactured at Fieldmarshal's plant at Rajkot. It is learnt that the Australian company is looking at an arrangement by which Rajkot would house the primary plant and assembly plants could be set up in other parts of the country. The joint venture is also planning a 24-seater electric bus. Early discussions have revolved around setting up separate companies for the car and bus projects. The initial focus will be on domestic markets but exports are also on the cards considering the booming market for electric vehicles. Once it is on the roads, Fieldmarshal's electric car would be another offering after the Reva, which became the highest selling on-road electric vehicle globally last year on the back of tax exemptions and subsidies given to electric car-owners by governments. In the UK, owners of electric vehicles are exempt from paying parking fees, congestion taxes, sales and road tax. The French government has also introduced free parking for electric vehicles, low road tax and 100 per cent depreciation for companies. No taxes are imposed on electricity used for charging the cars. At present, the Fieldmarshal group, which is known for its flagship company PM Diesels, manufactures diesel, petrol and LPG auto-rickshaws at its new facility at Shapar near Rajkot. It has a capacity of 1,000 rickshaws per month and rolls out 450 vehicles per month. It has exported 1,500 vehicles in the last six months, selling petrol rickshaws to Egypt, Sudan and Nigeria and diesel vehicles to Kenya, Tanzania and Ethiopia. The company expects exports to account for 40 per cent of revenues in the next two years.
As the UPA government grapples to step up spending on education to 6 per cent of GDP, a commitment made in its governance agenda, a key Finance Ministry official has said accent on primary education will not yield results if not complemented by focus on secondary schooling. Sarva Shiksha Abhiyan (SSA) tantamounts to "fooling ourselves... It (focus) should go to secondary education as well,' Adviser to Finance Minister Shubhashis Gangopadhyay said at a discussion on Budget 2008-09 organised by the Centre for Budget and Governance Accountability here yesterday. SSA is the government's flagship programme for universalisation of primary education implemented in partnership with states. The UPA, in its National Common Minimum Programme, had pledged to raise spending on education to 6 per cent of GDP and at least spend half this amount on primary and secondary sectors. "Whether it is 6 per cent or 8 per cent or 10 per cent. These are just talking points,' Gangopadhyay said, adding that unless the spending gives the desired results it made no sense to talk about percentage alone. He was responding to a query whether the government should revisit its commitment to spend 6 per cent on education, considering the fact that the country's Gross Domestic Product has grown by a robust 8.8 per cent in the last four years. According to the Economic Survey for 2007-08, the government has made a provision of Rs 10,671 crore for SSA. Raising expenditure on education to 6 per cent of GDP was a goal set in 1948 by the Kothari Commission, and reiterated over and again by the National Policy on Education, but successive governments are yet to fulfil it. "You need to spend a minimum of 8 per cent of GDP for education (considering the GDP expansion),' Economist Jayati Ghosh, who was part of an official committee that looked at spending requirement for education, said. "It is very very clear you need very significant expansion. Forget the percentages,' she said, adding that if any government has to really look at meeting the minimum goal on education sector, it has to double the spending. Panelists at the discussion said spending on education has been declining. During the NDA regime, it was 3.6 per cent of GDP and has fallen to 3 per cent now. According to the Economic Survey 2007-08, the achievements under SSA up to September 30, 2007, include construction of 170,320 school buildings, 713,179 additional classrooms, 172,381 drinking water facilities, construction of 218,075 toilets, supply of free text books to 6.64 crore children and appointment of 810,000 teachers, besides opening of 186,985 (till March 31, 2007) new schools. Finance Minister P Chidambaram, in his Budget speech, too had said the focus of SSA will shift from access and infrastructure at the primary level to enhancing retention; improving quality of learning; and ensuring access to upper primary classes. He proposed to increase the total allocation to education sector by 20 per cent from Rs 28,674 crore in 2007-08 to Rs 34,400 crore in 2008-09. Of this, SSA will be provided Rs 13,100 crore.
The Union Budget 2008-09 has seen funds for women, minorities and Scheduled Tribes go up substantially. One of the beneficiaries of a 24 per cent rise in allocations for the Ministry of Women and Child Development is a plan to prevent trafficking of girls for which the ministry has chalked out a scheme called Ujjwala. The Budget has kept a provision of Rs 9 crore for the scheme, following sustained campaign by NGOs and international bodies. The ministry's allocation of Rs 7,200 crore for 2008-09 is up from Rs 5,793 crore, the revised estimate for the 2007-08 Budget. A major part of the enhanced allocations would go to Integrated Child Development Services (ICDS) that caters to the nutritional and healthcare needs of pre-school children and mothers in rural areas. The ICDS allocation is mainly meant for the hiked emolument for workers and helpers of some 6,284 Anganwadi centres across the country. Another Rs 200 crore has been allocated for a new scheme
Is the 2007-08 fiscal deficit 3.1 per cent of GDP, or is it 3.5 per cent
East-West pipeline is the longest in India. The pipeline to evacuate gas from Reliance Industries (RIL) block in the Krishna-Godavari (KG) basin
BUDGET 2008-09 IMPACT The Rs 60,000 crore loan waiver for farmers announced in this year's Budget is being projected as a major achievement of Agriculture Minister Sharad Pawar in his stronghold and sugar cane country western Maharashtra. The minister has unleashed a blitzkrieg of advertisements of his Nationalist Congress Party, addressing sugar cane farmers there. On the other hand, Congress leaders in the party stronghold of Vidarbha are on the defensive, even as farmer groups are openly saying that Pawar engineered the package to weaken the Congress in Vidarbha. The political sub-plot to the waiver has once again added to the agony of the dryland farmers who were earlier denied a waiver when the prime minister announced a relief package. The waiver benefits sugar cane and horticulture crops vastly, while the benefits for cotton farmers and those doing unirrigated farming are minimal. For, while loan available for dryland farming is Rs 4,000 an acre, it is Rs 50,000 for irrigated farming, which sugar cane farmers do. Hence the waiver will be a lottery for farmers in western Maharashtra and in Pawar's constituency of Baramati. The advertisements seek to drive the point home. The full page advertisements appearing in Marathi newspapers on March 1, with several pictures of Pawar, trumpet home the fact that the waiver is meant to benefit the sugar cane and horticulture farmers of western Maharashtra rather than the cotton farmers of Vidarbha. Pawar's advertisements in newspaper Sakal's Nagpur edition, for instance, talk about how loans for tractors will be waived. The advertisements in Lokmat and Tarun Bharat, which appeared on March 1, also splashed Pawar's picture and highlighted the waiver saying that loans for pipes, wells, tractors and buying of cattle would be waived. The Sakal advertisement, which says
A few years ago, while delivering the Palkhivala Memorial Lecture in Mumbai on the then Finance Minister Jaswant Singh's Budget, P Chidambaram made the perceptive comment that it was the most unfunded budget in the country's history. There was no provision in the Annual Financial Statement on many new items of expenditure. Now, ironically, it is the turn of Yashwant Sinha to point out how Chidambaram's budget is silent on expenditure on such proposals as debt waiver! Any issue of bonds to banks by way of compensation for debt waiver and relief, especially when staggered over three years, will put them in the same predicament as the oil marketing companies burdened with similar IOUs. The bonds are not likely to qualify for investments to meet the Statutory Liquidity Ratio. In case of depreciation in their values, the banks will face the same problems they experienced a few years ago in adhering to prudential norms. The difficulties are cropping up at a time when the system is in transition to Basel-II norms. There is an ominous suggestion in some official quarters that banks that have already made provisions for the overdues of farm loans may not be given the compensation. It will be unfair to them. The overdue loans will still remain part of the gross non-performing assets of the institutions, reflecting on their soundness. The loan waiver does not solve the problem of farmer distress. The inequity in the definition of marginal or small farmers based only on cultivated holding is obvious. According to the budget document, a marginal farmer is one with a holding up to one hectare and a small farmer is one with holdings between one and two hectares. A farmer with, say, five hectares of rain-fed land in Pali Marwar in Rajasthan is economically in no better condition than one with two hectares with assured irrigation families in Ludhiana in the Punjab. But the former will not be eligible for the waiver. The need for adopting an income criterion for defining the size of farms was discussed in detail in the Reserve Bank of India's Report on the Seventh Follow-Up Rural Credit Survey entitled "The Small Farmers
