Kisan Focus in Budget

123jump.com Staff
29 Feb, 2008
New York City

Indian government proposed fiscal 2008-09 budget to parliament with a populist touch. Largest ever debt forgiveness program will help 4 core farmers with the debt relief of 60,000 crore rupees. Finance Minister P. Chidambaram estimated that the current year fiscal deficit will be 3.1%, lower than earlier projection of 3.3%. He also forecasted that the next year fiscal deficit will be 2.5%, lower than 3% threshold to meet a fiscal responsibility law.

[R]8:00AM Mumbai – UPA government proposed its fourth budget with debt forgiveness to 4 crore farmers of 60,000 crore rupees, defense budget of 106,000 rupees, and food subsidy of 32,600 rupees.[/R]

Government of India billed its budget presented to parliament as “Aam Admi” budget (common man’s budget) and released a host of new projects to build more houses, dig wells, rural electrification, education support for young children, and rural development plans.

The budget put added focus on rural plans and provided funding to farmers with debt forgiveness of 60,000 crore rupees or $15 billion, the largest in the history of the nation. Nearly 3 crore farmers will get a debt waiver and additional 1 crore farmers will get a chance to discharge the debt with only 75% debt repayment. Total of 4 crore farmers (or 40 million) will be able to borrow from the government controlled banks again.

Food subsidy under welfare program will be increase to 32,667 crore rupees.

Budget deficit is estimated at 2.5%

Finance Minister P. Chidambaram estimated that the current year fiscal deficit will be 3.1%, lower than earlier projected 3.3%. He also forecasted that the next year deficit will be 2.5% lower than 3% threshold to meet a fiscal responsibility law.

The revenue in the next fiscal year which begins on April 1, 2008 is estimated to be 602,935 crore rupees and expenditure at 658,119 crore rupees with a deficit of 55,184 crore rupees. Fiscal deficit in the year 2008-09 is estimated at 133,287 crore rupees, at 2.5% of GDP.

The UPA government had earlier promised to eliminate the revenue deficit target by the next fiscal year but new projects will generate revenue deficit of 1%, lower than 1.4% for the current year.

Defense budget will be hiked 10% from the current 95,000 crore rupees to 106,000 rupees.

Services and manufacturing drive economic growth

Service sector is estimated to grow at 10.7% and manufacturing at 9.4%. Agriculture growth is still lagging and is expected to grow at 2.6% rate.

Rural development focus

Under Bharat Nirman scheme, daily, 52 new villages are provided telephone services, 42 villages are electrified, and 4,113 homes are finished. Bharat Nirman is expected to get 31,280 crore rupees, 16% from a year ago. Rashtriya Krishi Vikas Yojana will be launched with 25,000 crore rupees of investment and National Food Security Mission will have 4,882 crore rupees of budget.

Agricultural credit will rise to 240,000 crore rupees by the end of this March and will be increased to 280,000 crore rupees in the fiscal 2008-09 and 11.4 crore children (110 million) are covered under the mid-day meal scheme, what the government claims to be the largest school lunch program in the world.

Customs duties reduced

Total tax collection as a ratio of GDP is estimated to increase to 12.5% in the current fiscal year ending in March 2008, from 9.2% in the year 200-04.

The budget proposal included elimination of custom duty on bactofuges from the current 7.5%, reduction from 10% to 5% on life saving drugs, crude and unrefined sulphur duties reduced 2% from 5%, naptha imported for plastics production will have duty of 5%, and eliminated on steel melting scrap and aluminum scrap from 5%.

Excise duties are reduced in pharmaceutical industry on all goods to 16% from 8%, and on small cars to 16% from 12% and hybrid cars to 14% from 24% and on two and three wheelers to 12% from 16%. Several items such as water purification devices, wireless data cards, and tea and coffee mixes and breakfast cereals will be lowered to 8% from 16%.

Capital gains tax increased

Financial market declined on the release of the budget as Chidambaram propose to increase short term capital gains tax to 15% from 10%. The minister also proposed to revise the tax on derivative transactions. Banks fell on the worries that debt forgiveness to farmers may hurt the profits and portfolio of loans.

The budget also raised the tax free personal income to 150,000 rupees from Rs110,000 rupees and raise the limits further to nearly 250,000 rupees for senior citizens. Women do pay taxes on first 180,000 rupees of income and senior citizens income is tax exempt level is now 225,000 rupees, raised from 195,000.

There was no change in corporate income tax and surcharge rate.

Broadband Internet investment

Nearly 100,000 broadband internet enabled service centers in rural areas at a cost 725 crore rupees.

Highway network investment increased

National highway development program will get additional funding, an increase of 20% to 12,966 crore rupees.