Thread: India Budget 2008-2009

India Budget 2008-2009
Posted on February 29, 2008 by Nita

chidambaramtimesnow.jpgHere are some aspects (highlights) of the 2008-98 India Union Budget that made the maximum impact on me:

1) Sops to farmers: On the face of it the waiver of loans to small farmers (small and marginal farmers with holdings up to 2 hectare, complete waiver plus rebates for others, total cost Rs 60,000 crore) seems a wonderful measure as I have little faith in our aid delivery system. But should there have been a blanket waiver? Couldn’t the loans terms have been extended or rates reduced to say zero interest? But I guess the impact would have been less dramatic. Economists like Swaminathan S. Anklesaria Aiyar feel this massive write-off is a big let down for the banks and weakens the banking credit system, sort of makes a joke of the public sector banks lending system.
But everyone was expecting such populist measures, as this is the last budget before the general elections next year.
But if this loan waiver is to help small farmers, I cannot help thinking of the hundreds of farmers who have taken loans from moneylenders…what happens to them?

Update on the subject of Farmer Waiver: [9th Feb 08]There are two good write-ups on this subject today by two well known columinists. One is S.S. Ankelsaria Aiyer and the other is G. Das. The link to the first article is here. A small quote:

Chidambaram says the waiver will benefit 40 million farmers. This amounts to almost half of India’s 90 million farm households. But only a fraction of farmers have bank loans, and only 5% of these are overdue, according to Bhalla.

The link to the second article is here: A quote:

Cancelling debts of small farmers worth a massive Rs 60,000 crore, equal to 3% of all loans in the entire banking system, was a staggering, seductive but hugely destructive act. When Devi Lal announced a similar loan waiver worth Rs 9,000 crore in 1990, he killed most cooperative and rural banks…Farmers stopped repaying loans, banks stopped lending to them and it took 10 years for the nation to recover from that mistake…The irony is that the UPA government might actually lose more votes than it gains from this loan waiver.

According to NSSO figures, almost 60% of farm loans are from moneylenders. They will not benefit…Imagine the staggering paradox — to turn a nation dishonest in order to win an election, and then go on and lose it! This is one irony that the UPA government might prefer to forget.

Well, I am not sure whether the UPA government will lose the election, but certainly this farmer waiver is going to cause a lot of heartburn amongst the majority of farmers…those who have paid back the loans, those who have borrowed from moneylenders and those who have bigger farms…

2) Income Tax: The other important measure is the reduction of tax rates and I am all for reduction in direct taxes and who wouldn’t be! While I had hoped the FM would reduce taxes for the high income groups as well, I knew it was wishful thinking…but anyway the lowering of the direct taxes on the whole should stimulate the sluggish consumer durables sector. Here’s a nice chart from the Times of India:
toi.jpg

3) Education: It’s good to hear that the education budget has been increased to Rs 38,702 crore, an increase of over Rs 9,000 crore. Some plans on the anvil:

* Setting up 6000 high quality schools all over the country
* 16 central universities to be opened in 2008-09
* 3 IITs to be set up in Andhra Pradesh, Bihar and Rajasthan
* Indian Institutes of Science Education and Research to be set up at Bhopal and Thiruvananthapuram
* Schools of architecture and planning to be set up in Bhopal and Vijaywada.
* Other institutes of higher education to be opened.
* The Information Technology Ministry to set up national knowledge centres
* The Mid-day Meal Scheme to be extended to all children upto upper primary level (from class I to VIII) in all areas across the country.

4) North-East: The allocation for the North-East has gone up, from Rs 14,365 crore to Rs 16,400 crore. Perhaps more should have been allocated, knowing the state of this region.

5) Health. Allocation for Healthcare too has increased, by 15 percent. The bulk of this money will go to fund the National Rural Health Mission, to take Health Care to the poor and the “the goal is to establish a fully functional community owned, decentralized health delivery system…” There has been criticism that the scheme has covered selected areas only, but hopefully the extra money provided will help the rural health delivery system to cover more of the needy. A interesting (undated) article on the importance of Rural Healthcare in India can be read here.

6) Defence: The defense budget has risen by 10 percent, but will it be of use? You can read the full article discussing this here…what it basically says is that red tape invariably delays defense spending. However, defense spending has fallen below 2 percent of GDP in more than a decade this year, so there is nothing much to cheer about.

7) Share Market: The short-term capital gains tax has gone up from 10 percent to 15 percent, a dampener for investors. If you sell your shares within the year, then this applies.

8]The Reverse Mortgage scheme for senior citizens, which I had written about in my last year’s write-up apparently failed to take off as senior citizens were unsure about the Income Tax liability. Under this scheme, those over 62 years of age can mortgage their home for 15 years whilst living in it. In return they get either a lumpsum or a monthly income from the bank which has taken the house. On the death of the senior citizen, the bank takes over the house. This year the FM has clarified that there will no tax liability on income under the Reverse Mortgage Scheme and this should help the scheme along.

A list of what’s getting expensive and what’s getting cheaper. Here’s short list:

Cheaper:

* Anti-AIDS drugs
* Two wheelers
* Small cars
* Bulk drugs
* Buses, Chassis
* Water Purifier
* Refrigeration Components
* Paper and its products
* Pharma goods

More expensive:

* Non filter cigarettes
* Unbranded petrol and diesel

I will probably update this post tomorrow, as I read the fine print, but this is it for now. (Later: Various changes have been made, in terms of details, and 2 points [7, 8] have been added.

I agree with you,