The Hindu Business Line : ‘Focus is on agricultural growth’

The Finance Minister delivered the budget for 2008-09 to Parliament on Friday, February 29, 2008. Citing concerns on the rise in commodity prices worldwide and the risk of inflation as a result of higher commodity prices, the Minister emphasised that supply side management of food articles would remain the most crucial task in 2008-09.

Overall it is an un-populist budget that focuses largely on growth in the agriculture sector by raising levels of investments in the sector and providing support to the farmers through cheaper availability of loans and better technology. One such positive is the debt relief package announced where agricultural loans amounting to the tune of Rs 60,000 crore would be waived. The Budget has also placed thrust on the rural development and has increased allocations to various programs involved in similar activities.

Introduction of CTT (Commodities Transaction Tax), on the lines of STT, is a negative move for the commodity markets, particularly when the markets are still evolving and seeking larger participation and volumes. This is likely to affect the viability of the business proposition for short term traders and arbitrageurs. With the increased cost, their profit margins would narrow, thus affecting market liquidity. Further the change in treatment of the CTT from the business profits is also not favourable for the players.

Overall the budget fails to meet expectations of participants in the Commodity futures market as the much needed reforms facilitating the growth of the commodity markets have been avoided.

Main Highlight

Increased Focus on Irrigation and Water and Soil Management Impact: Positive as would facilitate the growth of the agriculture sector, the back bone of the Indian economy.

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

The Centrally-sponsored scheme on micro irrigation has been allocated Rs 500 crore for the scheme in 2008-09 with a target of covering another 400,000 hectare.

Taxes on Commodity Business

Impact: Negative as it would increase the cost of transaction and reduce profitability. Moreover it will hamper the growth of the commodity business.

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