The Hindu Business Line : The farm accent

THE FINANCE MINISTER, Mr Palaniappan Chidambaram, is deserving of kudos as his Union Budget 2004-05 dares to shift spending priorities in favour of agriculture and the small-scale sector without hurting industry. Dr Manmohan Singh, as Finance Minister, had released industry from knotted government files a few years ago and, today, as Prime Minister, has teamed up with Mr Chidambaram to alter the terms of the economic debate by presenting a bouquet to rural India, which long merited the favour.

A point of interest is that the Budget relies a bit on tax benefits directly reaching the farmer rather than on subsidies. Excise duty on tractors, dairy machinery and hand tools has gone while the textile industry has been given tax incentives to use natural fibres such as cotton, silk and wool instead of man-made fibres and prepare itself for a global market sans quotas from next January. Crop, farm income and weather insurance schemes are to be tried on a pilot basis and the Finance Minister owns up to practical problems in designing an appropriate instrument. Sensibly, the Rural Infra- structure Development Fund, under Nabard, is being revived though the provision of Rs 8,000 crore looks superfluous because RIDF was always short of projects, not of funds. The Budget is quiet on interest rates on farm credit even as it fixes responsibility on Regional Rural Banks to deliver.

The Government has pulled back from reshaping the politically sensitive co-operative credit system, and another Task Force will only prolong the bleeding. Bank funds can flow into the equity market as the well-managed banks have been promised higher exposure over the current 5 per cent limit. Debt funds could have been put on a par with equity funds to create a retail debt market while taxing the corporates for bonus and dividend stripping. Industry cannot be said to have been kept out of the Budget as FDI limits have been raised in telecommunications from 49 per cent to 74 per cent, in civil aviation from 40 per cent to 49 per cent, and in insurance from 26 per cent to 49 per cent. The shipping industry has been favoured with the tonnage tax while there has been no meddling with the corporate tax structure. Man-made fibres and the steel industry will be hurt.

There is little sense in continuing with the Foreign Investment Promotion Board and setting up an Investment Commission as foreign funds chase the best market. Is there any need for a National Manufacturing Competitiveness Council, when most players admit to the virtues of competition? Disinvestment and privatisation have been taken on record as useful economic tools and the Budget proposes to raise Rs 4,000 crore by shedding some equity in PSUs without government losing control. There are a few lemons such as providing equity support of Rs 14,194 crore and loans of Rs 2,132 crore to public sector units when they should be going to banks, and a provision of Rs 3,325 crore for Bihar under the Rashtriya Sam Vikas Yojana. Economists will be critical of the move to set interest rates on various savings schemes out of sync with market trends. But in the absence of a credible social security net, a Senior Citizens Savings Scheme that offers an interest of 9 per cent per annum is equitable. The Budget promises to hold the fiscal deficit at 4.4 per cent and the revenue deficit at 2.5 per cent, implying lesser borrowings and stable interest rates. The Sensex was deflated by the new transaction tax, but one wonders whether the market caught the larger message.

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Stories in this Section
The farm accent

Textiles woven in style

More services annexed at a higher rate

VAT full of promises

Watch out as the government shifts gears and piggybacks

No luck if you cross a `lakh'

Three cheers to Chidambaram — Budget has all right things in right place

In line with expectations

Of farmers, gender sensitivity

Budget 2004-05 — Strong step towards growth, stability and equity

A Common Minimum Budget

Tax admin: Reforms kept in arrears

A major concern

More reforms needed