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Budget stresses on agriculture, education

Budget stresses on agriculture, education
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First Published: Wed, Feb 28 2007. 01 17 PM IST
Updated: Wed, Feb 28 2007. 01 17 PM IST
New Delhi: The Finance Minister P Chidambaram proposed to increase spending on health and education as part of the annual budget presentation and said the government would focus on boosting the flagging agricultural economy in a drive to ensure an all-inclusive growth.
Fresh from defeat in elections in Punjab and Uttarakhand which reflected voter anger about rising prices, the government promised to take more measures to control inflation, now hovering just below its highest level in more than two years.
With one eye on more state elections later this year and the other on national polls due in 2009, the finance minister lifted spending on education by 34.2 % in the coming fiscal year, raised health and family welfare spending by 21.9% and expanded the rural job guarantee scheme.
“Revenues were buoyant for the third year in succession. I have put the revenues to good use to promote inclusive growth, equity and social justice,” he told parliament.
“The economy is in a stronger position than ever before. It therefore behoves us to set higher goals.”
The Indian economy, Asia’s fourth largest, is expanding at its fastest pace in 18 years and is estimated to grow at a cracking 9.2 % in the fiscal year ending on March 31.
Chidambaram said a country with such a large population must be almost self-sufficient in basic food items.
“Otherwise supply constraints could upset macroeconomic stability and growth prospects. Hence agriculture must top the agenda of the policymakers,” he said.
Nervous about prices, the government already also halted the launch of new futures contracts for wheat and rice on the commodity exchanges.
India’s government slashed import tariffs and outlaid more money to improve ports, roads and power plants to help reduce manufacturing costs and tame inflation.
The Finance Minister reduced the duty on coking coal, food-processing equipment and other imports and increased infrastructure spending in today’s budget in New Delhi, aiming to curb inflation that’s accelerated to a two-year high.
The ruling Congress party of Prime Minister Manmohan Singh lost two state elections yesterday as voters protest against rising prices that are eroding the spending power of India’s poor. Better infrastructure may see more companies follow Nissan Motor Co. and Renault SA, which are investing in factories in the world’s second-fastest growing major economy.
“Political pressure on the government has risen because of inflation,” said Keith Gyles, international economist at Capital Economics Ltd. in London. “The government is doing the right thing by trying to fix infrastructure because that is hurting supplies and boosting manufacturing costs.”
India’s benchmark inflation rate climbed to 6.73 % this month, above the central bank’s tolerance level of 5 %, as quicker economic growth boosts demand for farm and factory products. Gains in consumer prices paid by farmers are at an eight-year high of 8.94 %, while price increases for urban dwellers are the most in six years.
The fastest loan growth since 1971 and higher salaries are enabling Indians to buy products from cars to houses, stretching the capacity of Gujarat Ambuja Cements Ltd. and other companies. The central bank, which has raised its key overnight lending rate five times in the past year, has warned areas such as housing are showing signs of overheating.
Rivals China
India, Asia’s fourth-biggest economy, grew 8.6 % in the quarter ended 31 December after gaining 9.2 % in the previous quarter, the Central Statistical Organisation said in a statement in New Delhi today. The government expects 9.2 % expansion in the year to March 31, the fastest pace since 1989 and behind only China among the world’s major economies.
“India might grow as fast as China in the not-too-distant future,” said Robert Kalin, who manages about 500 million euros ($661 million) in Indian stocks at DWS Investment GmbH in Frankfurt. “Inflation may stay above the central bank’s comfort zone for much of this year.”
Higher incomes have increased demand for food products such as wheat, sugar and cooking oil. Singh’s government today banned futures trading in wheat and rice to curb inflation, after earlier halting exports of wheat and pulses to augment supplies.
Import Duties
Chidambaram reduced import tariffs today for the second time in five weeks. He unexpectedly cut duties on 22 January on a range of products from steel to sulphur to palm oil, a month ahead of the scheduled budget announcement, to rein in prices.
The minister also cut the maximum customs rate for manufactured goods to 10 % from 12.5 %, to align the levy with Association of Southeast Asian Nations such as Singapore, where the tariff ranges between zero and five %.
Singh’s ruling Congress party yesterday lost power in the northern states of Punjab and Uttarakhand among three elections this month. Singh wants to curb inflation ahead of polls in April in the more critical state of Uttar Pradesh, which sends a seventh of all lawmakers in parliament. The election outcome in Uttar Pradesh will set the tone for the next general elections due by April 2009.
Infrastructure deficiencies in India are hurting supplies and adding to the cost of companies operating in the $854 billion economy.
Power Plants
Lafarge India Pvt Ltd., the local unit of the world’s largest cement maker, has its own power plant because government supplies are inadequate. Ford Motor Co., which has a factory in southern India, requires its engine supplier in central state of Madhya Pradesh to install global positioning system devices in its delivery trucks to locate vehicles stuck in traffic so that it can adjust production schedules.
India produces about 8 % less electricity than it needs, cutting gross domestic product by a 10th, the finance ministry estimates. Highways, which move almost 80 % of the goods transported in India, account for only about 2 % of the country’s roads. It takes an average 85 hours to unload and reload a ship at India’s major ports, 10 times longer than in Hong Kong or Singapore, according to government figures.
“Tax revenue has been buoyant this year because of an acceleration in economic growth,” said N. R. Bhanumurthy, an economist at Institute of Economic Growth in New Delhi. “The government’s finances are improving rapidly and it is finding resources for infrastructure spending.”
Chidambaram said he plans to narrow the budget deficit to 3.3 % of gross domestic product in the year ending 31 March 2008 from a targeted 3.8 % in the previous year.
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First Published: Wed, Feb 28 2007. 01 17 PM IST
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