Economic Development

  • Anachronistic budgeting

    Is the 2007-08 fiscal deficit 3.1 per cent of GDP, or is it 3.5 per cent

  • The political economy of Budget

    Support for further economic reforms in the context of India's globalisation will be mustered more easily if the deprived sections are assured of some safety net, says M K Venu FINANCE minister P Chidambaram's fifth budget stumped the chattering classes, mostly with incomes of well over Rs 10 lakh a year. The Rs 10-lakh income threshold is relevant because there are less than 300,000 people in India showing a taxable income of Rs 10 lakh and above. But they exercise disproportionate influence on policy. There are many more in the above income category, who do not pay taxes and probably have even greater influence on public policy! The budget also stumped economists, who are also part of the chattering classes. Initially they did not know what to make of a budget that seemed to give everything to everybody. The budget certainly did not lend itself to instant analysis on television channels where many economic pundits were sitting. In the first flush, one economist simply said he was overwhelmed, and didn't know how the numbers would work after so much goodies were handed out by the finance minister. "I am overwhelmed', is what he kept saying. The impatient TV anchor, obviously looking for a one liner, kept pressing, 'Is it good or bad?'. The only reply was,' I am overwhelmed.' It didn't take long for everyone to realise that it is not necessary for numbers to strictly add up in politics. In certain situations, sentiment and psychology can subsume numbers that don't add up. Which is why politics is often described as the art of the possible. While economics parades as an exact science, there are times when economists get lost in their linear frameworks and miss the wood for the trees. Further, what really stunned the chattering classes was someone like Dr Manmohan Singh or P Chidambaram could come up with such a massive loan waiver package. They associated such acts with politicians like the late Devi Lal, Charan Singh or among contemporaries, Prakash Singh Badal and M Karunanidhi. How could Manmohan Singh and Chidambaram do this, was the main question on their lips. However, at the end of the day the budget seemed to have got overwhelming support, if one went by how the vernacular press treated the finance minister's announcements. Politically, it is one of the sharpest statements one has come across in the past decade and a half. Chidambaram's dream budget in 1997 too had a mesmeric impact on the people but this one covers a much wider terrain in its inclusiveness, whatever critics may carp about. It took a while for the immensity of the political statement to sink into the BJP leaders. Initially some leaders tried to attack the Rs 60,000 loan waiver as irresponsible. Later, possibly after deeper consultations within the BJP leadership, it was decided to tone down the attack. The politics of it was visible even in Parliament when Chidambaram said only kulak landlords will oppose loan waivers for small farmers holding up to two hectares of land. The invocation of kulak landlords has an interesting dimension. Politically, it is significant that the Congress is attempting to wean the poorest among the backward caste, scheduled castes and minorities away from regional parties that have established themselves over the years. This would easily rank as among the most audacious attempts by the Congress to upset the present political arithmetic of various strong regional parties. If viewed in this perspective, it becomes easy to understand why considerations such as fiscal profligacy and misplaced budget assumptions do not stand a chance. In any case, of late, a feeling had developed in non-urban India that the country was reaping the riches of globalisation, in terms of mounting forex reserves, high corporate profits, and government revenues doubling in three years. IN SUCH a situation it becomes difficult to convince the other India that fiscal belt tightening is the way to go. Besides, this would be most hypocritical as even anecdotal evidence would suggest that the bulk of the growing government subsidies today are consumed by the urban middle class. Just take the Rs 71,000-crore energy subsidy. Over 80% of it must be going to the urban middle class. The finance minister has also been careful in not going overboard while opening the purse strings. He has kept enough head-room in his fiscal deficit target to ensure that some discipline remains. For instance, he has budgeted fiscal deficit at 2.5% of GDP, when he could have kept a target of 3% as per the FRBM timeline. He can technically spend extra about 0.5% of GDP or Rs 20,000 crore, without violating the FRBM Act. In fact, the expenditure on loan waiver in the first year could be no more than Rs 20,000 crore. Operationally, the waiver of Rs 60,000 crore will occur over three years. More interestingly, much of the write-offs will happen among loans which are already sitting as non-performing assets (NPAs) in banks. So the bank books will get cleaned up to that extent. In lieu of the write-offs, the banks could receive government bonds which they could liquidate in the market or sell to the Reserve Bank of India. True, this may constitute another offbalance sheet borrowing by the government. Even after taking some of the off-balance sheet items, heavens won't fall if the fiscal deficit moves up to 4% of GDP. What is the great sanctity to the 3% figure, one fails to understand. Both oil and food subsidies today are being enjoyed across the board by urban and rural India, and these subsidies have helped to keep food prices under control. It is difficult to imagine the political class surviving if the price of wheat in India were to track international trend. Global wheat prices have doubled in the past year. The price of other mass consumption items such as edible oil too has been maintained at lower than international price. Bad economics, but good for collective survival. So current circumstances in the global economy are exceptional and the budget has done well to admit that there are off-balance sheet subsidies whose value is growing by the day on account of rising global prices. Finally, support for further economic reforms in the context of India's globalisation will be mustered more easily if the deprived sections are assured of some safety net. The benefit of all this will eventually accrue to the growing aspirational middle class. This perspective must not be lost sight of. After all, it is in the interest of the emerging bourgeoisie to keep the present system alive and ticking.

  • Countering global economic crisis

    A GLOBAL economic slowdown is underway. What began as a problem in a single sector in a single economy

  • Govt. to strive for growth with low inflation

    Even as there were no easy ways of balancing high economic growth with low inflation, Finance Minister P. Chidambaram on Tuesday said the Government would strive to peg the overall growth rate at near nine per cent while containing the inflation rate at close to four per cent. In his post-Budget interaction with the Confederation of Indian Industry (CII) here, Mr. Chidambaram said: "The goal is to have a growth close to nine [per cent] and inflation close to four [per cent]. That is why we assume 13 per cent [nominal] GDP growth.' Pointing out that in this exercise, while the Government sometimes succeeded and also missed the target at other times, he said: "In a country where economy is growing close by over eight per cent, close to nine per cent, there is bound to be some inflation.' Inflation in India, he said, was caused by supply-demand mismatch between food items and the oligopolistic tendencies in some industries. Besides, the growth in money supply was yet another reason which, in a sense, was a reflection of the high growth the country was experiencing. However, to keep the India growth story intact, Mr. Chidambaram pointed to the numerous measures announced in the budget for 2008-09. "I think we have announced a number of measures that are intended to ensure that the growth story is intact... I am betting on your [corporates] growth. I am bullish on your growth. I hope you are as bullish as I am about the growth story,' he said. Projecting that India Inc. would provide Rs. 5,50,000 crore next year by way of taxes, excluding personal income-tax, Mr. Chidambaram noted that while steps had been taken to provide more money to the consumer for spending, the fiscal stimulus to the economy would come from the cuts in excise and customs duties and the Central Sales Tax. "Unless my friend Shubhashis Gangopadhyay [Adviser to Finance Minister] and other economists are hopelessly wrong about their economics, all these make up for the text-book prescription for higher growth,' he said. These measures together, including the across-the-board excise cut from 16 per cent to 14 per cent, were a powerful combination to keep the growth story intact. "I have taken the first step to signal the whole country, especially States, that I prepare to look forward in order to accommodate my financial interests with the final number [for goods and services tax], and you can prepare to accommodate your financial interests with the final number,' Mr Chidambaram said.

  • Rs 25,000 crore in State's kitty

    A plan of Rs 25,000 crore for Maharashtra for the year 2008-09 was on Wednesday approved by the Planning Commission at a meeting in New Delhi. The approval was given during today's meeting of Chief Minister Vilasrao Deshmukh with Planning Commission deputy chairman Dr M S Ahluwalia. This year's plan is Rs 4,800 crore higher than the previous year, an official release said here. The Planning Commission expressed satisfaction over the performance shown by the state government in various sectors and the formation of the minority welfare department in the state. The chief minister had demanded allocation of Rs 210 crore for Youth Commonwealth Games scheduled to be held in October at Pune. He had also demanded Rs 400 crore for the Mithi river beautification project. Complimenting the State on satisfactory growth rate and fiscal performance, Ahluwalia said Maharashtra was poised to exceed the projected national average growth rate of nine per cent for the 11th Plan (2007-12). He, however, stressed the need to improve urban infrastructure, irrigation and agriculture during the Plan. He further said the Centre was keen to improve connectivity with Mumbai. Also, the Western Freight Corridor Construction Work was likely to begin this year. He also drew the attention of the state towards depleting forest cover, rural poverty and child sex ratio. It was pointed out that state needed to step up efforts in the power sector for encouraging investment.

  • Maharashtra's annual Plan fixed at Rs 25,000 cr

    The Plan outlay of Maharashtra for 2008-09 has been pegged at Rs 25,000 crore inclusive of additional Central Assistance of Rs 250 crore for projects of special interest to the State. This was agreed at a meeting between the Deputy Chairman Planning Commission, Mr Montek Singh Ahluwalia, and the Chief Minister of Maharashtra, Mr Vilasrao Deshmukh, here today. In his opening remarks, Mr Ahluwalia said performance in both human development and growth rate of the State was satisfactory as it is all set to achieve growth rate above national target for the Eleventh Plan. Against 3.8 per cent growth rate in Ninth Plan, the State has recorded growth of 8.2 per cent in the Tenth Plan. Improving urban infrastructure, housing, irrigation and agriculture should be given priority during the Eleventh Plan. He said the Commission was keen to improve performance of centrally sponsored programmes and invited suggestions on flexibility needed in the guidelines of these programmes.

  • New World Bank catastrophe loan

    WORLD Bank on Tuesday launched a new catastrophe loan facility and revised an existing contingency credit line designed to help increase its business with middle-income countries. The World Bank board on Tuesday approved the Catastrophe Risk Deferred Drawdown Option that will give middle-income countries access to emergency funds in the event of a natural disaster such as a hurricane or earthquake. Countries stricken by disaster will be able to access funding of up to $500 million once a state of emergency is declared. Countries may qualify for the loan facility if they have a hazard risk management programme already in place that is monitored by the World Bank. World Bank president Robert Zoellick said the facility was an example of how the institution could be useful to middle-income countries, a diverse group that includes fast-growing economic powerhouses like China. In September, Mr Zoellick cut the price the World bank charged on its loans and simplified a complex set of fees and waivers for emerging economies, which were increasingly tapping global capital markets for funding. "These financial product enhancements reflect the World Bank Group's commitment to using creative ways to expand resources for our country partners,' Mr Zoellick said. "As our client relationships with middle-income countries become more sophisticated, the World Bank is responding with development solutions that share knowledge, build markets and institutions, and provide capital,' he added. The World Bank board separately also approved changes to its existing Deferred Drawdown Option (DDO), a pre-approved line of credit for countries which do not immediately need the funding but have access to it in the future in case of an unforeseen event. Only two countries

  • Central panel advises Ministry against Mangalore SEZ Phase II

    The Rs. 35,000-crore Mangalore Special Economic Zone Project appears to have suffered a setback as a Central committee of experts has advised the Ministry of Environment and Forests against going ahead with Phase II of the project, according to information available on the website of the Ministry. At a meeting in New Delhi on February 27 and February 28 to discuss the issue of environment clearance for the project, the Expert Committee on Infrastructure and Miscellaneous Projects said, "The project should be restricted to only Phase I.' Phase I covers 1,800 acres of land which has been acquired by the promoters of the project. Land (2,035 acres) for Phase II is yet to be acquired. The company, Mangalore Special Economic Zone Limited, has been facing opposition from various farmers' organisations and environmentalists as far as Phase II is concerned. The committee has come to the conclusion based on the recommendations of another sub-committee constituted by the Ministry which was entrusted with the responsibility of visiting Mangalore and inspecting the villages notified for the project. The inspection committee was sent to Mangalore after the Ministry took cognisance of the protests and objections against the proposed project. At the New Delhi meeting, the committee said that in view of the protests, the company should confine itself to Phase I of the project. However, the promoters of the project have requested the Ministry to consider the whole project (Phases I and II) saying that the Environmental Impact Assessment has been done for infrastructure on 2,035 acres of land as well. Guarding against any complacency, Lawrence D'Cunha, secretary of the Krishi Bhoomi Samrakshana Samiti, said, "This is only the first step towards victory. We are going to scale up our agitation and not relent until our lands are de-notified.' The samiti represents the four villages of Permude, Thenka Ekkaru, Delantha Bettu and Kuthethoor which have been notified for the second phase of the project.

  • Gujarat aims at 15% industrial growth for 5 yrs

    'Brand Gujarat' is on the roll and the state government is aiming to reach out globally this time.

  • Trend-setting Budget

    The government has made significant allocations to important developmental and social agenda, and yet provided enough stimuli for continued growth.

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