Business | Economy
Farmers get pre-poll bonanza as $15b in loans are waived
India's government promised higher spending for ailing farms and funds for rural revival in its budget on Friday, but it stuck to fiscal goals and pledged to keep inflation under control ahead of elections due in 2009.
- Reuters
- Published: 01:04 March 1, 2008
- Finance Minister P. Chidambaram on his way to Parliament to present the budget for 2008-09. He proposed cutting duties on small cars and two-wheelers to encourage manufacturing while boosting tea, cashew, coconut and pepper sectors.
- Image Credit: EPA
New Delhi: India's government promised higher spending for ailing farms and funds for rural revival in its budget on Friday, but it stuck to fiscal goals and pledged to keep inflation under control ahead of elections due in 2009.
Finance Minister Palan-iappan Chidambaram, presenting the fifth and last full budget of the left-leaning administration, proposed $15 billion to write off debt owed by small farmers to banks in a move analysts said was aimed at the ballot box.
He pledged higher spending on health and education to spread the benefits of an economic boom beyond the cities to rural voters and proposed raising the income tax threshold. Duties on small cars and two-wheelers will be cut to boost manufacturing.
He left corporate tax rates unchanged but said he was raising a tax on short-term capital gains, aimed at share transactions, to 15 per cent from 10 per cent, helping send the stock market down 1.4 per cent on the day.
"The emphasis on social sectors like health, education and the rural economy do suggest that the budget is leaning towards some populist measures," Yes Bank chief economist Shubhada Rao said, although she noted excise cuts would help damp inflation.
The rupee slipped against the dollar after the budget but the benchmark bond yield eased five basis points on the day to 7.55 per cent after the finance minister said he expected to better his fiscal targets for the current financial year.
Chidambaram said the government's aim was to boost employment and abolish poverty and inequality in the country of 1.1 billion people, where some 260 million struggle on less than $1 a day.
Television channels showed farmers celebrating the loan writeoff, but the government's Communist allies said many were indebted to private money lenders and would not benefit.
Total spending was budgeted at Rs7.51 trillion ($188.5 billion) for the fiscal year starting April 1, up six per cent, including a 10 per cent increase in defence spending. Revenue is forecast to rise almost 15 per cent.
Chidambaram proposed extending crop insurance schemes and boosting tea, cashew, coconut and pepper sectors, while Rs200 billion was set aside for irrigation. Spending on a rural job guarantee scheme is to rise Rs60 billion to Rs160 billion.
Gross market borrowing for 2008-09 was put at Rs1.45 trillion, lower than a market forecast of Rs1.65 trillion.
Chidambaram did not specify provisions for higher government workers' salaries.
A pay commission will submit a wage review soon. "The reduction of the fiscal deficit in '08-09 to 2.5 per cent is positive, however it may not include the impact of the pay commission, so it could be higher than forecast," said Shuchita Mehta, chief India economist at Standard Chartered Bank.
While he was confident India would grow by 8.8 per cent in the fiscal year ending on March 31, Chid-ambaram said turbulent financial markets and high commodity prices posed risks.
"Management of the supply side of food articles will be the most crucial task in the ensuing year," he said, adding the country was determined to be self-sufficient in food grains.
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