Union Budget 2007-08 was made public on 28th February, for last two days the budget documents went through numerous forensic studies. So currently, I find no use of reiterating the things those have remained as news headlines for these two days. But I had some basic expectations and I would like to frame them and in the light of this budget I wish to share how much of those requirements have been fulfilled.
First of all, inflation data for the week ended on 17th February is recorded as 6.05%. After reaching of 6.73%, a record high since 2001-02, for consecutive two weeks we are witnessing improvements in prices across the segments. I discussed earlier in other columns that current inflation is very much cyclical in nature and actual fact is also supporting our idea. But the most annoying issue is the contribution of primary goods in the inflation. Major reason is poor performance from farm side. As we know, our farm productivity is not keeping pace with the demand for primary items. Besides, excessive monsoon dependency is adding to the production fluctuation. At current stage when country is going for structural shift in growth pattern, industrial expansion and service sector boom we cannot afford inadequacy or price surge of primary items since this may affect domestic demand for manufactured goods and services. So I expected, our reformist and futurist Finance Minister would initiate some bold steps regarding rural infrastructure and agriculture. Though this budget is tagged as pro-agriculture and pro-rural but I hardly feel so. Total allocation to agriculture and allied services has increased from 20% for last year to 21% (approx) this year. If we add on funds allocated for agriculture & allied and rural development (including irrigation, water recharge and water-bodies restoration) the total allocation has been increased only by 0.75% from last year, which was at 34% last year. Requirement is no less, tax collection is outstanding but allocation seems hardly changed. 25 lakhs hectors has been proposed to be added to total irrigated land, projects has been initiated regarding water-bodies in various states, but they are not looking sufficient to make any immediate impact.
Secondly, cement sector has been taxed. Criteria for taxation are retail price. But, ceteris paribus, it is difficult to administer such tax on pan-India basis. Besides, the pivotal price of 190/- per bag of 50kg, fixed for the tax benefit, is not at all an industry standard. In northern India, retail price is much higher than 190/-, so in that region cement price is going to go up. An extra excise duty won’t affect companies’ profit. They will simply pass on the burden to the consumers, and instead of checking the inflation, this will aggravate the situation. So, logic behind the proposal is not very much clear.
Other than these two, one important thing addressed in this budget is slashed peak custom duty to 10% from 12.5%. Custom duty has been exempted for coking coal and that’s good news. RRBs are allowed to accept, which is another crucial announcement; this will ultimately solve the fund shortage in RRBs. Deepak Parekh committee’s recommendation regarding financing the Indian infrastructure projects are encouraging. Another new idea has been introduced in the budget and that is reverse mortgage. It was obvious that India will see full-fledged mortgage market within years. And that process has been initiated, though guideline has not yet been declared but basic structure has been outlined.
Other than what I have discussed, there are lot many things which can demand attention in the budget. But I don’t wish to go into details. I hope, latter when it will be needed I will try to address those issues.
