The finance minister has announced for the small and marginal farmers, a complete waiver on loans worth Rs 50,000 crore. The small and marginal farmers are those possessing land holdings of one hectare or less. The waiver also applies on rescheduled loans, which means certain farmers will be entitled to a double-waiver.
According to Chidambaram, this would provide benefits to an estimated three crore marginal and small farmers. Moreover, he emphasized that these farmers will also be eligible for fresh loans during the coming fiscal year. The agricultural credit of scheduled banks, estimated at Rs 240,000 crore in the current fiscal would also go up to Rs 280,000 crore in 2008-09.
A separate settlement scheme for other farmers has been announced in the same Budget, thereby incurring a cost of an additional Rs 10,000 crore for the exchequer. All agricultural loans taken up to March 31, 2007 come under the scheme and the implementation of debt waiver scheme is expected to end by June 30, 2008. The one-time settlement scheme is poised to benefit one crore farmers, who would now get a rebate of 25% on payment of outstanding loans.
Overall, Rs 60,000 crore worth of loans will be completely waived-off. The move, though bringing respite to debt-ridden farmers, also raised an uproar in the House with Opposition parties labeling the move as an attempt to attract a large vote bank ahead of the polls.
| Budget highlights | Budget and market reaction | Macroeconomic perspective | Taxes: Direct & Indirect Taxes | Industry perspective |
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Agriculture |
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However, the move comes amidst reiterated efforts of the farmer association to convince the government of its poor state. Earlier this week, a farmers’ delegation called Bhartiya Kisan Union (BKU) had met agriculture minister Sharad Pawar to request waiver of farm loans among other benefits. Other positives announced in the Budget include the scaling-up of farm investments. The aim is to increase the gross capital formation in the agricultural sector to 16% by the end of the 11th plan from around 12% during 2006-07 in order to meet target agricultural growth rate of 4%. Under the Accelerated Irrigation Benefit Programme (AIBP), 24 major irrigation projects and approximately 750 minor irrigation schemes have been identified for development with a total outlay of Rs 20,000 crore. The outlay for this purpose in 2007-08 was Rs 11,000 crore with an additional grant component of Rs 3,580 crore. This will help in creating additional irrigation potential of 500,000 hectares. The Economic Survey of India, which was released ahead of the Budget 2008-09, had emphasized the need for a second green revolution, particularly in the rain-fed areas. Official estimates say that over 60 per cent of the country’s cultivable area depends on rain for agriculture. While the contribution of agriculture to the national GDP stands at around 19% as of 2006-07, the importance is derived from its ability to provide employment to 52% of the country’s workforce. |
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| Suvishesh Valsan | |||||||||
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Manufacturing The finance minister has announced for the small and marginal farmers, a complete waiver on loans worth Rs 50,000 crore. The small and marginal farmers are those possessing land holdings of one hectare or less. The waiver also applies on rescheduled loans, which means certain farmers will be entitled to a double-waiver. |
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Industrial production growth rates had plunged to 5.3% in November 2007 from 15.8% in the corresponding period of 2006. This Budget was quick to address the situation improving the growth rate to double digit figures in the current year. In the Textiles sector, the budget emphasizes Schemes for Integrated Textile Parks and the Technology Upgradation Fund that will be continued in the Eleventh Plan period, where the provision for SITP has been maintained at Rs 450 crore in 2008-09 and provision for TUF will be increased to Rs 1,090 crore in 2008-09 from Rs 911 crore in 2007-08. This will aid export oriented businesses considerably, which have been severely affected due to the strengthening of the rupee. Additionally, in the Handloom sector, as per the budget, 250 clusters together with 443 yarn banks are to be established under the cluster approach, which will benefit millions of people whose livelihood depends on this sector. |
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Looking at the initiatives and measures taken by the government to allay fears of an impending slowdown, it seems evident that people associated with manufacturing, particularly in the sectors mentioned above, together with capital good, gems & jewellery and sports goods will have a lot to cheer about. Under the Accelerated Irrigation Benefit Programme (AIBP), 24 major irrigation projects and approximately 750 minor irrigation schemes have been identified for development with a total outlay of Rs 20,000 crore. The outlay for this purpose in 2007-08 was Rs 11,000 crore with an additional grant component of Rs 3,580 crore. This will help in creating additional irrigation potential of 500,000 hectares. The Economic Survey of India, which was released ahead of the Budget 2008-09, had emphasized the need for a second green revolution, particularly in the rain-fed areas. Official estimates say that over 60 per cent of the country’s cultivable area depends on rain for agriculture. While the contribution of agriculture to the national GDP stands at around 19% as of 2006-07, the importance is derived from its ability to provide employment to 52% of the country’s workforce. |
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| Shubham Chatterjee | |||||||||
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Travel: Tourism & Hospitality
Although Chidambaram did not spell out any landmark initiatives, Budget 2008 overall was neutral for the country’s travel, tourism and hospitality industry. Among the major announcements made today was a five-year tax holiday for 2, 3 and 4-star hotels in UNESCO enlisted heritage districts. This is on the lines of a similar five-year tax holiday offered to economy hotels in Delhi and National Capital Region during the 2007 Union Budget. The ‘Incredible India’ campaign has placed India on the global tourist’s map. But an acute paucity of hotel rooms has held back a booming tourism industry. This tax holiday should enable the country to overcome this by way of more budget hotels coming up at its most-visited destinations. The increase in hotel rooms will also help cope up with the tourist influx during 2010 Commonwealth Games. The Games received an allocation of Rs 624 crore and a separate special grant of Rs 100 crore, which is likely to be used towards improving tourist infrastructure around the Games’ venue. However, it was widely expected that the finance minister would announce measures to ramp up tourism infrastructure in the country, which is sorely lacking. This could have included boosting security of foreign and domestic tourists. Terming India’s culture and heritage as a “growing soft power”, Chidambaram assured to make huge investments. The Indian Council for Cultural Relations (ICCR) received a budgetary allocation of Rs 75 crore. While lamenting India’s declining tiger population, the finance minister allocated Rs 50 crore to set up a Special Tiger Protection Force under the National Tiger Conservation Project. On the downside, the Budget brought tour operators using contract carriage vehicles under the Service Tax net. Destination-hopping on a holiday might get dearer. Union Budget 2008 is formulated to drive consumption. The personal tax exemption limits have been enhanced to a wide extent, which should help people save up and spend on holidays. A generous Rail Budget, announced a couple of days earlier, should also encourage domestic tourists. India is the third fastest growing travel and tourism economy in the world, and the sector has done well to deserve infrastructure status. Nonetheless, the country’s tourism industry is marginally better off than it was a year before. |
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| Sameer Hattangadi | |||||||||
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BFSI
Banking The UPA government’s Budget clearly displayed the emphasis on the aam aadmi when it mentioned initiatives for farmers. With a target of 288 PSU Bank Branches to be opened in rural and less developed areas, it is obvious that the government aims to increase rural credit and banking. However the initiative of loan waivers to farmers with 1-2 hectare holdings clearly pushed the PSUs in the grey. The waiver that amounts to 50,000 stands at roughly 4% of total bank loans and is expected to give relief to some three crore small and medium farmers. However, funding is yet not clarified. PSUs believe there would be subvention from the government by way of bonds or proportionate sharing. However, PSU shares remain depressed amidst market speculation on the conclusion. The government has asked commercial banks to add 250 rural household accounts every year in rural and semi-urban banks. This is a positive initiative in the long run, as an economy’s savings can be mobilized more efficiently throughout the geographies. Increased deposit and lending can enable banks to scale up operations further. However, with increased indebtedness in rural areas and lower repayment capacity comes increased risk which could impact the credit quality of banks. Financial Services In the financial services sector, asset management services under mutual funds, services by stock exchanges are brought under Service Tax net. This may spike the entry load of mutual funds schemes and also push up the cost of brokerage services. Besides increases in short term capital gains tax from 10% to 15%, reduced liquidity in the market could hamper brokerage revenues. Also mutual fund investors may feel the pinch of higher loads, thus making it difficult to attract new customers. Some positive initiatives for mutual funds include the allowance to invest in infrastructure projects directly through infrastructure funds, which would not only enable higher investments in infrastructure projects but also enable mutual funds to tap into the potential of infrastructure sector. Insurance The finance minister has proposed additional deductions of Rs 15,000 allowed for medical insurance premiums. The low penetration level of less than 10% in health insurance market and the high loss ratios suffered by market players would help health insurance markets. Nevertheless, markets were anticipating a higher FDI/FII limit in the insurance sector, which would enable capital flows in the sector, thus increasing liquidity in the insurance market. |
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| Aliasagar Shakir | |||||||||
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Real Estate The Union Budget of 2008-09 did not announce any measures which will have a direct impact on the real estate sector in the country. However, the finance minister announced certain decisions that will have certain indirect implications which are likely to create a demand for real estate in certain pockets. This could also spur demand for real estate, thereby providing a fillip to the country’s real estate sector. Since the focus of the budget was on rural empowerment and inclusive growth, greater stress was placed on rural housing and lending schemes in order to make this dream a reality. Key pointers in this included:
Indira Awas Yojana (IAY) Of the estimated 60 lakh houses, 41.13 lakh houses were already constructed up to December 2007, and the number is estimated to touch 51.77 lakh by end March 2008. With public sector banks being advised to include IAY houses under the differential rate of interest (DRI) scheme and lend up to Rs 20,000 per unit at an interest rate of 4 per cent, it will provide a greater impetus to the rural housing market. The DRI scheme also focused on promoting growth for the weaker sections of society by taking into consideration a borrower’s eligibility criteria for loan. Subsidies under the scheme will include: Subsidy on the construction of new houses sanctioned after April 1, 2008 Subsidy on the construction of new houses sanctioned after April 1, 2008 |
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| Shilpa Mirpuri | |||||||||
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