Indian Economy - News & Updates - Archive

[Janbaz]

India’s economy slows on lower farm growth

MUMBAI: A drop in farm output will lead to a dip in economic growth in India for the fiscal third quarter as compared to a record-setting pace set in the first half of the year, analysts say. India, which on Wednesday will report its growth figures for the quarter to December, clocked growth of 9.1 per cent in the first half of the year, the fastest among major world economies after China.

But analysts surveyed said they expect the third quarter will show a slight slowdown. “We project quarterly growth at 8.7 per cent,” said Rajeev Malik, a Singapore-based Asia economist with JP Morgan Chase Bank. A shortfall in the autumn harvest will affect the rate of growth, which has been driven by manufacturing and services in the 850-billion-dollar economy, said Shuchita Mehta, South Asia economist with Standard Chartered in Mumbai.

“Production trends of the kharif (autumn) crop last year will impact GDP data,” said Mehta, who predicts third quarter growth of around 8.5 per cent. She said however she was confident that a full-year government growth forecast revised up in February to 9.2 per cent from around 8.5 per cent would be realised.

“Growth will stay above the trend. We expect the central bank’s moves to curb inflation and credit growth to take effect by April,” Mehta said. Earlier this month, India’s central bank raised its cash reserve ratio to 6.0 per cent from 5.5 per cent to take money out of the banking system in a bid to slow rapid credit growth that is helping fuel inflation.

The move was sparked by the rising inflation rate, which reached 6.73 per cent this month — its highest level in more than two years and well above the 5.0 to 5.5 per cent the central bank has forecast for the year ended March.

The News.
http://thenews.jang.com.pk/daily_detail.asp?id=44739

 

[Janbaz]

Indian growth rate projected at 9.2% in ‘06-07

By Iftikhar Gilani

NEW DELHI: While projecting an upsurge in investments with an economic growth rate of record 9.2 percent by the end of year 2006-07, the Economic Survey presented in the Indian parliament here on Tuesday has admitted slow progress on the social sector front.

Presenting the survey for 2006-07 an annual ritual before the Union Budget, Finance Minister P. Chidambaram called for a “calibrated fight” to contain inflation without compromising the growth.

The survey also stressed reviewing the multiplicity of poverty-alleviation schemes, subsidy shift to benefit only the truly needy and called for efforts to ease pressure on prices.

It expressed concern over the government’s subsidy bill on food, fertilisers and petroleum overshooting the budgeted provision of Rs 44,792 crores by Rs 52,00 crores during 2006-07 despite the subsidies dropping in percentage term proportionate to GDP (gross domestic product) from 1.7 percent in 2002-03 to 1.2 percent last year and 1.1 percent of GDP in 2006-07.

Stating that inflation in recent times has been triggered by the rapid rise in prices of primary articles all over the world, the survey promises that the government would have appropriate policies to maintain and manage high growth without inflation as it is already making efforts to ease pressure on prices. It does not rule out “moderate inflation” to sustain high growth.

No early respite: The survey, however, dashes off all hopes of early containment of the price rise as it says: “In the current year, pressure on inflation may persist because of a mismatch in supply and demand in some primary articles and firm international prices.”

Instead of sharing the blame for the skyrocketing prices, the government has chosen to list a series of factors that have exerted pressure on demand side pushing up prices like “higher demand as a result of an accelerated growth in GDP, higher growth in reserve money because of a faster increase in foreign assets, credit growth and other related factors.” The survey goes on to list a series of steps the government took during the year to contain the prices.

On social sector front, the Centre has increased its budget from Rs 18,240 crores in 1995-96 to Rs 87,607 crores in 2006-07 and yet, the survey says, the availability of so large resources alone will not guarantee faster development as a lot depends on the state governments under whose domain come implementation of the programmes. The remedies it prescribes for faster growth on this front are: Time-bound achievements of physical targets, accountability and transparency.

Priorities: Painting a rosy picture of the economy destined to provide enough money for every mission and project taken up for the people's welfare, the survey says: "Overall macroeconomic fundamentals are robust, particularly with tangible progress towards fiscal consolidation and a strong balance of payment positions."

It stressed that the economy has decidedly "taken off" and moved from a phase of moderate growth to a new phase of high growth. For a sustained high-growth trajectory of the growth, the survey recommends two issues and three priorities. The issues are: sustainability of high growth with moderate inflation, and inclusive nature of high growth.

The priorities that the survey sets for the government are: Rising to challenge of maintaining high growth; bolstering the twin pillars of growth -- fiscal prudence and high investment; and improving effectiveness of government intervention in critical areas such as education, health and support to the needy.

Industrial growth: The survey lauds the unabated growth of industrial sector to reach 10.6 percent in the first nine months of the current financial year and says the growth would have been even higher but for the disappointing performance of two sub-sectors: mining and quarrying, and electricity, gas and water supply. The core industries - electricity, coal, steel, crude oil, petroleum refinery and cement - too recorded 8.3 percent growth between April and December 2006 as against 5.5 percent during the same period in the previous year.

The survey pegs agricultural growth at 2.7 percent with the total foodgrains production in 2006-07 slated to go up to 209.2 million tonnes, over half a million tonnes more than the previous year. According to it, the stocks of foodgrain in the country stood at 18.8 million tonnes as on January 1, 2006 which was lower than 21.7 million tonnes on January 1, 2005. The buffer stock norm is 20 million tonnes.

The survey commends the decentralised procurement scheme launched by the government last year under which the designated state governments procure, store and also issue foodgrains to the PDS and the difference between their economic cost and the central issue price is passed on by the Centre as subsidy.

The survey says the new system helps in covering more farmers, improves efficiency of PDS and provides varieties of foodgrains more suited to local taste while also reducing the transportation costs that the Food Corporation of India was bearing. A record procurement of 10.9 million tonnes of rice was made under the new scheme.

The survey also refers to the rehabilitation package provided to the distressed farmers in the 31 suicide-prone districts of Maharashtra, Andhra Pradesh, Kerala and Karnataka and seeks to dispel apprehensions about SEZs through sequencing to sustain popular support for reforms and reconcile the conflicting interests of various reforms constituencies. The survey goes on to list six kinds of apprehensions about SEZs but avoids any quickfix remedies and instead says appropriate polices and safeguards should be able to take care of these without sabotaging establishment of SEZs.

Unemployment: The economic survey also hails the reversal of the declining employment growth from 2.1 percent in 10 years ending 1993-94 to 1.6 percent in five yeas ending 1999-2000 and 2.5 percent in five years ending 2004-05. Nevertheless, it stressed the need for faster employment growth to not only absorb the addition to the labour process with the ongoing demographic changes but also to reduce the unemployment rate.

It lays stress on the organised private sector stepping in to provide employment at a time when the government is going in for rightsizing of the public sector whose primary objective is to deliver essential services and not provide direct employment. The worrisome factor for it is a marginal decline in employment in the organised sector between 1994 and 2004, the annual growth decelerating from 1.2 percent during 1983-94 to a negative percentage of 0.38 per annum during 1994-2004.

Other economic activities coming under the Economic Survey's scanner with appreciation are: Trade, hotels, transport and communication services grow at double digit rates for the fourth consecutive year; saving rate expected to increase with higher growth of economy; steady progress on infrastructure front; satisfactory fiscal consolidation with the revenue deficit not only reduced but budgeted to be eliminated in 2006-07, two years ahead of target; Foreign Direct Investments (FDIs) rise by 98.4 percent in the first half of 2006-07; foreign exchange reserves touch new high of US $ 180 billion; and exports maintain buoyancy.


Daily Times.
http://www.dailytimes.com.pk/default.asp?page=2007\02\28\story_28-2-2007_pg5_27

 

[Neo]

Wednesday, 28 February 2007

India budget focuses on farming

India says it needs to be self-sufficient in food terms.

India's government has unveiled its annual budget, saying agriculture "must top the agenda of policy-makers".
The finance minister said unless India could be self-sufficient in food, this could upset "macro-economic growth stability and growth prospects".

The governing Congress party also said high growth would be critical as a way to fight widespread poverty.

However, the government said that economic growth, at 8.6% in the third quarter, had also pushed inflation up.

Inflation

Analysts greeted the government's 6.81 trillion rupee (£78bn; $153bn) budget positively.

"The good part is that the budget is not anti-inflationary," said Rashesh Shah, chief executive of Edelweiss Capital.

However, Finance Minister Palaniappan Chidambaram said the government still had concerns over inflation.

While India had already taken "a number of measures on the fiscal, monetary and supply sides to maintain price stability", it would take more measures if needed.

Broadly, it is a growth-oriented budget, with focus on agriculture and education

A. Balasubramaniam, Birla Sun Life Asset Management

There had been fears that anti-inflation measures could limit growth in Asia's fourth-largest economy.

Figures for February revealed that wholesale price inflation had reached nearly 7%, following higher food and consumer goods prices.

Equity and growth

In a bid to boost India's agriculture - which grew by 2.3% on average in the last three years, against a target of 4% - the government said that it would offer cheaper credit to more farmers.

Some two thirds of Indians make a living from agriculture.

Mr Chidambaram said five million farmers would be "brought into the banking system" in the present fiscal year and the rural job guarantee scheme would be expanded.

According to analysts, a lack of adequate, affordable credit has prompted a wave of suicides amongst farmers across rural India.

Mr Chidambaram said: "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."

'Business momentum'

A Balasubramaniam, chief investment officer at Birla Sun Life Asset Management in Mumbai, said: "From the corporate angle, reduction in excise duties in relevant sectors are positive."

We must remember the finance minister has not derailed business momentum

Stockbroker Sushil Choksey

But the increase in excise duty on cement was "a punishment for the sector", he said. The budget also included higher taxes for telecoms firms.

India's main stock market fell 4% after the budget was unveiled amid concerns about plans for higher taxes on dividends and the removal of tax exemptions from technology firms.

Stockbroker Sushil Choksey said: "The fall is a knee-jerk reaction of Indian markets, but we must remember the finance minister has not derailed business momentum."

"This is a short-term view taken by investors and I expect this fall to taper off in a day or two."

Overheat

Mr Balasubramaniam said the budget was broadly "growth-oriented", with focus on agriculture and education.

Finance Minister Mr Chidambaram said spending on education would be increased by 34.2% in the coming fiscal year, while health and family welfare spending would rise by 21.9%.

Other aspects of the budget included increasing defence spending by some 7.8% to March 2008, as India strives to update its military capabilities.

Mr Chidambaram said the defence budget had risen to 960 billion rupees ($21.8 billion) from 890 billion a year before.

Other figures released on Wednesday showed the manufacturing sector at a rate of 10.7% in the quarter, although farming expanded by a lower-than-expected 1.5% because of crop shortages.

Analysts have raised concerns that India's economy could overheat, with growth running at about 9%.

http://news.bbc.co.uk/2/hi/business/6403139.stm

 

[Neo]

Wednesday, 28 February 2007

India's 'left-of-centre' budget

By Paranjoy Guha Thakurta
India economic analyst

The government says it wants to help the under-privileged.

India's Finance Minister Palaniappan Chidambaram - who has a reputation for favouring market-friendly economic policies - presented a distinctly left-of-centre federal budget on Wednesday.

It was in keeping with the ideological inclinations of the ruling United Progressive Alliance (UPA) government that is crucially dependent on support from its communist allies.

At a time when the economy of the world's second most populous nation is growing at about 9% a year for the second year in succession, Mr Chidambaram's budget upped government expenditure on agriculture, rural development, irrigation, education, health-care and road construction.

This was as he raised taxes on the corporate sector, helping bring stock market indices downwards.

High prices

While India's Gross Domestic Product (GDP) has grown by an average of 8% every year over the past four years - the first time in the country's 60-year history - the economy has also shown signs of overheating in recent months.

A third of Indians live below the poverty line

Wholesale prices went up by nearly 7%, and consumer price inflation is at a rate that is roughly two percentage points higher.

Until August, inflation in India was driven by high prices of petroleum products.

Over the past three months, however, the higher rate of inflation is largely due to a sharp jump in food prices, in particular the prices of wheat, vegetables, fruit and milk.

That has resulted in the government being attacked not only by the right-wing Hindu nationalist Bharatiya Janata Party opposition, but also by its supporters on the left.

High food prices quickly translate into popular discontentment.

'Anti-inflationary'

On Tuesday the Congress party - which leads the UPA coalition - lost local elections in two northern Indian states, Punjab and Uttaranchal, where it had been in power.

Since food comprises so a large a share of the total income of the poor, Finance Minister Chidambaram and Prime Minister Manmohan Singh have been sharply criticised, sometimes even by colleagues in the Congress party, for their inability to control prices.

Indians face a wider services tax net

Reacting to Mr Chidambaram's budget, Mr Singh described it as "anti-inflationary", voicing hopes that proposed reductions in customs and excise duties would reduce higher prices.

Close to one-third of the Indian population, or about 300 million people, live below the internationally-accepted poverty line of $1 a day.

Two-thirds earn daily incomes of $2 or less a day. One out of three Indians cannot read and write their own names and half the children who join primary school drop out.

Mr Chidambaram has instituted new scholarship schemes to provide an incentive to secondary school students to remain in school.

He has also increased expenditure on midday meal schemes for school-going children.

More importantly, the finance minister has increased an across-the-board education tax from 2% to 3% to fund basic education and secondary and higher education.

The extra money will help fund a plan to increase seats in educational institutions to admit students from "socially and educationally backward classes".

'Niggardly growth'

This is part of the government's affirmative action policies, aimed at assisting the under-privileged castes in India's highly hierarchical society.

The manufacturing and services sectors have grown by nearly 10% a year over the past three years.

That is in contrast to the agriculture sector - which accounts for less than one-fifth of India's GDP but still provides a livelihood to 60% of the country's population. The agricultural sector has grown by a niggardly 2% a year.

Mr Chidambaram is trying to control inflation

The government has sought to deflect criticism that its policies were helping only the industrial and services sectors by targeting many budget proposals towards farmers.

More crop loans will be provided, production of seeds will be stepped up, and a system for better water supply is planned as part of a wider irrigation programme.

'Impressive increase'

The coverage of an ambitious rural employment guarantee scheme - described as the world's largest legally mandated social security programme - has been expanded from roughly one-third of the country's geographical area to more than half.

Mr Chidambaram has earmarked higher outlays for welfare programmes, while reducing budgetary deficits because tax revenues have been unusually buoyant.

Apart from excise collections - which have not grown fast - collections of customs duties, personal income taxes and taxes on corporate incomes have all increased impressively.

The services tax net has been widened to include rent from commercial properties and asset management services.

India's exports have been growing at a fast pace of 20% a year and the country's foreign trade is growing twice as fast as its GDP.

Against this backdrop, Mr Chidambaram has brought down peak customs tariffs on non-agricultural imports from 12.5% to 10%, bringing these rates closer to the tariff levels prevailing in East Asian countries.

http://news.bbc.co.uk/2/hi/south_asia/6403085.stm

 

[Adux]

In the Short term; Its a average budget
But in the Longterm it will have an impact. The corporates arent happy cuz they didnt get any new sops. Farmer Suicides, Education, Defence and Inflation is finally been looked up on in my stupid *** country

 

[Contrarian]

Its a WONDERFUL budget dude. Its high time we paid the due to the social and agricultural sectors of the nation. This budget will go a long way in that. India needed this.

 

[Neo]

Agree with Malay, the green sector's been overlooked for way too long and its time to make it up for the losses.

India basically is an agro-economy laboring alomost 60% of the workforce but it generates only one third of the GDP.

Your potentials are high and you have good amount of fertile soil and water, with good management you could become one of worlds largest food exporters.

Let this budget be the beginning of another Indian success stories...:toast:

 

[Contrarian]

I hope so, the corporates though mature, i feel still need some cushioning by the government. So the government cannot go completely overboard on social projects. A balance has to be maintained for the next 10 years more. Then more and more emphasis can be laid on the social sectors.

 

[Neo]

What you need is a good government sponsored farm credit management for small enterprises.

High death rate among small famers is to be blamed to the traditional creditors who charge way too much and even a relatively small credit as low as $200. The farmer often loses his land, his house or evem his cattle, becomes desperate.

Your government announced $850 million farm credit package for 2007 last year. The problem is that the credit will only be provided to registered farmers whith a bank account.
Majority of the farmers doesn't do business with banks and go local and traditional money brokers and lenders.

This has to change.

 

[Neo]

Thursday, March 01, 2007

Poor question ‘Shining India’ as budget eyes growth

By Alistair Scrutton and Surojit Gupta

The rural sector accounts for two-thirds of India’s billion-plus population but is growing at less than one third of the pace of the overall economy

WEDGED in between a posh hotel, a modern highway and a booming technology corridor, this village of open sewers and sporadic power is at the front-end of a controversy about who benefits from economic growth in India.

“It’s good our country progresses,” said Raj Singh, a 41-year-old cook, as he walked through dirt streets in the lower caste district of Kalwari, about 55 km from New Delhi.

“But that development should happen in my village. Here the poor are getting poorer. We are forgotten. Nobody comes here.”

India’s Congress-led government presents its annual budget on Wednesday, promising more of the breakneck growth that has seen gleaming high-rises spring up in booming cities across India where millions are employed in services like call centres.

But behind the headlines of “Shining India” are worries that growth is failing to trickle down to the poor and the communist-backed government is concerned that a by-product of the boom - a rising inflation rate - is making many people poorer.

“It’s rather like if the US government focused its growth strategy on making New York brokers wealthier,” said D.K. Joshi, principal economist at domestic credit rating agency CRISIL.

“There are millions in call centres that benefit from growth. But India’s population is massive and a huge chunk of the population is not benefiting,” said Joshi.

The rural sector, for example, accounts for two-thirds of India’s billion-plus population but is growing at less than one third of the pace of the overall economy.

A tale of two regions: Outside Kalwari, men sat by a main road. Some picked up rubbish scraps. They supplemented their meagres incomes, they said, by occasionally being picked up in a lorry to attend political rallies in Delhi.

Kalwari is a bus ride away from Gurgaon, a town of call centres, new suburbs and one of the largest McDonald’s in India. But few farmers thought they, or their children, would ever find work there.

“We are uneducated, unskilled people. Who will take us?” said Balvan Yadav, a 32-year-old farmer.

On the opening of the budget session, President A.P.J Abdul Kalam told parliament the centre-left government was committed to “inclusive development”.

It has introduced measures to help India’s 260 million poor, from programmes that guarantee jobs for rural poor to food subsidies. But many of the funds do not reach their target through poor implementation or corruption.

Raj Singh’s hut has no electricity nor running water. Children play near stinking gutters. The caste divisions of a village so close to the capital also underscores how obstacles to modernisation in India are hard to overcome.

Singh has two children. One, a girl, was married off at 15. His other child, a boy, goes to school, “if the teachers turn up” and otherwise works to supplement Singh’s 2,000 rupees ($44) a month income by helping out in the fields.

India has higher levels of malnourished children than Sub-Saharan Africa, according to a recent survey backed by the UN Children’s Fund (UNICEF), and some key health indicators have hardly budged despite the boom.

The city-rural divide has widened in India and was reflected in a 2004 election when millions of rural poor voted against the free market reforms of the ruling Bharatiya Janata Party.

This year, reforms from the Congress-led coalition like special economic zones to encourage industrial development have been suspended due to a backlash from farmers.

And on Tuesday, the Congress party was ousted from power in the states of Punjab and Uttarakhand in elections reflecting voter anger over inflation and economic reforms. “The question now is not growth, but the nature of the growth. Who will benefit?,” said Joshi.

http://www.dailytimes.com.pk/default.asp?page=2007\03\01\story_1-3-2007_pg4_22

 

[Neo]

India May Seek to Spend on Ports, Cut Tariffs to Slow Inflation

By Cherian Thomas

Feb. 27 (Bloomberg) -- India's government may spend as much as 60 percent more on ports, power plants and roads in its next budget, allowing companies to cut costs and help damp the fastest inflation in two years.

Finance Minister Palaniappan Chidambaram will also probably cut import tariffs to make products cheaper in the budget for the year starting April 1 in New Delhi tomorrow. Chidambaram presented his first budget in 1996, when India's economy was half its current $854 billion size.

Prime Minister Manmohan Singh, facing political pressure over rising prices that are eroding the spending power of India's poor, last week asked state chief ministers for their help to curb inflation. Improved infrastructure may encourage more companies to follow in the footsteps of Nissan Motor Co. and Renault SA, which are investing in factories in the world's second-fastest growing major economy.

"If the government gets it right on inflation, the country can look forward to sustained high growth,'' said Robert Prior- Wandesforde, an economist at HSBC Holdings Plc in Singapore. "Removing infrastructure bottlenecks should improve the productive potential of the economy, so that it can sustain demand growth without running into inflationary difficulties.''

India's benchmark inflation rate climbed to 6.73 percent this month as record 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 percent, while price increases for urban dwellers are the most in six years.

Cars, Houses

The fastest loan growth since 1971 and higher salaries are enabling Indians to buy products from cars to houses, stretching the capacity of Steel Authority of India 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. Chidambaram may also prune tax exemptions on home loans to slow mortgages.

India, Asia's fourth-biggest economy, may grow 9.3 percent in the quarter ended Dec. 31 from 9.2 percent in the previous quarter, according to a Bloomberg News survey. The government expects a record 9.2 percent expansion in the year to March 31, the fastest pace after China among the world's major economies.

"Inflation control is on top of the agenda of the government,'' said Venugopal Dhoot, president of India's Associated Chambers of Commerce and Industry, or Assocham. "The government will cut customs duty further to check inflation and to meet its commitment to cut the tariff to Asean levels.''

Consumer affordability has increased demand for food products such as wheat, sugar and cooking oil. India, the world's second-biggest wheat grower, last year became an importer of the grain for the first time in seven years. It also banned export of wheat and pulses to augment supplies.

Import Duties

Chidambaram on Jan. 22 unexpectedly cut import duties on a range of products from steel to sulphur to palm oil, a month ahead of the scheduled announcement in the budget, to rein in prices. Five out of six traders and importers surveyed by Bloomberg News on Feb. 22 expects India, the world's second- biggest buyer of vegetable oil, to further cut duty on palm oil.

Since 2001, the government has more than halved the maximum customs rate for manufactured goods to 12.5 percent, to align the levy with the Association of Southeast Asian Nations such as Singapore where the tariff ranges between zero and five percent. Assocham's Dhoot expects India's peak customs rate to be cut to 10 percent.

Prime Minister Singh's Congress party faces seven state elections this year, the most important being in April in the northern province of Uttar Pradesh, which sends a seventh of all lawmakers to parliament. The election outcome in Uttar Pradesh will set the tone for the next general elections in two years.

Power Plants

India's infrastructure deficiency adds to the cost of companies operating in India.

Honda, Japan's No. 3 carmaker, has its own power plant because government supplies account for only a quarter of its needs. Ford Motor Co., which has a factory in southern India, requires its engine supplier in central India to fit delivery trucks with global positioning system devices so it can locate vehicles stuck in traffic and adjust production schedules.

India produces about 8 percent less electricity than it needs, cutting gross domestic product by a 10th, the finance ministry estimates. Highways, which move almost 80 percent of the goods transported in India, account for only about 2 percent 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.

"The government has enough money this year to meet its budget deficit target and allocate more for infrastructure,'' said Saumitra Chaudhuri, chief economist at rating company ICRA Ltd. "Tax revenue has been buoyant because of rapid growth.''

Budget Deficit

Chidambaram had planned to narrow the budget deficit to 3.8 percent of gross domestic product in the year ending March 31, from 4.1 percent of GDP in the previous year, after providing eight percent of the 5.63 trillion rupee budget on food and fertilizer subsidies, 13 percent on defense, 21 percent on interest payments and another 29 percent to states' exchequer.

The government may not have to increase bond sales next year as increases in tax revenue will cover expenses such as on roads and defense. Chidambaram may announce bond sales of 1.52 trillion rupees ($34.4 billion) in the year starting April 1, the same level as last year, according to the median estimate of seven traders surveyed by Bloomberg News on Feb. 23.

Tax collections have risen 38 percent in the nine months ended Dec. 31 compared with a target of 15 percent. India, which spends a seventh of China's $150 billion investment in public works each year, wants to team up with non-state and foreign companies to invest as much as $65 billion in infrastructure each year until 2012.

Credit Rating

Improving government finances prompted Standard & Poor's last month to raise India's debt rating to investment grade for the first time in 14 years. Moody's Investors Service raised its rating to investment grade in January 2004.

S&P said another rating upgrade would depend on further reductions in the budget deficit. India is bound by a law to cut the budget deficit by 0.3 percent of GDP each year, and to eliminate its revenue deficit by 2009, borrowing only to fund investments thereafter.

JPMorgan Chase & Co. economist Rajeev Malik expects Chidambaram to maintain existing corporate and personal income tax rates and get rid of the 10 percent corporate surcharge. Domestic companies pay a 30 percent tax rate, and an additional levy of 10 percent on it to fund the government's education and other programs. Foreign companies in India pay a tax of 40 percent and a 2.5 percent surcharge on it.

"A critical feature of future fiscal reforms will be the pace at which the government eliminates tax exemptions -- in the form of subsidies and concessions,'' said Malik.

Tax exemptions to companies and individuals in the year ended March 31, 2005, cost the government 1.58 trillion rupees, equivalent to 52 percent of the total tax revenue collected that year, Malik said.

http://www.bloomberg.com/apps/news?pid=20601080&sid=aSHzKrTpGl1Y&refer=asia

 

[Neo]

Indian minister urges government to spend on agriculture and education
By Anand Giridharadas and Amelia Gentleman
Published: February 28, 2007

MUMBAI: Buoyed by a strong economy, the finance minister of India on Wednesday called for billions of dollars in investment in agriculture and education as a way to more evenly spread the benefits of growth.

In an annual budget address, Finance Minister Palaniappan Chidambaram proposed billions of dollars in spending to enrich the ailing rural economy and to open access to quality education, a dearth of which has hindered the thriving outsourcing industry in India.

Answering calls for greater investment by Indian outsourcers and multinationals like Microsoft that have vast operations here, Chidambaram proposed to raise central government spending on education by 34 percent, to $7.3 billion, including a doubling of outlays on secondary education. He proposed increasing health care spending by 22 percent, to $3.4 billion, and to inject an extra $1.3 billion into Bharat Nirman, an effort to build rural infrastructure like roads and telephone lines.

"Education and health care are the prime imperatives as far as this budget is concerned," the prime minister, Manmohan Singh, said after the speech.

By focusing on the grinding poverty in India, the budget proposal suggested that the government, led by the Congress Party, was already turning its eye toward the 2009 general election, said Kuldip Nayar, a veteran political commentator in Delhi. That emphasis appeared to come at the expense of some of the business-friendly measures for which industry had hoped.

A widely expected corporate tax cut was not part of the package, which included new taxes on dividend payments, office rentals and the profit of information technology firms.

Infosys, the Indian software giant, immediately said that its margins would fall by 1.5 percent under the proposal.

"The finance minister is making a simple statement: 'I'm happy companies are making money, but give me more of that,'" Uday Kotak, the vice chairman and managing director of Kotak Mahindra Bank, one of the largest Indian financial houses, said during a televised discussion by business leaders.

The Sensex, the benchmark index of the Bombay Stock Exchange, which had fallen about 300 points before the speech as part of the worldwide stock- market tumble, plunged an additional 240 points, closing at 12,938.09, down 4 percent from the start of trading.

Some investors and economists interpreted the emphasis on poverty as a signal that economic liberalization was sliding further down the priority list.

Ifzal Ali, the chief economist of the Asian Development Bank in Manila and a vocal champion of anti-poverty efforts, was nevertheless gloomy about what he said was the lack of measures to sustain high growth rates.

"A disappointing feature of the budget speech is the omission of reforms for labor markets, privatization, financial sector, foreign direct investment caps, etc., which are critically needed to improve the business and investment climate," Ali said in an e-mail message after the speech. "Have reforms gone into a deep slumber?"

Chidambaram used the speech to propose a multifront attack on inflation, which has crept above 6 percent. Declaring inflation to be a grave threat to the average Indian, the government has recently lifted short-term interest rates, tightened the money supply and curbed duties on essential commodities.

The finance minister announced a handful of additional tax cuts Wednesday intended to further dampen inflation, including the reduction of peak import tariffs on nonagricultural goods to 10 percent from 12.5 percent. The government also announced a ban on new futures contracts for wheat and rice on commodities exchanges, fearing that speculative investing is helping to inflate prices.

But a thrust of the Chidambaram speech was on the need to curb inflation by addressing the bane of the Indian economy: 115 million farming families, dispersed among more than 600,000 villages, whom growth has left behind. They are unable to increase their yields at the pace at which urban consumption is growing, causing prices to rise.

The farm sector, which employs two- thirds of the country but accounts for just one-fifth of the economy, has grown at slightly more than 2 percent a year for the past several years.

That is a far cry from the 9.2 percent growth projected for the broader economy in the fiscal year ending March 31.

"Everything else can wait, but not agriculture," Chidambaram said, quoting the first Indian prime minister, Jawaharlal Nehru.

Chidambaram proposed to increase bank credit to induct five million more farmers into the formal banking system, and away from the murky world of moneylenders.

He proposed to extend death and disability insurance to eight million families of landless villagers.

Chidambaram was at pains to emphasize the government commitment to its vision of "inclusive growth," especially given election defeats Tuesday in two northern states — defeats which the prime minister conceded were linked to anger about high prices.

Chidambaram devoted the first 40 minutes of his 90-minute speech to outlining how his government proposed to expand opportunity.

He introduced plans for more and better training in vocational and technical institutes, along with plans to build 500,000 more classrooms and employ another 200,000 teachers.

A proposed scholarship program would pay for 100,000 students to continue their education beyond the age of 11, to curb the high rate of dropouts.

But criticism emerged instantly from business groups which said that the budget focused too heavily on the poor — and from left-of-center economists who said it was not pro-poor enough.

Jayati Ghosh, an economist at Jawaharlal Nehru University in Delhi, said too little money would go to health care, the reversal of food price increases and new employment plans.

"This was a historic opportunity," she said. "Tax revenues are up, the economy is buoyant. There was a real chance to allocate money to these critical areas. That opportunity wasn't taken."

http://www.iht.com/articles/2007/02/28/business/india.php

 

[Neo]

'Help us to build rural India'

Thursday, March 01, 2007

NEW DELHI, MARCH 1: Finance Minister P Chidambaram asked industry leaders to join hands with the government in putting agriculture and rural economy on a high growth path, which is also the main focus of Budget 2007-08.

"Just imagine what can happen to industry and services if agriculture grows at 4 per cent. It is in your interest that agriculture must grow at 4 per cent," Chidambaram said at a post-budget interaction with the industry.

If the purchasing power of rural India is at par with urban India, it would lead to a manifold increase in demand for goods and services, he said, adding the government would facilitate growth in agriculture through budgetary support for farm credit, fertiliser, irrigation and certified seeds.

He lamented that wheat production had been stagnant at around 69-72 MT, rice 90-94 MT and pulses 11-14 MT over the past few years, even as rise in population and per capita income had changed consumption patterns in the country.

Pointing out to the contrast between a prosperous and poor India, he said: "We can't delude ourselves that we will live a particular style of life, while they continue to languish in poverty".

He said the industry and services should welcome the focus given to agriculture and rural economy, which would create additional demand for their goods like refrigerators, two-wheelers and TV sets.

The government is also focusing on sectors like small cars, textile, leather and footwear, gems, jewellery and pharmaceuticals to make the industry competitive in these areas globally.

http://www.financialexpress.com/latest_full_story.php?content_id=156430

 

[Janbaz]

India’s two state airlines to merge

NEW DELHI: India’s two state-owned airlines will merge within four months in a bid to create a world-class airline that can compete globally, the government announced on Friday.

“One company with one name, one brand, one logo, one code and a single (set of) financial is expected to be in place within the coming 16 weeks,” Aviation Minister Praful Patel told parliament.

However, the technical and procedural formalities for merging international flag carrier Air India and domestic airline Indian Airlines will take about two years, he said.

“It is our objective to create a world-class airline,” he said, promising that the transition to a merged airline would not lead to job cuts.

“It is estimated that this decision would result in net benefit of six billion rupees ($136 million) at the end of the third year of the merger,” he added.

The announcement came after the cabinet earlier this week cleared the merger plans which analysts see as a way for the two airlines to take on new competition in the burgeoning deregulated aviation market.

Air India operates on international routes, while Indian Airlines flies mostly to domestic destinations and some neighbouring countries.

The new airline, which will have 111 planes on order, would be comparable to any other major airline “at least in this region,” Patel said.

It will have an existing fleet of about 112 aircraft, Patel said, adding it would “set fresh benchmarks for efficiency and reliability, thus benefiting the civil aviation sector in the country, especially the travelling public.”

The government’s aim was to create a “strong national carrier” that can counter competition from rivals.

Seven new carriers have sprung up in the past four years in India’s liberalised skies, once dominated by the state-run airlines, and another five have applied to take off.

Airline promoters have been lured by an increasingly affluent middle class in the country of over one billion people.

The two state carriers were sheltered until the early 1990s by a protected market. But after deregulation the airlines carriers have been under pressure from international and new domestic carriers.

The newer airlines boast modern fleets and have started flights to smaller Indian cities, as well as to overseas destinations like London and Southeast Asian cities, to grab market share.

Air India last year ordered 68 Boeing planes to update its ageing fleet. Indian Airlines, the second largest domestic airline after Jet Airways, is purchasing 43 aircraft from Airbus.

The planes are to be delivered over the next three to five years.

Indian media reports have said the government plans an initial public offering of shares in the new merged entity.

The merger is just one of the expected moves toward consolidation in the crowded Indian aviation sector

The News.
http://thenews.jang.com.pk/daily_detail.asp?id=45243

 

[Janbaz]

BG India consortium finds more oil

NEW DELHI: BG India and consortium partners, Oil and Natural Gas Corp and Reliance Industries Ltd, have found more oil in a field off Gujarat, a newspaper reported on Saturday.

The Economic Times newspaper said the consortium, operating the Panna/Mukta and Tapti fields off the coast of western Gujarat state, had found more oil in the block, which is already producing 45,000 barrels a day.

BG India is the local arm of Britain’s BG “Prospects looked very encouraging, but we cannot disclose any other detail before the same is approved by the DHG (Director General of Hydrocarbons),” the paper quoted an unnamed BG executive as saying.

BG India officials declined comment when contacted by Reuters. But the paper quoted Director General of Hydrocarbons V K Sibal as saying: “There is some discovery in a satellite field for which appraisal would be undertaken.” The paper said industry sources estimated the discovery at about 30 million barrels.

The News.
http://thenews.jang.com.pk/daily_detail.asp?id=45370