August 2009

Chief Editor : Neeta Prasad Incharge : Manogyan R. Pal

Vol 53
Production Officer : J.K. Chandra Cover Design : Sadhna Saxena E-mail (Editorial) : editoryojana@hotmail.com : yojanace@gmail.com (Circulation) : pdjucir_ jcm@yahoo.co.in Website : www.yojana.gov.in

Let noble thoughts come to us from every side

Rig Veda

CONTENTS
GROWTH, INCLUSION AND RISK .........................................5 Subir Gokarn FISCAL PROFLIGACY WITH OVERALL DIFFIDENCE .......8 Ravindra H Dholakia THE BUDGET AND ExPORTS: DOING WHAT IT COULD HAVE ..........................................................................13 Amitendu Palit A CAUTIOUS AND RESTRAINED BUDGET .......................17 T N Ashok FINANCING HEALTH AND EDUCATION............................21 Soumyakanti Mitra TAxES AND THE BUDGET....................................................25 TOWARDS FASTER RECOVERY..........................................28 Jayanta Roychowdhury IN THE NEwS .......................................................................32 AGRICULTURE AND THE BUDGET ...................................33 Surinder Sud BUDGET AND ENERGY .........................................................38 Vijay Thakur ExPANSION WITH INCLUSIVE GROWTH .........................41 K R Sudhaman DO YOu KNOw? ..................................................................45 G-20: A NEW BEGINNING......................................................47 Anindya Sengupta BEST PRACTICES A NURSERY PLAYING MANY ROLES ..........................................................................51 Shabana URBAN INFRASTRUCTURE DEVELOPMENT IN INDIA ...................................................................................53 Prem Pangotra SHODH YATRA A MAN WHO WOULD GO TO SUN....57 COMPETITION LAW AND POLICY: INDIAN CONTExT .................................................................................59 Amit Singh FLORICULTURE OPPORTUNITIES FOR INDIA .................62 Kiran Kumar P, Jayasheela PROTECTING A SACRED GROVE........................................65 Ram Kumar Bhakat J&K wINDOw .....................................................................68 BOOK REVIEw ....................................................................71

Our Representatives : Ahmedabad: Manisha Verma, Bangalore: M. Devendra, Chennai: I. Vijayan, Guwahati: Anupoma Das, Hyderabad: V. Balakrishna, Kolkata: Antara Ghosh, Mumbai: Jyoti Ambekar, Thiruvananthapuram: M. Jacob Abraham.
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YOJANA August 2009

FLAgSHIP PROgRAMMES
Nirman Estimates 2009-10. To broaden the pace of rural housing, FM has proposed to allocate, from the shortfall in the priority sector lending of commercial banks, a sum of Rs.2,000 crore for Rural Housing Fund in the National Housing Bank (NHB). 3. National Rural Employment Guarantee Scheme: NREGS, which was launched on February 2, 2006, in 200 most backward districts in the first phase, was expanded to 330 districts in the second phase during 2007-08. The remaining 266 districts were notified on September 28, 2008, and the scheme has now been extended to all the districts of the country. More than 4.47 crore households were provided employment in 2008-09. A budget of Rs 39,100 crore has been made for NREGA, which is an increase of 144%. 4. R a j i v G a n d h i G r a m e e n Viduytikaran Yojana: Rajiv Gandhi Grameen Viduytikaran Yojana (RGGVY): Under the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), which is continued during the Eleventh Five Year Plan, 59,882 villages have been electrified and connections to 53.78 lakh BPL households have been released (up to 31.3.2009). propose to allocate Rs.7,000 crore to this yojana which represents a 27 per cent increase over 2008-09 (BE). 5. Irrigation: Bharat Nirman aims to create 10 million hectares of irrigation capacity by 2 0 0 9 t h r o u g h m a j o r, medium and minor projects complemented by groundwater development. 6. Drinking Water: 55,067 uncovered and about 3.31 lakh slipped-back habitations are to be covered with provision of drinking water facilities and 2.17 lakh quality affected habitations are to be addressed for water quality problems. Under Bharat Nirman for rural water supply Rs. 6,441.69 crore in 2007-08 has been utilized. In 2008-09, a budgetary provision of Rs. 7,300 crore had been made out of which Rs. 7,276.29 crore (almost 100 per cent) has been utilized.
YOJANA August 2009

harat

programme launched in 2005-06 with its

six schemes viz. rural housing, irrigation potential, drinking water, rural roads, electrification and rural telephony is an important initiative for bridging the gap between the rural and urban areas and improving the quality of life of people, particularly the poor, in the rural areas. 1. Pradhan Mantri Gram Sadak Yojana: The Pradhan Mantri Gram Sadak Yojana (PMGSY) is one of the most successful programmes under Bharat Nirman. The allocation for this programme has been raised by by 59% over BE 2008-09 to Rs.12,000 crore.

2. Indira Awaas Yojana: Under the Indira Awaas Yojana (IAY) for construction of 21.27 lakh houses, Rs. 8,795.79 crore has been released till March 31 2009 and 21.05 lakh houses have been constructed during 2008-09. The Indira Awaas Yojana ( IAY) is proposed to be increased by 63 per cent to Rs.8,800 crore in Budget
2

t is extremely rare for a Union Budget in this country not to raise debates and discussions. Despite the fact that budget is not the only platform for announcing economic policy decisions, despite also the fact that usually more such policy announcements are made throughout the year than on this particular day alone, this annual event continues to attract an extremely keen following. And justifiably so, for the annual budget reflects the intent of the government, offers an insight into the country's financial health, sets the tone for further policy decisions and charts out the general roadmap that the development caravan is likely to follow during the year. For an economy battling the impact of a global economic downturn , this roadmap charted out by the government assumes special significance. The Budget for 2009-10 has been presented at a time when much of the developed world is hit by recession. The downturn has hit trade, commerce and industry in the country, brought down growth rates, thrown people out of jobs and put a question mark on the future of development projects. In times of such stress, the average Indian, as well as those who run businesses, rightly turn to the government for solution and expect initiatives that can help the economy regain its foothold. Especially so, when the government has just come back to power, strengthened by a clear majority in the general elections. Against this backdrop of economic compulsions and raised expectations, the Budget 2009-10 has tried to address the three major challenges facing the economy - to revive the 9 per cent GDP growth rate at the earliest, to deepen and broaden the agenda for inclusive development, and to energize government and improve delivery mechanism. As a short term measure for steadying the shaky economy, the government has stepped in with a huge spending of Rs 10.21 trillion directed largely at public projects and tax relief. The idea is to propel growth by increasing demand. Allocations have been raised for the Flagship Programmes of the government, the Rural Development sector, Infrastructure, Education and programmes directed towards the weaker and poorer sections of the society. This year's budget was a really difficult balancing act between huge demands on one hand and very restricted choices for raising tax revenue on the other. Given this fact, many feel that this was the best the Finance Minister could have done under the circumstances. However, there will always be critics who feel that the budget could have shown more fiscal discipline by keeping the fiscal deficit low. The Economic Survey has meanwhile indicated signs of recovery for the economy. As such, the government can also take this into consideration while setting its agenda. The articles inside bring you opinions from experts about how the budget has treated the different sectors. Opinions will always remain divided. Only time can tell how the economic management of the country shapes up over the year, and whether the roadmap charted out by this budget is actually able to lead us out of this economic downturn. q
YOJANA August 2009 3

About the Issue

A Budget for the Aam AAdmi

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Allocation for the Bharat Nirman Schemes raised by 45 per cent. National Rural Employment Guarantee Scheme (NREGS) gets 144 per cent more, Pradhan Mantri Gram Sadak Yojana (PMGSY) 59 per cent more, Rajiv Gandhi Grameen Viduytikaran Yojana (RGGVY) 27 per cent more and Indira Awas Yojana (IAY) 63 per cent more than last year. A sum of Rs. 2,000 crore has been allocated for Rural Housing Fund. A new scheme, Pradhan Mantri Adarsh gram Yojana (PMAGY) will be launched this year on a pilot basis for integrated development of 1000 villages with above 50 per cent Scheduled Caste population. Stress on the formation of women Self Help Groups
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(SHGs). Along with capital subsidy at an enhanced rate, interest subsidy to poor households to be provided for loans upto Rs. 1 lakh from banks. A National Mission for Female Literacy to be launched The Swarna Jayanti Gram Swarozgar Yojana (SGSY) to be restructured as National Rural Livelihood Mission to make it universal in application, focused in approach and time bound, for poverty eradication by 2014-15. A new scheme, Rajiv Awas Yojana will be introduced to make the country slum free in the next five years. The Budget commits that all Integrated Child Development Services will be extended to every child under the age of six by March, 2012. The allocation for the Ministry of Minority Affairs has been

increased by 74 per cent. The Budget has made allocations for the new schemes of National Fellowship for Students from minority community.
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A new project is being launched for modernization of the Employment Exchanges to enable job seekers to register on-line from anywhere and approach any employment exchange. The Government proposes to bring all BPL families under the Rashtriya Swasthya Bima Yojana (RSBY). The allocation for the scheme is being increased by 40 per cent. Draft Food Security Bill to be put on the net soon for public debate and consultations. The proposed National Food Security Act will ensure that every family living below the poverty line in rural or urban areas will be entitled by law to 25 kilos of rice or wheat per month at Rs. 3 a kilo.

Environment and climate change

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In furtherance to National Action Plan on Climate Change, eight national missions representing a multipronged long-term and integrated approach to be launched. National Ganga River Basin Authority set up. Budgetary allocation under National River and Lake Conservation Plans increased from Rs.335 crore in B.E. 2008-09 to Rs.562 crore in B.E. 2009-10. Special one-time grant of Rs.100 crore given to Indian Council of Forestry Research and Education, Dehradun. Rs.15 crore each to be allocated to Botanical Survey of India and Zoological Survey ofIndia. An additional amount of Rs.15 crore to be allocated for Geological Survey of India
YOJANA August 2009

l l

BudgET 09-10

OpiNiON

Growth, Inclusion and Risk

Subir Gokarn

The size of the overall fiscal deficit as well as the increase in disposable incomes should help stabilize economic growth this year, while laying a foundation for acceleration next year
YOJANA August 2009

HE UNION Budget for 2009-10 was presented against a complex backdrop. There was the inescapable reality of the economic environment. Growth in the Indian economy has slowed considerably even as much of the world has gone into a pretty deep recession. The government has been responding to the situation, but was obviously somewhat constrained by the electoral cycle. This budget was the first opportunity to mount a systematic and concerted effort to get things back on track. But, beyond the short-term consideration of offsetting the slowdown, there were several long-term factors prominent in the backdrop. After a decade, the composition of the ruling coalition had swung sharply towards single-party dominance. This raised expectations of a less contested policy agenda, which were reinforced by the largely reformist intentions articulated in the Presidents Address to Parliament and the even more

ambitious Economic Survey for 2008-09. In my view, the Budget did not live up to these expectations. Like many people, I was hoping to hear a strong and clear message about the many measures that the government would take to further its inclusive growth agenda and then to see specific budget initiatives placed in this context. The Finance Minister was careful to point out that the Budget was not the only policy statement that the government would make, so one must not assume that it defined the boundaries of the agenda. We can wait and watch for more to happen. Nevertheless, the opportunity to create a policy context for the now certain five-year term that a firstyear budget provides should have been used more effectively. However, if one had more modest expectations from the Budget, viz., what it it actually going to do for the economy in the short term, then one had virtually no reason to be disappointed. Nothing in it will do

The author is Chief Economist, Standard & Poors Asia-Pacific. 5

any harm and several things may do a lot of good. Of course, looming over this rather benign view is a significant risk of a fiscal blowout. In what follows, I make brief assessments of the Budget proposals on the basis of four sets of criteria: Growth, Infrastructure Development, Inclusion and Fiscal Discipline. growth There are no two ways about it: a fiscal deficit of 6.8 per cent of GDP will provide a growth stimulus. The recent signs of a turnaround in the economy are, in my view, largely due to the stimulus that was provided towards the end of 2008 by way of implementation of the Sixth Pay Commission recommendations. Over the past few months, this has contributed to a surge in sectors such as consumer durables, and some automobile segments. More deficit spending by government will clearly reinforce this tendency. More pointedly, the Budget has significantly incentivized consumer spending by means of the abolition of the personal tax surcharge and lifting of tax liability thresholds. The initial impact of these measures will obviously be skewed towards consumer goods, including the two segments referred to above, but if the momentum that is generated sustains, it will spill over into others through linkages. At the very least, the size of the overall fiscal deficit as well as the increase in disposable incomes should help stabilize economic growth this year, while laying a foundation for acceleration next year. Infrastructure Development The Budget scores reasonably high on this front. Allocations to most of the infrastructure ministries, which will implement projects, have increased substantially, in many cases accelerating in comparison
6

with the previous year. The power sector, perhaps the weakest link in the infrastructure chain, was given about 46 per cent more money than in the previous year. Urban development has also been given significantly more money under the umbrella of the JNNURM. These are all very re-assuring, but even at the risk of be-labouring the point, the economic impact of these allocations, both in the short term and the long term, will be when they are actually spent. In an environment in which private investment, both domestic and foreign, will be reluctant to fund long-gestation greenfield projects, the role of public funds becomes even more critical. The expansion of the capacity of IIFCL to intermediate funds from the banking system to infrastructure projects will also help. Ultimately, however, solid, commercially viable projects have to be available. This requires more diligence and co-ordination on the part of several government agencies at the central, state and local government agencies. The intention to set up key project monitoring mechanisms is an important step in facilitating this and they must be initiated as quickly as possible. Inclusion The NREGS is clearly perceived by many people, within and outside government, to have played a stellar role in the re-election of the UPA. Even with its limited coverage and concerns about inefficient implementation, it offered several millions of people a safety net that just did not exist before. Security against complete deprivation is a fundamental component of inclusion and the intent of government to broaden the programme and hopefully make it more efficient is clear from the significantly larger

allocation made to it. On the other dimensions of inclusion, viz., health and education, it is striking that the allocations have not increased significantly over the previous year. A lot of activity in these sectors is, of course, funded by state and local governments, but it is a bit surprising that the central government, which swears by its inclusiveness agenda, should have been so conservative in its allocations. One could argue that this simply reflects the governments belief that the enormous slack in the system can be reduced enough to get a lot more bang for the buck but, here again, the issue of delivery and the several weaknesses in the system is critical. Accompanying the flat allocations must be a programme to rapidly improve the efficiency of delivery. Fiscal Discipline This is the one dimension on which one has to find fault with the Budget. There is, inevitably, a contradiction between assessing the Budget favourably with respect to growth because of the high fiscal deficit and then complaining about the size of the deficit. However, the concern is not so much with the size of the deficit at this point in time, where the contradiction is most obvious but with the absence of an explicit strategy to deal firmly with the problem as the economy recovers and the need for fiscal stimulus reduces. An ambitious disinvestment target was expected to be announced in the Budget, but eventually a very small target was set. Other sources of non-tax revenue, e.g., the spectrum auction, are essentially one-time realizations. We need to see more articulation of reforms on the tax and expenditure fronts, which will constitute a dynamic plan to reduce the deficit. That was not in the Budget. Some reassurances have come from subsequent activity to prepare the
YOJANA August 2009

ground for somewhat more substantial disinvestment than was targeted, but until the money is in the kitty the problem will not go away. One additional source of comfort is the relatively conservative estimates for tax revenue growth. Overall revenues are expected to increase by a mere 2 per cent, with most sources actually declining relative to the previous year. The only significant growth is expected to come from corporate taxes on account of the raising of the Minimum Alternate Tax (MAT) liabilities, which means that the average tax collections per company will increase. The aggregate estimates appear to be somewhat pessimistic in the current economic environment but, consequently, the likelihood of collections rising

beyond estimates and the fiscal deficit narrowing is higher. Perhaps as a strategy it is more effective to set expectations low and then surpass them rather than the other way round. However, one cannot wish away the nervousness that the high deficit has evoked amongst investors; the impact it may have on interest rates can derail the recovery process and to that extent, deficitinduced growth is a rather risky proposition. Speaking about reforms, the commitment to introducing the Goods and Services Tax (GST) at the central level in 2010 is rather ambitious but entirely welcome. While it may take time to implement smoothly, this is a major reform to the tax system, which will incentivize all those who are

outside the tax net today to enter it. There will certainly be significant long-term payoffs from this in the form of a higher Tax-GDP ratio. On three of the four criteria that I laid out, the Budget certainly had some positive measures or, at least, did no harm. However, the high dependence on a large deficit to induce a quicker recovery in the economy brings with it significant risks of hindering that very recovery through its impact on interest rates. In a benign environment, with low inflationary pressures and high capital inflows, things may pan out as planned. But if, for example, inflationary pressures re-emerge, monetary and fiscal forces could come into conflict, threatening growth and stability. q
(Email : subir_gokarn standardandpoors.com)

YOJANA August 2009

YE-8/09/1

BudgET 09-10

pErSpECTiVE

Fiscal Profligacy with Overall Diffidence

Ravindra H Dholakia

The present budget, ignoring completely fiscal prudence, has chosen to provide temporary relief to the present generation by imposing severe burden on the future generations
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NNUAL BUDGET is supposed to be a comprehensive compilation of the fiscal policy statements of a government. A pure fiscal policy is any policy that directly affects governments expenditures and revenues. Union government in India accounts for approximately 55% to 60% of all government activities. Union budget is, therefore, an extremely important statement for the domestic and foreign business sector who intends to do business in or with the country. Budget is invariably seen and examined in the context of and within the framework provided by the annual Economic Survey prepared by the Ministry of Finance (MoF), which tables it in the Parliament a couple of days before the budget. The Economic Survey presents the SWOT (strengthsweakness-opportunity-threat) analysis of the countrys economy

and provides policy prescriptions for the short, medium and long terms. Since 1991 in India, professional Finance Ministers (FMs) have been abiding by the Economic Survey while preparing the budget and in case they decided to deviate from what was mentioned in the Survey, they felt obliged to justify their decision to deviate temporarily. This background is relevant because after 1991, for the first time this year, there is almost a total disconnect between the Economic Survey and the Budget proposals. State of the Indian Economy The performance of the Indian economy during the year 2008-09 in terms of critical parameters would be very relevant to examine the plausibility of the assumptions underlying the calculations in the budget. The growth of real GDP during 2008-09 was recorded at 6.7% compared to 9% during

The author is Professor of Economics, Indian Institute of Management, Ahmedabad. YOJANA August 2009

2007-08. This was the effect of the global crisis and subsequent slow down in the Indian economy. The last quarter (Jan-March, 2009) of the year recorded the growth of only 5.8%, which was 0.5% point higher than anticipated. As such the second last quarter (Oct-Dec. 2008) of the year had also clocked the growth rate of 5.8%. Thus, the fall in the growth rate of real GDP was arrested by the end of the year 2008-09. The Prime Minister had announced that the worst phase was behind us and that we had started recovering. Moreover, in all these growth figures, the growth of agricultural was substantially less than the average recorded in the last 3-4 years. Current monsoon is not very good, but is also not bad, implying that we could achieve 3 to 3.5% real growth in agricultural during 2009-10. In the matter of prices, the target of inflation was totally frustrated with a substantial unanticipated inflation driving the WPI based 52 week average inflation reaching 8.4% , CPI (Industrial Workers) based inflation being 9.1% and CPI (Rural Labour) based inflation crossing double digit to 10.2%. Causes for this are well known, but failure to contain inflation was particularly harsh on the rural poor because they suffer the most when unanticipated inflation occurs. Subsidy programmes for food, shelter, employment, etc. have to be viewed as efforts to compensate rural poor for the unanticipated inflation just as the dearness allowance (DA) compensate the industrial workers.
YOJANA August 2009

The Forex reserves stood at $ 252 billion on 31st March, 2009 implying a huge net outflow of about $ 60 billion during the year. Most of the liquidity expansion undertaken by RBI through monetary policy measures during the last year was primarily to fight such an unprecedented drain on liquidity created by the net outflow of $ 60 billion. However, since April, 2009 things have started looking up and we have already received FII and FDI inflows of about $ 8 to 10 billion by end of May, 2009. The exchange rate that averaged $ 1 = Rs.46 during 200809 showing a 15% depreciation over 2007-08 started showing the signs of appreciation. From the peak of $1 = Rs.51.20 in March 2009, it has already appreciated by 6.5% in June end. The fiscal deficit was the greatest cause of concern. The official revised estimate of the fiscal and revenue deficits for the year 2008-09 significantly exceeded the budget estimates and stood at 6.2% and 4.6% respectively. The FRBM Act targets were comprehensively missed. For the first time in the last 40 years, we reported a primary revenue account deficit, and that too, of 1% of GDP, which implies that our revenues are insufficient not only to meet our capital outlays and interest obligations but also a part of our current consumption expenditures. Fiscally, this is a grave situation and must be immediately addressed. It is argued by several economists and policy makers that once in a while such a situation would not be unacceptable particularly when the government

was required to pump-prime the economy to sustain growth and employment. However, a closer examination would reveal that the real net fiscal stimulus provided in response to the global melt-down and its adverse impact on the Indian economy was hardly 1 to 1.3% points of GDP, whereas the fiscal slippage was almost three times the amount. This was only on account of fiscal profligacy and cannot be ascribed to the fiscal stimulus argument. Thus, there was an urgent need to correct the fiscal imbalance in the budget for 2009-10. Objectives of the Budget 200910 As per the budget speech of the FM, there are about 11 different objectives that the budget would address. Most of these objectives are from the election manifesto of the ruling party as one would expect. However, fiscal consolidation or fiscal discipline did not figure in that list of objectives. Essentially, the budget would aim at (i) continuity of the policy reforms particularly in terms of disinvestment and focus on infrastructural investment to make it 9% of the GDP; (ii) stability in terms of controlling inflation and providing food security by aiming at 4% annual real growth of agriculture; (iii) prosperity in terms of achieving 9% real growth of GDP in the medium term; (iv) inclusive growth in terms of targeting 50% reduction in population living below poverty-line by the year 2014; and (v) social development in terms of providing employment guarantee, social security, raising real wages and housing to the
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needy. The FM has categorically mentioned in his speech that a single budget could not solve all the problems and meet all challenges, and that budget would not be the only means to do so. Thus, there would be other announcements and off-budget policies likely to be made periodically, which means that this budget would not reflect comprehensive compilation of the fiscal policy of the government. Like monetary policy, now even the fiscal policy would change frequently. This in itself is not a good news for the business sector because it would only increase uncertainty due to policies and would not provide a stable environment for the business. It can have adverse impact on the investment decisions of the domestic business and more so for the foreign direct investment by the foreign investors. Assumptions underlying the Budget 2009-10 Budget is an exercise to project / forecast future revenues and expenditures. These forecasts are always based on detailed assumptions about crucial parameters. The most critical parameters in this regard are (i) growth of real GDP; (ii) inflation; (iii) growth of industry; (iv) growth of exports and imports; (v) average exchange rate; etc. The present budget has assumed a nominal growth of GDP to be 10.05% for the year 2009-10. The medium term targets are 12.4% and 13% for the years 2010-11 and 2011-12 respectively. The nominal growth of 10% in GDP consists of the target of 6.51% growth in
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real GDP and 3.32% inflation rate during the year 2009-10. Thus, we have assumed a further decline or deceleration in our real growth of GDP from 6.7% achieved during 2008-09 to 6.5% in 2009-10. This is in spite of the predictions about reasonably good monsoon this year compared to the last year. It seems that MoF is not convinced about the recovery from the slow down and is overcautious overwhelmed by the growth pessimism and selfdiffidence. If China, our major competitor in this regard, is hoping to achieve a real growth of 8% in GDP during 2009-10, it is not only surprising but somewhat shocking that we want only 6.5% real growth. This is because Chinas dependence on exports is more than 30% of its GDP whereas our dependence is not even 20%. It is well known that these two economies have experienced adverse impact of the global meld-down largely through their dwindling exports. Since we have decided to target lower growth next year than the last year, our policy initiatives and reforms during the year are also not expected to be aggressive accordingly. They are expected to be slow, gradual, consumption oriented rather than investment promoting, and social sector based instead of focused on economic recovery. Most of the expenditure proposals in the budget 2009-10 fall under these typologies. Inflation target set in the budget seems to be too ambitious because it disregards past experience and consistency. The target of 3.3% inflation during 2009-10 should be compared to the GDP deflator

inflation and not to the WPI or CPI inflation. During 2008-09, the GDP deflator showed 6.2% inflation. Although the WPI based inflation during the first quarter of 2009-10 (March to June) would be less than 1%, the CPI inflation would be more than 7 to 8%. Moreover, petrol and diesel prices have recently been revised upward by about 8 to 10%, which is likely to ignite further inflationary pressures in the economy. On the other hand, the unprecedented fiscal deficit planned in the budget and a huge increase in the government consumption expenditures provided in the budget would only add to the inflationary pressures. It is most unlikely that the target of containing the GDP deflator inflation to only 3.3% could be achieved. M o r e o v e r, t h e b u d g e t calculations on revenue generation from personal income tax and service tax seem to be based on an assumed nominal growth of 9% in the personal incomes, which is less than 10% growth of nominal GDP assumed by MoF. Further, it also disregards normal buoyancy of personal income tax achieved in the recent past. Similarly, the corporate sector and industrial sector are assumed to grow hardly at 3% in real terms as revealed by the budget forecasts of the corporate income tax and excise revenues. Similarly, it seems that the customs revenues are predicted on the basis of a negative growth of imports in the range of 5 to 8% coupled with expectation of further appreciation of the rupee by 3 to 4%. All these assumptions made in preparing the budget 2009-10 are
YOJANA August 2009

not indicating any optimistic view of the future growth and recovery. Rather, they suggest extremely defensive and diffident approach of the FM and the Cabinet and hence provide the background for expectations about likely reforms in economic policies. For instance the provision of only Rs.1,120 crores from disinvestment in the budget against the recommended amount of Rs.25,000 crores by the Economic Survey makes the intensions of the FM in this regard clear. The actual provision of Rs. 1,120 crores from disinvestment is less than half already achieved in the year 2008-09, which was the year of political strife and controversies. Markets, on the other hand, had expected a very bold, aggressive and optimistic outlook with great commitments to policy reforms. It is, therefore, not surprising that the stock market crashed significantly after the budget. As a major indicator of the reversal in reforms, the current budget substantially increased the size of the government by increasing the total expenditures from 13.8% of GDP in 2008-09 (BE) to 17.4% of GDP in 200910 (BE). This is only for the union government. If we add the states, the size of the government would cross 30% of GDP, which is way above the critical limit of 25% suggested by Colin Clark for efficiency and effectiveness. Fiscal Discipline Fiscal profligacy is the biggest limitation of this budget. Several economists including the present author had suggested in the prebudget expectations that undue
YOJANA August 2009

concerns about meeting the targets of FRBM immediately by 200910 need not prove a constraint for providing the fiscal stimulus for fast recovery and return to the growth path of 9% plus by the next year. However, nobody could have imagined that concerns of fiscal prudence and discipline would be so thoroughly disregarded in this budget. The fiscal deficit during 2008-09 increased from budgeted 2.5% of GDP to 6.2% of GDP (Actual). This should have been brought down to 5% or 5.5% in this budget. Instead, it further increased to 6.8% of GDP as per the budget. If we add below the line subsidies for oil and fertilizers, the true fiscal deficit increased to 8% of GDP in 200809. These subsidies generally increase during the year and are, therefore, not fully provided in the budget. If we make reasonable assumptions about them, the present budget may also result in the true fiscal deficit of about 8% to 8.2% of GDP. When we add the fiscal deficit of states, which is allowed to increase to 4% of GSDP in this budget, the overall fiscal deficit would become 12% of GDP. This is repeated without any efforts to control it during this year. Such a fiscal behaviour is simply not sustainable. It implies a long term debt-GDP ratio of more than 250% and clearly points to the impending threat of debt-trap and eventual bankruptcy. To come out of such a fiscal mess, the future generations will have to sacrifice substantially in terms of higher taxes, higher interest rates, lower

growth and higher inflation. This would not happen if the present fiscal profligacy was directed towards achieving faster growth recovery by targeting 8% to 8.5% real GDP growth. This could have happened with lower expenditures and lower revenues, but with the expenditures for investments and capacity creation rather than for unproductive consumption of populist schemes and programmes like NREGS, Mid-Day Meal, Bharat Nirma, Indira Awas Yojana, etc. In most of these schemes, only temporary assets are built and a large part of the expenditures are economically wasteful. This budget is likely to lead the international rating agencies to downgrade our ratings thereby increasing effective borrowing costs for us. Higher fiscal deficit implying a staggering public borrowing exceeding Rs.4 trillion during the year would, moreover, result in higher interest rates and would crowd out private investment leading to lower growth potential. Further, it would discourage foreign investors who have already withdrawn $ 1 billion in less than 10 days after the budget. Thus, the present budget, ignoring completely the fiscal prudence, has chosen to provide temporary relief to the present generation by imposing severe burden on the future generations. Elected representatives need to ponder over whether they have such a moral authority to decide on behalf of the future q generations.
(Email- rdholkia@iimahd.ernet.in) 11

HOw wILL THE BuDgET IMPACT

The household
l l

Select Life Saving Drugs and medical equipment to cost less LCD TVs, Mobile Phones, l Branded Jewellery,l S p o r t s a n d Leather products,l Packaged Software, Footwear may cost less Contact lenses, toothbrushes, man-made fabrics, set top boxes, gold and silver may cost more. Income-tax exemption limits raised by up to Rs 15,000 for senior citizens and Rs 10,000 for the general taxpayer. 10 % surcharge for those earning more than Rs 10 lakh annually, removed Fringe Benefit Tax (FBT) abolished Commodity Transaction Tax abolished Wealth tax now payable on wealth above Rs 30 lakh instead of Rs 15 lakh

Gifts in kind above Rs 50,000 to become taxable from October Ta x wr i t e - o f f o n R&D expenditure extended to all manufacturing units Credit on Minimum Alternate Tax can be carried forward for 10 years instead of 7 Section 10A and 10B tax holiday for STPs and EOUs extended to March 31, 2011 MAT up from 10 % to 15 % Service tax on legal consultancy to firms Commodity Transaction Tax on derivatives trading abolished New Pension Scheme exempted from I-T, Securities Transaction Tax and Dividend Distribution Tax NPS not exempted from tax on maturity or withdrawal. The target for agriculture credit flow increased from Rs. 2,87,000 crore last year to Rs. 3,25,000 crore for 2009-10.

Business
l

l l

The interest subvention for short term crop loans up to Rs. 3 lakh per farmer to continue with additional subvention of 1 per cent to those farmers who repay such loans on schedule The time for paying 75% of overdues under last years farm loan waiver scheme extended to 31st December, 2009. A Taskforce being set up to suggest action regarding some Maharashtra farmers not covered by loan waver scheme. Allocation under Rashtriya Krishi Vikas Yojna (RKVY) raised by 30 per cent and that for Accelerated Irrigation Benefit Programme by 75% Plans to move towards nutrient based subsidy regime instead of the current product pricing regime for fertilizers. High government expenditure aimed at creating demand and boosting growth. Fiscal Deficit High, but institutional reform measures to be initiated to control it.

l
l

Tax Payer
l

The Investor
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l l l

Economy
l

Farmer
l l

FOR YOu
COSTLIER Set Top Boxes and Gold and silver become dearer Cosmetics, Contact Lenses to cost more

Bulk Gems, Toothbrushes will be dearer Man Made Fabric, Walkman, I-Pod will be costlier Plastic Surgery and Legal Fees will be expensive

CHEAPER Mobile Phones, LCD TV to cost less Cardiac, Hepatitis B, Arthritis and Cancer Essential Drugs Care to cost less Sports Equipments and Big Cars to be cheaper
YOJANA August 2009

12

BudgET 2009-10

pErSpECTiVE

The Budget and Exports: Doing what it could have

Amitendu Palit

w
Incentivization of investment in development of agricultural infrastructure can be useful in enhancing Indias export prospects in the long term

HILE PRESENTING the Union Budget for the fiscal year 2009-10, the Finance Minister drew attention to the significant structural changes that have taken place in the Indian economy over the last decade. Reference to structural change in the context of the Indian economy usually implies the growing contribution of the services sector to overall national output and the stagnant role of industry and manufacturing in this respect. However, in the current context, the Finance Minister was also referring to the increasing integration of the Indian economy with the world economy. As he further pointed out, Indias trade in goods and services was currently estimated

at 47 per cent of its GDP. At this level of integration, the external sector can no longer be ignored as a less-important contributor to the economy compared to its domestic counterpart. The Backdrop to the Budget The Budget was presented in the backdrop of a troubled external sector scenario. The balance of payments (BOP) estimates for the year 2008-09 were released on June 30, 2009, exactly a week before the presentation of the Budget. Normally, Union Budgets are placed at the end of February, a time of the year when only six months information on BOP is available. However, this time around the Budget was richer in terms of knowledge of the developments for the whole year. These developments

The author is a Visiting Research Fellow at the Institute of South Asian Studies (ISAS) in the National University of Singapore (NUS). YOJANA August 2009 13

underlined build-up of some pressures in the external sector. Under no circumstances can these pressures be construed as pointers towards emergence of structural vulnerabilities. Nonetheless, given the robust health of Indias external sector in recent times, the pathological report released by the RBI at the end of last month pointed to some unmistakable signs of stress. The main imbalance was noted in the proportion of the current account deficit with respect to the Gross Domestic Product (GDP). At 2.6 per cent of the GDP, the current account deficit was perhaps larger than what most had expected. Current account deficits higher than 2.0 per cent of GDP tend to bring back uncomfortable memories of 1988-89 to 1990-91 the period when India encountered the most serious external sector crisis in its independent history. The year 2007-08 had ended with a current account deficit of 1.5 per cent of GDP. However, most had not expected the world to suffer such a choking slowdown in 2008-09. They had also, in a similar vein, not expected the global downturn to inflict as much impact on Indias external sector as it had. This is where recognition of Indias trade integration with the world economy assumes vital importance. The effects of the
14

downturn, admittedly, have not been pervasive and across-theboard. At the same time, theres no denying that greater global integration has resulted in India facing the consequences of a sharp contraction in global trade. A steep drop in merchandise exports has led to a swelling of the trade deficit, which has eventually risen to 10.3 per cent of GDP at the end of 2008-09. The current account deficit would have certainly exceeded 3.0 per cent of GDP had the invisibles surplus (7.7 per cent of GDP) not compensated a considerable part of the trade deficit. The high trade deficit underscored a sharp deceleration in growth rates of both merchandise exports and imports. Merchandise exports grew by only 5.4 per cent in 2008-09 (on BOP basis) compared with a far higher growth of 28.9 per cent in 2007-08. The growth deceleration in the current year was entirely an outcome of the export compression experienced during the second half of 200809 with export growth turning negative (-20.0 per cent) during the period. Imports also showed a negative growth of -16.6 per cent during the second half of 2008-09. The negative growth in imports was particularly pronounced in the fourth quarter (January-March) of 2008-09 when the domestic industrial slowdown manifested

in a sharp cutback in productionrelated imports. Budgeted Measures From a trade perspective, the priorities for the Union Budget were quite clear from the outset. The Budget had to address the primary concerns of exporters. However, in this regard, it is important to understand the limitations of the Budget. The Budget is not an exercise in trade policy. By itself, it can contribute to stimulation of demand within the economy by setting in motion an investmentincome multiplier. However, it is helpless in stimulation of external demand the lifeline for exports. A revival in demand for Indias exports depends upon the recovery in main export markets, primarily in North America and Europe, which still appear to be some distance away. The Budget therefore could have contributed only in alleviation of some of the specific concerns of export-oriented industries and exporters that were essentially of a non-demand nature. This is exactly what the Budget has tried to do by announcing the following steps for restoring export growth:
l

Adjustment assistance scheme to provide enhanced Export Credit and Guarantee Corporation (ECGC) cover at 95 per cent to badly hit export sectors extended till March 2010.
YOJANA August 2009

Allocation for market development assistance scheme enhanced to Rs 124 crore. Interest subvention on preshipment credit for seven employment-oriented export sectors extended from September 30, 2009 to March 31, 2010. Sunset clause for deduction of export profits under sections 10A and 10B of the Income Tax Act extended by one more year till the financial year 2010-11. Expansion in the list of duty exempt raw materials/inputs imported by manufacturerexporters of sports goods, leather goods, textile products and footwear items. Two taxable services - Transport of goods through road and Commission paid to foreign agents to be exempted from service tax, if the exporter is liable to pay service tax on reverse charge basis. Thus there would be no need for the exporters to first pay the tax and later claim refund in respect of these services.

The first three measures are continuation of incentives announced earlier in 2008-09 as part of stimulus measures aiming to consolidate export prospects. All the measures are targeted at improving the credit positions of exporters. The outbreak of the global downturn, apart from depressing demand, has had two other impacts. The first of these is a delayed realization of payments for exporters. Indeed, on a number of occasions, there have been instances of cancellation of overseas orders. Such developments have created considerable financial difficulties for exporters, particularly the small and medium ones, who have obtained credit from financial institutions for executing export orders. The second problem has been a sudden drying up of trade finance due to liquidity crunches faced by financial institutions reducing credit availability for exporters. Both these developments have adversely affected credit positions of exporters. The interest subvention of 2 per cent was allowed earlier for employment-intensive exportoriented sectors for the period December 1, 2008 to September 30, 2009. The sectors covered under the facility were textiles (including handloom), handicrafts, carpets, leather, gems & jewellery, marine products and small and medium enterprises. All of these

are foreign exchange earners and labour-intensive segments in terms of their production organizations. Worsening of prospects for these industries, apart from reducing export earnings, also has implications in terms of repercussions on employment. The interest subvention can help in addressing the credit difficulties faced by exporters from these segments. Cost-cutting efforts on part of producers are likely to have resulted in retrenchments in these segments. Credit squeeze is likely to intensify such tendencies. Reducing obligations on preshipment credit availed by the exporters can lessen their financial difficulties and concomitant enterprise contractions by some extent. Similar beneficial effects are expected to be obtained from extension of the ECGC cover and market development assistance support. However, it must be noted that as mentioned earlier these are measures that will lessen the burden of adjustment for exporters on a purely short-term basis. It would be foolish to expect these measures to produce long-term dividends. Software and electronic hardware exporters should be encouraged by the announcement of extension of the sunset clause till the year 2010-11. These are again sectors suffering from depressed export outlooks. They also create considerable
15

Export Promotion Councils and the Federation of Indian Export Organizations (FIEO) to be exempt from service tax on the membership and other fees collected by them till 31st March 2010.

YOJANA August 2009

employment opportunities. To that extent, continuation of exemptions under sections 10A and 10B of the Income Tax Act of 1961 will help in retention of greater profit margins for reinvestment. It might also encourage them to continue in their existing locations of technology parks, rather than moving to special economic zones (SEZs). On the other hand, allowing sports goods, leather goods, textiles and footwear manufacturers to import more duty-free raw materials and inputs for utilization in final product exports will help these industries to achieve greater efficiency at a time when they are already affected by credit squeeze and poor outlooks. The service tax exemptions should also be welcome moves for the exporting community. The latter, however, may not be particularly happy with the imposition of service tax on coastal cargo movements. Looking Ahead The Budget has tried to help exporters and export-oriented

sectors in probably the only way in which it could have: ensuring that the credit crunch does not get worse. Improving access of exporters to credit requires now calls for commensurate measures from the Reserve Bank of India (RBI) in terms of reducing interest rates on pre-shipment and post-shipment credit. These, however, are different issues altogether and beyond the scope of the Budget. Could the Budget have done things in a different manner? From an external sector perspective and from the narrow prism of addressing concerns of manufacturer exporters, it has probably done as much as it could have. It is important to see the steps as consistent continuation of the stimulus measures taken earlier. To that extent, the budget has lived up to the current establishments commitment of helping the affected sectors. From a more ambitious perspective, the Budget has tried addressing some issues that can have important bearing upon

export prospects from a mediumterm outlook. A critical factor determining the outlook for Indias exports is the need to diversify and achieve value addition in the product basket. Indeed, India needs to think beyond its traditional set of export items and make the relatively modern value-additive segments more competitive. Agricultural exports of both fresh and processed products can play a critical role in this regard. Incentivizing investments in agricultural warehousing and storage can augment agricultural infrastructure and improve the prospects of agricultural exports. On most occasions, people do not realize that achieving efficiency in exports has a lot to do with reducing costs in the domestic economy. More steps such as those taken by the Budget with respect to incentivization of investment in development of agricultural infrastructure can be useful in enhancing Indias export prospects in the long term. q
(E-mail : isasap@nus.edu.sg)

2010. He also raised the market development assistance allocation. The interest subvention on pre-shipment credit for seven sectors, including handlooms, handicraft, carpets, leather, gems and jewellery, marine products as also the small and medium exporters will now be available till March 31, 2010.
16 YOJANA August 2009

Exporters get a shot in the arm

n order to push the country's sagging exports, which are down by over 30 % in February-May 2009 as against the same period last year due to economic recession, The FM provided some relief to exporters. He extended the time period for 2 % interest subsidy and insurance cover up to March

BudgET 09-10

OpiNiON

A Cautious and Restrained Budget

T N Ashok

This Budget is accented towards the rural poor, gives marginal relief for urbanites, and leaves industry and stock market dissatisfied. No major programmes to rescue the economy from recession, but there is promise of return to 9% GDP growth

T WILL not be fair to compare the UPA led governments 2nd budget under the veteran politician and administrator Pranab Mukherjee with the one presented by P Chidambaram during the governments first term. When Chidambaram presented his budget for 2008-09 in keeping with the philosophy that people must go out and spend, global factors and domestic environment were just about right for investment and spending. His entire taxation exercise was structured on this principle. He firmly believed that consumerism will fuel growth and this country needs to be in the comity of nations enjoying economic strength and political clout in global politics. Switch to the 2009-10 budget presented by Pranab Mukherjee. The former external affairs minister has not sacrificed any of these sentiments. However, he had

a lot of handicaps to start with. Fiscal deficit had burgeoned to 6.8%, revenue expenditure had bloated, recession had had its effects on industry, trade, commerce and exports and there were poll promises to be kept in line with the election manifesto, a thanks giving gesture to be gone through. Pranab da has put in a lot of thought into his budget exercise. He has done the best under the circumstances. Cautious optimism has been the hallmark of his budget. Although people had expected a bolder budget with more emphasis on reforms, and although the absence of any major statement on FDI and disinvestment has disappointed industry and the stock market, he has made it clear the budget is continuing exercise it is not a one stop affairs, announcements can be made outside of the budget also, that he will do so when the economic environment improves. So there is hope for the industry and stock markets.

The author is ex Economics Editor, PTI News agency, contributor to Hindu Business Line and Industrial Economist and corporate consultant on communication strategies. YOJANA August 2009 17

The finance minister has made massive allocations under the NREGA programme Rs 39,100 crore to cover 4.74 crore house holds. A Food Security Bill is in the offing. Massive relief has been announced to farmers with 75% of their overdues under debt waiver and debt relief scheme extended to December 31 this year. There is a committee to examine the plight of Maharashtra farmers suffering under the usurious money lenders. 25 kgs wheat and rice is to be provided for below poverty line population at Rs 3 per kg. These are measures clearly aimed at the rural folk who have voted well for the UPA government, a thanks giving indeed. What about the urban population? He has extended relief by making marginal adjustments in the taxation slabs. He has raised the exemption limit for majority of tax payers at the entry level. Here is how it works. Senior citizens benefit a great deal as the exemption limit gets pushed up further by another Rs 15,000. From the existing limit of Rs 2.25 lakhs now it goes upto Rs 2.40 lakhs. For women, there is relief as the limit goes up from Rs 1.80 lakhs to Rs 1.90 lakhs and for the vast majority of tax payers it goes up from Rs 1.50 lakhs to Rs 1.60 lakhs. At a time of joblessness 60 lakh people have lost their jobs in India due to the recession and another 60 lakh might as well these reliefs count a lot as they put more money into the hands of the people. Some tax consultants have argued that the tax relief amount to just about Rs 1,000 for a majority of the people below the 10 lakh
18

income bracket and above the 10 lakh bracket it is a minimum of Rs 22,415. This may have been cause for the statement by some that its a budget for Khas Admi and not Aam Admi, but this is true on the surface only. If you go deeper, the majority relief for the above 10 lakh bracket actually come from the abolition of the 10% surcharge on direct taxes and not the adjustment in the taxation slabs. The finance minister has indeed done a tight rope walking trying to satisfy the rural population who voted enmasse, urban population who reposed trust, and industry which was supporting, eagerly awaiting sops. The Finance Minister has done well to scrap the Fringe Benefit Tax (FBT). It was long overdue. FBT was more of an irritant than an income generator for the government. It put the finance people of corporates at considerable stress on how to calculate the taxes. A welcome relief. But the Finance Minister did not scrap the 10% surcharge on corporate tax payers though he did that for individuals. Scrapping of the Commodity Transaction Tax is another great relief. It will promote trade on the Multi Commodity Exchanges (MCx) where gold, silver and other metals are traded generally. It will also promote trade on the NCDEx where mostly agricultural commodities are traded in the futures market. The FM did not scrap the Securities Transaction Tax prevalent on the stock markets. Justifiably so, though many stock market leaders , brokers and players would be

disappointed. Considering the volume of trade is so high on the stock exchange, the government can ill afford to lose this revenue. Generally with so many foreign players coming into the Indian markets especially in the context of the global meltdown, because India like China has survived the meltdown and global recession, it would have been an ill advised move. The FMs budget has to be viewed in an overall context of high fiscal deficit and low growth. Markets are sluggish, banks are holding onto money and not lending, creating problems for industry, so the industry expected bold statements on divestment in the banking sector and measures to promote greater inflow of FDI. It also expected the abolition of the Dividend Distribution Tax, which is an anomaly leading to a company being taxed twice. Certainly the FM should have scrapped this but he must have had his own logic and financial compulsions not to scrap it as he did with other irritants. Why no bold measures on FDI or FII portfolio investments, one might ask? Consider the fact that FII investments are highly fragile and prone to flight when an economy weakens. So rightly he did not want to risk any new measures in this regard given the current world economic situation. And how would FDI come into India even if new incentives were announced, when most global corporates are pulling money out of India ( BPO and Realty sector are good examples) to wipe out their debts in their own countries? Unless they are strong at home, they will not bring any new money into
YOJANA August 2009

India. So FM has played safe and will definitely do something outside the budget later when the world economic environment improves and FDI flows can accelerate. Industry is disappointed that the Minimum Alternate Tax (MAT) has been enhanced from 10-15%. It was expecting some relief. Here is the score card on the budget of Pranab Mukherjee, the positives and negatives together: Direct Taxes Personal income tax exemption limit rose favoring more women and senior citizen tax payers who have suffered from low interest regime so far. Interest rates still low hitting senior citizens living on savings instruments. 10% surcharge on personal tax removed. But the same not removed for corporates No change in the corporate tax structure rates FBT abolished more of an irritant gone Minimum Alternative Tax hike to 15% from 10% -- a rude shock to the industry Indirect Taxes Excise duty increased from 4-8% barring exceptions industry clamors for duty reductions to make itself more competitive, any increase at the time of recession does not go well. Exporters would be the worst hit. Customs duty on gold bars and other forms increased, people hedging on inflation by buying this suffer as importers will pass on the burden. Also jewellery
YOJANA August 2009

made from imported gold will become dearer hitting the women in this category badly. But there is relief in abolition of duties on branded jewellery. Excise on branded diesel and petrol modified. Impact has to be assessed. But government has appointed a high level committee, a second time , to advice on pricing. It wants to align with international prices but the full benefit of this can be realized only when government releases the oil companies from the burden of subsidies. The most subsidized products are Kerosene and LPG. One caters to the poorer sections and another to the middle class housewife a path where any government fears to tread. There is a welcome measure in making fertilizer subsidy nutrient based and not price based. Also farmers will now get the benefit directly from the government instead of the companies. Donations to political trusts exempted from taxes. A forward looking measure but the manner in which these funds would be used by the trusts has still to be scrutinized by the government. A big question on the budget that is crying for answer is how the FM mobilizes resources to pay off for the large allocations made under different rural uplift schemes and in the light of concessions given to tax payers. The tax concessions are all revenue neutral, there is no loss. But the new taxation measures yield only Rs 3000 crore. Not enough. So the FM is perhaps pegging his hopes on the 3G spectrum licensing process which is expected

to yield a whopping Rs 35,000 crore, disinvestment in the PSUs NHPC and Oil India and growth to return to 9% which will obviously mean more production of goods and services and therefore higher buoyancy in tax collections. The budget has had its share of criticisms from several quarters. Some have called it tepid and unimpressive, others have criticized it of being pro-rich and yet others have termed it as visionless. There have been calls for more disinvestment and raising income tax exemption limits to Rs 5 lakhs. These reactions are not justified, though. Firstly, the entire budget is rural oriented and aimed at the rural poor. In urban areas too its aimed to benefit the middle class. Secondly, Its unfair to expect an FM to come out with any bold statements at the time of recession when stock taking is still on. For example, retaining banks in the public sector has been very sensible, given the west's experience with private banks. Raising exemption limits to Rs 5 lakhs sounds good on paper, but is not practical as the number of tax payers in this category are quite large. This is a utopian dream capable of fruition only when India can achieve a 10-12% growth rate. Overall, its a budget based on restraint and caution, addressing immediate needs ,besides giving thanks to rural and urban voters. A job done judiciously under the circumstances of recession. Now we need to wait and watch if the FM delivers on the promise of Direct Taxes Code, and the public debate on Food Security Bill, and other such progressive measures. q
(E-mail : ashoktnex@gmail.com) 19

20

YOJANA August 2009

YE-8/09/6

BudgET 09-10

ViEw pOiNT

Financing Health and Education

Soumyakanti Mitra

There should be no further neglect of the ways and means of hiking domestic productivity and demand in health as well as education
YOJANA August 2009

UDGET 2009-10 might be perceived as having fallen short of delivering all that might have been wished for in the health and education sectors, but there are distinct signs that the intent is there that the Current Year budget is the UPA II governments first step in that direction. The thrust had already been articulated by President Pratibha Patil in her June 4 Lok Sabha address. She had then placed special stress on education, health and infrastructure as focus areas of the re-elected UPA government. HEALTH The revised expenditure target for Health & Family Welfare has been set at Rs 21,113.33 crore, or, Rs 3,706.33 crore above last years revised (2008-09) figure of Rs 17,307 crore. To that should be added the amount that Mr Pranab Mukherjee has earmarked for Women & Child Development; at

Rs 7,428.00 crore, it is Rs 509.00 crore above last years revised figure. Taken together, they might both be slotted under Health, in which case they add up to Rs 28,541.33 crore, which is almost 18 percent above last years figure. (It is instructive that last years budgeted figures were surpassed by the definitive revised numbers as published in the budget document of July 6.) Within health, Finance Minister Pranab Mukherjee has accorded special emphasis to rural healthcare and hiked the allocation under this head by Rs 2,057 crore. But that is over, and above, the Rs 12,070 crore that had already been allocated in the Interim Budget. Indeed, Mr Pranab Mukherjee characterized the National Rural Health Mission NRHM as an essential instrument for achieving the goal of "health for all in his budget speech. The budget charges the NRHM with taking high quality

The author is Fellow, Maulana Abul Kalam Azad Institute of Asian Studies, Kolkata. 21

healthcare to the villages. These are reiterations of the fact that the NRHM (launched in 2005) remains at the apex of the UPA governments many programmes. It aims to continually upgrade the availability, and access, of good but affordable healthcare for people living in distant areas. The NRHMs salience resides in the fact that only 4.9 percent of the (10 percent targeted) population has been covered for malaria prevention. Thousands of Kalaazar cases have also been surfacing, as have been cases of goitre and leprosy. For NRHM, accordingly, disease prevention is as important as control The NRHM actually admits of 18 critical states each one of which is backward in terms of public health infrastructure. They are Arunachal Pradesh, Assam, Bihar, Chhattisgarh, Himachal Pradesh, Jharkhand, Jammu & Kashmir, Manipur, Mizoram, Meghalaya, Madhya Pradesh, Nagaland, Orissa, Rajasthan, Sikkim, Tripura, Uttarakhand and Uttar Pradesh. New Delhi even wants to redress imbalances in regional health-care service delivery by building six, additional, AIIMStype institutions in Patna (Bihar), Raipur (Chhattisgarh), Bhopal (Madhya Pradesh), Bhubaneswar (Orissa), Jodhpur (Rajasthan) and Rishikesh (Uttarakhand). They will most likely be functioning by 201011 and Rs 1,447.92 crore has been earmarked for them. The UPA IIs July 6 Budget also expressed the intention of upgrading 13 medical colleges something likely to be completed within the current fiscal. In addition to that, the
22

Union Budget has set aside Rs 10 crore for the National Programme for Prevention and Control of Deafness (NPPCD) the advance phase of which will be launched across 25 districts over the next two years. The NPPCDs objective is to forestall avoidable hearing loss through advance identification and therapy. And, Rs 100 has been the sum allotted to institutionalise fresh medical, non-medical and nursing courses under professional health ministry bodies the aim, in this case, being to accommodate 27 percent reservation for the Other Backward Classes (OBC). Thanks to the budget, even the indigenous roots of medical wisdom are being watered. Rs 922.00 crore is the sum of Plan and non-Plan amounts that the finance bill has sequestered for the health ministrys department of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy (AYUSH). That is a 53 percent rise over last fiscals revised figure of Rs 602 crore. Plus, the 46 lakh-plus Indians who are below the poverty line (BPL) have found a fresh dawn in the shape of biometric smart cards. Spread across 18 states and Union Territories, they have been issued the cards and, as the finance minister said, the scheme empowers poor families by giving them freedom of choice for using healthcare services from an extensive list of hospitals including private hospitals. Mr Mukherjee went on to also say that the Government proposes to bring all BPL families under this scheme. An amount of Rs 350 crore, marking 40 percent increase over the previous allocation, is being provided in 2009-10 budget estimates."

Then, on the supply side of private enterprise, Union Budget 2009-10 has been largely a relief for the pharma industry. For one, the sectors players are especially glad that the excise duty remains constant at 4 percent. That should please consumers too. Secondly, industry is happy because of the weighted 150 percent deduction that will apply to R&D expenditure incurred in in-house manufacturing. The main gains will be accruing to medical education and research since the budget sets aside Rs 1,000 crore extra for medical research institutes. Thirdly, the customs duty on life saving drugs stands halved and is 5 percent now; they include the influenza vaccine, and nine life saving drugs recommended for diseases like breast cancer, hepatitis-B and rheumatic arthritis. The duty reduction also applies to bulk drugs which are inputs in the manufacture of such drugs. Drugs of this category have been rendered free of excise and countervailing duties. In sum, it could be said that the UPAs new philosophy of Outreach characterizes the budgets planned subventions on the health front. There seems to be a distinct urge on governments part to universalize good health and take preventive care even to the least advantaged. That it has allocated virtually double to the AYUSH group of therapy of what the sector got in last years budget also shows its newfound realization about indigenous medicine. Such subventions should promote the immigration of additional professional talent into these streams complementing the contemporary developments that are in progress.
YOJANA August 2009

This might even be said to be preventive therapy of the truest nature; it does not spring from any interest in commercializing either placebos, procedures or fancy formulations but unravels illnesses by identifying their basic causes. That is of a piece with the fact that all those undergoing cosmetic and plastic surgery will have to pay service tax. EDuCATION Education is as crucial as health for emerging India. It raises productivity, enables new lines of production, and lowers costs all round. Economists would say it is instrumental in pushing the production possibility frontier outwards (i.e., raising it) in any given economy. And, it does so with little, or no, extra investment outside, apart from in human resources. Plainly, the UPA understands the pivotal role of education and the finance minister has allotted Rs 29,099.21 crore to School Education & Literacy in the budget, while Higher Education gets Rs 15,429 crore. That adds up to a 19.2 percent increase over last years numbers. To that might also be added outlays under three other heads Science & Technology, Scientific & Industrial Research and Biotechnology. IITs and NITs, for instance, have been allocated Rs 2,113 crore out of which the provision for new IITs and NITs amounts to Rs 450 crore (or, 21 percent). The minister also proposed Rs 495 crore to set up and upgrade polytechnics under the Skill Development Mission, while Rs 20 crore has been reserved for new IIMs.
YOJANA August 2009

Mr Pranab Mukherjee also announced prematriculation and post-matriculation scholarships for minorities plus Rs 25 crore to facilitate the creation of two extra Aligarh Muslim University (AMU) campuses at Murshidabad in West Bengal and Malappuram in Kerala. Also, a special allocation of Rs 50 crore was made for Panjab University, Chandigarh. In sum, there is a pronounced thrust on higher education and allocations to that segment are Rs 2,000 crore more than had been earmarked by the Interim Budget. The grand total of Rs 50,376.21 crore, represents an 18.5 percent increase over last years (revised) amount of Rs 42,509.57 crore. Also, the figures of July 6 are well above the Rs 34,000 crore that had been assured the sector in last Februarys Interim Budget. Accordingly, there is more for schooling and literacy, but the growth rate of funding those activities pales into insignificance when compared to subventions in higher education. Accordingly, schooling and literacy got 11.2 percent more than they had been allotted in 2008-09, but this years handout to higher education is 36.1 percent over last years! The only saving grace is that school education has been awarded a new Rs 1,000 crore-plus scheme the Rashtriya Madhyamik Shiksha Abhiyan. Also, the new nomenclature for the (already existing) literacy mission is the National Female Literacy Mission. The latters objective to reduce by half the current level of female illiteracy and to do so in three years.

The programme is all about setting up new schools in population clusters bereft of school facilities or infrastructure. Also, it aims to provide additional classrooms, toilets, drinking water and disburse maintenance, and school improvement, grants. There will be special focus on educating girls, plus children with special needs. And it includes the provision of computer education to merge the digital divide. Even existing schools stand to benefit: The Abhiyan empowers them to attract, and retain, additional teachers and existing teachers get further training. There will also be grants for developing pedagogic material, and strengthen the structure of academic support at cluster, block and district levels. Indeed the Rashtriya Madhyamik Shiksha Abhiyan is the governments apex programme for attaining the Universalization of Elementary Education (UEE) in a time bound manner. That is as mandated by the 86th Amendment to the Constitution of India, which makes education for children between the ages of 6 and 14 compulsory and free. Also, the scheme being implemented in partnership with State Governments aims at covering all of India and responding to the needs of 19.2 crore children in 11 lakh habitations. The above, in fact, denotes the UPAs significant mindset change in relation to elementary education. For, while there may be no striking increase in allocations for elementary education, Rs 1,143 crore has been set aside for a new scheme which is to
23

function along the lines of the Sarva Shiksha Abhiyaan and provide for a secondary school within 5 km of every residential area. That should catalyse the building and commissioning of the 6,000 model schools within the current fiscal year; after all, they were announced in 2007. Finally, poor students are to be helped in pursuing costly technical courses through a government scheme that awards them full interest subsidy during the

period of moratorium one year from completion of the course or six months from joining a job, whichever is earlier. Clearly, the governments initiatives, both in health as well as education, denote distinct thrusts towards outreach and inclusion and uplift of the hitherto neglected. But, equally clearly, the backlog is too big to be quickly cleared and the government needs to plough in much more funds before it can claim to make a dent.

Above all, the current recession and its fallout in terms of the global export slowdown, is evidence enough that we are past the days of export-led growth. That is all the more reason why there should be no further neglect of the ways and means of hiking domestic productivity and demand in health as well as education. q
(E-mail : soumyakanti.mitra @gmail.com)

G
G

Healthcare sector gets a fillip

iving a boost to healthcare in rural areas, the Finance Minister has hiked the allocation for the flagship National Rural Health Mission by an additional Rs 2,057 crore over and above Rs 12,070 crore in the interim budget. Apart from this, the health sector as a whole has an allocation of

Rs 4,447 crore.

Thrust on higher education

students would benefit from this scheme. Further, the FM has extended the scope of Section 80E of the Income-tax Actproviding tax exemptions for educational loans to pursue higher studies in specific areasto cover all sectors including vocational studies after school. While the Plan outlay for higher education has been raised from Rs 6,800 crore in 2008-09 to Rs 9,596 crore, the allocation for school education and literacy remains static at Rs 26,800 crore. However, the non-Plan outlay in both departments has gone up sizeably; primarily owing to the increase in salaries following the implementation of the Sixth Pay Commission recommendations. The FM has announced the setting up of a National Mission of Female Literacy. This mission-mode exercise to reduce female illiteracy by half in three years will focus attention on the minorities and SCs and STs. To make the best use of the demographic advantage the country has in terms of a large percentage of young population, he increased the allocation for the Mission in Education through ICT scheme to Rs 900 crore.
YOJANA August 2009

overnment has now made higher education its thrust area with a view to increasing the gross enrolment ratio to 15 percent by the end of the 11th Plan. A key announcement in the budget was in the form of a student loan for economically weaker sections. Under this scheme, eligible students will be provided full interest subsidy during the period of moratorium. It will cover loans taken by such students from scheduled banks to pursue any of the approved courses of study, in technical and professional streams, from recognized institutions in the country. An estimated five lakh

24

BudgET 09-10

OVErViEw

Taxes and the Budget

SSENTIALLY A budget is a statement of expenditure and receipts of the Government. Popularly, however, it is associated with changes in rates of tax. Taxes are the main source of revenues for a government. An efficient, progressive and stable tax regime is thus essential to enable the Government to spend money as dictated by its philosophy.

are collected at the point of supplier (of goods or services), they are easier to administer and enforce. The composition of revenues of Central Government and its tax base is reflected below. Gross tax revenue includes direct and indirect taxes and also taxes of UTs and other taxes . Direct taxes contributed 46.4% of the total taxes in 2006-07 as compared to 51 % by indirect taxes. These figures inflected and in 2008-09 (RE) their respective contributions are 54.9% vis--vis 44.8% The change in the relative contribution of direct and indirect taxes is a result of the increasing drive to maturity of the Indian economy. Tax revenues have in the past five years become the only significant source of current receipts of the government. To give an example, non-tax revenue which was 2.8% of the GDP in 2003-04, has declined to 1.8% by the end of 2008-09. The basket of non-tax revenues has shrunk every year as the government has given up powers to charge for various services
25

The budget proposals do not make any fundamental changes in the tax structure, except where there was a genuine demand. The watch word of the budget is a stable tax regime.
YOJANA August 2009

By definition tax is a compulsory impost collected by the government from its citizens. While there is no one to one quid pro quo, ultimately the citizens enjoy public goods which are provided by the Government. Accordingly there can be two approaches to making of a tax policy. One view can be that those who get more goods and services from the Government should also pay more and other is that those who can pay more should pay more. In country like ours with wide income and wealth disparities it is the second approach which is more appropriate. Direct taxes broadly conform to this. On the other hand since indirect taxes

Direct Personal Income Tax Corporation tax Indirect Customs Excise Service tax Gross tax revenue

2006-07 219722 75093 144318 241538 86327 117613 37598 473512

2007-08 295938 102644 192911 279031 104119 123611 51301 593147

(in crores of Rupees) 2008-09 (RE) 2009-10 (BE) 345000 370000 122600 112850 222000 281359 108000 108359 65000 627949 256725 269477 98000 106477 65000 641079

rate, keeping it unchanged at 30%. Instead he has raised the rate for minimum alternate tax to 15% from the current 10% of book profit. MAT is levied on those companies which, because of tax exemptions do not need to pay the corporate tax. The other major change in direct tax has been the removal of the fringe benefit tax or FBT. This tax is levied on companies at different rates on the perquisites it offers employees. But as a result even expenditure on stuff like company travel was being taxed. The minister has also scrapped the commodity transaction tax and extended the tax holiday for IT companies known as STPI. The provision extends a tax holiday for units set up in software technology parks from having to pay tax on their export income from those units. The finance minister therefore, it is apparent, has not made any fundamental changes in the tax policy this year and only changed provisions where there was a genuine demand to alter them. This was on the cards. Given the huge pressure on government to spend a humungous amount on public expenditure to soup up investments in the economy, the minister was under enormous pressure to mobilise more resources to pay for those expenses. But to ensure that disposable income of the corporate sector and the household sector was not cut, he had to tread gingerly here too. Before we leave direct tax, here is an interesting piece of statistic the government put out in its budget papers. Government documents show that it spent a whopping Rs 58,655 crore for corporate tax exemptions in 2007-08, that included set off for accelerated depreciations, deduction of export profits for of
YOJANA August 2009

and in other cases the rates have come down. Direct Taxes As the government now depends on tax revenue to meet most of its expenditure the importance of a well crafted tax policy is very important. One of the results has been the climb to prominence of direct taxes. Even in early nineties the direct taxes, including personal income tax and corporate tax were riddled with exemptions and were far too high. The rates started to ease in the late nineties and former finance minister P Chidambaram set up the current rates of 10, 20 and 30% in the budget of 2005-06. But even before that, previous finance minister Yashwant Sinha had espoused moderate rates of tax. The reason was obvious. In the 1970s, India had the highest rate of tax at 97.5% of the income and obviously nobody paid it. The accumulation of black money was high. The phenomena started correcting in the eighties and as we discussed, was pushed through in the nineties. So the rates of taxthe direct tax, is moderate. This has had an impressive fall out. The percentage of tax evasion has gone down substantially. Simultaneously, the tax to GDP ratio has begun to improve, which means more people now prefer to pay their tax. The tax26

GDP ratio (net of states share) has increased from 6.85 to 8.8% in the same period of 2003-04 to 2008-09. This has also helped the government to cross an important threshold of keeping faith in direct tax to finance its expenditure, a phenomena similar to the western countries. The buoyancy in tax revenue in this period has been driven by two key events. The first was the governments adherence to the Kelkar report on direct and indirect taxes that cleared unnecessary exemptions, made the taxes rule based and set clear directives for tax policy to achieve. Simultaneously, the government has also adhered to the fiscal deficit reduction targets in this fiscal. In budget 2009-10, finance minister Pranab Mukherjee has not deviated from the Kelkar script. But he has jettisoned the fiscal deficit reduction targets to give a fillip to the economy by adding more investments. He has also removed the 10% surcharge on highest bracket of income tax and slightly tweaked the rates to move towards higher exemption. In a year when the aggregate tax receipts have slipped to negative territory it is a brave decision to even tweak them. Finance minister Mukherjee has therefore stopped short of making changes in corporate tax

units in software technology parks and so on, against a total collection of Rs 1,92,911 crore. Indirect Taxes Turning to indirect taxes, historically Central Excise and Customs have been the major bulwarks in indirect taxes. In recent times the rates of Customs duties have gone down consistent with trade liberalization and modernization of industry. Increased international trade in both import and export has accompanied the reduction in import duties. Central excise duties have also been moderated over the years alongwith a complete input credit chain of CENVAT (Central Value Added Tax). Since its introduction in 1994, over the years Service tax has emerged as one of the significant sources of revenue for the Government. It is also integrated with the CENVAT chain of Central Excise. The Budget 2009-10 proposals do not make a change in the indirect tax rate structure as such. The watch word of the budget is a stable tax regime. Within the overall rate structure, however, there are some changes. These are highlighted in the subsequent paragraphs. Central Excise The mean rate of Central Excise was 16% before Budget 2008-09. It was brought down to 14% with effect from 01.03.08. As a counteractive measure against the signs of downturn in the economy, the rate was brought down to 10% from 7.12.08 as a part of the stimulus package announced by the government. The rate was cut again by 2% on 24.02.09 reducing it to 8%. Regular budget 09-10 has not made any broad changes in the rate structure. About 70% of the excisable commodities attract the rate of 8%. With a few exceptions all excisable items attract 4% and 8% duty rate. As a measure to converge to the mean
YOJANA August 2009

rate, duty in certain items has been raised to 8% from 4%. Certain changes have also been brought in in the automobile, petroleum and textile sectors. For example specific component of excise duty applicable to large cars/ utility vehicles of engine capacity 2000 cc and above have been reduced from Rs. 20,000/- per vehicle to Rs.15,000 per vehicle. Excise duty on Special Boiling Point spirits and on naphtha reduced to 14%, Excise duty on manmade fibre and yarn increased from 4% to 8%. Custom Duties The customs duties applicable on imported goods have various components of which two are major viz. basic customs duty and additional duty customs equivalent to excise (popularly known as CVD). The mean rate of basic customs duty is 7.5% with certain exceptions. The overall duty structure has remained unchanged in the budget. Since CVD is equivalent to excise duty, the changes in excise duty automatically get reflected in its customs counterpart. There is no change in the overall customs duty rate structure. One major change is in the duty applicable to gold and silver. The customs duty on bullion (gold and silver) has remained unchanged since 2004 although there has been substantial increase in the prices of gold and silver. Gold bars attracted customs duty at the specific rate of Rs.100 per ten grams while other forms of gold (excluding jewellery) are chargeable to a duty of Rs.250 per ten grams. These rates have been increased to Rs.200 per ten grams and Rs.500 per ten grams respectively. Along the same lines, the customs duty on silver (excluding jewellery) has been increased from Rs.500 per kg to Rs.1,000 per kg. These revised rates also apply to gold and silver,

including ornaments that are not studded, when imported by a bona fide passenger as baggage. The approach behind the changes introduced in indirect taxes has been to help growth in a stable framework. In the words of the Finance Minister, Although our domestic industry has weathered the impact of the global financial crisis and the resultant slowdown with resilience, it is yet to fully find its feet. Manufacturing growth, which had turned negative in October 2008 on a year-on-year basis and remained in that zone till March this year, appears to be barely turning the corner. However, the global scenario remains worrisome and it is my view that the paramount need is to provide industry with a stable framework. gST Other than the changes in rates of duty, the Finance Minister announced the intention of Government to bring in Goods and Service Tax from 1.04.2010. This change is going to be of great significance in the economic integration of the country. The Empowered Committee of State Finance Ministers was tasked with preparing the roadmap and the design of the GST. The design of the GST has to be in keeping with the spirit of federalism of Indian polity. In the words of the FM The broad contour of the GST Model is that it will be a dual GST comprising of a Central GST and a State GST. The Centre and the States will each legislate, levy and administer the Central GST and State GST, respectively. I will reinforce the Central Governments catalytic role to facilitate the introduction of GST by 1st April, 2010 after due consultations with all stakeholders.. q
(Compiled by the Yojana Desk) 27

ECONOmiC SurVEy 08-09

OVErViEw

Towards Faster Recovery

Jayanta Roychowdhury

Survey also underlines the benefits from the social sector flagship schemes which the centre had launched during the last five years
The author is Senior Financial Journalist. 28

MORE confident Congress government has come up with a more visionary economic reforms agenda in its Economic Survey presented earlier this month. Hamstrung by objections by rivals and allies alike to its agenda of economic reforms, the Congress had for years dragged its foot on selling government stock in PSUs, increasing FDI in insurance and banks, opening up coal to private miners among others. However this time round, with a far clearer majority, all these reforms have found their way back into Survey. One could say these were always there in Congress original reform wishlist. But for the last few years many of these measures had been significantly taken off the agenda to keep crucial allies happy. Not surprisingly given the hullabaloo over telecom licences and auctions, finance minister Pranab Mukherjees Survey made it clear that there should be global

bidding for both third generation and second generation spectrum or airwaves through which mobile calls travel, besides allowing trade. Besides, decontrol of fuel prices, reforming subsidies, scrapping tax irritants like CTT, STT and FBT, were highlighted as moves which this government could contemplate over time. The Survey also said the global meltdown gave India a unique opportunity in bridging the huge gaps in its infrastructure. Some Rs 20,56,150 crore has been allocated to the sector for the 11th five-year-plan period, however inability to attract investors through the public private partnership mode has often limited infrastructure growth. However the Survey argued in favour of the PPP mode, possibly because of the huge funds required which the government on its own would be unable to raise. The Survey, however, indicated how certain constraints -- dispute

YOJANA August 2009

Some Prescriptions
Tax Reforms - phase out cesses, surcharges and transaction taxes (such as commodities transaction tax, securities transaction tax and Fringe Benefit Tax) ,neutral corporate tax regime
l l l l l l l l l l l l l l l l l l

Allow 49% FDI in defence and insurance; Further fiscal stimulus including tax cuts and increase in expenditure Decontrol petrol and diesel prices; end Govt monopoly in railways, coal and nuclear energy Lift all bans on future contracts to restore price discovery; decontrol sugar and fertiliser Revitalise disinvestment programme to generate Rs 25,000 crore annually FRBM-II to get back to path of fiscal consolidation List all unlisted PSUs and sell a minimum 10 per cent equity to public. Auction all loss-making PSUs that cannot be revived Auction 3G spectrum and make it freely tradeable. Reform petroleum (LPG, Kerosene), fertiliser and food subsidies to reduce leakages and ensure targeting Limit LPG subsidy to a maximum of 6-8 cylinders per annum per household Phase out kerosene supply-subsidy by ensuring that every rural household has a solar cooker and r lantern Implemnet GST from April 1, 2010 . Implement National ID card programme, based on unique identification number. Pass Banking Regulations (Amendment) Bill Phased increase in FDI limits in banks Pass the Pension Fund Regulatory and Development Authority Bill, Forwards Contract (amendment) Bill FDI in multi-format retail, starting with food retailing. It also said the economy which grew at its slowest in five years in 2008-09 at 6.7 per cent could be expected to grow at 7 per cent this year, if the US economys recession bottoms out by September 2009. The Survey says this growth figure could go up or down by 0.75 per cent depending on the time the US economy takes to recover and how normal the annual Monsoon rains are. Said Mukherjee if luck favours, we will surpass the 7 per cent target. But the Survey warned the economy could get back to a higher growth trajectory of 8.5-9 per cent only if it revisits pending economic reforms. To quote from the Survey, the Indian economy has shock absorbers that will facilitate early revival of growth. First, the banks are financially sound and well capitalized. The foreign exchange reserves position remains comfortable and the external debt position has been within the comfort zone. The rate of inflation has since abated and provides a degree of comfort on the cost side for the production sectors. Agriculture and rural demand continue to be strong and
29

in land acquisition, rehabilitation, contractual issues, shortage of capital goods and environmental disputes -- could be resolved through a single regulatory body for the entire transport sector. Stressing the need for a regulator that encouraged competition to expand supply and lower costs -- like in telecom sector -- the Survey suggested setting up a single regulatory body covering highways, railways, ports and airports. It said, If needed, the authority could also have specialised groups of professionals in each sector.
YOJANA August 2009

Highlights : State of the Economy

l l

Economic growth decelerated in 2008-09 to 6.7 per cent. A sharp rise in WPI followed by an equally sharp fall, with WPI inflation falling to unprecedented level of close to zero per cent by March 2009. A sharp slowdown in index of industrial production (IIP) for 2008-09 with growth being placed at 2.4 per cent. The performance crude oil, petroleum refinery products, coal, electricity, cement and finished steel (carbon) grew at 2.7 per cent as compared to 5.9 per cent in 2007-08. The total foodgrain production in 2007-08 rose to at 230.78 million tones. The gross domestic savings as a percentage of GDP at current market prices was 37.7 per cent in 200708 as compared to 29.8 per cent in 2003-04. The gross capital formation (adjusted) as a percentage of GDP steadily moved up from 27.6 per cent in 2003-04 to 39.1 per cent of GDP in 2007-08. Rate of investment in both the public and private sectors rose. The share of merchandise trade to GDP increased to over 35 per cent in 2007-08. The rupee gradually appreciated from Rs. 46.54 per US dollar in August 2006 to Rs. 39.37 in January 2008. The annual average exchange rate during 2008-09 worked out to Rs. 45.99 per US dollar compared to Rs. 40.26 per US dollar in 2007-08. The repo rate was reduced by 400 basis points in five tranches from 9.0 in August 2008 to 5.0 per cent beginning March 5, 2009. SLR was lowered by 100 basis points from 25 per cent of net demand and time liabilities (NDTL) to 24 per cent with effect from the fortnight beginning November 8, 2008. The CRR was lowered by 400 basis points in four tranches from 9.0 to 5.0 per cent with effect from January 17, 2009. The fiscal deficit to GDP ratio for 2008-09 works out to 6.1 per cent, while the revenue and primary deficit are estimated to be 4.5 per cent and 2.5 per cent respectively. The BoP situation remained resilient in 2008-09 in the present global crisis. Under NREGS, over four crore households were provided employment in 2008-09. The initial effect of the global financial crisis was positive, as India received huge Foreign Institutional Investment (FII) inflows of US$ 22.5 billion during September 2007 to January 2008, as against US$ 11.8 billion during April-July 2007. In the year 2008-09 (April-December), Indias merchandise exports (on BoP basis) at US$ 133.5 billion posted a growth of 17.5 per cent as compared with 23.0 per cent in the corresponding period of 2007-08 and Imports (on BoP basis) at US$ 238.9 billion recorded a growth of 30.6 per cent during April-December 2008 (28.2 per cent during April-December 2007).
YOJANA August 2009

l l

l l l

l l l

30

agriculture production prospects are normal. The Survey notes that in order to counter the negative fall out of the global slowdown on the Indian economy, the Government responded by providing substantial fiscal expansion in the form of tax relief to boost demand, and increased expenditure on public assets. The net result was an increase in fiscal deficit from 2.7 per cent in 2007-08 to 6.2 per cent of GDP in 2008-09. The difference between the actuals of 2007-08 and 2008-09 constituted the total fiscal stimulus, not withstanding the fact that some expenditure was on account of implementation of the Sixth Pay Commission Award and the Agriculture Debt Relief Scheme announced in the 200809 Budget. It says, despite the slowdown in growth, investment remained relatively buoyant. The ratio of the fixed investment to GDP increased to 32.2 per cent in 2008-09 from 31.6 per cent in 2007-08. This reflects the resilience of Indian enterprise, in the face of massive increase in global uncertainty and risk aversion, and freezing of highly developed financial markets. The annual Economic Survey, a ritualistic report on the state of the economy, usually also maps out the governments thinking on steps it may take in the budget and in the year ahead. The wishlist which economists and bureaucrats put together for the Survey is often later pruned by politicians into `list of doables and `intentions which are politically untenable. However, officials warned that it would be wrong to expect the
YOJANA August 2009

Manmohan Singh government to take all recommended steps in the very first year of its governance. In fact some reforms may be pushed to beyond its five year term, if they are found politically inexpedient. Among other things, the Survey has said Review and phasing out of surcharges, cesses and transaction taxes. Incentivise states to do the same with respect to stamp duties. The report also asked for rationalising the dividend distribution tax so that dividend is taxed in the hands of receiver. The recommendations must have seemed like music in the ears of industry bodies. Tax reforms such as removing FBT, CTT and STT, removal of surcharges will help simplify the process of filing taxes, said Chandrajit Banerjee, director general, CII. The survey also underlines the benefits from the social sector flagship schemes which the centre had launched during the last five years of United Progressive Alliance government. Bharat Nirman has received an outlay of Rs. 40,900 crore in the interim budget for 2009-10 as against Rs. 31,280 crore in 200809. Up to March 2009, a total length of 2,14,281,45 kilometres of road works has been completed under the Pradhan Mantri Gram Sadak Yojana (PMGSY) with a cumulative expenditure of Rs. 46,807.21 crore. The National Rural Employment Guarantee Scheme has now been extended to all the districts of the country. More than 4.47 crore households were provided

employment in 2008-09. This is a significant jump over the 3.39 crore households covered under the scheme during 2007-08. Out of the 215.63 crore person-days created under the scheme during this period, 29 percent and 25 percent were in favour of SC and ST population. According to the report, central government expenditure on social sector has increased from 11.23 per cent in 2002-03, just before the UPA government came to power to 19.44 per cent in 2008-09, when its first term in office ended. The gains, besides providing jobs to rural jobless and shelter to urban slumdwellers, has obviously been in the electoral victory that the Congress led alliance managed to win. The economic survey also said inflation was no longer a worry and called for an urgent return to the targeted fiscal deficit of 3 per cent. Government released data which said inflation for the week ended June 20, was -1.3 per cent. Analysts expect this figure to creep upwards following a hike in autofuel prices announced recently. But nevertheless, government feels prices of most produce except food, are likely to remain flat. However it warns continued food inflation though moderating of late, could undermine inclusive growth, in particular to combat poverty. The Congress-led government is determined to bring an act which promises to provide food for all and to sell cheap grain to those living below the poverty line. The Survey, officials said, merely underlines the urgent need to fulfil this promise.
(Email : jrchowdhury@yahoo.com) 31

NEwS

NEwS

NEwS NEwS
and recurring expenditure and provide it as grants-in-aid to each state from time to time. The share between Centre and states will be decided later. The cost to the exchequer will be nearly Rs 12,000 crore every year; even private unaided schools will get assistance as 25% of seats have to be reserved for poor children in the neighbourhood. Schools that get land at a concessional rate will not be compensated though they are obligated to set aside 25% of the seats for poor children.
(Courtesy : The Times of India)

IN THE NEwS
he Right to Education Bill, a move to make education a fundamental right for every child in the 6-14 age group, was cleared by the Union Cabinet recently. It's slated to be introduced in Parliament in the current session. When RTE becomes law, it will empower the seven-year-old 86th Constitutional amendment that made free and compulsory education a fundamental right. The RTE Bill has guidelines for states and the Centre to execute and enforce this right. Earlier, education was part of directive principles of state policy.

Right to Education Bill

Once Parliament passes the Bill, education will become a fundamental right for every child in the 6-14 age group Both Centre and states responsible for funds. Cost to the exchequer will be nearly Rs 12,000 crore every year Teachers prohibited from undertaking private tuition; nor can their services be used for non-educational tasks Both Centre and states will be responsible for the finances. The Centre will prepare the capital

ndia is keen to expand its ongoing space cooperation with Russia to joint development of a 'cheaper' reusable spacecraft. India would like to continue strengthening space cooperation with Russia and also to expand it by means of development of cheap reusable spacecraft. ISRO and Russia's federal space agency Roskosmos are currently working on the joint Chandrayan-2 project for which the Russian side would provide a lunar landing craft to put Moon rover for the lunar research. Under the agreement signed in 2007, the Chandrayan-2 lunar mission is planned in 2011-2012 for which ISRO is developing new powerful GSLV-Mark-III space launch vehicle. Russia is also helping India in its first manned space flight due in 2015. In December 2008 India and Russia signed an agreement on cooperation in manned space flights. Under this agreement Roskosmos is helping ISRO in preparing for the manned mission a space capsule with two astronauts would be launched at low earth orbit of 275 kilometre on about a week-long orbital flight. Space cooperation with Moscow began in 1962 with the launching of Soviet meteorological rockets from Thumba rocket range in Kerala and orbiting of first Indian satellites Aryabhatta, Bhaskara-1 and Bhaskara-2 and three IRS series remote-sensing satellites aboard Russian launch vehicles.
(Courtesy: The Assam Tribune) 32 YOJANA August 2009

India to develop spacecraft with Russia

BudgET 09-10

ANAlySiS

Agriculture and the Budget

Surinder Sud

A major thrust has been sought to be provided in this budget to step up the flow of institutional credit to the farmers
YOJANA August 2009

The measures proposed for the agriculture sector in the 2009-10 budget are aimed broadly at restoring the annual agriculture growth to the level of 4 per cent which was achieved between 200506 and 2007-08 but had slipped to 1.6 per cent in 2008-09. Stressing the need for such a robust growth, the finance minister, Mr Pranab Mukherjee, said: Agriculture has been the mainstay of our economy with 60 per cent of our population deriving their sustenance from it. In the recent past, the sector has recorded a growth of about 4 per cent per annum with substantial increase in plan allocations and capital formation in the sector. To again boost the agricultural growth to this level, which is also the target for the 11th plan, the 2009-10 budget has proposed a

significant 30 per cent increase in allocation for the agriculture m i n i s t r y s f l a g s h i p s c h e m e Rashtriya Krishi Vikas Yojna (RKYJ). It has also proposed a whopping 75 per cent step up in the outlay for the Accelerated irrigation Benefit Programme (AIBP) which will help bring more area under irrigation to boost agricultural productivity and also lend stability to it. Besides, the finance minister has proposed a higher target for the flow of institutional credit to the farmers at the subsidised interest rate of 7 per cent and below by offering interest subvention to the banks and financial institutions. The total Central plan outlay for the agriculture and allied sectors has been raised by Rs 555 crores from Rs 10,074 crores in the 2008-09 budget to Rs 10,629 crores

The author is a Veteran Agriculture Journalist working as Consulting Editor of the Business Standard. 33

for 2009-10. This is Rs 660 crores higher than the 2008-09 revised estimates of Rs 9,969 crores. The Rashtriya Krishi Vikas Yojna aims at providing assistance to states to cover the critical gaps in the process of agricultural development. Focused attention is devoted under this scheme to integrated development of food crops, including coarse cereals, promotion of farm mechanisation, improvement in soil health and productivity, development of rainfed farming systems, strengthening of marketing infrastructure and promotion of other income generating activities like horticulture, animal husbandry and fisheries. The outlay for the RKYV has been earmarked at Rs 4,100 crores for 2009-10, up 30 per cent from 2008-09. This is in accordance with the recommendation made to this effect by the National Development Council to ensure a sustained 4 per cent annual growth in agriculture in the 11th plan. The AIBP has been given an additional Rs 1000 crores over the interim budget estimate, marking an increase of 75 per cent over the 2008-09 allocation. The AIBP was launched in 1996-97 for extending assistance to the states for speedy completion of irrigation projects that have been held up for want of adequate resources. So far, 91 major and medium irrigation projects have been
34

completed under the AIBP scheme. In 2008-09, Rs 2,791 crores were released for this programme till December 2009 for the completion of identified major and medium irrigation projects. A major thrust has been sought to be provided in this budget to step up the flow of institutional credit to the farmers. The target for the disbursement of credit has been fixed at Rs 3,25,000 crores for 2009-10, against the actual disbursal of Rs 2,87,000 crores in 2008-09. The finance minister announced continuation of the interest subvention scheme for short term crop loans to the farmers for credit up to Rs 3 lakh per farmer at the interest rate of 7 per cent a year. An additional budgetary provision of Rs 411 crores has been made for this purpose in the 2009-10 budget. To assuage the feelings of the farmers who had not benefitted from the last years farm debt waiver scheme because of timely repayment of their loans, the finance minister announced an additional interest subvention of 1 per cent so that these farmers could get loans at an interest rate of 6 per cent. In another relief measure for the farmers owning more than 2 hectares of land, who were given the option of settling their outstanding bank loans by repaying only 75 per cent of the pending debt, the period

of availing this benefit has been extended by 6 months from June 30, 2009 earlier to December 31, 2009. This has been done in view of the late arrival of the monsoon this year. The finance minister pointed out in his budget speech that the one-time bank loan waiver of nearly Rs 71,000 crores announced in the last years budget had covered nearly 40 million farmers. He also took note of the fact that in many regions of Maharashtra, a large number of farmers had taken loans from private money lenders and the loan waiver scheme did not cover them. Maintaining that this matter required special attention, the finance minister announced setting up of a Task Force to examine the issue in greater detail and suggest the future course of action. In another significant move that will spur investment on construction of warehouses and cold chains for safe storage of agricultural produce, the budget proposed to allow all capital expenditure as deduction under the Income Tax Act in respect of businesses of setting up of such warehouses and cold chains. This will enable the farmers to store their produce immediately after the harvest when the prices are generally low and sell it when the prices rise in the off-season. It will also lead to expansion of agri-processing industry to enhance facilities for value-addition of agricultural commodities.
YOJANA August 2009

Of the proposed overall central plan allocation of Rs 10,629 crores for the agriculture and allied activities, the major chunk of Rs 7,200 crores goes to the department of agriculture and cooperation. This marks a step up of Rs 332 crore over the 2008-09 revised estimate s of Rs 6,868 crores for this department. The department of animal husbandry, dairying and fisheries has been given Rs 1,100 crores, against the revised estimates of Rs 940 crores, and the department of agricultural research and education has been provided Rs 1,760 crores, the same as the revised estimates for the previous year. The National Food Security Mission (NFSM), which was set up to enhance the production of rice, wheat and pulses under time bound programmes, has been allocated Rs 1,260 crores for 200910, against Rs 973.42 crores in the revised estimates for 2008-09. An additional Rs 90 crores have been provided to this Mission exclusively for the schemes to raise food production in the north-eastern region.

this programme, mini-kits containing good quality seeds of region-specific high-yielding crop varieties are provided to the farmers. This helps them to get higher crop yields by replacing their old and outmoded seeds with those of new varieties. Field demonstrations are also held to show the farmers the modern techniques of crop cultivation. The finance minister delved in some detail on the issue of fertiliser subsidy and spoke about the measures to improve the efficiency of fertiliser-use even while preserving the soil health. He observed: In the context of food security, the declining response of agricultural productivity to increased fertiliser usage in the country is a matter of concern. To ensure balanced application of fertilisers, the government intends to move towards a nutrient based subsidy regime instead of the current product pricing regime. He expressed the hope that such a shift in subsidy and pricing policies would lead to availability of innovative fertiliser products in the market at reasonable prices. He also stated that unshackling of the fertiliser manufacturing sector could be expected to attract fresh investments in this sector. In due course, it is also intended to move to a system of

direct transfer of subsidy to the farmers, the finance minister announced. All these measures, some of which have already been fully or partially implemented, are bound to be hailed as steps in the right direction by the fertiliser industry as well as the farmers. The nutrient based subsidy, a move that is already under implementation, has resulted in reduction of around 18 per cent, on an average, in the prices of several fertilisers. This will discourage the present trend of excessive use of nitrogenous fertilisers which has caused an imbalance in the use of nitrogen (N), phosphorus (P) and potash (K), impairing soil fertility. The balance use of N, P and K, in the ratio of 4:2:1, will ensure better crop yields as also better soil health. The nutrient based subsidy and price incentives can prompt the manufacturers to produce location and crop specific fertilisers. They can produce fertilisers enriched with micronutrients like zinc, sulphur, manganese and the like, which are becoming scarce in the Indian soils and depressing crop yields. Another innovative product could be slow release fertilisers where the nutrients are supplied to the soils gradually for better absorption by the crop q roots.
(Email : surinder.sud@gmail.com) 35

The NFSM is being implemented in 312 districts in 14 states. These states are Andhra Pradesh, Assam, Bihar, Chhattisgarh, Gujarat, Jharkhand, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Orissa, Tamil Nadu, Uttar Pradesh and West Bengal. Under
YOJANA August 2009

36

YOJANA August 2009

YOJANA August 2009

37

BudgET 09-10

OVErViEw

Budget and Energy

Vijay Thakur

ROWTH IN energy sector is one of the yardsticks of prosperity of any countrys economy. It has been universally recognized as one of the most important inputs for economic growth and human development. And there is a strong two way relationship between economic development and energy consumption.

Besides giving stress to these two schemes, the Energy sector has been allocated maximum funds after Social Service Sector in its development plan outlay. The budget has proposed Rs 1,15,573.65 crore to Energy sector in the Central Plan Outlay by heads of development. Power has been allocated Rs 56,955.74 crore vis a vis Rs 40,512 crore allocated in the last fiscal yearan increase of 40 %. Similarly budget allocation for New and Renewable Energy sector has also been increased by 18 %--from Rs 1088 crores to Rs 1284 crores. The Government, however, has not made any major changes in budget allocation to Petroleum, Coal and Lignite sector, which also falls in Energy sector. While Petroleum sector has been allocated Rs 53042 crores, the coal and lignite sectors received budgetary support of Rs 4,290 crores. However, the government has proposed a few innovative schemes to meet the challenge of international volatility

In another innovative move, Government has also proposed to develop a blue print for long distance gas highways leading to a National Gas Grid so that it could ensure supply of natural gas
38

Keeping in mind that the Energy sector would act as an engine of growth to Indian industry that has already been hit hard by the global meltdown, the budget 2009-10 has put special emphasis on the power sector mainly to promote Accelerated Power Development and Reform Programme (APDRP) and Rajiv Gandhi Grameen Vidyutikaran Yojna (RGGVY) which is aimed to electrify all left over rural villages and hamlets. While an allocation of Rs 2080 crore has been made for APDRP- an increase of 160 % over last year's allocation, the RGGVY has been given Rs 7,000 crorean increase of 27 % over the last fiscal budget.

The author is Special Representative, The Statesman YOJANA August 2009

in crude oil prices and for smooth supply of natural gaswhich is a much cheaper and greener fuel. APDR Programme The Restructured APDR Programme is for establishment of baseline data and IT applications for energy accounting/ auditing & IT based consumer service centres and aims at reduction ofAT&C (Aggregate Technical and Commercial) losses and improvement in consumer services. Besides reducing AT & C losses to 15 %, which is presently more than 30 %, the Programme is also a part of the fiscal stimulus package announced by the government of India. It would help the industry in two ways, firstly by reducing AT & C losses which will give more qualitative energy to the industry sector. Secondly it would give boost to domestic IT and Electrical equipment industry. The steering committee on Restructured APDRP had recently approved projects for 423 towns in Gujarat, Punjab, Tamil Nadu, Uttar Pradesh and West Bengal. Prior to this, 599 projects at the cost of Rs 1947.70 crore were approved for thirteen states. The focus of the programme is on actual, demonstrable performance in terms of AT&C loss reduction. Projects under the scheme would be taken up in two parts in urban areas towns and cities with population of more than 30,000 (10,000 in case of special category states). Part A projects are for establishment of baseline data and IT applications for energy accounting/ auditing & IT based consumer service centres and Part-B is for regular distribution strengthening projects. RggVY The Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY),
YOJANA August 2009

launched by the Central Government in 2005, is a part of Indias ambitious Bharat Nirman project to develop rural infrastructure at an initial project cost of Rs1.76 trillion. It is aimed at providing electricity connections to 23 million poor households in 125,000 villages in next five years. But so far only 6.2 million families have been given power connections in 62,000 villages. For the year 2009-10, the Ministry has been given Rs 7,000 crore up from Rs 5,500 crore allocated in 2008-09. It is now to be seen whether the Ministry would be able to meet the 200910 target of electrifying 17,500 villages and connecting 4.7 million households. Even the government admits in its budget paper that there have been some slippages in the programmes because of delayed approval of RGGVY for the xIth plan. The financial year 2009-10 being the last year of the mandate, implementation of the programme needs to be accelerated to achieve the Bharat Nirman Targets, the budget paper states. O v er a l l Ou t la y f o r Po w er Sector. The outlay for the Ministry of power is Rs 53,126.27 crore which is mainly for schemes of National Thermal Power Corporation (Rs 17,000 crore), National HydroElectric Power Corporation Ltd (rs 4,667.99 crore), Damodar Valley Corporation Ltd (Rs 8,313.34 crore), North Eastern Electric Power Corporation (Rs 824.70 crore), Satluj Vidyut Nigam Ltd( Rs 580.06 crore) Tehri Hydro Development Corporation Ltd (Rs 535.18 crore) and Rs 11,510 crore for Power Grid Corporation of India ltd.

In Nuclear Power sector, government has allocated Rs 3382 crore for the year 2009-10. The provision include investment in equity for Bhartiya Nabhikiya Vidyut Nigam Ltd (BHAVINI) and another Rs 603.62 crore for Externally Aided Projects at Kudankulam being executed by the Nuclear Power Corporation of India with the assistance of Russian Federation. For the fast emerging New and Renewable Energy sector, government has increased its allocation to Rs 1346.78 crore while laying special emphasis on Grid-Interactive and Distributed Renewable Power, renewable energy for rural, urban, industrial and commercial applications, and also for research design and development in this sector. Petroleum The wild swings in the International crude oil prices has shaken the Indian petroleum sector during 2008-09. It touched US dollar 142 per barrel July last year and slumped steeply to usd 35.83 within five months. Never before crude oil industry witnessed such a volatility. It has been the tough job for the Petroleum ministry and Oil marketing companies to price the product particularly petrol, diesel, kerosene and LPG. More so when three fourth of Indias domestic requirement is dependent on import. Government and oil companies have borne the major brunt of oscillating oil prices. The under recoveries for the year 2008-09 reached Rs 1,03,292 crores from Rs 40,000 crore in 2005-06almost 158 % increase, sufficient enough to imbalance any
39

government budget. The major portion of the subsidies was given to diesel, Rs 52,286 crore, followed by PDS kerosene Rs 28,225 crore, domestic LPG Rs 17,600 crore and petrol by Rs 5,181 crore. Government has proposed a plan outlay of Rs 57,500 crore for the year 2009-10, mainly consists of Rs 38,731.98 crore for exploration and production of crude oil and natural gas including transportation of natural gas, Rs 14,285 crore for refining and marketing of petroleum products and another Rs 4,362.97 for petro chemicals sector. Further in a bid to devise a long term pricing formula to cope up with the prevailing volatility in the crude oil prices, government has proposed to set up an Expert Group to advice on a viable and sustainable system of pricing petroleum products. Though details of the group have not yet been made public, the group has primarily been assigned the job to devise a mechanism so as to synchronise domestic petrol and diesel prices with global prices of these items. In another innovative move, Government has also proposed to develop a blue print for long distance gas highways leading to a National Gas Grid so as it could ensure supply of natural gasa much cheaper and cleaner fuel. It is very important in context to the recent findings of Natural gas in the KG Basin on the Eastern offshore of the country because of which indigenous production of natural gas is set to double. Government is also expanding its LNG infrastructure that would facilitate transportation of gas across the length and breadth of the country. The budget further announced capital subsidy of Rs 2,138 crore for the Assam Gas Cracker Project. The projected started in April 2006, is being executed at a cost of Rs 5,461 crore. To keep oil companies away from the under recoveries on PDS kerosene and domestic LPG, government has already taken a policy decision to bear the entire subsidy burden of PDS kerosene and domestic LPG. Presently oil companies are loosing Rs 15.26 per litre on kerosene and Rs 92.96 per cooking LPG cylinder, which is likely to touch around 30,000 crore for this fiscal year. This entire burden would be borne by the Government of India and oil marketing companies are left to share the burden of petrol q and diesel under recoveries.
(E-mail : vijaythakurx@gmail.com) 40

YOJANA August 2009

YE-8/09/2

rAil BudgET 2009-10

OpiNiON

Expansion with Inclusive Growth

K R Sudhaman

The Indian Railways are chugging along and are on track with regard to development and improving passenger amenities. But one always wished more could be done
YOJANA August 2009

FTER THE Indian Railways have been put on sound track financially during the last five years, the new Railway Minister Mamata Banerjee has attempted to give priority to improving cleanliness, quality of Railway catering, safety and security besides punctuality in the Rail Budget for 2009-10. As Banerjee herself said during the presentation of the Rail Budget in Parliament on July 3, 2009 that Railway is the visible face of the Government and there are high expectations from Indian Railways from all parts of the country. This is evident from the fact that any discussion on the Indian Railways in Parliament evokes demand for new lines, trains, better services and projects from all parts of the country. This makes it difficult for any Railway Minister to fulfill all the demands. Given the resource constraint the

Minister has no option but to resort to tight-rope-walk year after year and prioritize the demands from various constituencies. Mamata Banerjee is no different and in a short period since the new UPA Government assumed office in the third week of May, she has made an attempt to look at the development of the Indian Railways from the social perspective rather than merely from the economic angle. She is of the view that Railways should attempt at inclusive growth and expand the rail network to reach development to every corner of the country. She feels that economically unviable projects need to be viewed from the social perspective, which is an economic necessity for development of backward areas and under privileged. At the same time Indian Railways cannot throw into the wind all the financial soundness it has achieved during the last five

The author is Editor (Western Region) Press Trust of India. 41

years on the back of high economic growth. Therefore she has rightly set up an expert committee to advise on innovative financing to fund those economically unviable projects, which are crucial for the development of backward areas and the under privileged. It is a normal practice to make big bang announcement in the Rail Budget, which do not see the light of the day at least during the year under review. But for a change this time the Railway Minister has refrained from making such announcements and listed out programmes that are implementable in the foreseeable future. Apart from introducing 57 new trains, extending 27 others, she announced introduction of Duronto trains, a non-stop point-to-point train services to 12 destinations, some of which are long distance. Every Rail Minister tries to ensure that his or her constituency gets an adequate share in such announcements. Mamata Banerjee is no different -she has ensured that her state West Bengal gets a sizeable share of new trains and projects in this years budget. A significant factor in the rail budget is the step up in plan outlay for 2009-10 to Rs 40,745 crore, an increase of Rs 2,840 crore from the interim rail budget presented in February this year. The outlay for new lines has been increased to Rs 2,921 crore, an increase of 166 per cent on the outlay in the interim budget. The gauge conversion has been provided 24 per cent increase with the allocation of Rs 1,750 crore. Allocation for passenger amenities,
42

which normally takes a back seat in every budget, has been stepped up by 119 per cent to Rs 1,102 crore. Allocation for a number of other items like acquisition of wagons, national projects and better rail connectivity have been stepped and all these have been achieved without any increase in passenger fares or freight rates. Mamata Banerjee has announced the setting up of an expert committee to advise her on innovative funding of economically unviable but socially desirable projects to move towards inclusive growth. The committee will provide for preparing a blue print of schemes to be taken up in the next five years in backward areas. Laying emphasis on improving passenger amenities, the Rrailway Minister has instructed all railway zones to provide quality food, drinking water, improve toilet facilities and ensure cleanliness on trains and stations. She has proposed to introduce availability of Janata Khana. She has proposed to develop world-class stations in the country, and to begin with, the rail budget has provided for developing 50 worldclass stations across the length and breadth of the country this year. 375 stations are to be developed as Adarsh stations which would have basic facilities like drinking water, adequate toilets, catering services, waiting rooms and dormitories and other facilities that are universally available elsewhere. Banerjee has planned to develop multi-functional complexes in stations for providing rail users

facilities like shopping, food stalls, and restaurants, book stalls, medicines, telephone facilities, budget hotels and underground parking. Fifty stations serving places of pilgrimage, industry and tourist interest in various parts of the country have been identified for this purpose in this years budget. The Railways have also decided to provide facilities for ticketing in 800 new locations in 200 new towns and cities. Presently such facility is available in 800 locations. The Rail Budget also gives details of measures for improving safety, security, building more road over bridges, installations of anti collision device. It also plans to set up medical colleges in railway hospitals. 18 cities have been identified for such medical colleges under public-private partnership. Seven cities have been identified for setting up nursing colleges as well under PPP. After launching two dedicated freight corridors Mumbai-Delhi and Delhi-Kolkata, the Indian Railways proposes to take up four more such corridors. They are North-South, East-West, EastSouth and Southern. Pre-feasibility studies have already been conducted and further steps are to be taken by the Railways this year. Mamata Banerjee has proposed setting up a 1000 mw power plant at Adra to make available power at economical tariff for supply to railway electric traction. Turning to performance of the Railways, Mamata Banerjee gave statistics to say that despite
YOJANA August 2009

economic slowdown in 2008-09, the Indian Railway loaded 833 million tonnes of freight cargo. Traffic receipts grew to Rs 79,862 crore. Even after disbursing Rs 13, 600 crore towards implementation of sixth pay commission recommendations, the railways were successful in generating a cash surplus before dividend of Rs 17,400. After dividend liability of Rs 4,717 crore, the railways were able to maintain internal generation for investment at Rs 12,681 crore. The freight target for the current year has been fixed at 882 million tonnes. The goods earnings has been projected at Rs 58,525 crore for 2009-10, Rs 5,092 crore more than what was achieved in in 200809.The Passenger earnings are projected at Rs 24,309 crore for 2009-10, a growth of 10.8 per cent. T h er e a r e t w o im p o r t a n t innovations in the Rail Budget this year. The first is to provide medical help on long distance trains.

Railways have a large medical network like the armed forces. This is a good beginning and augurs well to provide timely medical help to the needy passengers. The other important step is to allow participation of private sector in maintaining freight hubs. This will help the Railways in improving efficiency thereby increasing the profitability. The Railways have modified the Tatkal scheme of booking. Instead of booking tickets under the scheme five days in advance, it can be done just two days in advance facilitating last minute travel. The charge for booking tickets under the tatkal scheme have also been reduced, which is a welcome step. This is certainly a please-all budget as Mamata Banerjee has made an attempt to accommodate the demands of various sections and not gone merely by the economics of it. One can debate over and

over again whether economic viability should come first or the social requirement. It is always the chicken and egg issue especially in a developing economy like ours. But the fact of the matter is that there is scope for tremendous development in the railways as this is one infrastructure which is very far from reaching optimal level in the country. How we hasten it is a matter of choice and different railway ministers follow different routes towards this goal But none can dispute the fact that the Indian Railways is in a much better position financially than what it was a decade back and that reforms are taking place. The speed at which it is happening may be a matter of debate. Nevertheless the Indian Railways are chugging along and are on track with regard to development and improving passenger amenities. But one always wished q more could be done.
(E-mail: sudhaman23@hotmail.com)

Highlights of Railway Budget 2009-10

No increase in passenger fare and freight tariff Plan outlay of Rs. 40,745 crore proposed for 2009-10 Unrealistically high targets of Interim Budget revised. Target for Gross Traffic Receipts reduced by Rs. 4740 crore Traffic receipts during 2008-09 increased by 11.4 % while freight loading grew by 5 % Passenger amenities to get high priority, outlay increased by 119 % 12 new non-stop 'Duranto' trains; 57 new trains; extension of 27 trains and increase in frequency of 13 trains Railway tickets to be made available through post offices and mobile vans 50 stations to be upgraded with world class facilities Monthly ticket of Rs. 25/- for travel up to 100 km for the unorganised sector/poor under 'Izzat' scheme Long distance trains to have on-board doctor and infotainment services 'Only Ladies' EMU trains at Delhi, Kolkata and Chennai
YOJANA August 2009 43

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YE-8/09/4

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dO yOu kNOw?

TAxATION SYSTEM IN INDIA

purchases a particular commodity, he is the ultimate tax-payer, but the retail store acts as the intermediary. In India, manufacturing, final consumption, trading and exports; everything falls within the ambit of indirect taxes. what are Corporate Taxes ? Corporate tax is a direct tax levied on the income of a company or association. The rate of such tax depends on the company's domicile. Indian companies are taxable in India on their worldwide income, while foreign companies are taxable on income that arises out of their Indian operations, or, income that is deemed to arise in India.The different kinds of taxes associated with a company are : Minimum Alternative Tax (MAT) - Profits of a company are computed in terms of the Companies Act, while its taxable income is calculated in terms of the Income Tax Act. There are companies, called the Zero Tax Companies, which show book profits in terms of the former Act, but no taxable income, in terms of the latter. MAT was introduced to bring in such companies into the tax base. Companies whose total taxable income is less than 30 percent of its book profits, are required to pay income tax (MAT) on 10.5 percent of their book profits. Dividend Distribution Tax (DDT)This is the tax levied by the Indian Government on companies according to the dividend paid to a company's investors Fringe Benefit Tax (FBT)-This is an additional tax payable by the employers on value of fringe benefits provided or deemed to have been provided to the employees. This tax has been done away with in the current Budget. Banking Cash Transaction Tax (BCTT)- Introduced in 2005, and abolished w.e.f. 1st April 2009, the BCTT was levied at the rate of 0.1% on cash withdrawals of more than Rs 50,000 (individuals) and Rs 1,00,000 for others in a single day from non-savings bank account maintained with any scheduled bank. BCTT served as an extremely useful tool to track unaccounted monies. Securities Transaction Tax (STT)-STT or turnover tax, is a tax that is levied on the sale/purchase of financial securities like equity shares, units of equity oriented mutual funds, derivatives and other securities as defined under section 2(h) of the Securities Contracts (Regulation) Act, 1956 (SCRA). Capital Gains Tax (CGT)A type of tax levied on capital gains incurred by individuals and corporations. Capital gains are the profits that an investor realizes when he or she sells the capital asset for a price that is higher than the purchase price. what is Income Tax and how is it administered ? Income Tax is a direct tax, collected annually by the Central Government on all forms of income (other than agriculture income) and then shared with the states. Central Government levies income tax on the taxable income of individuals, Hindu Undivided Families (HUFs), companies, co-operative societies
45

axes have always formed the major source of revenue for any government. Kautilya's Arthashastra gives a detailed account of the taxation system in ancient India. Our present day taxation system is quite similar to Kautilya's system. Let us take a look at the salient features of our tax system today. How is the tax administration structure organized in India ? India has a three-tier structure of tax administration, with the power and authority to levy various kinds of taxes being distributed among Central Government, the respective State Governments and the Local Governments. The Central Government levies taxes on income (except tax on agricultural income,), customs duties, central excise and service tax. The State Governments levy Value Added Tax (VAT), stamp duty, state excise, land revenue and profession tax, while the Local bodies are empowered to levy tax on properties, octroi and for utilities like water supply, drainage etc. what are Direct and Indirect taxes ? Direct taxes are taxes that are imposed on individuals and organizations and are directly collected from them, without the interference of a third party. These include income tax, corporate tax, and Wealth Tax. Indirect taxes are indirectly collected from someone, other than the entities on whom they are imposed, for eg. Customs and Excise duty, Sales Tax, VAT etc. For example, when a customer

YOJANA August 2009

and trusts. According to the Income Tax Act of 1961, a person whose total income surpasses a certain predetermined exemption limit, shall be required to pay a certain amount of income tax at the rate or rates, as prescribed in the finance act. Apart from remuneration for work (Income from Salary), an individual may be charged Income tax on income from House Property , Business or Professions or from Capital Gains . Personal income tax is levied by Central Government and is administered by Central Board of Direct taxes under Ministry of Finance in accordance with the provisions of the Income Tax Act. what is wealth Tax ? Wealth tax is a tax on the benefits derived from property ownership. The tax is to be paid year after year on the same property on its market value, whether or not such property yields any income. The tax can be charged in respect of an individual , HUF or company. The assets chargeable to wealth tax are guest house, residential house, commercial building, motor car, jewellery, bullion, utensils of gold, silver, yachts, boats and aircrafts, urban land hoarded cash in excess of Rs. 50,000 held by individuals or HUFs. Wealth tax is not levied on productive assets, hence investments in shares, debentures, UTI, mutual funds, etc are exempt from it. what are some of the important Indirect Taxes ? Some of our important Indirect Taxes are: Excise Duty - This is a form of indirect tax that is levied on the manufacture or production of certain goods within the country. Unlike sales tax, which calls for tax payment on the sale of goods, excise duty is a tax imposed
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on the act of manufacturing or producing a particular commodity. State Governments control and regulate excise duty related to alcohol, alcoholic preparations and other narcotic substances. Thus, it is also known as State Excise Duty. Other commodities come under the Central Excise Duty and Central Government is liable for the collection of excise duty associated with them. There are three types of Central Excise duties collected in India namely Basic Excise Duty charged under section 3 of the Central Excises and Salt Act,1944 on all excisable goods other than salt which are produced or manufactured in India at the rates set forth in the schedule to the Central Excise tariff Act,1985.; Additional Duty of Excise levied in lieu of sales Tax and shared between Central and State Governments. These are levied under different enactments like medicinal and toilet preparations, sugar etc. and Special Excise Duty attracted on all excisable goods on which there is a levy of Basic Excise Duty under the Central Excises and Salt Act,1944 and for which each year the relevant provisions of the Finance Act specifies whether the Special Excise Duty shall be or shall not be levied and collected during the relevant financial year. Customs Duty- This is a tax which a state collects on goods imported or exported out of the boundaries of the country. In India, custom duties are levied on the goods and at the rates specified in the schedules to the Custom Tariff Act, 1975, with the objective of restricting imports for conserving foreign exchange ,protecting Indian industry from undue competition, prohibiting imports and exports of certain goods, regulating exports and co-ordinating legal provisions with other laws dealing with foreign exchange . the various types of duties

levied under this include basic Duty, Countervailing Duty or CVD which is equal to excise duty levied on a like product manufactured or produced in India, Anti Dumping Duty on goods being imported at very cheap rates with a view to capturing Indian markets, Protective Duty on specified goods, Duty on Bounty Fed Articles in cases where a foreign country subsidizes its exporters for exporting to India, and Export Duty on goods such as skin and leather, whose export we wish to restrict. Central Sales Tax (CST) -Sales tax is charged at the point of purchase for certain goods and services. It is set as a percentage by the government charging the tax and can be included in the price or added at the point of sale. Most sales taxes are collected by the seller, who pays the tax over to the government , but the economic burden of the tax usually falls on the purchaser, Value Added Tax (VAT) .VAT is a multi-stage tax on goods that is levied across various stages of production and supply with credit given for tax paid at each stage of Value addition. Instead of taxing the total cost at the time an item is sold to the consumer, a value added tax occurs at each stage of production but only taxes the change in value at each stage. The state level VAT has replaced the existing State Sales Tax. Service Tax- This is a tax levied on providers of specified services. It was introduced in India in 1994 and started with 3 basic services viz. general insurance, stock broking and telephone. Today there are over 100 services subject to the tax. Service tax is now levied at the rate of 12% of the gross value of taxable services. q
YOJANA August 2009

glOBAl SummiT

ANAlySiS

G-20: A New Beginning

Anindya Sengupta

This clearly underlines the importance of leading developing countries and it seems more likely that in the coming days G-20 is going to play a crucial role in steering the course of global economy
YOJANA August 2009

EPTEMBER 15, 2008. Monday morning, USA woke up to a nightmare. Lehman Brothers a global financial powerhouse with a history of more than 150 years collapsed almost overnight. Same day, another iconic American financial giant AIG asked for a government bailout to avoid a similar fate. These events sent shockwaves across the globe and world over stock markets witnessed bloodbath. Investment banks decided to convert to regular banks, subject to more regulation but with easier access to government credit. An era on Wall Street came to an abrupt end. Even normal banking system was reeling under severe credit crunch. Citibank was tottering on the brink of a collapse and USA saw highest number of bank failures ever in its history. There was a crisis in confidence.

A global credit crunch and failure of international banking system crippled the global economy. With falling trade and investment and rising job losses, countries around the world faced the worst economic crisis since the Great Depression of the 1930s. As the crisis unfolded, governments around the world had to step in where markets failed. Almost everywhere national governments tried to stem job losses, provide some form of incentive to local industries and re-assure consumers and investors. But over the autumn and winter of 2008, the crisis seemed to be getting more and more out of control and governments increasingly realized that due to the inter-connected nature of todays global economy, it is not feasible to handle the crisis only at national levels. The need for international cooperation to

The author is Deputy Director, Doordarshan News. 47

help stem the crisis prompted the Bush Administration in its final days to call for a meeting of G-20 countries in Washington. But why G-20? g-20 G-20 was created at the suggestion of Paul Martin of Canada, as a response to the financial problems of late 1990s and to a growing recognition that key emerging economies like India have been left out of the global economic governance architecture. G-20 was originally a grouping at the level of Finance Ministers and Central Bank Governors and they have been meeting annually since their first meeting at Berlin in 1999. The biggest advantage of G-20 has been that the members enjoy equal importance and they are drawn from diverse background. They represent two-thirds of humanity and 90 per cent of the global GNP. This degree of representation, variety and equality among the members made G-20 a more acceptable forum at a time when the only silver lining for the global economy came from emerging economies like China and India. washington Summit On November 15th, 2008, leaders of G-20 met for the first time in Washington. This was more a result of the desire of top European leaders like Nicholas Sarkozy of France and Gordon Brown of Britain to usher in Bretton Woods II. The one day summit produced an important
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communiqu, stressing on the need to cooperate among the members on key economic issues, chalk out effective trans-border regulation by evolving proper mechanism and ensuring regular risk assessment by institutions like IMF to avoid future crisis. They recognized that the crisis, to a large extent, was a result of in-sufficiently coordinated macro-economic policies and promised to work together to restore global growth and achieve required reform in the global financial system. The summit gave broad directions to G-20 Finance Ministers, national regulators and international organizations to come out with necessary responses in different areas of regulation in a coordinated and time-bound manner. But more than any announcement, the fact that they met was most significant. It pronounced the demise of G-8. It signaled a paradigm shift in global balance of power from the developed world to the top developing countries like India and China. London Summit The global scenario had undergone considerable change by the time G20 leaders met for their second Summit, this time in London on the 2nd-3rd of April. IMF predicted that the global economy was going to contract for the first time since the end of the second World War and global trade was also poised to post a negative growth for the first time

since 1984. There were more job losses since the Washington summit. Most of the developed economies accepted that they were in recession which was unlikely to end soon. Stock markets drifted lower, investment flow almost stopped and even emerging economies showed signs of strain. As governments were forced to take over banking assets and to provide huge amount of assistance under social security nets, basic questions were raised about the effectiveness of free-market economy and liberalization. Meeting against this backdrop, the leaders managed to put on a united show and mapped out a new future for financial regulation. Gordon Brown unveiled a mega $1100 billion dollar package to fight slowdown. The summit decided to take actions against tax havens, curb risky bank bonuses and cooperate closely on regulatory matters through an expanded Financial Stability Forum, a so far a lowprofile body of central bankers. The leaders agreed to boost capital of IMF and other development finance institutions, provide a huge amount for trade finance and for helping poorer countries. The summit also agreed to overhaul the global economic governance architecture as soon as possible to give adequate representation to emerging economies and to conclude Doha Round of WTO talks soon, though no time table was set. The leaders agreed to meet again in New York along side the annual
YOJANA August 2009

he leaders of G-20 met in London on April 2, 2009 at the backdrop of the worst economic and financial crisis, a crisis which has deepened further since the Washington Summit held on November 15, 2008. India has emphasized the need to continue with coordinated contracyclical policies within a framework of fiscal sustainability; restoration of the banking system in the industrialized countries to full functionality; avoid protectionist sentiments in the trade of both goods and services; to take concrete steps to ensure adequate credit flows, including trade finance, to developing countries for which it is imperative to raise resources of the international financial institutions and bring forward the quota review in the IMF; The leaders of G-20 resolved to restore confidence, growth and jobs; repair the financial system to restore lending; strengthen financial regulation to rebuild trust; fund and reform the international financial institutions; promote global trade and investment and reject protectionism; and build an inclusive and sustainable recovery. As per the London communiqu the leaders have agreed to treble resources available to the IMF to US$ 750 billion, to support a new SDR allocation of US$ 250 billion, to support at least US$ 100 billion of additional lending by the multilateral development banks (MDBs), to ensure US$ 250 billion of support for trade finance, and to use the additional resources from agreed IMF gold sales for concessional finance for the poorest countries, constitute an additional US$ 1.1 trillion programme of support to restore credit, growth and jobs in the world economy. The other major initiatives agreed upon are:
l

For Strengthening the Financial System a new Financial Stability Board (FSB) with a strengthened mandate, as successor to the Financial Stability Forum (FSF), including all G-20 countries, FSF members, Spain, and the European Commission, which should collaborate with the IMF to provide early warning of macroeconomic and financial risks and actions needed to address them, extend regulation and oversight to all systemically important financial institutions, instruments and markets, including systemically important hedge funds, for the first time. For strengthening global financial institutions, implement the package of IMF quota and voice reforms agreed in April 2008 and to complete the next review of quotas by January 2011. For World Bank also, similar reform should be completed on an accelerated time scale, to be agreed by the 2010 Spring Meetings. For resisting protectionism and promoting global trade and investment, members have committed to refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organization (WTO) inconsistent measures to stimulate exports and will not retreat into financial protectionism, particularly measures that constrain worldwide capital flows, especially to developing countries. For ensuring a fair and sustainable recovery all leaders reaffirm their commitment to meet the Millennium Development Goals and achieving respective ODA pledges, including commitments on Aid for Trade, debt relief and theGleneagles commitments, especially to sub-Saharan Africa. some signs of a recovery. Those who like to see stock indices as a sign of future economic trends, were rather thrilled to see betterthan expected performances in a number of leading markets, including India. Jobs are still hard to come by in most of the developed world but job losses have come down. In a number of countries individual stimulus packages seem to be having some
49

United Nations General Assembly meeting in September (now it has been decided that the meeting will take place at Pittsburgh). London to LAquila Since London, there have been
YOJANA August 2009

effect. In USA, bankruptcy of iconic General Motors was a huge psychological blow but still there was no panic. Europe and Japan have been more sluggish but still that sense of doom seems to have abated. In June, four of the most economically important developing countries Brazil, Russia, India and China, BRIC had their first summit meeting at the Russian town of Yekaterinburg. Their main agenda was of course economic and how leading developing nations can become the engine of global growth. One of the major issues discussed at Yekaterinburg was the possibility of replacing US dollar as worlds reserve currency. This is still more of a theoretical debate but the fact that it is being discussed with such seriousness points to both the declining stature of US economy and the rising clout of these countries. The latest in the series of summits was that of G8 leaders at LAquila in July. The most important question staring at leaders here was the need for such a grouping in todays world. G-8 was formed as a club of worlds richest nations to pursue mainly their economic interest. But only a few months back, to handle the worst economic crisis of this generation they were forced to take the leading developing countries on board. G-8 decided
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to formally rope in five leading developing countries, which were the original outreach countries for the annual G-8 jamboree. These five leading developing countries India, China, Brazil, South Africa and Mexico, along with this years special invitee Egypt are now going to be formally a part of G-8, so in effect, G-8 becomes G-14! And as for the discussions at LAquila, the focus was largely on how to take forward and implement the decisions taken at London. So, in a way, LAquila has become a sort of bridge between London and Pittsburgh. Beyond that, there does not seem to be any relevance for a grouping like G8 today. Road Ahead The most tangible outcome of LAquila is the agreement to conclude the Doha Round by next year. The general idea among the international analysts is that new governments in both Washington and New Delhi have become more pragmatic and are eager to move forward on trade talks. Immediately after taking over as Commerce Minister, Anand Sharma met US Trade Representative in Bali and then flew to Washington. Now India is all set to host a miniministerial in early September, ahead of the next G-20 summit. At least USA, if not all the developed countries now appear to be more flexible on agriculture. These

are definitely positive signs for the Doha Round, which is now languishing for more than 8 years and conclusion of which is likely to provide a great boost to global trade. From housing stats from where it all started, to unemployment and consumer spending latest US data seem to point at a bottoming out. Stock markets are also on a path to recovery. In many of the worst affected economies, analysts are now talking in terms of green shoots of recovery it is still early days to say whether these shoots will turn brown or blossom into a full-fledged recovery. At LAquila, the consensus among the G-8 members was that the worst is over but still the global economy is not out of danger. By the time of Pittsburgh Summit in September, not only a clear road map for conclusion of Doha Round will be available but also the contours of a recovery or otherwise will be more visible. But what Barack Obama said on the sidelines of the G-8 summit is more crucial even after the recovery, the world economic balance will not go back to pre-crisis situation. This clearly underlines the importance of leading developing countries and it seems more likely that in the coming days G-20 is going to play a crucial role in steering the course of global q economy.
(Email : andy8275@gmail.com) YOJANA August 2009

BEST prACTiCES

A Nursery Playing many Roles

Shabana

I have decided to dedicate my life for farmers and my dream is work throughout India
The author is a Freelance writer. YOJANA August 2009

A I B H A R AT N u r s e y established under the Agriclinic and Agri Business Centre( ACABC) scheme in Azamgarh Disitrict of Uttar Pradesh certainly calls for sloganJai Ho !!!- This ACABC which was established by Bans Gopal Singh in 2006 is not only providing expert guidance in Horticulture, Vermiculture , Bee Keping and other related activities to farmers of Azamgarh but has also become a training centre for farmers of Azamgarh and well as ACABC trainees of Varanasi and is also providing regular employment to 30 people and now has a annual turnover of over Rs. 50 lakhs. The website of the nursery www. jaibharatnursery.com is getting readers and feedback's from all over the world.

Born in 1966, Bans Gopal Singh, the son of a farmer of Kota village of Azamgarh had a passion to work for the benefits of farmers. From class 8th onwards he started producing potato seeds for his neighbours. In order to pursue his passion in this field he did his B.Sc. Agriculture from U.P College, Varanasi and M.Sc from Banaras Hindu University, Varanasi. From 1984 onwards he started p r o d u c i n g s e e d s o f p a d d y, mustard and vegetables seeds under the brand name of 'Pragati seeds' but due to lack of proper market he closed that business. In 1994 with a meager amount of Rs. 10000 raised from selling of potatoes he started a nursery in his village. As his village was located around 30 km from district

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earthworms which in two years has grown immensely and he has sold more than 100 quintal Vermicompost till date. He is marketing it under the brand name of "Sanjivini" . He is also training farmers in raising quality vermicompost.He is also producing Honey and marketing it under the brand name of " Sanjivini". He is also giving training in beekeeping as well as selling quality materials for beekeeping.His nursery is
JAI BHARAT NuRSERY

employing more than 30 technical and non technical employees. In 2007 he started a web site www.jaibharatnursery.com in 2008 he also started a free public drinking facility for travellers to save them from havoc of heat. In order to expand his business he has started production of Organic Vegetables in Azamgarh and seeing the much scope of marigold in Rishikesh and Hardwar he has taken 15 bighas of land on lease in Dehradun for commercial production of marigold. Summing up his success BansGopal says"I am thankful to one and all who cooperated in making what I am today. I have decided to dedicate my life for farmers and my dream is work throughout India. Please guide me and give your blessings on my website." q
YOJANA August 2009

headquarter of Azamgarh he was not getting the desired response so he decided to move near the District headquarter. In 2002 he took 1 bigha land on a annual lease of Rs. 9,000 per year at Hafizpur just 3 km away from district headquarter. After the government scheme of ACABC he took ACABC training from Varanasi and started a Horticulture clinic cum nursery under ACABC in an area of 5 bighas. His unit was financed for Rs. 7.00 lakhs by State Bank of India, Azamgarh branch in 2007 and from then onwards there has been no looking back. This nursery was set up as Horticulture clinic and advisory centre under the Ministry of Agriculture, Government of India scheme of Agriclinic and Agribusiness Centre (ACABC) in which subsidy to the tune of 25%
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of the project cost( max of project cost Rs. 10 lakh for individual) is provided as subsidy to Agriculture graduates who receive training from MANAGE ( the training is free of cost) and interest on the rest amount is also given as interest subsidy for the first two years provided there is regular repayment. In about three years of establishing ACABC his business has grown three folds ie from 16 lakhs in 2006 to 50 lakhs in 2009. His guidance on Horticulture is being sought by people from Azamgarh as well as nearby districts and his quality planting materials are in demand all over Eastern Uttar Pradesh. He also started producing Vermicompost from the nursery waste with a meagre investment of Rs. 100 being the cost of halg kilogram

iNfrASTruCTurE

ChAllENgES

Urban Infrastructure Development in India

Prem Pangotra

There is need to strengthen all aspects of city management and to build capacities of citylevel agencies to provide good governance
YOJANA August 2009

HE YEAR 2008 was an important milestone in the evolution of human settlements. For the first time in human history, the population living in urban areas exceeded that in rural areas. According to the population estimates prepared by the United Nations, out of the total world population of 6.7 billion in 2007, 3.3 billion persons lived in urban areas. It is estimated that by 2050, this number will increase to 6.4 billion. Globally, the level of urbanisation is expected to rise from 50 % in 2008 to 70% in 2050 and much of the future urban growth will happen in developing nations. It has also been projected that the increases in the world urban population will be concentrated in a few countries, with China and India expected to account for about a third of the increase in the world urban population in the coming decades. By 2050, China will have

the largest urban population, about 1 billion, followed by India with 0.9 billion (UN, 2007). Although India is a relatively less urbanised country, with only 30% of its population living in cities, the size of its urban population is the second largest in the world. While the rate of urbanisation has been slowing down during the last two decades, the size of urban population in India is very large and is expected to continue to grow. It is projected that by 2030, India will be 41% urban and by 2050 it will cross the 50% mark. Urban population in India is concentrated in the approximately 400 Class I cities, those with population greater than 0.1 million. At present, more than two thirds of the urban population lives in these cities. In contrast to the Class I cities, the small and medium towns numbering about 4000, have experienced slow, declining and

The author is Professor at the Indian Institute of Management, Ahmedabad. 53

unstable growth during the past three decades. These Class II-V towns also have higher poverty levels. Infrastructure investment in small cities is minimal and their ability to mobilize resources is very limited. Significant regional disparities exist in urbanization rates across the country, for instance the state of Gujarat is 38% urban while the level of urbanization is only 10% in Bihar. A matter of great concern for policy makers is that as the level of urbanization increases, it may lead to further disparities across regions and among different categories of cities. Since Indias independence in 1947, the main thrust of urban policies has been to control the rural-urban migration in order to slow down the rate of urbanization. However, demographic data for India shows that most of the increase in urban population in recent years has been on account of natural growth and not primarily due to rural-urban migration. Now there is increasing realisation that people migrate to cities mainly due to economic opportunities and that the migrants make a significant contribution to the economic growth of cities. Many experts believe that economic growth of cities may suffer if migration is stopped forcibly and that cities must be able to absorb the surplus rural population. Role of infrastructure Infrastructure is both a catalyst for local economic development and a necessary response to rapid urban growth. It is integral to all production and consumption
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activities in a city. City infrastructure is a critical determinant of local business efficiency, productivity and the citizens quality of life. In a globalising world economy, competitiveness of cities would depend a great deal on the efficiency of urban infrastructure and human capital. The projected growth of urban population implies that the demand for urban services would continue to grow and large investments in urban infrastructure would be required. Urban infrastructure has strong local public good characteristics. It is difficult to exclude citizens from using roads and public amenities. Exclusion is feasible for water supply, but difficult in practice. Sanitation and solid waste disposal have significant positive externalities which justify public provision. Although urban infrastructure has natural monopoly characteristics, these can be overcome through appropriate unbundling. However scope for competition in urban infrastructure is limited. While public provision is necessary for political and social acceptability, significant private sector participation in this sector can be leveraged. Present status of urban infrastructure in India There is a huge gap between demand and supply of urban infrastructure in Indian cities. In recent years, there has been significant improvement in provision of roads and bridges, water supply, and sewerage systems in the larger metropolitan cities. Smaller Class I cities and small and

medium towns have not been able to create adequate infrastructure for basic urban services due to lack of resources and neglect by state and local governments. There is very large variation in the level of water supply across different cities in India. The access of poor to water supply is extremely low. Very few cities have provided metering of connections and water charges do not reflect even the O&M cost of supply in most cities. There is neither the willingness to charge nor the willingness to pay. High distribution losses, contamination, limited duration of supply; and poor maintenance are common in urban water supply. In many Indian cities wastewater is collected through surface drains. Only a handful of cities are covered by sewerage networks. Not a single city has sewage treatment facilities to fully treat the wastewater that is generated. While all metropolitan cities have at least a partial sewerage system, only a third of the Class-I cities and less than one-fifth of the smaller sized urban centers have underground sewerage. The status of infrastructure for solid waste management is also inadequate as most cities lack containerised storage sites, vehicles, maintenance facilities and well-managed landfill sites. Recent initiatives in the urban sector Rapid urbanization in India has resulted in enormous challenges in the form of space and resource constraints, infrastructure requirements and environmental pollution. However, until recently,
YOJANA August 2009

urban infrastructure was not given enough priority by the central and state governments. Public resources available for urban infrastructure could barely meet one tenth of the total investment requirement as estimated by the Rakesh Mohan Committee and the earlier Zakaria Commission. With the launch of the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and Urban Infrastructure Scheme for Small and Medium Towns (UIDSSMT), the urban sector in India has finally started receiving adequate funds for improving infrastructure and providing basic services for the poor. However, only a few states have taken the initiative to benefit from these programmes and the utilisation of funds is very slow. A unique feature of the JNNURM is that project funding is linked to a reforms agenda under which the beneficiaries are expected to implement several mandatory policy reforms. The major reforms include rationalizing the property tax structure, reducing stamp duties, and repealing the Urban Land Ceiling Regulation Act. Some state governments have undertaken these reforms to become eligible for central funds but others are slow in doing so. Some progressive local governments are mobilising resources through user charges and land development taxes (vacant land tax, betterment levies, impact fees, etc.). Municipal bonds and innovative land taxation techniques are also being increasingly adopted by the metropolitan cities. Tax exemption of municipal bonds has enhanced the ability of urban
YOJANA August 2009

local bodies to mobilize financing for infrastructure projects. Pooled financing schemes for infrastructure are an innovative concept, however only a couple of states have successfully implemented these till now. With the enactment of the 74th Constitutional Amendment Act, the message of decentralization has gone through but most state governments are dragging their feet in implementing the full intent of the Act. While there is greater clarity of functions of local governments, most state governments are resisting meaningful devolution of fiscal powers and autonomy. The National Urban Transport Policy is another significant initiative in the urban infrastructure sector. By laying emphasis on public transport, it has expedited the introduction of more advanced transport infrastructure in cities in the form of BRTS, Metros, and improved bus services. Some of the mass transit projects are proposed to be implemented on the Public Private Partnership (PPP) model. But on the whole very few PPP projects have been proposed under these schemes. Involving the private sector and other stakeholders Most of the urban local bodies are under severe fiscal pressure and are therefore not in a position to finance their infrastructure requirements from own resources. Private Sector Participation can help to bridge the gap between required and available funds and to overcome operational weaknesses in terms of efficiency, cost and productivity through better utilization of resources.

However. urban local bodies in India have not succeeded in leveraging the full potential of Private Sector Participation (PSP) due to their inability to mobilize adequate internal resources. They have generally failed to create the enabling conditions of political and social acceptability of PSP in urban infrastructure projects. Private investment is not happening due to slow pace of policy, governance and institutional reforms. There is also a need for public participation and institutional mechanisms for accountability and for transparent and participatory city planning processes. A major unresolved issue is the lack of clarity on cost recovery policies for infrastructure projects and low willingness to impose adequate user changes. This will continue to be a major hurdle for PSP in the urban infrastructure sector. There are critical pricing issues -- in the water sector, for example, subsidies are widespread. Affordability is a major limitation for imposing direct user charges. As a result it has been difficult to attract PSP. Yet there are some obvious solutions -- universal metering; increasing slab rates for water charges; and pricing models to incentivise investment, conservation and other environmental benefits. Issues and challenges Urban planning continues to be neglected in cities across the country. As a result, city development suffers from poor spatial planning and outdated development regulations. Local economy is not given due consideration in city management
55

and planning. Displacement and rehabilitation projects are ignored when implementing large projects. Very few cities have managed to introduce significant property tax reforms and to set up the institutional frameworks for imposing user charges where feasible. Other unresolved issues with major implications for the urban infrastructure sector are the lack of progress on giving greater fiscal autonomy to local governments despite the 74th Constitutional

Amendment. Urban policies remain vague on issues of access of urban poor and slum dwellers to basic urban services. Without legal rights of tenure, it would be impossible for cities to provide urban services to these segments even if adequate infrastructure has been created. There is significant scope for PSP in urban infrastructure development. However, there is no one size fits all model. Cities must make objective assessment of how best they can leverage the resources and managerial abilities of the private

sector to provide urban services more efficiently and effectively. Apart from financial resources, the critical need for urban infrastructure development is capacity building. Cities must develop institutional capacities to plan, develop and regulate the use of land and to implement infrastructure projects efficiently. Above all, there is need to strengthen all aspects of city management and to build capacities of city-level agencies to provide q good governance.
(Email- pangotra@iimahd.ernet.in)

Infrastructure
Infrastructure Development l IIFCL to evolve a Takeout financing scheme in consultation with banks to facilitate incremental lending to infrastructure sector. l IIFCL to refinance 60 per cent of commercial bank loans for PPP projects in critical sectors over the next fifteen to eighteen months. l IIFCL and Banks are now in a position to support projects involving total investment of Rs.1,00,000 crore. Highway and Railways Allocation for National Highway Development Programme (NHDP) increased by 23 per cent and allocation for Railways increased from Rs.10,800 crore in Interim B.E. 2009-10 to Rs.15,800 crore in B.E. 200910. urban Infrastructure l Allocation under Jawaharlal Nehru National Urban Renewal Mission (JNNURM) stepped up by 87 per cent to Rs.12,887 crore in B.E. 2009-10 l Allocation for housing and provision of basic amenities to urban poor enhanced to Rs.3,973 crore This includes provision for Rajiv Awas Yojana (RAY), a new scheme Brihan Mumbai Storm water Drainage Project (BRIMSTOwA) l Provision for the project BRIMSTOWA initiated in 2007 and funded through Central Assistance to address the problem of flooding in Mumbai, enhanced from Rs.200 crore to Rs.500 crore Power l Allocation under Accelerated Power Development and Reform Programme (APDRP) increased by 160 per cent gas l Blueprint to be developed for long distance gas pipelines leading to a National Gas Grid to facilitate transportation of gas across the length and breadth of the country. Assam gas Cracker Project l Outlay for Assam Gas Cracker Project stepped up
56 YOJANA August 2009

ShOdh yATrA

A man who would go to sun

ANIPUR MAY be in news for various reasons, but rarely so because of people like Manihar Sharma, the keen innovator who, according to friends and family, would go to numit (sun) to pursue his dreams. A one time mechanic, autorickshaw driver and assistant to a doctor, who also ran a small restaurant to make ends meet, is the innovator of some very interesting and useful mechanical devices. Forced to abandon studies at a young age due to financial hardships, manihar used to work as a mechanic in a workshop. It was here that he found a grounding for his growing interest in machines, the opportunity to tinker with them and a mechanic teacher who could repair or modify complicated and advanced machineries without any sophisticated tools and equipments. The tips and informal training imparted by his teacher have been the backbone of Manihar's innovative spirit. Automatic Pump Operator (APO) Manihar's first innovation was an Automatic Pump Operator (APO) machine. The plight of his people in fetching water from long distances and wastage from overhead tanks acted as triggered the idea for

this pump. This is a device for facilitating hassle-free household water management. Using a central control panel, the pump switches on automatically as soon as the overhead reservoir goes below the threshold level and switches off as soon it gets full. The same principle follows for the ground reservoir as well. It covers the entire spectrum of possible water pumping system from a running pipe, pond, river, tank, etc. It can lift water in higher tank from lower one and vice versa depending upon the need. Designing and creating the pump were not easy work. Manihar left his job to work on the machine and developed a crude prototype. Though appreciated in exhibitions, the prototype failed to attract any funding till help arrived in the form of the Technopreneur Promotiom Programme (TePP) support from the Manipur Science and Technology Council (MASTEC) for prototype development of his machine. Even with this support, there was trouble getting the mechanical and electrical parts that he needed. These could only be brought in bulk, either from Kolkata or Guwahati, and were quite expensive.The only option therefore, was to manufacture those plastic parts himself. For this he would need to prepare moulds of
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Some of his innovations have huge application potentials the only hurdle is to make a breakthrough in commercial terms
YOJANA August 2009

Manihar's Innovation

various parts, a project that would cost him several lakhs of rupees that he couldnt afford. So he enrolled for a three months course on plastic molding techniques at Central Institute of Plastic Engineering and Technology (CIPET), at the age of 50+. He is the only trainee, among the hundreds, who has actually made use of the technology. So far, for his Pump Operator he has developed more than 30 wooden molds. So good is he at his work that even CIPET send him works, which cannot be done with machines. After 15 years of struggle Manihar completed the Pump Operator machine with seven variants. The Pump Operator is a mark of genius as not only are all the components hand made, but also the equipments used were modified or re-built to meet his requirements. For example, while fixing the electronic circuit components, he had a lot of trouble using the small hand held drill to pierce through the circuit board. So he developed a micro-drill by using an old transistor-motor and other components. Innovative Dryer This machine is a simple and efficient dehydrator. Hot air is blown into the drying chamber from
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below, with the help of normal heating rods and air blower. Every layer of drying tray is attached with an air guide that provides uniform distribution of the hot air. On the upper corner of the machine, an exhaust fan continuously takes out the moisture. Preliminary trials indicate much faster and more uniform drying process for fruits and vegetables. The added advantage is that the machine is run by a single phase power; which means any domestic line can be used. It also consumes less energy. A similar capacity standard dryer runs on 15000 watts, whereas the present machine consumes only about 6000-8000 watts. Dhoop (Incense Sticks) Making Machine Manihar's wife used to make the incense sticks manually to generate income for the family. Her pains made him innovate a dhoop stick making device. This manual device has two blade arrangements, one for making small bamboo splints and the other for making small sticks. For stick making it has a multi-bladed arrangement for different stick sizes. Both the blades are fixed on two sides of a small wooden bloke. The main advantage of this efficient machine is that, it is the only machine that can make sticks from both green and dry bamboo. In fact dry bamboo is the preferred type. The quality of dhoop is far more superior than any of the available ones both manual and machine, and the Bamboo wastage is very minimal. Apart from these three innovations Manihar has been helping other people who need his mechanical help. He has aided his doctor friends by repairing their hospital equipments. He has also helped

desperate individuals by making plastic spare parts which are not available in the market (photocopy machine gears, or wheels for gym equipments).In his home-cummakeshift workshop, if not engrossed in innovations, he is busy in the repairing work of local machineries brought in by his neighbors, friends and relatives or fabrication of small plastic equipments. He often spots the fault just by a close look at the machines. This he considers a godsent gift and so he does not charge the people who come to him to get their gas stoves, radios, TV, lighter, torches, table clocks, umbrellas, etc., repaired, unless there is component to be replaced. As a part of Honey Bee Network, he hosted a workshop for other innovators. He has been providing support to many innovators from Manipur he has completely transformed the Muga/edi reeling machine of by replacing almost all the wooden movable parts with plastics, which he did without charging any extra money but just by meeting the material costs. His three main innovations have got good response. He has already sold seven pump operators, three dryers and twenty dhoop machines. There are over fifty orders in hand. These sales have come due to word of mouth only. There has been no marketing of his products. Interestingly he has not filed any patents as he lacks knowledge of patenting. Manihar Sharma longs for a small workshop . Some of his innovations have huge application potentials the only hurdle is to make a breakthrough in commercial terms. A lavish and comfortable life through his innovations is not on his wish list; he just needs a support system for his family. Often the difficulties bring him on the brink of giving up, but his spirit endures. q
(Email :campaign@nifindia.org/ www.nifindia.org ) YOJANA August 2009

pOliCy

ViEw pOiNT

Competition Law and Policy: Indian Context

Amit Singh

There is no one-standard approach in determining the type of competition laws or policies that may prove beneficial to all countries
YOJANA August 2009

OMPETITION LAW and Policy relates to matters of competition and competitiveness so that goods and services are sold at competitive prices and the consumers have a choice as to the products they wish to purchase. Competition would also be a matter of larger applicationthat of overall governance and development of economies, that of better regional and global imbalances in trade and development. Competition law also has a role to address market distortions and barriers to free trade. These distortions and barriers may be caused by geographical limitations, natural monopolies, and weak distribution networks, cartels, entry barriers, predatory pricing and oligopolies. Businesses thrive on competition,

which is the critical element of the dynamic economies. The relevance of competition in the business environment also paves the way for fair business practices. It is said that in the globalization era, competition is necessary for developing countries to obtain the benefits promised by trade liberalization and privatization. However, due to the different stages of economic development in different countries, there is no onestandard approach in determining the type of competition laws or policies that may prove beneficial to all countries. Competition laws and policies aim to level the investment playing field. A level playing field, together with the increased business opportunities brought about by privatization, makes an economy an attractive investment

The author is a Ph.D. Scholar at the Center for International Legal Studies (CILS), School of International Studies (SIS), Jawaharlal Nehru University, New Delhi. 59

destination in the global market. Setting up a competition framework will allow developing economies to protect themselves from the threat of multinational companies anti-competitive practiceswhich increasingly have cross-border effects without employing protectionist regulations that often restrict the foreign direct investment (FDI) to these economies. Competition Policy should be an integral part of a countrys economic development plan as it is beneficial to consumers who will pay lower prices for better quality products. Indias Competition Act, 2002, was enacted to fulfill the countrys obligations under the World Trade Organization agreements. Indian industrialists, fearful of the power of multinational corporations, which have become active in Indias economy in significant numbers since the beginning of the process of liberalization, have also demanded legislative action to ensure a level playing field. It is the countrys first comprehensive law dealing with unfair competition or antitrust issues. The Acts clearly stated objective is not only to prevent practices which have an adverse effect on competition, but also to protect the interests of consumers and to ensure freedom of trade. The Monopolies and Restrictive Trade Practices Act, 1969, which had been found to be inadequate in this context, stands repealed now.
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Government of India, like other governments around the world, recognizes that competition plays a key role in ensuring the efficient functioning of markets. As a result of the liberalization of the Indian economy, certain regulatory sectorsnotably, telecommunicationshave been able to achieve success in promoting competition. Increased privatization and private sector participation in sectors conventionally dominated by the public sector have ushered in a new economic environment in India. This new environment will function effectively and efficiently if the market can function without distortions. The Competition Act (2002) in India was enacted to address three kinds of anticompetitive practices, namely, anticompetitive agreements, abuse of dominant position, and combinations in restraint of trade. Competition Commission of India (CCI) was created to ensure the enforcement of the competition framework established by the Act, i.e. to prevent practices having adverse effects on competition, promote and sustain competition in Indian markets, protect consumers interest, ensure freedom of trade in Indian markets. It also plays an advocates role of promoting competition by initiating informed debates on the issues related to competition. Competition advocacy is a function that needs

to be carried out both by the competition authorities as well as sector regulators. Competition is not an end in itself, but a means to attain competitiveness. To attain competitiveness, laws that introduce competition should suit the local context and consider public welfare concerns. Such law needs to be periodically revisited to take into account the changes that take place over time both domestically and internationally. Government of India has strategically identified the manufacturing sector as the key to ensuring Indias competitiveness, which has obvious developmental offshoots for the country. It established National Manufacturing Competitiveness Council (NMCC) to enhance capacity of this crucial sector of the economy, and has introduced a National Strategy for Manufacturing. However, there remain sectors, particularly those with a large number of state owned enterprises (SOEs) and low level of private investmentwhere competition is weak. Competition Law & Policy in India still face challenges, such as, ensuring that the Competition Commission of India (CCI) becomes fully effective and exercise adjudicatory powers, addresses overlap between jurisdiction of competition and sector regulators, and encourages private equity in natural monopolies. q
(Email : amitsjnu@gmail.com) YOJANA August 2009

YOJANA August 2009

61

YE-8/09/7

TrAdE

ViEw pOiNT

Floriculture : Opportunities for India

Kiran Kumar P Jayasheela

No doubt, floriculture industry in India is poised for a big boom provided the strategies are implemented at the appropriate level in good spirit and international quality concerns are honoured
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LORICULTURE IS an important and upcoming trade with potential both in domestic as well as export markets. The world over, flowers have gained an important place in ones life be it for religious purposes or personal decoration. The global floriculture industry with an investment of about US$ 40 billion is growing at an annual rate of 10 to 12 %. The USA, Japan, Western Europe are the major markets for the flowers. With the declaration of floriculture as an extreme focus area by the Ministry of Commerce & Industry, Government of India, the sector has acquired a special status in the basket of Indias export commodities. The sector is still in a nascent stage of development and accounts for a negligible share in the global exports. However, it has attracted attention of the major giants from both within the country and overseas market. As a result, over the years, there has been a mushroom growth of floricultural units in the country. The industry

thus offers tremendous potential for boosting exports of floriculture and floriculture products and the same are set to make a breakthrough in the near future. The total area under floriculture cultivation was estimated to be more than one lakh hectare Maharashtra, Karnataka, Andhra Pradesh and Haryana have emerged as major floriculture centres. Tamil Nadu is estimated to have the highest area under floriculture production followed by Karnataka, West Bengal, Andhra Pradesh and Maharashtra. A number of Export Oriented Units have been setup in the floriculture segment in the last decade and half. Liberalization and the Plant, Fruits and Seeds (Regulation of Import into India) Order, 1989, also known as the New Seed Policy have already made it feasible to import planting material of international varieties. Opportunities for India The market for cut flowers consists of a range of product groups,

The authors are Research Scholar and Reader, Department of Economics, Mangalore University, Karnataka. YOJANA August 2009

Table 1- Area and Production of Flowers in India (1998-1999 to 2006-2007) Year Area(in 000 hec) Production Loose flowers Cut flowers (in 000 M T) (In million No.) 1998-99 74 419 643 1999-00 89 509 681 2000-01 98 556 804 2001-02 106 535 2565 2002-03 70 735 2060 2003-04 101 580 1793 2004-05 116 655 1952 2005-06 117 678 1998 2006-07 117 701 2033
Source: Compiled from the data of DGCI&S, Monthly Statistics of Indias Foreign Trade: Exports &Re-Exports, March 2004, 2005, 2006 and 2007 Issues, Kolkata.

lotus pods etc. can be easily processed and preserved as dried flowers. The dried flowers have enormous potential due to their non-perishable nature. The dry flowers are mainly exported to the US, Israel, Hong Kong, Japan, Singapore and Western European countries. The dry flower units are located mainly in Tuticorin and Calcutta. Constraints in Flower Production Development The requirements of scientific and commercial floriculture are not properly understood in the country. The production technology for flowers under protected environment of green houses needs to be standardized. There is hardly any post harvest management of flowers for the domestic market. Special attention needs to be paid to strengthen the marketing infrastructure like organized marketing yards, auction platforms, controlled condition storage chambers etc. More options for developmental finance, such as soft loan scheme of the National Horticulture Board need to be identified. There is also a shortage of trained manpower to handle commercial floriculture activity. Export phenomenon Indian floriculture industry has been shifting from traditional flowers to cut flowers for export purposes. The liberalized economy has given an impetus to the Indian entrepreneurs for establishing export oriented floriculture units under controlled climatic
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which offer varying opportunities for countries like India, as potential suppliers. It is a highly competitive market in which importers are continually seeking new, special and different products. They tend not to change easily from one rose supplier to another but co-operation with a company supplying a new product is considered attractive. A new product also offers the prospect of making higher profits than those gained from selling conventional floricultural products. The opportunities are optimal for tropical countries like India in supplying products during periods when these products are scarce in the western markets. In order to compete, Indian exporters must be able to supply products of consistent quality and on a regular basis. With a strong preference for direct marketing and private R & D for developing proprietary products, the industry will have to develop a unique selling proposition to increase the competitiveness. Potential Floriculture Related Trade Areas in India Florist Trade: There has been great change in the lifestyle and
YOJANA August 2009

culture of the people in this country leading to many florist shops in the country. There has been a tremendous increase for flowers in the form of bouquets, floral baskets, floral ornaments and flower decorations. Bedding Plants: Bedding plants, an upcoming item in floriculture trade, are much in demand for supply of seedlings and rooted cuttings flower like chrysanthemum, carnation, gerbera, dahlia, poinsettia, marigold and others. Flower Perfumes: Production of essential oil for cosmetic, food and flower industries are traditionally known in India. Earlier, rose and Jasmine were used extensively for this purpose. Recently, other flowers like tuberose, lavender, geranium and kewra among others have been used. Dried Flower Industry: Dried flower contribute a major share to the floriculture trade. Dahlias, marigolds, jute flowers, wood roses, wild lilies, helichrysum,

conditions. USA continues to be the largest market, having a share of 21.65per cent in 200304. Exports to this market made a quantum jump from Rs.25.81 crore in 2001-02 to Rs.71.10 crore in 2003-04, registering a phenomenal growth of 54.21 per cent over the previous year. The other countries witnessing a similar trend during the period include Italy (175.67 per cent) Australia (145.71 per cent) Germany (153.63 per cent) and France (21.86 per cent). On the contrary, UAE showed a negative growth of 38.53 per cent Steps for Promotion of Flower Exports Glass house technology for production of export quality cut flowers, especially in rose, carnation and chrysanthemum, should be developed. Research on flower crops should be so intensified as to be of help in establishing and promoting export trade in cut flowers. Ideal locations should be selected for producing export quality cut flowers, especially for rose, carnation and chrysanthemum. A unit with coolers and facilities for grading and packaging near the cut flower growing areas is essential. Incentives should be given to those who grow cut flowers on scientific lines on a large scale to boost export. Air freight should be so reduced as to make it possible for exporters to compete successfully in the international market.
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As the flower industry is capital intensive, provision of bank loans at about six per cent interest may help floriculturists take up production of quality cut flowers for export. Entrepreneurs should be provided with the knowledge of science and research related to production and marketing of flowers. National Bank for Agriculture and Rural Development-1982 NABARD is playing a vital role since its inception since 1982 in providing credit support to agriculture including horticultural crops production and marketing. After the 1990 it is focussing more on horticulture, in general and floriculture in particular. The disbursement for plantation and horticulture in India increased from Rs.10,493 lakhs in 1992-93 to Rs.24,603 lakhs in 2000-01. It is giving refinance up to Rs. 2 lakhs with 14 per cent intrest to the 100 per cent export oriented flower units. During the same period disbursements for floriculture increased from Rs.93.52 lakhs to Rs.1,555 lakhs accounting for 0.86 per cent and 6.32 per cent of the total disbursement to plantations and horticulture. A major share of these funds has been given to floriculture in Karnataka where a large number of the units of the country are concentrated. Marketing: Marketing of cut flowers in India is largely unorganized at present. In most metropolitan cities, with large market potential, flowers are brought to wholesale markets, which mostly operate in open yards. A few large flower merchants generally buy

most of the produce and distribute them to local retail outlets after significant mark up. The retail florist shops also usually operate in the open on-road sides, with different flowers arranged in large buckets. In the metros, however, there are some good florist show rooms, where flowers are kept in controlled temperature conditions, with considerable attention to value added service. The government is now investing in setting up of auction platforms, as well as organized florist shops with better storage facilities to prolong shelf life. The packaging and transportation of flowers from the production centres to the wholesale markets at present is very unscientific. In recent years, the government has provided some assistance for buying refrigerated carriage vans. A large number of export oriented units have built up excellent facilities of pre-cooling chambers, cold stores and refer vans and their produce coming for domestic market sales are thus of very good quality and have longer vase life and command higher price. Formations of growers cooperatives/associations are being encouraged. In the near future, India can hopefully emerge as an important leader on the world floriculture scene. If India has to achieve the ambitious export target of Rs.1, 000 crores per annum over the next five years, a paradigm shift is required, then only country can surely afford to look towards a colourful and multihued export future and emerge as a flower power in the global market. q
(E-mail : kinni_p4u@yahoo.com, Jayasheela_mu @yahoo.com ) YOJANA August 2009

ENVirONmENT

pEOplE'S ACTiON

Protecting a Sacred Grove

Ram Kumar Bhakat

INCE TIME immemorial, conservation of natural resources has been an integral aspect of many indigenous communities all over the world. Nature worship is a key force in determining human attitude towards environmental conservation. Many traditional ethics of these people directly or indirectly protect forest patches by dedicating them to local deities. Such forest pockets, referred to as sacred groves, are traditionally protected tree clusters and chunk of near-virgin forest areas maintained through peoples participation.

the attention of conservationists and policy makers. While one school of thought recognises them as a system that informally forces traditional communities to harvest natural resources in an ecologically sustainable basis, the other group believes that sacred groves hold potential for preserving not only biodiversity and ecological functions but also cultural diversity. The Sacred grove Sacred groves are traditionally protected forest patches managed by village communities on socioreligious grounds. The sacred grove under study, popularly known as Kanak Durga temple forest (named after its presiding deity), is situated about 40 km north-west of Kharagpur (SE) railway station in village Chilkigarh under Jamboni police station of West Midnapore district, West Bengal along the border areas of Jharkhand and Orissa. The grove consisting of a mixed vegetation of deciduous,

A community effort speartheads a movement to protect an abandoned sacred grove

YOJANA August 2009

The real need of peoples participation in conservation has also been realised recently. Due to failure of pure legal protection in guaranteeing conservation, it has become imperative to search for alternative solutions based on peoples indigenous knowledge. Therefore, as a model of communitybased resource management, sacred groves have lately drew

The author is Reader, Department of Botany & Forestry, Vidyasagar University, Midnapore, West Bengal. 65

semi-deciduous and evergreen trees, occupies about 60 acre land, and is bounded by crop fields, households, Sal forests and river. It houses the historically famous temple of Kanak Durga (a sylvan folk goddess established by a local tribal king). Since the forest is dedicated to the goddess,the entire area is considered sacred and no part of it is fouled. Even removal of fallen twigs, leaves and dead plants is strictly prohibited. During the annual Durga puja, people from every hue and colour visit the grove and propitiate the deity. Peoples perception about the grove is that it helps them socialise and thus fosters raternity. It is an example of local ownership and autonomy. The sacred grove serves as a rallying point when people need community help and solidarity. Peoples Conservation Drive During pre-independence period, the local king kept the forest intact for defence purpose. The thick green cover acted as a shield against enemy invasion to the Chilkigarh village-based palace. But during the post-independence days with the abolition of royal governance system, the local people started using the sacred forest as a common property resource. As a result, the forest declined into a degraded scrubland. And this trend continued relatively recently when concerned scientists and activists raised the alarm bells and also sought jointprotection initiative along with the local people. And only thereafter, the local peoples attitude has changed in a positive way. Presently, the entire sacred complex is maintained and managed by a temple trust. The trust has erected a mechanical fencing around the grove in addition
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to reviving the concept of social fencing through promoting and patronising the traditional socioreligious and ecological values of plants. Since the last few years, many socio-culturally relevant plants have been introduced in the grove. Moreover, the entire forest has started regenerating with the inputs of adjoining flora of West Bengal, Jharkhand and Orissa. Thus, considering the importance of the area, the trust being the present custodian of the grove, has initiated some programmes for the long-term conservation and effective management of the landscape. These are: (1) To promote natural regeneration of the forest, socio-cultural gatherings are being restricted in the earmarked area of the grove; (2) To enrich the grove flora, socio-culturally relevant indigenous plants are being introduced; (3) To ensure social fencing, the prevailing traditional beliefs and values about plants and the grove are increasingly being publicised, and (4) To increase income through visitors and devotees, the area is being declared as eco-pilgrimage centre. Plant Diversity Since the sacred grove is a segment of the landscape containing plants and other forms of geographical features that are protected by human society, it is of great ecological significance in terms of biodiversity conservation. Floristic survey of the grove reveals 388 species of higher plants. Among the total plants, herbs, shrubs, trees and climbers represent 208, 45, 89 and 46 species respectively. Moreover, the grove supports 11 species with edible fruits, 25 species having sacred value, 10 species used

as timber plants, 12 species having firewood value, and 105 species of medicinal plants of which ethnomedicinally significant Crataeva nurvala (Barun), Gymnema sylvestre (Gurmar), Holarrhena pubescens (Kurchi), Rauvolfia tetraphylla (Sarpagandha), Strychnos nuxvomica (Kunchila) and Tylophora asthmatica (Dudhilata) are rapidly vanishing from the surrounding countryside forest areas. Owing to protection offered on socio-religious grounds, the sacred grove provides optimum conditions congenial for the growth of plants. As a result, some of the floristic elements attain maximum dimensions. A botanist is often confronted here with the unbelievable phenomenon of size and growth patterns of plant associations. Some of the lofty tree species showing grandeur, and thus becoming a fascinating sight are Alangium salvifolium (Annkar), Alstonia scholaris (Chhatim), Anthocephalus cadamba (Kadam), Haldinia cordifolia (Haldu), Holoptelea integrifolia (Challa), Mimusops elengi (Bakul) and Strychnos nux-vomica (Kunchila). Apart from trees, some climbers particularly woody ones show maximum attainable growth patterns often with bizarre shapes. For example, Bauhinia vahlii (locally known as Latakanchan), a normal feature of deciduous forests of South-West Bengal, shows monstrous growth in the Kanak Durga grove. Its false stemlike meandering branches of 0.4 to 0.5m diameter criss-cross the grove-canopy, often lying above at human height in some places and sometimes resting on forked tree branches, thus suppressing all
YOJANA August 2009

other tall shrubs and small trees in between. This type of unusual growth phenomenon of plants in highly protected sacred groves is also reported by researchers in Maharashtra. In view of this, these specimens need to be preserved as national monuments. Animal Diversity The sacred grove, on account of its locational uniqueness, performs other ecological roles too. Being situated amidst the crop fields and surrounded by dry deciduous forests typical of the South Bengal, the grove plays a dynamic role in balancing different ecosystems including the village ecosystem of the region. It is an adobe of various creatures whose food chain is connected through a predator-prey interaction. Due to prevalence of near-wild and calm environs typical of protected forest, the grove supports 1 species of toad, 3 species of lizards, 3 species of snakes, 13 species of birds and 6 species of mamals. Besides, a countless number of forest insects make the grove even more richer in biodiversity. Therefore, there is an urgent need to study these unknown animals in a systematic way. The Kanak Durga sacred grove, largest of its kind in West Bengal so far available reports, in essence epitomizes an all embracing concept and practice of the ancient Indian way of in-situ conservation of biodiversity. It still serves as a miniature representative vegetation of the area reminiscent of modern protected areas. Preservation of these species could be of great economic significance. Some of the species so preserved are already of medicinal importance; others could acquire such significance in future. The grove also preserves genotypes which may be used in future tree-breeding programmes. As such it is an excellent outdoor location for conducting scientific studies in terms of silviculture. The forest gives a good clue to the composition of the erstwhile vegetation of the area. Moreover, the sacred grove provides outdoor illustration for the classroom. Students and teachers may have a glimpse of the environment to understand ecology, taxonomy and community management of a regional biological resource. Therefore, there is an urgent need to protect the sacred grove. And for this, government action is immediately solicited to strengthen the traditional village organisation which is still perhaps in the best position to manage our local resources. q
(E-mail : rkbhakat@rediffmail.com) YOJANA August 2009

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YE-8/09/5

J&k wiNdOw

Blending tourist attractions with local prosperity

Thinlas Chorol

To preserve this and ensure the protection of the environment, is the challenge before all those who are opening out the experience of Ladakh to its visitors
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HE REMOTE mountainous region of Ladakh beckon the tourists but many who make that trip, do not get a chance to see the real Ladakh. Travel companies take charge setting up the entire route for these tourists which includes pre arranged camping sites. They get the luxuries and comforts of modern living in the western style here. Cocooned in this stylish bubble, the tourists remain cut off from the local flavour and feel of the land, its culture, the taste of local food. This is however changing through an innovative scheme which captures this lost experience. Recently a unique system of home stays has started in the villages along trekking routes. Now trekkers can stay in rural homes as they go from village to village. They can trek through scenic mountains during the day

and at night stay at traditional homes where they can eat Ladakhi food and meet the local people. And get the real experience of Ladakhi culture and life. This system of Home Stays has opened up the charm of Ladakhi life to the outsiders . It is also fast becoming an income-generating activity for the villagers. Initiated by the Snow Leopard Conservancy, a non government organization, dedicated to preserving the Ladakhi wildlife, Home Stays began primarily to generate income for the villagers in Hemis National Park, famous for its wild life including Snow Leopards, Blue sheep, Golden eagles, Marmots and Partridges. The Snow Leopard has been a prized animal for which tourists throng the place. But it has wreaked havoc on the lives of the local community killing many of the domestic animals. Villagers have tried to kill Snow Leopards desperate to safeguard their
YOJANA August 2009

livestock on which their livelihood depend. Initially the villagers were reluctant, shying away from opening their homes to tourists. It was a woman from the village Rumback who broke this trend and announced that she will receive tourists in her home. Other families in the village held back for a while but later could see that it was fetching good income This motivated them to follow suit and today out of the nine houses in Rumback, eight are open for Home Stays. At the beginning the Snow Leopard Conservancy organized training for villagers to maintain a tourist friendly home which included standards of hygiene while cooking and serving food. Their training also included knowledge about local flora and fauna. Today, ask even an illiterate old woman in the village and she will be able to give names of the wild animals in English! They have gradually learnt the skills required to manage tourists sometimes even traveling without a local guide. Today Rumback is a popular home stay destination. Apart from boosting individuals incomes, Home Stays contribute 10% of the income which goes into the kitty of local development . Other organizations have now joined the fray and are taking this successful experiment further. T h e Yo u t h A s s o c i a t i o n F o r
YOJANA August 2009

Conservation and Development also a non government organization to economic upliftment of people in remote areas has picked up the thread from the Rumback model . It is formed by youth from all the villages in Hemis National park and works to open up eco-tourism, provide for education, handicraft and inculcate improved agriculture and animals husbandry practices which promote the conservation of nature and culture. There should be sustainable development of local areas which would provide a long-term benefit. Their approach to Home Stays is part of this objective as is the promotion of the use of renewable resources and has extended the system to several villages. This organisiation has taken the initiative begun by the Snow Leopard Conservancy from a limited areas to a much wider arena. Out of the 126 houses in Hemis National Park, it began its work to open up 114 homes. It supported the construction of an extra room for houses who did not have that facility for boarding the tourists and could not afford to build themselves. Each house was provided basic facilities like a water filter, beds with mattresses and pillows. The Youth Association further provided training to train twenty three locals as nature guides. There are also plans to build proper toilets and solar bath rooms in the National Park depending on

the availability of funds. Apart from the Home Stays, the trekking routes are a source of income generation for villagers. One finds women groups selling tea, local breads and handicrafts at resting points along the route. The locals can now see that if hotels or guesthouses had instead come up in the National Park, only the owner or builder would have prospered. Home Stays has democratized this given local communities an opportunity to partake in the economic prosperity. The Home Stay remains very much a civil society effort still. That the government is not involved in the Home Stay system but has schemes to support educated unemployed youth to help them build guest house and hotel all around the Leh. There is a catch however. In a region which has a sensitive ecological system, tourism needs to be developed in such a way to prevent the ravage of the pristine region. It is difficult to do sustainable tourism in Ladakh . Areas which are popular amongst tourists need basic infrastructure like roads. This itself destroys the trekking routes which are a draw for the tourist seeking the feel and flavour of local culture. To preserve this and ensure the protection of the environment, is the challenge before all those who are opening out the experience of Ladakh to its visitors. q (Charkha Features)
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YOJANA August 2009

YE-8/09/3

BOOk rEViEw
Society and Good Governance
HE BOOK entitled The Intelligent P e r s o n s G u i d e t o Good Governance and authored by Surendra Munshi, Biju Paul Abraham and Soma Chaudhuri is definitely an important area that needs well articulation, documentation and insightful research since good governance is a prerequisite for any society who cares for the welfare of its constituents. Therefore, good governance and government are like two sides of one coin since in a democratic system the rulers and ruled must act symbiotically; both need to facilitate good governance to achieve its goal of benefiting all. In a global world its importance is now being increasingly realized. Unfortunately the centrality of discourse and practice of good governance is placed paradoxically for long as it has been more a rhetoric than otherwise. Since time is changing fast in a global world its importance cannot be underestimated. The revival of

the discourse of good governance is desired and practice of it is sine quo non to help develop as well as sustain civil societies all over the globe. It is in this context that the concept of good governance is now gaining wider acceptance among the lay people as well as professionals concerned with development issues where good governance is a vital component. The book authored by three well known academicians stands on its own merit as it takes the discourse of good governance beyond its self-inflicted narrow perspective by covering not only the gamut of relevant issues but also treating them as an integral part. For example, the role of state or the idea of civil society has been appropriately considered. Thus in carrying out the lucid analysis of a fluid concept, this book tries to offer as a one-stop resource for insightful understanding of the subject of good governance in its entirety. In fact the central argument of the book is that any serious engagement with good
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TITLE : SOCIETY AND gOOD gOVERNANCE Author Page ISBN : Surendra Munshi, Biju Paul Abraham and Soma Chaudhuri : 1-195+i-x : 978-81-7829-931-0 (Pb)

Publisher : Sage Publications, New Delhi, 2009

YOJANA August 2009

governance must go beyond the exclusive reliance on the state or the market; rather to explore different modes of partnerships including public participation. This is more relevant now than ever before since the crisis of good governance is becoming a painful phenomenon, particularly for the poor societies where devastations by wars and/or internal dissensions. In this context the good governance is a critical requirement for continuation of life in a society. The insightful and wellthought out book consists of six chapters. These are appropriately conceived to logically put the concept of good governance for public consumption so as to involve public participation in the societal development process and thereby benefit them in present day global era. Chapter-I discusses organizational views, critical perspectives and analytical issues to grasp the concept of

good governance. Chapter-II not only gives analysis of the western political thought of the state formation, its historical characteristics but also the recent challenges of the states, particularly the Indian state since independence including its future. Chapter-III conceptualized the third way in the first world; the criticism of the third way and its relevance to India. ChapterIV highlighted the idea of civil society in different societal contexts; the nature of civil society and whether civil society is at all relevant in the context of changing times. Chapter-V gives a global setting perspective; tries to understand global institutions and reformation of global governance. The last chapter-VI seriously underscores the issues relevant to democracy, particularly the issues like what is wrong with democracy; whether there is any alternative way to democracy and/ or democratic option to bring the

centrality of good governance to achieve societal welfare. In fact the book also appended an enlightening piece: Is India ungovernable? At the end, a comprehensive bibliography and indexes added to the book will be quite useful for the students and researchers who would like delve more into the issues or to pursue serious research and/or further sharpen their understanding in this area. Undoubtedly this book will generate a lot of interest to all those seriously concerned with the critical issues of governance, particularly good governance. As said, the book will extend a helpful hand to students and research scholars who are interested to work in the fields of social sciences, management, administration and commerce. q M.C. Paul,
(E-mail: pauljnu@gmail.com)_

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Forthcoming Issues

September 2009 & October 2009

he September 2009 issue of Yojana will be devoted to the Education Sector in India what have been the major policy initiatives in this area, our important milestones and the challenges we are faced with.

The October 2009 issue of Yojana will be devoted to the Health Sector. What is it that ails our Health Sector ? How best can we provide health for all our people ? What have been the past and present initiatives in the sector ?
YOJANA August 2009