special issue march 2010 a development monthly rs 20

ISSN-0971-8400

SPECIAL ISSUE

MARCH 2010 A DEVELOPMENT MONTHLY RS 20

Budget at a Glance (In Crore of Rupees)

2008-2009

Actuals Budget Estimates Revised Estimates Budget Estimates

Revenue Receipts 540259 614497 577294 682212

Capital Receipts 343697 406341 444253 426537

Total Receipts 883956 1020838 1021547 1108749

Non-plan Expenditure 608721 695689 706371 735657

Plan Expenditure 275235 325149 315176 373092

Total Expenditure 883956 1020838 1021547 1108749

Revenue Deficit 253539 282735 329061 276512

Fiscal Deficit 336992 400996 414041 381408

Primary Deficit 144788 175485 194541 132744

2009-2010 2009-2010 2010-2011

Rupee Comes From Rupee Goes To

Borrowings & Other

liabilities

29 p.

Corporation Tax

23p.

Income Tax

9p.

Customs

9p.

Union Excise Duties

10p

Service Tax & Other

Taxes

6p.

Non Tax Revenue

11p.

Non-debt Capital

receipts

3p.Plan Assistance to

States and UT

7p.

Non-Plan Assistance

to States and UT

Govts

4p.States Share of

Taxes and Duties

16p. (14p.)

Other Non-Plan

Expenditure

13p.

Subsidies

9p.

Defence

11p.Interest Payment

19p.

Central Plan

21p.

27p.

Note : 1. Total Receipts are inclusive of States' share of taxes and duties which have been netted in the table.

Notes :1. This does not include Plan outlays met from internal and extra budgetary resources of public enterprises

2. Total expenditure is inclusive of the States share of taxes and duties which have been netted against receipts in the table

(Budget 2010-11) (Budget 2010-11)

29

71

YOJANA March 2010 1YOJANA March 2010 1

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March 2010 Vol 54

Chief Editor : Neeta Prasad

Senior Editor : Rakeshrenu

Editor : Manogyan R. Pal

Joint Director (Prod) : J.K. ChandraCover Design : Sadhna Saxena

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Website : www.yojana.gov.in

Let noble thoughts come to us from every sideRig Veda

(Circulation) : pdjucir_ [email protected]

JUST A GOOD BALANCING ACT ............................................... 5 Partha Mukhopadhyay

A PRAGMATIC MIx OF POLITICS AND ECONOMICS ............11 Amitendu Palit

A TIGHT ROPE WALK TOWARDS FISCAL CONSOLIDATION ........................................................................ 14 Pinaki Chakraborty, Lekha Chakraborty

ANALYSING TAx PROPOSALS ................................................. 17 Vikas Vasal, Uday Ved, Pratik Jain

FULFILLING SOCIAL RESPONSIBILITY ................................. 20 G Srinivasan

UPBEAT ON GROWTH, CONCERN OVER INFLATION ......... 25 R C Rajamani

PUSHING AGRICULTURAL GROWTH .................................... 30 Surinder Sud

BUDGET AND RURAL DEVELOPMENT .................................. 33 K R Sudhaman

BEST PRACTICES BITTER NEEM TO SWEET SUCCESS ......................................................................... 38 Ratan Mani Lal

BUDGETING FOR THE ENERGY SECTOR .............................. 41 Vijay Thakur

DO YOu KNOw? ....................................................................... 44

GENDERING HEALTH AND EDUCATION .............................. 46 Promila Yadava

SHODH YATRA INNOVATING AND IMPROVISING TO INCREASE AGRICULTURAL PRODUCTIVITY ................. 50

NORTH EAST DIARY .............................................................. 53

THE CRUCIAL ROLE OF BANKS IN INDIA’S ECONOMIC DEVELOPMENT ..................................................... 54 Barna MaulickCOMMUNITY RADIO FOR RURAL DEVELOPMENT ............ 60 Arpita Sharma J&K wINDOw ........................................................................... 65FISCAL FEDERALISM: EMERGING CHALLENGES IN INDIA ........................................................................................ 66 T Sadashivam BOOK REVIEw MOBILIzING RESOURCES FOR DEVELOPMENT .................................................................. 71

C O N T E N T S

2 YOJANA March 2010

uNION BuDgET 2010-2011

FOR THE AAM AADMI

Fiscal Consolidation Back on Track : Exit from stimulus begins; lower net government borrowings to ease pressure on interest rates

Road Map to goods and Services Tax : Cenvat rate hiked to 10% & aligned with service tax rates, more services under tax net

More Tax for Less, Less for More : Corporate surcharge cut to 7.5% from 10%, but MAT rate rises to 18% from 15%

Disinvestment gets Bigger : Govt eyes Rs. 40,000 crore from divestment, another Rs. 35,000 crore from spectrum sale

l Rs. 40,100 crore for Mahatma Gandhi National Rural Employment Guarantee Scheme

l Rs. 48,000 crore allocated for rural infrastructure programmes under Bharat Nirman

l Unit cost under Indira Awas Yojana up to Rs. 45,000 in the plains and to Rs. 48,500 in the hilly areas

l Allocation to Backward Region Grant Fund raised by 26% from Rs. 5,800 crore to Rs. 7,300 crore

l Additional Central assistance of Rs. 1,200 crore for drought mitigation in Bundelkhand region

l Allocation for urban development up by more than 75% from Rs. 3,060 crore to Rs. 5,400 crore

l Allocation for Housing and Urban Poverty Alleviation raised from Rs. 850 crore to Rs. 1,000 crore

l Scheme for 1% interest subvention on housing loan up to Rs. 10 lakh, where the cost of the house does not exceed Rs. 20 lakh, extended up to March 31, 2011

l Plan allocation for school education raised by 16%

l Plan outlay for Women and Child Development stepped up by almost 50%

l National Social Security Fund for unorganized sector workers to be set up with an initial allocation of Rs. 1,000 crore. This will support schemes for weavers, rickshaw pullers, bidi workers, etc.

l Rashtriya Swasthya Bima Yojana benefits extended to all MNREGS beneficiaries who have worked for more than 15 day during preceding financial year

l Mahila Kisan Sashaktikaran Pariyajana to meet needs of women farmers to be launched with Rs. 100 crore

l Plan allocation for Minority Affairs up by 50% from Rs. 1,740 crore to Rs. 2,600 crore

l Rs. 16,500 crore provided to ensure that public sector banks attain a minimum 8% Tier-I capital by March 31, 2011

l Indian rupee to get a symbol

Fiscal Deficit at 5.5% of Allocation for Defence up Rs. 66,100 crore Provided for gDP works out to Rs. 3,81,408 crore to Rs. 1,47,344 crore Rural Development

YOJANA March 2010 3

To fulfill the aspirations of a one billion population in a less than 30 page document is not the easiest of tasks. To top it, the Finance Minister faced an economy that was just about gathering pace after a massive pull back

that threatened to undo nearly all the good work of one decade, a spurt in inflation that had less to do with money supply, more to do with rigidities of food supply bottlenecks, and the needs of a developing economy hungry for more investment, for more infrastructure spend and some more funds for a massive phalanx of absolutely poor people.

At the end of the day, Pranab Mukherjee has managed to do quite a bit of everything. He has managed this jigsaw puzzle by relying on growth as the final missing piece to put the entire picture together. He has set an ambitious target of over 17% rise in tax revenues and an even better 32% rise in non-tax revenue. Both these are far ahead of what the Finance Minister collected in 2009-10. Based on these robust assumptions he plans to spend 18% more on investment or plan expenditure but limit the rise in non-productive expenditure to only just above 4%.

This mixture will be made possible as Budget 2010-11 advises by assuming a robust 8.5% growth rate of the GDP in real terms, that is, net of inflation. The estimated inflation rate is 4% for the year. This is also the course broadly advocated by the Prime Minister’s Economic Advisory Council. The Indian economy has come a long way from the point where growth was just a hope. It is now the second fastest in the world and on course to becoming the fastest. This has been made possible by a combination of government policies since the early nineties that made a clean break from the past, an industrial sector that has learnt to make use of entrepreneurship and a services sector that has seen the lead shift continuously from IT, to Bio tech to Pharma and so on. The result, says the latest year book from Unido, India has the 9th most advanced industrial structure in the world. The only laggard in the pie is the agricultural sector. In the year 2009-10, the total production from the sector actually contracted. To correct this, the budget has financed a four pronged agricultural development programme including a second Green Revolution.

Within plan expenditure, Pranab Mukherjee has substantially raised the allocation for social sector spends including the government’s flagship Bharat Nirman programmes and of course the rural employment scheme—MGNREGA.

Commentaries on the budget have noted this pattern and the prescription for the future fiscal road map made out by the Finance Minister. They have agreed that the minister has reason to be optimistic. The worry lines are the weak infrastructure developments. The government in this case, can only provide the funds, but a lot more action is needed on the ground to make the mega power, roads and airports projects work. q

About the Issue

4 YOJANA March 2010

HOw wILL THE BuDgET IMPACTTaxpayer

• Personal tax liability goes down across the board. Those with annual taxable income of Rs. 5 lakh will save Rs. 20,600 a year

• Tax-exempt saving limit goes up to Rs. 1.2 lakh from Rs. 1 lakh through additional Rs. 20,000 for infrastructure bonds

• Professionals earning up to Rs. 15 lakh won’t need to have their accounts audited

Consumer

• Chips, fridges, cars… all to become dearer if producers pass on the 2% cenvat hike.

• Petrol and diesel prices rise; petrol up Rs. 2.67 a litre, diesel Rs. 2.58 a litre. Could rise further

• Carmakers up prices. Buyers need to stump up Rs. 3,000 – Rs. 1 lakh more.

COSTLIER

AC, Fridge and Washing Machine to cost more

TV and Micro Processor to become dearer

Jewellery, Diapers and Napkins to cost more

Tobacco Hard, Flash Drive will be costlier

Sunglasses, Cement, Steel will be expensive

CHEAPER

Mobile Accessories and Medical Equipment to cost less

CFL Lamps and Set Top Boxes to be cheaper

Peppermints and Correction Glass to be cheaper

Water Filters and Latex Rubber Thread to cost less

CD & DVDs and Toys & Books to cost less

• Bulk transport costs to rise as rail freight is brought into the service tax net

• Compliance for small business with turnover under Rs. 60 lakh to be easier

Economy

• More money in taxpayers’ hands and higher allocation for govt. programmes to boost consumpt ion and growth

• More pr iva te funds for i n f r a s t r u c t u r e t h r o u g h b o n d s e l i g i b l e f o r t a x deductions

• New banking licences to encourage competition and help financial inclusion

• Fiscal prudence road map to boost investor confidence in economy and encourage investment

• Gold prices to go up by Rs. 100 for every 10 gm.

• Income-tax payers are more than compensated, but not other consumers

Investor

• Stepped-up disinvestment drive will mean more listing of state-owned firms, widening choice for investors keen on buying into these firms at attractive price.

• India becomes a more appealing investment story; valuations to rise

• New investment avenue in the form of tax-free infrastructure bonds

Business

• Lower government borrowing will ensure funds are available to the private sector at reasonable rates

FOR YOu

YOJANA March 2010 5

This budget has made a fair start

to getting back on the path of stable

growth, while balancing the risk

of a continuing global slowdown,

but without broader participation, rapid growth cannot be

sustained

Just a Good Balancing Act

BuDgET 2010-11

HE BUDGET can be r e v i e w e d o n m a n y parameters. This article asks three questions. First, is this budget different? Second,

will this budget drive growth without exacerbating inflation? Finally, in his speech, the Finance Minister made it clear that the “Union Budget cannot be a mere statement of Government accounts [and it] has to reflect the Government's vision and signal the policies to come in future”. Going further, he outlined three challenges, viz.: (a) “find the means to cross the 'double digit growth barrier'”, (b) “to harness economic growth … in making development more inclusive” and (c) alleviate the “the bottleneck of our public delivery mechanisms”. How does this budget fare against his own benchmarks to evaluate the budget?

Is this budget different?

Table 1 compares the budget not with its immediate predecessor

T

The author is Senior Fellow, Centre for Policy Research, New Delhi.

but with the budgets from the two preceding years, i.e., the first year of the slowdown, 2008-09 and the year before that, a high growth year, 2007-08. As can be seen, while the expenditure levels are lower than that observed in 2008-09 (15.99% versus 16.61%), they are still well above the levels of 2007-08. While subsidies appear to have been cut from 2008-09, they remain higher than in 2007-08, and this is without the effect of oil subsidies, for which there is only a small provision in this budget. Similarly, while non-plan capital expenditure appears to have risen, it is actually lower and plan revenue expenditure is higher and can be expected to remain so on account of the various schemes such as MGNREGS. Thus, it appears that the government is still not confident of the end of the slowdown and has budgeted for significantly high levels of government spending, as compared, for example to 2007-08. Depending on how the year evolves, this could

Partha Mukhopadhyay

EValuaTiON

6 YOJANA March 2010

be quite prudent. For now, the budget can be characterized as still a ‘slowdown’ budget.

This ‘slowdown’ nature subtly persists in the tax collection side too. Gross tax receipts are still below 2008-09 levels and substantially below 2007-08 levels, except for corporate tax. Compared to personal income tax, customs and excise, this level of corporate tax may reflect a hopeful optimism that lower indirect taxation and demand from recently enriched consumers (as a result of the tax slab rationalization may see strong growth in corporate profits.

will this Budget Drive growth without Exacerbating Inflation?

The Finance Minister would like the taxpayers to spend their

Rs. 26,000 crore bonanza. From most accounts, while GDP growth is recovering, private investment is still sluggish – not quite sure whether it should take the plunge or wait out the possibility of a double dip recession internationally, mentioned in passing by the Economic Survey. They need confidence from consumers that demand is back. However, recent history is not encouraging. Over 2008 and 2009, as the Pay Commission arrears flowed into consumer pockets, the growth in consumer spending stayed low, though there has been some increase in the growth rate after the release of the second installment. The tax bonanza is smaller but unexpected. So, are they likely to

co-operate with the Minister? Only time will tell.

On growth, the budget hedges its bets. It is trying to encourage the Indian consumer to spend, with the hope that the spending will convince the entrepreneur to invest and put India back on the high growth path. But, it still retains a substantial expenditure component for the government, possibly as insurance, as we have seen in the previous section.

As regards, inflation, Table 1 showed that deficit is still above recent levels, and tax collection is expected to remain low. While the pressure on overall inflation from the deficit may moderate, deficit levels remain

Table 1: Budget Components as a share of gDP2010-11 (Budget)

2008-09 (Actuals)

2007-08 (Actuals)

Change from FY09

Change from FY08

Total Expenditure 15.99% 16.61% 15.24% -0.62% 0.75%Non-Plan Revenue Expenditure 9.28% 10.50% 8.97% -1.22% 0.31% Subsidies 1.68% 2.44% 1.51% -0.76% 0.16% Other 7.60% 8.07% 7.46% -0.46% 0.15%Non-Plan Capital Expenditure 1.33% 0.93% 1.85% 0.39% -0.52%Plan Revenue Expenditure 4.54% 4.41% 3.74% 0.13% 0.80%Plan Capital Expenditure 0.84% 0.76% 0.68% 0.08% 0.16%Gross Tax Receipts 10.77% 11.4% 12.6% -0.61% -1.87% Corporation tax 4.35% 4.01% 4.11% 0.34% 0.24% Personal Income tax 1.74% 1.99% 2.19% -0.25% -0.45% Customs 1.66% 1.88% 2.22% -0.22% -0.56% Union Excise Duties 1.90% 2.04% 2.63% -0.14% -0.73% Others 1.12% 1.45% 1.49% -0.33% -0.37%Net Tax Receipts 7.70% 8.33% 9.36% -0.63% -1.66%Non-Tax Revenues 2.14% 1.82% 2.18% 0.31% -0.04%Non-Debt Revenues 0.65% 0.13% 0.94% 0.52% -0.28%Drawdown 0.00% 0.99% -0.58% -0.99% 0.58%Debt 5.50% 5.34% 3.28% 0.16% 2.22%Deficit (including drawdown) 5.50% 6.33% 2.70%

YOJANA March 2010 7

high. However, for all the noise about the fuel price rise, the burden of indirect taxation too has been kept low, with budgeted customs and excise collections below levels of the first year of the slowdown. Thus the budget is unlikely to fuel generalized cost-push inflation. Its effect on food inflation is, however, more difficult to assess.

While the Economic Survey points to the divergence between Food and non-Food inflation, it is not clear whether this is temporary or structural. As can be seen in Figure 1, after remaining range-bound over 2001-2007, wholesale food prices began rising in mid-2007, along with a generalized rise in prices. However, as the non-food prices dipped with the onset of the slowdown, food prices continued their uptrend. The drought last year

served to exacerbate this trend but may not have been its cause. If so, the possibility that the rise in food prices is at least partly structural cannot be ignored.

There is also considerable divergence between CPI and WPI, with CPI for food being consistently above the WPI, indicating a growth in margins. The general CPI also held up strongly during the slowdown. Does this imply that our markets are becoming less competitive? Over the last five years, the competition regulation has been absent in India, with MRTPC acting out an extended death scene, and the Competition Commission unable to leave its incubator till February 2009. These price trends indicate much work for the newborn Competition Commission.

The price data also indicate that Lord Indra’s assistance, invoked

by the Minister, may not be able to calm the clamor over food prices since, given the data in Figure 1, it is facile to attribute the rise to the poor monsoon last year, though it has exacerbated it. Indeed, as more income rightfully accrues to the poor, and demand increases, food prices may continue to rise, unless compensated by increases in productivity and decline in the cost and reduction in usage of other inputs like fertilizer. Addressing this requires reforming our food and fertilizer subsidy, which now stands at Rs. 105,558 crore in this budget. Even a 15% saving in this subsidy through various efficiency measures or price increases (notice from Figure 1 that urea prices have remain unchanged since 2003), would generate an amount larger than any individual scheme, except the Mahatma Gandhi NREGS. It would be enough to more than

-7.5%

-5.0%

-2.5%

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%

15.0%

17.5%

20.0%

22.5%

25.0%

WPI-Food Articles and Products WPI-Non Food CPI-Food Urea

FIguRE 1: gROwTH wPI AND CPI 2001-2010

Source: Office of the Economic Advisor for WPI and Labour Bureau for CPI (Industrial Workers) series

8 YOJANA March 2010

double the allocations for Sarva Siksha Abhiyan and increase the allocation for the Rashtriya Madhyamik Siksha Abhiyan by more than ten times.

The political challenge will be to convince our vocal urban middle class that as prices are readjusted to reflect true costs, food prices may well settle at a higher level. In this transition, it is important to protect the urban poor, a failing urban PDS system and rising food prices is an unhappy double whammy. Unfortunately for them, they are not a strong political constituency.

Can this Budget meet the Finance Minister’s Three Challenges?

The three challenges are summarized as (i) inclusive high growth and (ii) better public services.

In this context, while agriculture is essential to support growth, it cannot drive us to 9.5%, though it may make the difference between 9.5% and 10% and help us cross the 'double digit growth barrier'. The share of agriculture today is just over 13% of GDP and falling rapidly. If it grows at 1%, it adds 0.13% to the growth rate, but even if it grows at a miraculous 5%, it will add only an additional 0.52% to the overall GDP growth. After the advent of NREGA, even rural landless labourers are not as dependent on farm production. Rural non-farm activities are also growing, and this, along with initiatives like MGNREGS, is raising rural wages and income.

As Figure 2 shows, the decline in the share of agriculture is being

picked up by the increase in new areas such as communication, information technology, banking and real estate. Even manufacturing is showing an upward bias. While it is important to provide food security and develop certain infrastructure in rural areas, specif ical ly, connectivity, and provide them with electricity and water, true transformation can come only from improved education that can enable the broad masses to participate in this growth.

Yet, this budget, as with previous budgets, focuses much more on protection and infrastructure and less on building abilities to participate. Table 2 classifies the Rs. 186,873 crore budgeted for forty major schemes of the government into three groups, viz. protection schemes (Pr), e.g., MGNREGS, rural health mission, mid-day meal, etc. physical infrastructure (PI), e.g., rural road, irrigation, etc.; and participation enhancers (Pa), e.g., secondary education, technical training, etc. Depending on how one classifies elementary education, as participation or protection, the share of participation-oriented schemes stay steady at around 17% or 10% respectively. Compared to the last budget the physical infrastructure has actually declined from 36% to 33%.

Within participation-oriented schemes, of the 17.1%, elementary education accounts for 39%, higher education, i.e., support to UGC, the IITs, NITs and other higher education institutions accounts for 34% and the remaining 27% or less than 5% of the total expenditure

on these forty schemes is for secondary education, technical training, teachers education, etc. The allocation for secondary education, RMSA, is roughly one tenth that of the SSA. Even if skill development is to be a purely private-led or PPP (public private partnership) activity, as envisaged under the National Skill Development Corporation (NSDC), it is necessary that the trainees possess a certain level of education for them to acquire these skills. The underinvestment in secondary education means that each year cohorts of students who cannot enroll in secondary education are condemned to low-skill jobs. This focus on the upper and the lower ends of education, to the detriment of the need for developing a professional middle is evident in the minimal allocation for nursing, given the shortage of nurses and paramedical staff. What is even more disturbing is the reduction in funds for scholarships, e.g. in the merit cum means scholarship scheme. Though there are interest subsidy schemes for educational loans, it needs to be recognized that going into debt to acquire an education is still a choice that many of the poor will not exercise, though loans are indeed a viable option for the middle and upper class and should be used in conjunction with higher fees at these educational institutions.

It is a pity that inclusion has remained limited to strengthening “food security, and provid[ing] health facilities at the level of

YOJANA March 2010 9

Source: CSO data on components of GDP (2004-05 base year)

FIguRE 2: THE OLD AND THE NEw ECONOMY OF INDIA

15.9%

15.3%

14.5%13.9%

13.2%

16.3%

17.0%

17.9%

18.9%

19.8%

15.3% 15.3%

16.0% 16.2%15.6%

12.0%

13.0%

14.0%

15.0%

16.0%

17.0%

18.0%

19.0%

20.0%

2004-05 2005-06 2006-07 2007-08 2008-09

Agriculture Communication, IT, Financial Services and Real Estate Manufacturing

Table 2: Major Schemes by Type BE 2009-10 RE 2009-10 BE 2010-11

Plan Non-Plan Total Plan Non-Plan

Total Plan Non-Plan

Total group

1. MGNREGS 39100 39100 39100 39100 40100 40100 Pr2. NRHM 12457 72 12529 12017.6 78.53 12096.13 13836 74.45 13910.45 Pr3. IAY 7918 7918 7918 7918 8996 8996 Pr4. ICDS 6026.3 6026.3 7344.8 7344.8 7806.71 7806.71 Pr5. MDM (PSK) 5089.8 5089.8 5612.65 5612.65 5825 5825 Pr6. Swaranjayanti Gram

Swarozgar Yojana2114 2114 2114 2114 2683 2683 Pr

7. MDM 1924.3 1924.3 824.23 824.23 2545.12 2545.12 Pr8. TSC 1080 1080 1080 1080 1422 1422 Pr9. EPS 994 994 994 994 1300 1300 Pr10. NACO 973 973 888.15 888.15 1266.25 1266.25 Pr11. RGSEAG 99 99 4.5 4.5 900 900 Pr12. AIIMS 177 500 677 320.51 566 886.51 400 400 800 Pr13. PMSSY 1447.92 1447.92 683.58 683.58 750 750 Pr14. Conditional Maternity

Benefit Scheme3.6 3.6 0.9 0.9 351 351 Pr

15 Social Security for unorganized sector (RSBY)

308 308 230.9 230.9 314.89 314.89 Pr

16. National Mental Health Programme

60 60 50 50 103 103 Pr

17. JNNURM 11618.62 11618.62 6332.99 6332.99 11619 11619 PI18. Accelerated Irrigation

Benefit Programme9700 9700 9700 9700 11500 11500 PI

19. PMGSY 10933 10933 10285 10285 10886 10886 PI20. Central Road Fund

Transfers (NHAI)3054 10878.51 13932.51 10878.51 9389.76 20268.27 9953.15 9953.15 PI

21. RGNDWM 7200 7200 7199 7199 8100 8100 PI

10 YOJANA March 2010

households”, and improvement in “education opportunities” has stopped at elementary education.

As for new approaches to public services, as extolled in such detail in the Economic Survey, the only conditional cash transfer scheme, i.e., Dhanlakshmi, for encouraging girl children to complete schooling, receives a token allocation of Rs. 10 crore, even as the food subsidy, through an ever growing PDS, exceeds Rs. 50,000 crore. It was perhaps a time to experiment with the vision that the Economic Survey lays out for the Unique Identification system. Andhra Pradesh reportedly has biometric identification for a number of beneficiaries. Cannot a pilot be begun there or in the Union Territories, or in Delhi, under the Samajik Suvidha Samagam? Could not some support have been

22. RGGVY 6300 6300 4496.6 4496.6 4852 4852 PI23. Integrated Watershed

Management Programme

1776.9 1776.9 1643.52 1643.52 2212.2 2212.2 PI

24. Land Records Modernisation Programme

359.8 359.8 179.99 179.99 180 180 PI

25. SSA (PSK) 7694.67 7694.67 8416.02 8416.02 8608 8608 Pa26. SSA 4239.25 4239.25 3517.9 3517.9 4994.1 4994.1 Pa27. UGC 3917.04 3449.61 7366.65 3244.02 3977.78 7221.8 3885 3450.86 7335.86 Pa28. KVS 270 1812.83 2082.83 306 2085.44 2391.44 315 1652 1967 Pa29. NVS 1170 341.29 1511.29 1170 376.2 1546.2 1246.5 370.4 1616.9 Pa30. RMSA 1143.46 1143.46 477.25 477.25 1527.54 1527.54 Pa31. NIT Support 776 523.9 1299.9 793 523.9 1316.9 810 507.51 1317.51 Pa32. ITI Loan To IMCs 730 730 730 730 735 735 Pa33. Educational Loan Interest

Subsidy0.1 0.1 0.1 0.1 500 500 Pa

34. Assistance to States for new Polytechnics

400 400 400 400 500 500 Pa

35. Strengthening of Teachers Training Institutions

450 450 291.8 291.8 450 450 Pa

36. IIT Support 685.5 919.57 1605.07 685.5 980.26 1665.76 774 825.66 1599.66 Pa37. IISER support 215 215 215 215 300 300 Pa38. IISc support 75 149 224 75 170.28 245.28 80 141.43 221.43 Pa39. New Polytechnics 45 45 45 45 220 220 Pa40. Merit Cum Means

Scholarship Scheme750 750 253 253 81.45 81.45 Pa

TOTAL 152281.3 19640.71 171922 149525 19142.15 168667.2 171627.9 8722.31 180350.2

allotted for this purpose, as the Finance Commission has done for implementation of the UID scheme?

More important than the schemes, is the capacity of the state and especially, local governments to execute them. In some small towns today, the number of elected officials outnumber the number of employees. The total number of employees in all forms of government in India today is also less than the USA, which has one-fourth our population. Our government is too small. Since 1991, we have done a good job of getting out of sectors government should not be in, but a poor job of getting into areas it should be in. If the double digit barrier has to be crossed, while the fiscal deficit certainly needs attention the deficit in the capacity of the state to perform has to be

redressed, and the state reclaimed and rebuilt.

This budget has made a fair start to getting back on the path of stable growth, while balancing the risk of a continuing global slowdown, but without broader participation, rapid growth cannot be sustained. Skill premiums on wages are rising and sectors that grow at a rapid pace, like information technology and even construction soon find themselves running out of steam. Without inclusion, growth cannot be high and without high growth, it is difficult to find the resources to provide the people with the wherewithal for them to participate in the high growth areas of the economy. This budget has not made sufficient effort to initiate this virtuous cycle. q

(Email : [email protected])

YOJANA March 2010 11

In the context of the firm optimism voiced

by the ‘Economic Survey’ and the pronouncements in the budget, the lack of measures for kick-starting investment-led

growth was rather conspicuous

A Pragmatic Mix of Politics and Economics

BuDgET 2010-11

NDIA’S ANNUAL budgets are followed with as much curiosity and trepidation as those of multi-starrer Bollywood movies. While

pining for potential blockbusters makes sense given their high entertainment quotient, the same yearning is difficult to explain for budgets that are hardly more than annual financial statements of the exchequer.

The nervous anticipation would have still made sense if India were still an overtly closed and controlled economy. Fiddling around with customs and excise duty rates for such economies creates major differences in short-term prospects for industries, producers, exporters and importers. But one would have expected India to come a long way from such inward-looking postures. In a considerably globalised economy like that of today’s India’s, a couple of percentage point variations in duty rates should

I

The author is Head (Development and Programmes) and Visiting Senior Research Fellow with the Institute of South Asian Studies (ISAS) in the National University of Singapore.

not have much for whetting the appetites of economic actors and stock markets. This is because tax rates are hardly the instruments for deciding competitiveness in a world where flow of goods and services take place in a far unhindered fashion.

In spite of these justifications, the hype around budgets continues to persist in India. The reason is probably in India’s not yet becoming as closely aligned to global production systems as one would have expected it to. Despite two decades of economic reforms, India’s indirect tax structure (particularly customs and excise) continues to exert a decisive say on both cost of production as well as consumer disposable incomes. While the mean rate of customs duties has come down and the excise structure has been considerably simplified, multiple rates and slabs continue to prevail. There is little wonder then that budgets and the

Amitendu Palit

OPiNiON


changes in duty rates that they propose will impact economic prospects. While this explains the eagerness of industries to know what the Finance Minister will announce on budget day, academic and intellectual curiosity stems from a different perspective. Since 1991, budgets have come to be taken as statements indicating shifts in existing policies or introduction of new ones. Thus policy-watchers have every reason to watch out for the budgets.

India’s latest budget presented on 26 February 2010 was the second by the Congress-led United Progressive All iance (UPA) government in its second term. Coming within nine months of the previous budget, the backdrop to the current one was much different from the earlier one. The previous budget had to chart a course out of the rut that had set in. Riding high on the favourable electoral verdict and keen on overcoming the growth deceleration, the budget for 2009-10 had maintained fiscal expansion. Revenue and fiscal deficits of the central government were budgeted to increase to 4.8 per cent and 6.8 per cent of GDP respectively in 2009-10. These were far higher than their budgeted levels of 1.0 per cent and 2.5 per cent of GDP respectively in 2008-09. However, soon after the presentation of the budget the economy began producing evidence of returning to robust health by clocking a rather unexpected growth of 7.9 per cent in the second quarter of 2009-10. This was a trigger that led many to question whether India should continue to follow the path of fiscal accommodation. With the deficits reviving memories of fiscal management difficulties in

early 1990s, doubts were being raised over continuation of fiscal consolidation.

The latest budget was expected to address these doubts. It was also expected to address the common man (or ‘aam aadmi)’s concern over unabated rise in prices. The annual inflation of around 9.0 per cent draws strength from alarming increase in food prices. Cereals, vegetables, pulses, fruits and milk – the entire gamut of the consumer’s food basket – has been experiencing double-digit inflation. Price rises are among the biggest downside risks to India’s growth outlook. Indeed, along with the fiscal and price issues, as India went into ‘budget’ mode there were apprehensions over the latest growth number for the third quarter of 2009-10 that showed a much more moderate 6.0 per cent. While this was not entirely unexpected given the setback to growth expected from the aberration in the monsoons earlier during the year, the growth backdrop was now down to below 7.0 per cent for the year. The CSO’s advance forecast of 7.2 per cent at least conveyed the impression that 7.0 per cent plus growth for 2009-10 was what the budget could factor in.

What transpired on 26 February was a somewhat evasive response to the challenges of fiscal consolidation, price rise and accelerating growth. On fiscal consolidation the budget pronounced several commitments. These include shaping fiscal policy in line with the recommendations of the 13th Finance Commission with an eye on steady withdrawal from fiscal expansion; careful monitoring of domestic public debt as a proportion of GDP; introducing the new Direct Taxes Code from

next year; and implementing a nutrient-based fertilizer subsidy scheme from 1 April 2010 that was promised in the earlier budget. Assuming revenue receipts to grow by 18.1 per cent (courtesy 14.8 per cent increase in net tax revenue) and revenue expenditure by 11.7 per cent, the revenue deficit is expected to be limited at 4.0 per cent of GDP in 2010-11 from 5.3 per cent recorded in the revised estimates 2009-10. Similarly fiscal deficit is budgeted to be brought down to 5.5 per cent in 2010-11 from 6.7 per cent recorded in the revised estimate for 2009-10.

The more than one percentage point reductions proposed in revenue and fiscal deficits are clearly efforts to return to the path of fiscal consolidation that begun with the Fiscal Responsibility and Budget Management (FRBM) Act. The views of the 13th Finance Commission suggesting a steady withdrawal from fiscal accommodation has also been taken on board in this regard. However, the deficits are not being reduced by reforming existing structural distortions in government expenditure. Rather they are being addressed by mobilizing larger taxes through higher customs duties on imported petroleum products and excise duties on domestic petrol and diesel. Recommendations of the Kirit Parikh Committee for withdrawing subsidies and freeing prices of domestic petroleum products have been kept aside for the time being. At the same time, reorientation of fertilizer subsidies in an efficient manner is a positive step and is expected to generate some much needed savings.

On the prices front, the budget admitted that double digit food


inflation was a serious concern. It also announced that the Centre is consulting the states for taking steps to improve the situation with an eye on better food management. The specifics in this regard, however, were not mentioned. But intentions to bring down the disparities between farm gate, wholesale and retail prices by freeing food retailing is obviously what the situation demands. Hopefully such measures to improve supply management will reduce prices over the long term and encourage the Reserve Bank of India to move towards easier interest rates. The decision to increase excise duties on petrol and diesel by taking advantage of the current moderation in global crude prices will have an inflationary impact, however small. Understandably, a further reduction in petroleum subsidies on top of such increase in excise rates would have not only fuelled inflation further but invited the ire of the middle class salaried income earners. The budget chose to relieve some hardships faced by this group by enlarging the ‘nil’ income tax bracket till up to Rs

1.6 lakh that will benefit almost 25 million income tax payers. This was, in some ways, ‘sugar coating’ the bitter pill of price rise for lower and middle income earners. Indeed, the budget had little choice in this regard given the imperatives to increase consumer disposable incomes in spite of hardening prices. The outcome of this measure, however, is to look for greater revenues through customs, excise and service taxes for compensating the loss in revenue from personal income tax.

The politically ‘correct’ stance of the budget was reflected in higher allocations for rural development and social sectors. These were again expected given the UPA’s emphasis on ‘inclusive development’. Setting up a regulatory authority for the coal mining sector, simplifying qualifying definitions for foreign equity in Indian enterprises, producing a shorter and smarter tax return form, setting up an independent evaluation office (IEO) for measuring progress on projects, initiatives for clearing backlog

in pending litigations, setting up the National Clean Energy Fund and reiterating the government’s commitment to the food security bill were some of the other positives. The disappointments, other than absence of clear action agendas for fiscal consolidation and price reduction, were in postponing the GST and absence of adequate measures for accelerating demand and growth. One wonders whether the budget provided enough ammunition for supporting the optimism voiced in the latest Economic Survey released on 25 February 2010 of India not only figuring in the ‘rarefied domain of double-digit growth’ in the near term but also donning ‘the mantle of the fastest-growing economy in the world in the next four years’. In the context of the firm optimism voiced by the ‘Economic Survey’ and the pronouncements in the budget, the lack of measures for kick-starting investment-led growth was rather conspicuous. q

(Email : e-mail : [email protected])

IMPROVINg INVESTMENT ENVIRONMENT

l A number of steps have been taken to simplify the Foreign Direct Investment (FDI) regime.

l FDI policy to be made user-friendly by consolidating all prior regulations and guidelines into one comprehensive document.

l Financial Stability and Development Council to be set up with a view to strengthen and institutionalize the mechanism for maintaining financial stability. It would monitor macro prudential supervision of the economy, including the functioning of large financial conglomerates.

l Banking sector to be strengthened with Rs.16500 crore as Tier-I capital. It would ensure that the Public Sector Banks are able to attain a minimum 8 per cent Tier-I Capital by March 2011. Capital would also be infused into the Regional Rural Banks (RRBs).

l RBI is considering giving some additional banking licenses to private sector players. Non Banking Financial Companies could also be considered, if they meet the RBI’s eligibility criteria.


Budget reiterates the

commitment to introduce the

Goods and Services Tax (GST) in the

country, a landmark reform in

indirect taxes

A Tight Rope Walk Towards Fiscal Consolidation

BuDgET 2010-11

HE MAJOR challenges highlighted in the budget 2010-11 by the Finance Minister are the following: (a) to quickly revert to

the high GDP growth path of 9 per cent and then find the means to cross the ‘double digit growth barrier’. (b) to harness economic growth to consolidate the recent gains in making development more inclusive, (c) to address the weaknesses in government systems, structures and institutions at different levels of governance.

Given these cha l l enges , the Budget 2010-11 can best be described as the budget for a transition to a higher growth path, greater fiscal consolidation, indirect tax reforms through GST and implementation of direct tax code and higher social sector spending. The growth impetus of the budget is evident in the increased development spending and capital expenditure. As evident

T

The authors are Professor, and Associate Professor respectively, in National Institute of Public Finance and Policy, New Delhi

from the budget estimates, the total expenditure proposed is Rs. 11,08,749 crore. Although the increase in terms of growth is only 8.6 per cent over the pervious year, but if we look at the growth of plan and non-plan expenditure, the growth in plan expenditure is 15 per cent while the growth in non-plan expenditure is only 6 per cent over the previous year. Such low growth of non-plan expenditure is the indication of the fact that salary induced increase in expenditure due to the implementation of 6th Pay Commission’s recommendations has been absorbed. However, it is important also to note that a sizeable part of the non-plan expenditure is operation and maintenance expenditure which are developmental in nature and if the growth is contained by cutting down the developmental non-plan expenditure, it would have adverse implications in terms of growth.

Pinaki ChakrabortyLekha Chakraborty

ViEW POiNT


The estimated fiscal deficit at Rs. 381,408 crore works out to be 5.5 per cent of GDP, which is 1.3 percentage point lower than that for the year 2009-10. This in other words, implies that government is in the path of fiscal contraction and an implicit exit from fiscal stimulus has already started. Although, the budget talks about the danger of pre-mature exit in the recovery phase of the economy, but the level of contraction one sees in the budget numbers do not substantiate that view. It is important to have long run fiscal sustainability in mind in fiscal policy formulation. But if the most important thing at the moment is pushing the growth trajectory up, fiscal expansion will have to continue. It is important to remember that even in the so-called phase of fiscal consolidation prior to the crisis year of 2008-09, consolidation was primarily driven by high revenue growth not by cutting down productive expenditure both at the centre as well as in the states. In other words, the focus of the budget should have been more on revenue mobilization. The direct tax bonanza given for personal income tax is one of the major reasons for the estimated loss of revenues to the tune of Rs. 26,000 crore, while the indirect tax proposal is supposed to make up for this loss and contribute additional revenues to the exchequer to the tune of Rs. 20,500 crore. When the peak rate of income tax is one of the lowest in our country, is it appropriate to give further relief to the income tax payers, given huge revenue need for the provisioning of public services and additional spending in deficient

infrastructure. It also needs to be emphasized that indirect tax by nature is regressive and higher rates of taxation of intermediate inputs can fuel up further the already very high inflationary pressure in the economy.

Budget reiterates the commitment to introduce the Goods and Services Tax (GST) in the country, a land mark reform in indirect taxes. Given the problems of tax reforms in a federal set up, the need of the hour is to evolve a design of GST which is non-distortionary, acceptable to the states and protects fiscal autonomy. The confusions that are prevailing at the moment in terms of design, mechanisms of administrations of GST and rates of tax, a time bound plan of action is required including an explicit compensation package for revenue loss to reassure the states that their revenue needs will be protected during the GST regime. Budget 2010-11 should have used this opportunity to have expanded the service tax base to gain experience for a generalized goods and services tax. But selective services taxation continues.

One of the critical areas where budget probably could have done a lot more is in the agricultural sector and for rural development. Although, the budget has announced four pronged strategy to augment agricultural growth, the expenditure allocation is too little, especially when one looks at the allocation for extension of green revolution in the eastern region of the country with Rs. 400 crore. High allocation of Ministry of Rural Development (MORD) is primarily due to more

than Rs. 40,000 crore allocation for NREGA. If we look at the NREGA allocation alone, it is not a major increase over the pervious year. However, given the fact that it is a demand based schemes, these allocations will actually translate in expenditure if the demand for work is met effectively. Although, NREGA is one of the most successful public employment programmes in creating jobs for rural poor, still there are pockets of deprivation in the country, where implementation of NREGA is not as effective when compared with best performing districts. There is a need for micro intervention in these areas from the MORD to increase NREGA participation and better absorption of funds allocated to this important Ministry.

If we look at other sectoral allocations in the budget, the 37 per cent of gross budgetary support for the plan is for the social sector again through various flagship centrally sponsored schemes. Given the gap in literacy and health outcomes across states, active state intervention in these kinds of merit goods is a must and a welcome step taken. Although, the actual resource requirement is much higher than what has been allocated given the overall fiscal constraint, the real challenge in the social sector is the utilization of funds. Various studies on the CSS have shown that fund utilization ratio is very low in states that have low absorption capacity. So supporting strategy is needed for better absorption of funds allocated and proper monitoring and evaluation system for improved outcome. q (Email : [email protected])


YE-

3/10

/8


The overall compliance reforms presented in the Budget are a

clear indication of the Government's efforts to increase transparency, simplify compliances thereby increasing the tax base which

is also one of the key objectives of GST

Analysing Tax Proposals

BuDgET 2010-11

HE FINANCE Minister has, with his Budget for 2010-11, put India back on the growth trajectory. Finely balancing growth

measures with fiscal consolidation, creating an improved environment for investment and spending while keeping a check on curtailing inflation, the budget proposals have caused positive ripples through the industry.

Commitment to shrink the fiscal deficit to 4% levels over the next 3-5 years, targeted double digit GDP growth, drawing a roadmap for capping debt and disinvestment focus will go towards upgrading India’s sovereign rating – an indication of which was immediately seen through the positive reaction on the Indian bourses.

Proposals made in the Union Budget 2010 reflect the FM’s commitment to immediately revert

T

The authors are Executive Director, KPMG, Head of Tax, KPMG; and Executive Director, Indirect Tax, KPMG respectively.

to the 9% growth path and cross the ‘double digit growth’ barrier through various fiscal consolidation measures and growth which is inclusive, ie by bringing about reforms for poverty alleviation, focus on enhancement of education and healthcare, checking inflation and boost ing the farm and infrastructure sectors.

The Budget has proposed many reforms pointing in the positive direction, key being to the financial institutions and the banking sector. Issuance of new banking licenses to NBFCs and private players, recapitalization of PSU banks and rural banks will help broadening and strengthening banking reach to the rural and semi-urban cities. Reaffirmation of the intent to simplify and introduce a comprehensive FDI regulation and setting up of an apex-level Financial Stability and Development Council and the Financial Sector Legislative Reforms Commission will provide

ViEW POiNT

Vikas Vasal Uday Ved

Pratik Jain


the necessary background for building a robust financial sector which in turn would play a key role in nudging up India’s GDP growth.

Partial roll back on the stimulus package by reverting to the 10% excise duty rate on non-petroleum products, increase in customs duty for crude oil, hike in fuel and diesel are some of the expected withdrawals from the fiscal stimuli package announced last year to safeguard India from the impact of the global recession.

Increase in fuel and diesel prices has caused further inflationary fears, however it remains to be seen whether the FM rolls back owing to political pressures. While he could have retracted on larger fiscal packages, the FM has clearly taken short measured steps in the direction towards the plan for fiscal consolidation. This is indicative of his philosophy on reforms being a “process” rather than a “one-time event”.

Streamlining of tax processes, set t ing up of computer ized processing centers, providing a single window system for redressal of grievances, rationalization of TDS provisions, clarity on conversion to setting up of LLP’s, widening the service tax net, etc are other positives of the Budget which will should help broaden the tax net for the finance ministry’s kitty.

Also the firm announcement of the dates for roll-out of DTC and GST are welcome moves, as the same reflects a firm commitment on the part of the Government for implementation of these critical legislatures, something which both the domestic and international corporate community was looking to see.

We hoped to hear more on the allocations for urban infra development which is burdened with the burgeoning demographics of these cities. As of now the focus stays on rural infrastructure development and social welfare schemes. The need of the hour of an economy with growth potential such as ours is robust infrastructure for far reaching benefits. Also, the Government’s commitment to “Education and Healthcare” as a priority sector does not seem to match with the allocations provided in the Budget.

Through broadening of tax slabs for individuals and reducing surcharge for corporates, the FM has aimed to put more money in their hands to raise levels of investment and spending. While it is true that a significant portion of the increased disposable incomes would be directed in saving options, a portion will also find its way to meet consumption demand, eventually increasing the buzz in the slowed retail environment, which had slid considerably in the wake of the global recession.

The FM successfully managed to keep the Indian economy afloat during the global meltdown. Having delivered a balanced and reformist budget, encouraging domestic growth, it now needs to be seen how some of these proposals are carried through and delivered. This is especially so in the wake of fears of a second recession in the Euro zone. Till then, going by market reactions, I would think the markets are fairly satisfied.

Taking Care of the Common Man

The rising inflation over the last year has adversely impacted

the average household budget. Therefore, the common man had a lot of expectation from the Hon’ble Finance Minister. At the same time, the fear of rising fiscal deficit over shadowed expectations of any large scale tax concessions. Nevertheless, some balancing act has been done in the current year’s budget.

There has been a long pending demand to increase the tax slab rates for individuals and reduce the overall effective tax rate. Even though, the minimum threshold limit below which income is not liable to tax has been retained at the same level of Rs.1.6 lakh for individuals, Rs.1.9 lakh for women and Rs.2.4 lakh for senior citizens, however, there has been a broadening of the slabs. In general, individuals earning income of Rs.3 lakh or more per annum are likely to benefit in terms of tax savings.

Even though the expectation was to increase the overall threshold limit for investment under section 80C from Rs.1 lakh to Rs.2 lakh, the government has however decided to provide additional deduction for investments made in the infrastructure bonds for upto Rs.20,000. This is a welcome move as besides helping individuals save some tax, this would also provide a large pool of funds for infrastructure development requirements.

In respect of individuals / SMEs carrying on business, increase in the overall threshold limit from Rs.40 lakh to Rs.60 lakh to avail of the concessional benefits under presumptive taxation would help reduce their compliance and administrative costs as they would neither be required to maintain


detailed books of accounts; nor would they be required to get a mandatory tax audit done. Similarly, encouraging small companies whose total turnover / gross receipts do not exceed Rs.60 lakh in any of the three preceding three years to convert into LLP is again a welcome move and would help SMEs avail of the tax benefits like exemption from MAT and dividend distribution tax etc.

F r o m m a c r o e c o n o m i c perspective as well, certain laudable steps have been undertaken by the government, which are worth noting. To encourage the people from unorganized sector to voluntarily save for their retirement, the government has proposed to contribute Rs.1,000 per year to each new NPS account opened in the coming financial year. This benefit would be available for persons who join NPS with a minimum contribution of Rs.1,000 and maximum contribution of Rs.12,000 per annum for the next three years.

Social Security is indeed a matter of concern in our country. A good start has been made in this direction by setting up a National Social Security Fund for unorganized sector workers covering weavers, rickshaw pullers, etc. with an initial corpus of Rs.1,000 crores. It is expected that the scope of this scheme would be enhanced over the years to cover all individuals in the unorganized sector.

Of course the increase in excise duty rates, especially the increase in price of petrol would adversely impact the common man, however, government had its own limitations. Therefore, the budget is a mixed

bag of goodies with its own benefits and loaded costs!

Simpl i fy ing Ind irec t Tax Compliance

Given the delay in GST implementation, this year the Hon’ble Finance Minister chose to make the most of the opportunity to rationalize the tax regime and make it more tax payer friendly.

It is a common belief that IT reforms in indirect tax administration would reduce compliance cost, lead to greater transparency etc. In this regard, the Government had already rolled Project ACES (Automation of Central Excise and Service tax) throughout the country. On similar lines, a Mission Mode Project to the tune of Rs 1133 Crore for computerization of Commercial Taxes in states has also been approved. These initiatives will not only achieve greater transparency in tax administration but would also ensure a higher rate of compliance.

Another step in this direction is the simplification/ expedition of the current dispute resolution mechanism, in that, the scope of the Settlement Commission in respect of Central Excise and Customs has been expanded. Certain new categories of cases would now be admissible in its jurisdiction. This would certainly speed up the dispute resolution process in indirect taxation which otherwise increase the financial burden and also involve substantial time cost of assesses thereby causing undue hardship.

Moreover, the Finance Minister has granted an upfront exemption from ADC (Additional Duty of Customs) on goods imported in pre-packaged form intended for retail sale along with few other

specified products. This would give a significant respite to importers who were facing substantial difficulties in claiming a refund of this duty.

Further, with a view to ease the refund process of accumulated credit to exporter of services, certain amendments in the definition of export of service and procedures have also been carried out. For instance, scope of input/ input services used by exporters for providing output services/ manufacture of goods has been widened. Further, total credit available with the exporter has been made eligible for refund instead of limiting it to credit availed during the month/ quarter (subject to the ratio of Export turnover to Total turnover). Moreover, the ambiguity surrounding the scope of the phrase ‘provided from India and used outside India’, which is an essential condition for qualification as export, lead to numerous litigation. Therefore, by deleting this condition, the Finance Minster has simplified the criteria for qualification of services as export in terms of the Export Rules.

As always, there exist a list of unfulfilled expectations (such as extension in date of payment of service tax, making best judgment assessment orders appealable before tax authorities and not just High Court), nonetheless the overall compliance reforms presented in the Budget are a clear indication of the Government's efforts to increase transparency, simplify compliances thereby increasing the tax base which is also one of the key objectives of GST. q

(Email : Uday Ved - [email protected] Vikas Vasal - [email protected] Pratik Jain - [email protected])


The future of this important mode of the

country’s transport depends on a really

efficient management of resources backed

by sound reform measures which can ensure sustainability

of the system and foster growth that is

truly inclusive

Fulfilling Social Responsibility

Rail BuDgET 2010-11

HE RAIL Budget for 2010-11, proposed by the Union Railway Minister Ms Mamata Banerjee in Parliament on February

24 has maintained the trend of the past couple of years, of being passenger-friendly with an accent on inclusive growth. As was widely expected, the Minister has not raised passenger fares or freight rates. The budget underlines a commitment for perceptively improving passenger amenities, cleanliness, quality of catering, safety and punctuality. The measures in this direction cover a reduction of Rs. 100 per wagon in freight charges for food-grains for domestic use and kerosene, ensuring availability of clean drinking water and Janta Aahar, developing 10 more World Class Stations as also extending the list of Adarsh Stations, standard ramps , earmarked parking lots, specially designed coaches in each mail and express train, lifts and escalators and trolleys with attendants in a

T

The author is a Senior Journalist, New Delhi.

phased manner for the physically handicapped passengers and senior citizens, multifunctional complexes in 49 stations, a doctor in long distance trains, ambulance service in 7 stations, security for women passengers, 50 more mobile ticketing vans (Mushkil Aasan), computerized ticketing facilities in 5000 post offices, special trains to carry perishable products like fruits, vegetables, fish, introduction of more Durontos-- non-stop speedy trains connecting cities across the country, and launch of special tourist trains

An important initiative is the priority proposed for network expansion with a target of 1000 route kms being fixed for 2010-11 as against 250 kms for 2009-10. This also needs to be contrasted with the glacial pace of route km expansion which inched up from 53,596 km in 1950 to 64,015 km over a long span of 58 years, an annual average of just 180 kms. This would definitely

OVERViEW

G Srinivasan


l No increase in passenger fares and freight tariffs.

l E-ticket vans (Mushkil Aasan) to be extended to Government Medical College Hospitals, Courts, Universities, IT hubs, IITs and IIMs

l SMS updates of reservation status and movement of wagons

l Ticket centres to be opened at district headquarters and village panchayats

l 100% concession for cancer patients alongwith an escort

l Six clean bottling plants to provide cheaper, clean drinking water to passengers

l 12 companies of women RPF personnel, ‘Mahila Vahini’, for the security of women passengers

l No examination fee for women, minority and economically backward class candidates for Railway Recruitment Boards’ exams

l Question papers in local state languages besides Hindi, Urdu and English,

l 117 new train projects to be flagged off by the end of March 2010

l 52 long distance express trains and 28 passenger trains to be introduced

l Special trains to mark Rabindranath Tagore’s 150th birth anniversary, for ladies, for uniformed persons and for tourists

l Double-decker coaches to be introduced in two trains each from Delhi and Kolkata

l 94 stations to be upgraded as Adarsh Stations, 10 more stations to be upgraded as World Class Stations

l Automatic fire and smoke detection system to be introduced in 20 trains

l All the unmanned Level Crossings (LCs) to be manned within five years

l Laying of 15000 Km Optical Fibre Cables through PPP

l More money to improve passenger amenities – Rs.1,302 crore in comparision to Rs.923 crore in 2009-10

l Railway revenue through branding/advertising to go up from Rs.150 crore to Rs.1,000

l Special Task Force to clear investment proposals within 100 days

l Concession in freight charges for food-grains and domestic use kerosene

l Kisan Vision Project for manufacturing refrigerated containers

l Allotment of iron ore rakes would be accessible through the web. RFID technology to be introduced for tracking of wagons

l Multi-level parking complexes through PPP route

l 93 new multi-functional complexes to be developed

l National High Speed Rail Authority proposed to plan high speed rail corridor

l Houses for all rail employees in next 10 years

l 522 hospitals, 50 Kendriya Vidyalayas, 10 residential schools, model degree colleges, technical and management institutes for railway employees

RAILwAY HIgHLIgHTS


be a boon to industry which relies on this arterial mode of transport for carrying industrial goods. A target has been set to add 25,000 km of new lines in next 10 years. Surveys for updating 114 projects for connecting backward areas are to be updated and surveys for 55 new lines will be taken up during the year.

The Minister announced a greater role for the private sector in the railways’ policy of public-private partnerships (PPP). She announced a Special Task Force to recommend a business model to cut down administrative and procedural delays, both internal and external so that clearance of projects in 100 days is feasible. Ms. Banerjee said “the need of the hour is to develop new business models and invite domestic investments through PPP”. She also identified a host of areas for PPP projects such as world class railway stations, port and mine connectivity lines, auto hubs for ancillary industries, container terminal operations, manufacturing, and doubling of lines among others. According to Railway Board Chairman Mr.S.S.Khurana, the railways obtained PPP investments of Rs 4462 crore in 2009-10. A National High Speed Rail Authority will be set up for planning, standard setting and implementing these projects, the budget noted. She also identified new dedicated corridors including a dedicated high speed passenger corridor for development in the coming years. The dedicated passenger corridor on the lines of the freight corridor (Diamond Rail Corridor) will be christened as Golden Rail Corridor. Although both the western and

eastern dedicated freight corridors have not taken off in the past three years, “the loan with Japan International Cooperation Agency (JICA) for the western dedicated corridor is likely to be signed next month”, the Minister said. Beside fast-tracking the dedicated freight corridor project on the eastern and western seaboard, the rail budget also promises to start groundwork on four more freight corridor projects to criss-cross the country. They include north-south (Delhi, Haryana, UP, MP, Maharashtra, Andhra Pradesh, and Tamil Nadu), east-west (West Bengal, Jharkhand, Orissa, Chhattisgarh, and Maharashtra), east-south (West Bengal, Orissa, Andhra Pradesh) and south-south (Tamil Nadu, Andhra Pradesh, Karnataka and Goa) and preliminary engineering- cum-survey work will be taken up this year.

The Rail budget also proposed laying of 15,000 kms optical fibre cables (OFC) through PPP mode to cover the entire rail network and the OFC infrastructure will be utilized to extend broadband services with the last mile connectivity on PPP basis to urban and rural areas. In a bid to get over the shortage of passenger coaches, the Railways propose to set up new coach factories at Rae Bareilly, Kancharapara and Palakkad under the PPP route. The work on the loco factories at Madhepura and Marhora is also making right headway and it is also proposed to set up a new diesel multiple units (DMU) factor in joint venture or PPP mode at Sankrail.

The Rail budget proposes an annual plan outlay of Rs 41,426

crore for the next fiscal .Out of this allocation, Rs.4,411 crore have been proposed to achieve the target of 1,000 kms. for new lines and Rs.1,302 crore for passenger amenities. The outlay would be financed through gross budgetary support (GBS) of Rs 15,875 crore, diesel cess of Rs 877 crore, internal resources of Rs 14,523 crore and extra budgetary resources (EBR) of Rs 10,151 crore including market borrowing through Indian Railway Finance Corporation (IRFC) of Rs 9120 crore.

The freight loading volume-the bread-winner of the railways, which also cross-subsidizes the passenger fare, including that for commuters of suburban services, fixed for fiscal 2010-11 is 944 million tonnes (MT) This is an increment of 54 MT over the revised estimates for 2009-10. The number of passengers is likely to grow by 5.3 per cent and gross traffic receipts is estimated at Rs 94,765 crore, which is Rs 6490 crore more than the current fiscal. The dividend payable to general revenues by the Railways for next fiscal is kept at Rs 6608 crore.

Considering the fact that loading target of 882 MT for the current fiscal is likely to be surpassed by 8 MT, analysts argue that the target of 944 MT for 2010-11 is below the incremental growth of 57 MT likely to be compassed in the current fiscal. They say that the White Paper on railways released recently laid the accent that the Railways freight growth should normally have a more-than-unity elasticity with gross domestic product (GDP) as it should be 1.25 times. From this


angle, the target for next fiscal fails to meet this desirable level.

Critics of the rail budget contain that with the losses on operating coaches going up to nearly Rs 14,000 crore, the impact of the Sixth Pay Commission at Rs 55,000 crore and the need to garner internal resources for a three-fold increase in the Annual Plan outlay as envisaged in the Vision 2020 document, the anomalies and aberrations in the fare structure would need to be genuinely addressed. But the rail minister did not make a start in this regard, despite the ill-health of the system. They say the fare-to-freight ratio in India is 0.3, compared with 1.2 in China and with inert passenger fares for the past few years, the Railways may be under financial stress in the coming years. The budget puts all its eggs in the fond belief basket that industry will chip in with a greater role for itself in various PPP projects for commercially remunerative activities. But the privatization of the system whether in the core

area of manufacturing segment or building coaches or wagons or rail lines, or in the non-core areas of using surplus land vested with the system for commercial exploitation for revenue augmentation has been proceeding at a pathetically poor pace. This needs to be contrasted with the private malls and fancy and departmental stores that are springing up across the major cities in shorter span, providing a variety of choice and competitive price to consumers.

For all the new initiatives and projects the budget unveiled, the Indian Railways finances today are not in the pink or robust enough to fritter away its sparse resources in a spate of fresh projects or socially desirable programmes. The system is bereft of a surplus for the network’s rehabilitation and expansion. The operating ratio, better known as operating margin in commercial accounting, is likely to improve marginally to 92.3 per cent in 2010-11 from the current year’s 94.7 per

cent. This also is predicated on the gross traffic receipts rising 7.3 per cent with passenger earnings growing 8.6 per cent and circumscribing the expenditure increase to 4.4 per cent. All these calculations might go awry given the imponderables of volatile crude prices and the attendant spurt in diesel cost or other obstacles in the economy. Though the rail budget turns out to be a blessing for rail users, both passenger and industry in the short-term, it has not made even a start to address some of the structural problems plaguing the railways for far too long. Unless some reform measures are put in place to keep the system viable, we may end up squandering resources in sundry projects or populist programmes. The future of this important mode of the country’s transport depends on a really efficient management of resources backed by sound reform measures which can ensure sustainability of the system and foster growth that is truly inclusive. q


RAILwAYS TO RuN A COMMONwEALTH EXHIBITION TRAIN

KISAN-VISION PROJECT

To strengthen the present sports infrastructure, the Railway Ministry proposes to set up five Sports Academies at Delhi, Secunderabad, Chennai, Kolkata and Mumbai. It is also proposed to provide astro-turfs for the development of hockey at more places. The Railway Budget also provides for

increased employment opportunities to sports persons. To mark the Commonwealth Games 2010 to be held in New Delhi, the Railways proposes to run a Commonwealth Exhibition Train to spread the message.

Special trains will be run to carry perishable products like fruits and vegetables, fish etc from identified production clusters to consumer centres, by way of maintaining quality and freshness of perishable produce. Railways will encourage creation of facilities of setting up cold storage and temperature

controlled perishable cargo centres and its transportation through public private partnership mode. For this purpose, Railways will associate professional agency to identify locations and designing proper services.


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The Survey emphasises the need to bring in

the much-awaited goods and services

tax (GST), to enable an increase

of revenues for the states

Upbeat on Growth, Concern over Inflation

ECONOMiC SuRVEy

HE ANNUAL Economic Survey, the tabling of which precedes the annual Union Budget in Parliament, throws hints

on the nature of budget proposals. The latest Survey 2009-10 was no exception.

Presented by the Finance Minister Mr Pranab Mukherjee, the Survey was euphoric over the prospects of Indian economy reaching double digit growth by 2014. It took note of the fact that the impressive growth maintained by India even after the global slowdown since September 2008 was due to the economy's strong fundamentals as well as the stimulus packages given to industry.

The optimism on the economic growth front, no doubt, flows from the revival in investment and private consumption demand, the impressive growth in exports in November and December 2009 and a remarkable turnaround in the

T

The author is Editorial Consultant, The Statesman, New Delhi and Former Deputy Editor, PTI.

core infrastructure sector. After a setback, agriculture is gradually getting back to the projected path.

The turnaround came in the second quarter of 2009-10 when the economy grew by 7.9 per cent, year-on-year basis. The CSO estimates forecast 7.2 per cent growth in GDP with industrial output growing at 8.2 per cent and service sector at 8.7 per cent. The recovery is particularly impressive despite a decline of 0.2 per cent in agriculture output primarily due to sub-normal monsoon.

T h e S u r v e y n o t e s w i t h satisfaction that several factors that have emerged from the performance of the economy in the last 12 months augur well for the Indian economy. The gross domestic savings as a percentage of GDP stands at 32.5 per cent in 2008-09 while the gross domestic capital formation stands at 34.9 per cent. These figures compare

OVERViEW

R C Rajamani


favourably with some of the fastest growing economies. It also underlines the significance of the presence of Indian corporations in the global market place. The Survey is hopeful that the economy will go back to 9 per cent growth rate in the medium term. This follows the revival in investment and private consumption demand impressive growth in exports in November and December and remarkable turn around in Core infrastructure sectors.

Bold Forecast

The Survey is emphatic that the country has bounced back from the meltdown and is on its way to returning to the robust growth path of around 9 per cent seen before the global crisis slowed it down in 2008. For 2010-11, the GDP is expected to grow around 8.5 per cent, with a full recovery breaching the 9 per cent mark in 2011-12. It is pertinent here to recall that from 2003-04 to 2007-08, the Indian economy reported over 9 per cent annual growth.

Making the bold forecast that the country’s GDP could grow to double digits, making India as the fastest growing economy in the world by 2014, the Survey also throws some hints about further stimulus for the exporters in the light of what it sees as “fragile prospects” of recovery in global markets. Elaborating its optimism on India’s growth, the Survey says: "It is entirely possible for India to move into the rarefied domain of double-digit growth and even don the mantle of the fastest-growing

economy in the world within the next four years.”

"The Indian GDP can be expected to grow around 8.5 percent (plus or minus 0.25 percent), with a full recovery, breaching the 9 percent mark in 2011-12.” "In the medium term, it is reasonable to expect that the economy will go back to the robust growth path of around 9 percent that it was before the global crisis slowed it down in 2008."

The Survey lists several reasons to suggest that the India's economic fundamentals remained strong, including high savings and investment rate, the arrival of home-grown companies in the global space and the dream run for the services sector. It, however, hastens to note that spiralling prices remain “the immediate concern”. Despite some improvement in global trade environment, the downside risks makes it imperative for the government to reform policies concerning imports as well.

The downside risks for world and the Indian trade lie in the fact that though the fall has been arrested, both output and trade recoveries are still fragile. It is because of the fact that the recovery has been pumped up by the stimulus given by different countries, including India. Suggesting some fundamental policy changes for the merchandise sector,the survey lists tariff reforms by lowering the peak duties (custom) from the present 10 per cent to 7.5 per cent, reductions of tariffs on all capital goods to a uniform 3 per cent and further reduction in excise duties

to make exports and industry competitive.

Future of Stimulus

The survey points out that the current rebound in growth called for the gradual withdrawal of the $37-billion stimuli since December 2008 to help the country weather the ills of global slowdown. "The largely structural nature of fiscal deficits in India, the levels of recovery in the economy and the sustainability of the recovery without fiscal stimulus call for resumption of process of fiscal consolidation in a gradual manner."

At the same time, agriculture continues to be the cause for concern even as it remains the mainstay of the Indian economy, with the bulk of its workforce dependent on farming, either directly or indirectly. "There is need to undertake serious policy initiatives to reach the government's target of sustained 4 percent growth in this sector."

The Survey also mentions that core industries such as power, coal and other infrastructure such as ports and roads are also reviving. The available evidence points to a steady revival in the flow of investible resources. The Survey has emphasised the need to develop infrastructure to complement and sustain the economic growth momentum.

Food Inflation

The Survey also expresses concern over rising prices, especially in essential items that has pushed the country's annual food inflation, based on wholesale prices, to nearly 18


percent in recent weeks. "As of now the outlook for inflation is conditioned by supply-side pressures in the near term," said the survey while also making a veiled criticism in the manner in which the government has sought to tackle rising prices. "Making available adequate and timely quantities of these items and at different locations to overcome supply side mismatches is the real challenge," the survey notes.

While there is unease over rising inflation in the economy, the Survey also cautions that sustaining current levels of domestic petroleum prices in the scenario of rising international crude oil prices may not be viable for long from the fiscal side. At the same time, an increase in domestic petroleum prices would have its impact on inflation levels, the Survey notes.

Finance Commission

While applauding that the 7.2 per cent growth estimation for the year, supported by a better than expected performance in agriculture, it has expressed concern over the fiscal deficit and control over inflationary pressures. It says this requires the government to consider a number of aspects such as:

l Recommendations of the xIII Finance Commission with regard to reduction in centrally sponsored schemes, reduction in the target of debt to GDP ratio, elimination of revenue deficit, thereby returning to fiscal prudence, early implementation of the Goods and Services Tax (GST) and support to state governments in this respect. The Survey says

that the recommendations of the Thirteen Finance Commission have to be taken on board in shaping the fiscal policy for 2010-11 and in the medium term. The Finance Commission has recommended a calibrated exit strategy from the expansionary fiscal stance of 2008-09 and 2009-10. It has also suggested that the revenue deficit of the centre needs to be progressively reduced and eliminated followed by emergence of revenue surplus by 2014-15.

l Reforms in tax administration, which should lead to more robust revenue collection;

l Overcoming structural delays in implementation of infrastructure projects;

l Reforms in and support to the farm sector, by way of innovative investment in irrigation and water resources, enhanced rural infrastructure and promotion of research and development in agri services;

l Increased focus on education and research, by restructuring the sector and tapping private resources;

l Addressing climate change, specifically relating to water resources, health, coastal zone infrastructure, forests, etc.

l Implementing schemes to bring about more inclusive growth and reduction of poverty, resulting in a larger relative share in the overall growth

Advoca t ing independen t thinking on second generation

reforms, the Survey calls for greater flexibility in the labour market, aimed at “creating market conditions that result in greater demand for labour.” The Survey also calls for a reduction of petroleum and fertiliser subsidies and investment in agricultural research and higher education aimed at increasing land and human productivity. The Survey also recommends bringing down peak Customs tariff from 10 per cent to 7.5 per cent.

The Economic Survey has asked the government to move to a system of direct transfer of subsidies for a targeted population, as the impact of product-based subsidies given for fertiliser production and use, food grain, diesel and kerosene is questionable. It also presses for decontrol of prices, saying it is a mistake to couple a subsidy scheme with price control.

States' Fiscal Deficit

The Survey indicates the combined fiscal deficit of states would touch 3.2 per cent of Gross Domestic Product in 2009-10, the year their borrowing limits were enhanced to counter the impact of the global economic crisis.

The combined fiscal deficit of the states rose from 1.4 per cent of GDP in 2007-08 and 2.6 per cent in 2008-09. With the enhancement of the borrowing limits of the state by 100 basis points, the deficit is expected to rise to 3.2 per cent of GDP this year.

The limit had been raised to enable each state to borrow up to four per cent of its gross state


HIgHLIgHTS OF ECONOMIC SuRVEY 2009-10

l Economy likely to grow by up to 8.75 per cent in 2010-11 l Full recovery; return to 9 per cent growth in 2011-12 l Broad recovery gives scope for gradual stimulus roll back l High double-digit food inflation in 2009-10 major concern l Signs of food inflation spreading to other sectors l Farm & allied sector production falls 0.2 percent in 2009-10 l Serious policy initiatives needed for 4 percent agriculture growth l Moots direct food subsidy via food coupons to households l Favours making available food in open market l Favours monthly ration coupons usable anywhere for poor l Gross fiscal deficit pegged at 6.5 percent of GDP in 2009-10 l India 10th largest gold holding nation at 557.7 tonnes l Exports in April-December 2009 down 20.3 percent l Imports in April-December 2009 down 23.6 percent l Trade gap narrowed to $ 76.24 billion in April-December. l 32.5% savings & 34.9% investment (of GDP in 2008-09) put India in league of world’s fastest growing

nations. l Initiates steps to boost private investment in agriculture l Wants credit available at reasonable rates on time for private sector to invest in agriculture l Slowdown in infrastructure that began in 2007, arrested l Domestic oil production to rise 11 per cent in 2009-10 l Gas output up 52.8 per cent to 50.2 billion cubic meters with RIL starting productionl India world’s 2nd largest wireless network with 525.1 million mobile users l Virtually every second Indian has access to phone l Auction for 3G spectrum to provide existing and foreign players to bring in new technology and

innovations.

domestic product (GSDP). The Union government had also revised the fiscal deficit target for states for 2009-10 from 3 per cent to 4 per cent of their respective GSDP. As a result, during the current financial year, the amount raised by state governments aggregated to Rs 105,937.7 crore till December 2009, as compared to Rs 52,842.7 crore raised during the corresponding period last year.

The Survey emphasises the need to bring in the much-awaited goods

and services tax (GST), to enable an increase of revenues for the states. It also suggests movement on fiscal consolidation, including cuts in spending to bring these in line with revenue. It recommends a review of the Public Distribution System (PDS), with the subsidy to be given directly to the consumer, who could then buy the intended product directly from the normal market.

“The introduction of VAT (Value

Added Tax) by states resulted in good growth in states’ own tax revenue in the last few years,” the Survey notes. Till December 2009, an amount of Rs 2,558 crore had been released as central compensation for revenue loss on account of VAT. Similarly, about Rs 6,000 crore was released to the states till December 2009 as part of the compensation to phase out Central Sales Tax. q



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The gains already made in the green revolution

areas have to be sustained through

conservation farming

Pushing Agricultural Growth

BuDgET 2010-11

HE AGRICULTURE sector seems poised for a major growth push thanks to an increase of nearly 21.6 per cent in the

Central Plan outlay for agriculture and allied sectors proposed in the Union Budget for 2010-11. This is the largest hike in budgetary allocation for this sector in recent years. Besides, the budget also proposes a four-pronged strategy to spur agricultural growth and tackle supply side constraints that have been responsible for high prices of food products in recent months. Several fiscal incentives have been mooted in the budget to impart sustainability to agriculture and introduce reforms in the marketing of the food products to reduce the wide gap in the prices received by the producers (farmers) and those paid by consumers.

“The agriculture sector occupies centre-stage in our resolve to promote inclusive growth, enhance rural incomes and sustain food

T

The author is a veteran agriculture journalist serving as Consulting Editor of the Business Standard.

security”, declared the Finance Minister, Mr Pranab Mukherjee, in his budget speech on February 26, 2010 in the Lok Sabha. He proposed further infusion of technology in this sector to augment agricultural production.

The Central Plan outlay for agriculture and allied sectors has been put at Rs 12,308 crores for 2010-11, up by Rs 2,185 crores, or 21.58 per cent, from the 2009-10 revised estimates (RE) of Rs 10,123 crores. The bulk of the additional allocation has gone to the Department of Agriculture and Cooperation and the Department of Agricultural Research and Education. The outlay for the Department of Agriculture and Cooperation has been stepped up from Rs 7,018 crores in 2009-10 (RE) to Rs 8,280 crores for 2010-11. This marks an increase of Rs 1,262 crores. Similarly, the Department of Agricultural Research and Education has been allocated Rs 2,300 crores for 2010-

aNalySiS

Surinder Sud


11, against Rs 1,760 crores for 2009-10 (RE), marking a hike of Rs 540 crores. The Department of Animal Husbandry and Fisheries has also been provided Rs 1,300 crores as the Central plan outlay for 2010-11, up Rs 370 crores from Rs 930 crores in 2009-10 (RE).

The four-pronged strategy for boosting farm production includes:

a) Inc rease i n ag r i cu l tu ra l production;

b) Reduction in wastage of farm produce;

c) Credit support to farmers; and

d) Thrust to food processing sector.

The first component of this plan aims at boosting farm productivity and production by extending the green revolution to the eastern region of the country where the agricultural production had not risen by as much as in the north-western and some southern states in the first phase of the green revolution. This objective is proposed to be achieved with the active involvement of Gram Sabhas and the farming families in the states of Bihar, Chhattisgarh, Jharkhand, eastern Uttar Pradesh, West Bengal and Orissa. A sum of Rs 400 crores has been earmarked for this purpose. Besides, the budget moots to take up 60,000 “pulses and oilseed villages” in predominantly rainfed areas for concentrated intervention for boosting the output of pulses and oilseeds with a view to narrowing the wide gap in the indigenous production and actual requirement of these essential food items. The high import dependence for meeting this demand and the

limited availability, especially of pulses, in the international market has led to the unprecedented spurt in the domestic prices of these items. Programmes related to rain water harvesting, watershed management and soil health improvement would be taken up under the pulses and oilseeds villages initiative as part of the Rashtriya Krishi Vikas Yojana. An outlay of Rs 300 crores has been fixed for 2010-11 for this scheme.

Indeed, the budget has not disregarded the green revolution areas which have, in recent years, started showing signs of fatigue as reflected in flagging soil fertility and stagnation in crop productivity. “The gains already made in the green revolution areas have to be sustained through conservation farming, which involves concurrent attention to soil health, water conservation and preservation of biodiversity”, asserted the Finance Minister in his budget speech. “I propose an allocation of Rs 200 crores for launching this climate resilient agriculture initiative”, he added.

To reduce wastages in storage as well as in operations of the existing food supply chains, the budget proposed extension of guaranteed period for hiring godowns from the private parties for the Food Corporation of India (FCI) from the present 5 years to 7 years. Besides, external commercial borrowing has been allowed to raise resources for setting up cold storages or cold room facilities, including farm level pre-cooling systems, for preservation or storage of products of agriculture and allied fields, such as fish and meat. As part of the same initiative, the budget has proposed

opening up of the retail chain and import duty concessions, in addition to ‘project import status’, for setting up mechanised handling systems for foodgrains and sugar in mandis or warehouses. Service tax exemption has been provided for installation and commissioning of such equipment.

The aim of marketing reforms mooted in the budget is to facilitate coming up of a strong supply chain for perishable farm produce so that it reaches the consumption and processing centres promptly. Creation of infrastructure and induction of technology to convert such produce into value-added products will also be encouraged. Alluding to a recent statement of the Prime Minister, Dr Manmohan Singh, in which he had stated: “We need greater competition and therefore need to take a firm view on opening up of the retail trade”, the Finance Minister said that this will help bring down considerable difference between the farm gate prices, wholesale prices and retail prices.

To ensure greater flow of institutional credit to agriculture, the budget raises the target for such credit for 2010-11 to Rs 3,75,000 crores from Rs 3,25,000 crores in 2009-10. The Regional Rural Banks (RRBs), which play a significant role in meeting the credit needs of rural people, have been provided higher capital support to enable them perform their job more effectively. These banks were last capitalised in 2006-07. As a measure of relief for the farmers, the period for the payment of the farm loans has been extended by 6 months, from December 31, 2009, to June 30,


2010, in view of the recent drought in some parts of the country. Besides, the subvention for timely repayment of crop loans has been hiked from 1 per cent to 2 per cent for 2010-11. Thus, the effective rate of interest for the farmers repaying their loans on time will work out to 5 per cent per annum, instead of the usual 7 per cent.

The budget has recognised, albeit tacitly, the role the food processing can play in value-addition of farm products, reduction in their wastages and extension in their shelf life. By doing so, it ensures year-round availability of the seasonal produce and, thus, has a sobering influence on market prices. That is why the promotion of food processing has been included in the four-pronged agricultural strategy. The budget has proposed setting up of five more mega food parks, in addition to the 10 such parks already being put up, to facilitate availability of state-of-the-art infrastructure for food processing sector.

This apart, the budget has proposed several duty concessions

as well. The concessional import duty on specified machinery for use in the plantation sector, introduced in 2003 to last till July 2010, has been extended till March 2011. This is expected to provide sufficient time for this sector to achieve the desired objective of mechanisation of key operations. The budget has also mooted concessional customs duty of 5 per cent on specified agricultural machinery which is at present not manufactured in India. Full exemption from excise duty has been granted to trailers and semi-trailers used in agriculture. In the field of service tax, full exemption has been granted to testing and certification of crop seeds as well as to transportation of cereals and pulses by road. The transportation of these items by rail is already exempted from service tax.

The Finance Minister referred to the nutrient based subsidy policy for fertilisers, which is scheduled to come into force from April 1, 2010, and asserted that this would promote balanced fertilisation through new fortified products and

focus on extension services by the fertiliser industry. This will, in turn, enhance agricultural productivity and, consequently, ensure better returns to the farmers. “Over time, the policy is expected to reduce volatility in the demand for fertiliser subsidy in addition to containing the subsidy bill”, the finance minister said. “The new system will move towards direct transfer of subsidy to the farmers”, he asserted and added that the government would ensure that the retail prices of the fertilisers remained near the present level in the transition year, 2010-11, for the subsidy system to move from product-based to nutrient-based.

Significantly, the budget has not forgotten the women farmers whose number is growing fast and who need to be suitably empowered to survive in such a harsh and risk-prone occupation. A “Mahila Kisan Sashaktikaran Pariyojana” is proposed to be launched for this purpose. The budget has set apart Rs 100 crores for this initiative as a sub-component of the National Rural Livelihood Mission. q


STRENgTHENINg TRANSPARENCY AND PuBLIC ACCOuNTABILITY

• Proposal to set up a Financial Sector Legislative Reforms Commission to rewrite and clean up the financial sector laws to bring them in line with the requirements of the sector.

• Rs.1,900 crore allocated for the Unique Identification Authority of India. • A Technology Advisory Group for Unique Projects (TAGUP) is proposed to be set up under the

Chairmanship of Shri Nandan Nilekani for creation of reliable and secure IT projects.• Defence gets an allocation of Rs.1,47,344 crore. As a one time confidence building measure in Jammu

and Kashmir about 2000 youths will be recruited as constable in five Central Para-Military forces in 2010.

• Adequate funds will be made available to support the action plan to be prepared by the Planning Commission for development of 33 left wing extremist affected districts.

• An Independent Evaluation Office is to be set up in Planning Commission to undertake impartial and objective assessment of various public programmes and improve the effectiveness of public interventions.

• A National Mission for Delivery of Justice and Legal Reforms to be set up.


There is a clear direction in the budget to

ensure that rural India also develops

and has facilities comparable to those of

urban India in times to come

Budget and Rural Development

BuDgET 2010-11

IGH GROWTH and economic development serve no purpose if they do not percolate down to over six lakh villages in India where majority

of the over one billion population live. This is perhaps a major theme of this year’s budget which has laid stress on Agriculture and Rural Development.

Finance Minis ter Pranab Mukherjee has made it amply clear that India cannot return to high growth path of over nine per cent in the next two years without the farm sector growing by 4 per cent annually. That being the case he has rightly taken a number of initiatives in the budget to push farm sector growth and rural development.

“The Agriculture sector occupies centre-stage in our resolve to promote inclusive growth, enhance rural incomes and sustain food security. To spur the growth in this sector, the Government intends to follow a four-pronged strategy covering agriculture production; reduction in wastage of produce;

H

The author is Economic Affairs Editor, TickerPlant News.

credit support to formers; and thrust to the food procession sector,” Mukherjee said outlining the strategy while presenting the budget in Parliament on Feb 26.

Green Revolut ion which changed for good rural Punjab, Haryana, and Western Uttar Pradesh in the sixties and subsequently parts of Maharashtra and Southern India has not taken roots in Eastern India. Rightly the Finance Minister provided Rs 400 crore to extend green revolution in the eastern region.

“The first element of the strategy is to extend the green revolution to the eastern region of the country comprising Bihar, Chattisgarh, Jharkhand, Eastern Uttar Pradesh West Bengal and Orissa with the active involvement of Gram Sabhas and the farming families, Mukherjee said.

The farm productivity in these eastern states is half of that of the states like Punjab and Haryana. By merely replicating what has happened in Punjab and Haryana the productivity in the large eastern

OVERViEW

K R Sudhaman


states would double and thus helping in increasing India’s farm output substantially in a short period.

Though India has managed to get on to the path of economic recovery rapidly after the global recession, inflation has become a matter of concern particularly that of food price after drought due to poor monsoon in 2009. Food price inflation is mainly due to supply constraints and aggravated by low availability of four crops of pulses, sugar, rice and wheat.

Aware of this problem, the budget proposed to spend Rs 300 crore to organise 60,000 pulses and oilseed villages in rain-fed areas in 2010-11. This would provide an integrated intervention for water harvesting, watershed management and soil health improvement to enhance the productivity of the dry land farming of these crops. The initiative will be an integral part of the Rashtriya Krishi Vikas Yojana. Simultaneously these measures would uplift the rural income and prosperity. He has provided Rs 200 crore for climate resilient agriculture to sustain gains of green revolution to be sustained through conservation farming.

Muker jee announced the intention of the government to open up retail sector that would help in rural development. This will reduce significantly wastage in agriculture particularly that of fruits and vegetables as opening of retail sector will lead to expansion of cold storage facility. It would bring down the considerable difference in farm gate prices, whole sale prices and retail prices.

The Finance Minister has also attempted to address the issue of wastage in buffer stock due to adequate storage facility,

availability of credit to farmers and extension of debt waiver scheme to farmers by six months till June 30 2010. The target for farm credit has been raised to Rs 3.75 lakh crore for 2010-11 from Rs 3.25 lakh crore in 2009-10.

He raised interest subvention to farmers on short-term loans from one to two per cent. This will be available for timely repayment of loans by farmers. So the effective interest for such loans would be five per cent in 2010-11.

To encourage food processing industry, the government announced setting up of additional five mega food parks apart from 10 already announced. Besides External Commercial Borrowing facility would be available for setting up cold storage facility in the country.

The mant ra o f the UPA Government is inclusive growth. Key element in this regard is the promise to come out shortly with Food Security Bill. The budget has enhanced allocation to social sector to Rs 1.38 lakh crore, which is 37 per cent of the total plan outlay of Rs 3.73 lakh crore in 2010-11. The Food Security Act will ensure adequate availability of food to the underprivileged especially in the rural India. Stepped up allocation to social sectors means more jobs and development in rural areas benefiting poor in villages.

Also, another 25% of the plan allocation is for rural infrastructure in 2010-11, which is a significant funding aimed at speeding up rural development. This would generate more jobs in the rural sector.

There are number of initiatives announced in the budget for taking banking to un-banked areas in rural and remote areas. This is a step to move towards financial

inclusion of the underprivileged. “To reach the benefits of banking services to the ‘aam aadmi’, the Reserve Bank of India has set up a High Level Committee on the Leak Bank Scheme. After careful assessment of the recommendations of this committee, and in further consultation with RBI, it has been decided to provide appropriate banking facilities to habitations having population in excess of 2000 by March 2012. It is also proposed to extend insurance and other services to the targeted beneficiaries. These services will be provided using the business correspondence and other models with appropriate technology back up. By this arrangement it is proposed to cover 60,000 habitations,” Mukherjee said.

Also efforts are being made to use mobile phones to reach out to un-banked areas including money transfer. Mukherjee proposed to augment by Rs 100 crore the financial inclusion fund and financial inclusion technology fund in Nabard to reach banking services to unbanked areas.

Apart from these initiatives, funding for the existing rural development schemes have been stepped up in the 2010-11 budget. “For UPA government development of rural infrastructure remains a high priority area. For the year 2010-11, I propose to provide Rs 66,100 crore for rural development,” the Finance Minister said.

Mahatma Gandhi National Rural Employment Guarantee Scheme has completed four years of implementation during which is has been extended to all districts covering 4.5 crore households. The allocation for NREGA has been stepped up to Rs 40100 crore in 2010-11. The funding for Bharat Nirman Programme for creation of rural infrastructure has been pegged


at Rs 48,000 crore for 2010-11, Mukerjee announced.

The allocation of Indira Awas Yojana, a popular rural housing scheme, has been increased to Rs 10,000 crore. Mukerjee also raised the unit cost of housing under the scheme to Rs 45,000 in plains and Rs 48,500 in hilly areas.

To reduce the infrastructure gap in backward areas, Mukherjee stepped up allocation by 26% to backward regions grant fund to Rs 7,300 crore in 2010-11 from Rs 5,800 crore in 2009-10.

As part of banking sector reforms, Mukherjee announced measures for recapitalisation of Regional Rural Banks, which play an important role in providing credit to rural people. Strengthening of capital base of these banks will help in increased lending in rural areas.

The programme for linking self help groups, with the banking

system has emerged as the major micro-finance initiative in the country. It was redesigned as the micro-finance development and equity fund in 2005-06 with a corpus of Rs 200 crore. The fund has been doubled to Rs 400 crore in 2010-11 budget.

A comprehensive khadi reforms programme is to be undertaken with 150 million dollar assistance from Asian Development Bank. This programme will cover 300 selected Khadi institutions, Mukherjee said in the budget.

To encourage the people from the unorganised sector to voluntarily save for their retirement and to lower the cost of operations of the new pension scheme for such subscribers, Government will contribute Rs 1000 to each such NPS account opened this year. The scheme will be available to those who join with a minimum of Rs 1000 to NPS and

a maximum of Rs 12,000 per annum during the financial year, Mukherjee said asking state governments too to contribute to the scheme. The scheme will benefit to sizeable unorganised labour in rural areas as well.

On the face of it the budget may appear to be focussed only on pushing growth to at least 8.5% in 2010-11 and bringing down fiscal deficit to 5.5% of GDP in 2010-11 from 6.9% in 2009-10. These are broad macro-economic aspects which are no doubt very important. But the underlying fact is that the budget has made an honest attempt to make growth inclusive so that rural India too can reap the fruits of high growth. There is a clear direction in the budget to ensure that rural India also develops and has facilities comparable to those of urban India in times to come. q(Email : [email protected]

INFRASTRuCTuRE SECTOR gETS THE LION’S SHARE

To sustain economic growth, the budget has 46 per cent – Rs. 1.73 lakh crore – of the total plan outlay ear-marked for the infrastructure sector.

The FM announced a 13 per cent hike in allocation to fund the national highways expansion plan. The current year will have an allowance of 19,894 crore. Over Rs. 950 crore more than last year have been increased in the budgetary support for the railways.

l For an impetus to the public transport system, FM granted project import status to ‘monorail projects for urban transport’ at a concessional basic duty of five per cent.

lThe allocation for the urban development ministry has been increased form Rs. 2,975 crore to Rs. 5,306 crore. This includes increased budgetary allocation for metro systems in Bangalore, Kolkata and Chennai.

lThe FM proposed a deduction of an additional amount of Rs. 20,000 for investment in long-term infrastructure bonds, as notified by the Centre. This would be over and above the existing limit of Rs. 1 lakh on tax saving by salaried employees.

l FM has extended the benefit of investment-linked deduction under the Tourism Act to new hotels of two-star category and above anywhere in India. Also, Rs. 200 crore has been allocated as a Special Golden Jubilee package to restore Goa’s beaches.


YE-

3/10

/10


Bitter Neem to Sweet Success

BEST PRaCTiCES

n i n c r e a s e i n agricultural yield and better crop protection a re poss ib le a t low c o s t a n d e f f o r t b y

using tradit ional knowledge in combination with modern t e c h n o l o g y T h i s h a s b e e n proved by groups of farmers in the rural areas of Lucknow in Uttar Pradesh, who have used home developed fertilizers with added nutrients in combination with scient i f ic insect and disease control methods to raise the productivity of their crops and usher in prosperity and well being in their region.

It all started more than three years ago when, under a project sponsored by the Department of Biotechnology, Government of India, the use of neem seeds and its by-products was taken up to reduce the use of chemical fertilizer,

A Ratan Mani Lal

especially urea. The neem tree has traditionally been used for its medicinal and other qualities and its bitter leaves and seeds have long been used for keeping insects away and for treating skin ailments.

The project was designed and implemented by Dr Rashmi Roy Choudhury, a retired Professor of Lucknow University and an expert in plant diseases. “Agriculture in India is facing a crisis, crop yields have reached a plateau, if not declined, poor agricultural reforms and low profitability are gradually weaning the farmers away from farming, over-dependence on chemical fertilizers and pesticides has taken its toll and rural and urban areas alike are paying the price for it,” says Prof Roy Choudhury. To her, the prospect of increased production by the ordinary small

The integrated approach of the

project team have started showing results

and has given hope to scores of small

and medium farmers for a better and more

prosperous futureThe author is a Senior Journalist and a Writer.


farmer from his ordinary vegetable or cereal crop was indeed possible if they were taught to use modern scientific methods in combination with their traditional agricultural practices. The region chosen for the project was Bakshi ka Talab in rural Lucknow, off the National Highway towards Sitapur and New Delhi.

The seeds o f n e e m are high in p e s t i c i d a l value and the oil extracted f rom these are used to make neem o i l b a s e d p e s t i c i d e . The seeds of low quality are crushed t o m a k e

fer t i l izer. This neem-based fertilizer added to fields protects the crop from soil pests and disease and also enhances fertility The neem cake available to farmers after oil extraction is usually beyond his reach because of its high price.

Neem trees grow in abundance

in villages in this region, but the collection of neem seeds is not organized and most of this precious resource is not used for agricultural purpose.

Several women from villages were organized into self help groups and trained in neem seed collection, its depulping and drying in especially designed equipment for making useful fertilizer and biopesticide. Soon, the farmers started using neem-based urea coating called neem lepak to substantially reduce the dependence on urea . The yield of wheat, paddy and potato crop which otherwise needed heavy urea inputs, have also grown by about 20 % .

The farmers were then also trained to make value-added compost f rom the ord inary ghurai or waste heap, which

Table 1 : Self Help groups (Samoohs) trained in various activities.

No. Name of samooh/ village Members Activity

1. Priya SamoohVill. Chak Prithvipur

16 Organic & Integrated farming

2. Shiv Shakti SamoohVill Digoi


3. Ma Bhavani SamoohVill. Bhavanipur


4 Pashupatinath SamoohVill. Shahpur Raja


5.. Kranti SamoohVill. Dingurpur


6.. Ekta SamoohVill. Kundapur


7.. Jagriti SamoohVill. Dingurpur

11 Organic Input – Biofertiliser production

8.. Bhavanipur SamoohVill. Bhavanipur

10 Organic Input- Biofertiliser production

Equipment used for cleaning, depulping and drying neem seeds


of cabbage, cauliflower, gourds, gram beans, brinjal etc from various borers and destructive insects. An ingenuous insect trap has been designed from waste mineral water bottles, bird perches from sticks to pick on destructive insects. All these newly found techniques have created a big demand for more as larger areas are sought to be covered.

“The time is ripe for some rural entrepreneur to set up neem based collection and processing units in villages and to market the valuable microbe mediated compost,” says Dr Roy Choudhury.The lack of availability of biofertilizer and biopesticide is the major hindrance in use of organic and self sustaining inputs by farmers. They do not have the wherewithal and training to set up manufacturing units. Thus, while the demand has been created, encouragement needs to be given to rural entrepreneurship in villages to set up units using rural bio resources to make biofertilizers and biopesticides to meet the demand and make farming a truly self sustaining and profitable enterprise.

The integrated approach of the project team towards solving common difficulties faced by farmers, combined with their positive approach have started showing results and has given hope to scores of small and medium farmers for a better and more prosperous future. q


almost completely freed them from the use of urea, DAP and super-phosphates. Every farmer dumps his agricultural waste and cowdung in a designated area near his home. This compost or ghurai is spread in the field before cultivation. This compost, however, is low in nutrients, and has to be used along with cowdung and a sh to make layered heap with the addition of Trichoderma, nitrogen fixing, phosphate solubilizing and potash solubilising bacteria. The compost gets ready in a fortnight and is loaded in nitrogen, phosphate and potash, essential nutrients for plants. “Trichoderma enhances yield and protects crops from various diseases. A 3 by 6 feet heap yields around 10 quintals

of value-added compost and is shared by farmers who pitch in with their s h a r e o f c o w d u n g , ghurai and ash. The microbes are purchased from the contribution to self help groups,” e x p l a i n e d D r R o y Choudhury. "Use of this compost has resulted in increased yield, better quality vegetables and double profi t ,” said Ram Darash, a farmer.

The farmers have been trained in techniques and methods of integrated n u t r i t i o n a n d p e s t

management, where one or two applications of chemical fertilizer or chemical pesticide are allowed if the situation demands, such as low soil fertility and heavy influx of insects. But later application of chemicals is discouraged, so that the cereals and vegetables which are harvested are free from harmful chemicals and hence safe for consumption.

Plant protection measures by these farmers have also undergone a change. The farmers use neem-based pesticides for protection from aphids and whiteflies, neem cake and Pseudomonas mix for root treatment, Trichoderma for wilt protection, Beauveria bassiana, NPV (an insect destroying virus) and pheromone traps for protection

women bringing in cleaned neem seeds for sale


Energy, being an engine of

growth, is going to play an

important role in the robust

industrial and economic development of

the country

Budgeting for the Energy Sector

BuDgET 2010-11

FTER TWO years of industrial recession, the pickup in the overall industrial growth is a very good sign. Major

industrial sectors have already evinced signs of recovery and rest are likely to hit the road to recovery in the coming months.

Energy, being an engine of growth, is going to play an important role in the robust industrial and economic development of the country, especially when all projections are indicating recovery and speedy growth in the coming years. Even International Eenergy analysts have projected steep increase in India’s per capita power consumption and highest over growth after China.

Though the Government is already giving special emphasis on the energy sector, the budget 2010-11 has accorded highest priority to capacity addition in power sector. Government has proposed

A

The author is Special Representative, The Statesman.

to increase the Central Plan Outlay to energy sector from Rs 1,09,685 crores (revised estimate for 2009-10) to Rs 1,46,579 crores for the year 2010-11. Out of this, the Ministry of Power has been allocated Rs 60,751.42 crores , Rs 4,739 crores goes for Nuclear Power Schemes, Rs 69,494.79 crores to the Petroleum and Natural Gas Ministry, Rs 13,518 to the Ministry of Coal and Rs 1,950 crores to the New and Renewable Energy Ministry.

Power

The outlay for the Ministry of Power has been increased from Rs 56,955 crores to Rs 60,751 crores, giving maximum allocation to two schemes- Accelerated Power Development and Reform Program (APDRP) and Rajeev Gandhi Gramin Vidyutikaran Yojna. While the allocation in APDRP has gone up from Rs 2080 crores in 2009-10 to Rs 3,700 crores—an increase of 77 %, Rs 5,500 crore has been

OVERViEW

Vijay Thakur


allocated to RGGVY. Besides these two schemes the Government has stressed upon Energy Conservation (Rs 143.94 crore) and Bureau of Energy Efficiency (Rs 66.92 crores).

Other than this, government has proposed to generate Rs 50,121 from Internal and Extra Budgetary Resources (IEBR), for power projects of various PSUs including NTPC (Rs 22,350 crore), NHPC (Rs 4,108 crores), Damodar Valley Corporation (Rs 8,539 crore), and Power GridCorporation (Rs 12,99 crore).

The Government has envisaged several measures to increase power generation capacity including modification of its Mega Power Policy that would help power companies to induct super critical technology in large power plants at a very competitive power tariff. With India still reeling under power shortage, the peak power deficit is still at 12.6 %. Other than capacity addition targeted at 78,700 MW during the 11th Five Year Plan, the Government has to reduce its transmission and distribution losses and ensure better quality power to rural areas—the APDRP project is already in place to address these issues.

For Nuclear Power schemes, total outlay is of Rs 4,739 crore with provisions for investment in Bharat Nabhikiya Vidyut Nigam Ltd (BHAVINI), Kudankulam Nuclear Power Plant, and projects of Bhabha Atomic Research Centre (BARC) and R & D power projects of Indira Gandhi Centre for Atomic Research.

New and Renewable Energy

The Government is putting extra effort in the under utilized New

and Renewable Energy sector and intent s to establish India as a global leader. It has aimed to generate 20,000 MW of solar power by the year 2022 as envisaged in its Jawaharlal Nehru National Solar Mission. Budget 2010-11 has proposed to increase allocation in this sector by 61 percent from Rs 620 crore to Rs 1,000 crore. In addition to this, another Rs 950 crore would be invested through IEBR. The major poject would be set up in Ladakh region where the Government proposed to set up solar, small hydro, and micro power projects at a cost of Rs 500 crores.

For the year 2010-11, the Government has set a target for 2,972 MW grid-interactive power capacity, 142 MW off-grid capacity building, electrifying 1,500 villages using renewable energy resources, deployment of 1 million square meter solar water heating system.

Petroleum

The Petroleum Sector is one such sector which is very difficult to insulate from International market mainly because more than 75 percent of our crude oil requirements are being met through imports and it would continue to increase provided Indian oil companies go for massive domestic exploration and production.

Till last year, the domestic production had not shown any significant increase and remained at around 34 MMTPA (Million Metric Tones per annum) for crude oil and 32 BCM (Billion Cubic Meter) for gas during the past five years. But this fiscal year, the production is expected to increase by 11 percent —thanks

to Barmer and KG deepwater oil discoveries.

Since this sector immediately affects common man and the country’s economy, stabilizing its pricing is a big challenges for the Government. For the past couple of years, wild swings in the International crude oil prices have shaken the Indian petroleum sector. From slightly more than $ 22 a barrel in 2002, it crossed $ 142 a barrel in 2008. Last year it slumped steeply to around $ 35 and today it is hovering at $ 80 a barrel.

In this budget, the Government has increased custom duty on petroleum products from 5 % to 7.5 % and Excise Duty by Rupeeone per litre. The Union Petroleum Minister, Mr Murli Deora, however termed it nothing new as the Government had reduced custom and excise duties when crude oil prices in the international market had crossed $ 120 barrel in June 2008. Though it increased the petrol and diesel pieces by morethan Rs 2.5 per litre, the additional revenue generation of around Rs 18,000 crore would help the exchequer in compensating subsidies on kerosene, LPG, petrol and diesel.

The cause of concern for the oil sector is huge subsidies on petroleum products. For the current fiscal year, it is expected to touch Rs 45,000 crore. While it is still less than what we saw in 2008-09 when it reached Rs 1,03,292 crore, the fluctuation in crude oil prices would continue to haunt oil companies.

For the year 2009-10, government has announced a cash subsidy of Rs 12,000 crore to oil marketing companies, but still under recoveries


are adversely affecting the fiscal health of upstream and downstream companies. If this situation persists, the oil companies might have to look for Government support to invest abroad for oil acreages to ensure energy security for the country.

The total plan outlay of the Petroleum Ministry is Rs 69,494 crores, a major part of which would come from IEBR—nearly Rs 69,457 crores. From IEBR Rs 46,299 crore is for exploration and production of crude oil, and Rs 20,471 crore

for refining, transportation and marketing of petroleum products.

Coal and Lignite.

Coal is the mainstay of India’s energy sector and three fourth of the country’s power generation is dependent upon coal. The Government has proposed to introduce a competitive bidding process for allocating coal blocks for captive mining to ensure greater transparency and increased participation in production from these blocks. In the budget 2010-

11, the Government has proposed a Plan outlay of Rs 13,518 crores, of which Rs 13,118 crore would come from IEBR (Internal and Extra Budgetary resources). It has further proposed to set up a “Coal Regulatory Authority” to create a level playing field in the coal sector. Once set up, the Regulatory Authority would resolve long pending issues including economic pricing of coal, benchmarking of standards of performance. q


FORM IVStatement about ownership and other particulars about Yojana (English) monthly

1. Place of publication : New Delhi 2. Periodicity of publication : Monthly3. Printer’s Name : Smt. Veena Jain Nationality : Indian Address : Publications Division Soochna Bhavan, New Delhi – 110 0034. Publisher’s Name : Smt. Veena Jain Nationality : Indian Address : Publications Division Soochna Bhavan, New Delhi – 110 0035. Editor’s Name : Ms. Manogyan Rani Pal Nationality : Indian Address : Yojana, Publications Division, Room No.542, Yojana Bhavan, New Delhi-110001.6. Names & addresses of individuals who own the : Wholly owned by Ministry of Information & newspaper and partners or shareholders holding Broadcasting, Government of India, more than one per cent of the total capital. New Delhi – 110 001

I, Veena Jain, hereby declare that the particulars given above are true to the best of my knowledge and belief.

Sd/- (Veena Jain)

Signature of Publisher


DO yOu KNOW?

Apart from the Finance Minister's speech, the Budget also comprises

some other documents that are placed before the Parliament. Following is a key to some of these documents, as also to some important terms used therein.

what are the main Budget Documents placed before the Parliament?

The main budget documents consist of the Annual Financial Statement, Demand for Grants, Appropriation Bill, Finance Bill, Macro Economic Framework for the relevant year, Fiscal Policy Strategy Statement and Medium Term Fiscal Policy Statement. The first four documents are mandated by the Constitution and the latter three are placed under provisions of the FRBM Act 2003. Besides these, there are some explanatory documents also like Expenditure Budget, Receipts Budget, Budget highlights etc

what is the Annual Financial Statement ?

This shows the estimated disbursement and receipts of the government of India for the financial year in question, in relation to the estimates for the current year and expenditure for the previous year. The revenue and disbursements are shown under three heads - Consolidated Fund ( Includes all revenue received by government,

up of expenditure under Plan Head (Budget support to the Central Plan. It also comprises the amount the Centre sets aside for plans of states and Union Territories.) and Non Plan Heads,( All bills the government has to pay, like interest payments, subsidies, salaries, defence and pension) Under each head Revenue and Capital expenditure are also shown separately.

what are Appropriation Bills?

Parliament's approval for withdrawal of money from the Consolidated Fund to meet the expenditure as voted under Demands for Grants, as also expenditure charged on the Consolidated Fund, is sought through the Appropriation Bill.

what is a Finance Bills ?

This Bill places details of the government's proposals for new taxation or change in existing tax structure, before the Parliament for its approval. It is accompanied by a Memorandum explaining its provisions.

what is the Macro Economic Framework Statement ?

This statement contains an assessment of the growth prospects of the economy. These include assessment of GDP growth rate, fiscal balance of the government, and external sector balance of the economy.

A KEY TO BuDgET DOCuMENTS

loans raised and recoveries from loans. All Government expenditure is met from this fund), Contingency Fund (A Rs 500 crore Emergency Fund for unforeseen expenditure, at the disposal of the President) and Public Account (Money held by government in Trust, example Provident Fund.). Expenditure from the former two requires authorization from the Parliament. The Annual Financial Statement also shows separately, the Revenue Budget (Statement of Revenue receipts from taxes and other revenues, and expenditure made from these) and Capital Budget (Statement of Capital receipt from liquidating assets eg. selling shares in a public sector company, raising loans from the public, borrowings from RBI and other parties through sale of treasury bills, and Capital expenditure made to create assets).

what are Demand for grants ?

The expenditure estimates for different ministries are placed for voting before the Lok Sabha in the form of Demand for Grants. There are a total of 105 Demands for Grant in the 2010-11 budget. Each demand gives a total of voted expenditure ( expenditure that requires to be voted by parliament) and charged expenditure (expenditure that is charged directly to the Consolidated Fund and does not require to be voted by Lok Sabha- eg emoluments of the President ) The document also shows a break


what is the Fiscal Policy Strategy Statement ?

This s ta tement out l ines government priority in the fiscal area relating to taxation, expenditure, lending and investment, administered pricing, borrowing and guarantees. It explains how the policies are in consonance with sound fiscal management principles .

what is Medium Term Fiscal Policy Statement ?

This s ta tement lays out three year rolling target for four specific fiscal indicators in relation to GDP at market prices. These are revenue deficit, fiscal deficit, Tax to GDP ratio and total outstanding debt at the end of the year.

The above three Statements are placed before the Parliament as per the provisions of Fiscal

Respons ib i l i ty and Budge t Management Act 2003. (FRBM 2003)

what is the FRBM Act ?

As per the Fiscal Responsibility a n d B u d g e t M a n a g e m e n t Act, revenue deficit was to be eliminated by 2008-09 , which means that revenue expenditure of the government was to be met entirely from its revenue receipts. Borrowing was to be done to meet capital expenditure — that is, repayment of loans, lending and fresh investment. The Act also mandates a 3% limit on the fiscal deficit after 2008-09

what is Expenditure Budget ?

This document gives the details of revenue and capital disbursement of various ministries and departments, with estimates for each under Plan and Non

Plan. It analyses various kinds of expenditures. The second volume of this document It also gives statements of the Plan grants and loans released by the government to state/ district level autonomous bodies under central or centrally sponsored schemes; gender budgeting and schemes for development of SC-ST

what is Receipt Budget ?

This document contains an analysis of the estimated receipts of the government. It also provides the arrear of tax and non tax revenue as mandated under FRBM Act. Trends of receipt and expenditure, deficit indicators, National Small Savings Fund statement, statement of liabilities, guarantees given by the government, statement of assets and details of external assistance are also included in this document. q

YOJANAForthcoming

IssuesApril 2010

Climate ChangeClimate Change has emerged as perhaps the most major concern for the modern world. The April 2010 issue of Yojana brings you an insight on the subject. Experts in the field tell us what to expect and how to go about tackling the problems that are likely to emerge.

May 2010Tourism

The May 2010 issue of Yojana will focus on Tourism in India. Our country is coming up as a major tourist destination. Do we have the wherewithal to cater to the growing flood of domestic and foreign tourists ? What are our strengths and our weaknesses in this regard ? Experts will discuss various issues related to the sector.

April 2010&

May 2010


The challenge now is to shift to right based approach to gender and budget by linking needs

assessments at the grassroots level to national budgetary

processes, for achieving

gender parity

Gendering Health and Education

WOMEN'S RighTS

H E PA S T d e c a d e has witnessed a r ise in gender perspective on social policies The U N Wo r l d S u m m i t o f 2 0 0 5 r e a f f i r m e d

gender equality as a Millenium Development Goal (MDG 3) and underlined its importance as a means to achieve all the other MDGs. MDG 3 aims to promote gender equality and empower women, with the target of eliminating gender disparity in primary and secondary education not later than 2015. It also acknowledges gender equity as an important prerequisite for development and clearly states that “there is no tool for development more effective than the education of girls/women.” Gender disparity in education and health hinders women’s development which further leads to limited progress in empowering them and achieving gender equality. Millennium Development Goals (MDG) 3 recognizes that men and women have different needs and powers

T

The author is Senior Research Officer in the Planning Commission and specializes in Adult Education & Literacy Programmes & Gender Issues in Social Sector.

and that these differences should be identif ied and addressed in a manner that rectifies the imbalances between the sexes.

The gender dimensions of h e a l t h a n d e d u c a t i o n a n d gender mainstreaming has been internationally recognized as a key tool for empowering women by incorporating gender perspective and concerns at al l s tages of developmental planning, policy programmes and delivery mechanism. As defined by the United Nations, Gender Mainstreaming is “the process of assessing the implications for women and men of any planned action, including legislation, policies or programmes in any area and at all levels”. Gender mainstreaming helps reduce poverty, generate economic activity and improve the quality of health and productivity of the family. Hence, gender mainstreaming is not only an issue of social justice but is necessary for ensuring equitable sustainable human

PERSPECTiVE

Promila Yadava


development by the most effective and efficient means.

Health and Education linkages:

The strong link between Health and Education needs no introduction. By now there is enough empirical evidence to reveal gender gaps in both health and education sectors. Gender disparity is a global issue with far reaching consequences. It is evident in rich as well as poor countries, in countries that are diverse as well as those that are not. In all situations, whether it is access to health services or access to educational facilities, women and girls are affected on account of social norms and biological factors. They face increased risks for adverse health and poor educational standards. When women are educated and empowered, the benefits can be seen immediately : families are healthier, they are better fed, their income, savings and reinvestment go up. Demographic studies of infant and child mortality and differentials have shown that maternal education, or literacy, is one of the most important and powerful factors explaining different mortality levels within and between societies. This pattern persists even when income and economic status are controlled. Studies from many developing countries have shown that mother’s literacy and schooling are closely related to child health and survival.

In view of the above, it is important for governments to ensure that gender considerations are adequately addressed in all its efforts in health and education sector, and that gender mainstreaming is integrated into all endeavours relating to health and education.

The situation as it exists

As per Global Gender Gap Index of 2008, India’s ranking among 130

countries is 113. As per the report for 2009, it ranks 114 among 134 nations. The report ranks countries according to gender equality rather than women’s empowerment and underlines that rich countries have more education and health opportunities for all members of society in comparison to others. As per the report, except for the sub index political empowerment where India ranks 25th (2008) , leaving behind developed countries like the US and Australia, our ranking in other key indicators is very low. So far as the economic participation and opportunities for women is concerned, India finished at 125, and in the case of educational attainments, it ranks 116. The ranking in health and survival of women is as low as 128. India ranks lowest among the four BRIC (Brazil, Russia, India and China) countries and is even behind such countries as Bangladesh and the United Arab Emirates. India figures among 20 countries in the world where the gender gap is the widest, and stands sixth in economic inequality between men and women

The declining sex ratio in the country, slow decline of infant mortality and child mortality rates, and a static immunization coverage directly show that there is a chain reaction of inadequate access to food, inadequate access to early childhood education, malnutrition, poor health, non-enrollment and high drop-outs. These problems are graver in states which are severely poor and hopelessly behind targets. Health and nutrition cannot be addressed without attention to education and vice versa. Illiteracy, poor health status and poverty are viciously interconnected, set barriers for

economy and social development. Gender is a cross-cutting issue and therefore the implementation of the gender policies will require a solid commitment and multi-connections between health and education.

The basic parameters of both health and education (declining sex ratio, higher infant and maternal mortality rate, low immunization levels, high incidences of morbidity and poor nutrition, poor literacy levels, poor enrollment and higher drop out rates etc.) reflect the continuing dismal status of women in the country. Under five mortality is higher among girls, the incidences of deaths due to specific diseases like Malaria, TB, HIV/AIDS is again higher among girls/women. As far as education sector is concerned, the school enrollment ratio is a far better measure of gender equality than of women’s empowerment. The GER of girls drops sharply from 93.07% at primary level to 56.22% at middle school level and 47.35% in rural areas (Selected Education Statistic, 2002-03). The drop out rates for all girls is 28.57%, 52.90% and 64.09% at primary, elementary and secondary levels respectively. The gap between male (75.80%) and female (54.10%) literacy rate is 22%. The female literacy rate is below 50% in 235 districts of the country. Female ratio in secondary education is 0.63 during 2000-01 and the ratio reduces to 0.58 during 2002-03. Though there has been improvement in the ratio of primary, secondary and higher education over the period 1990-2000 to 2000-01, the overall ratio for females at all levels still remains slow. As per India Country Report 2005 on the current status of MDG goals, under five mortality rate per thousand live births was 57 and 64


for males and females. Nearly, 46% of the children under five were severely malnourished. This comes due to inequality in nutrition and health care during childhood. Over the life cycle, males and females face different risks and causes of morbidity and mortality. Infant Mortality Rate (IMR) and Child Mortality Rate (CMR) are falling too slowly to meet the MDG targets. Maternal mortality has not fallen at all since the MDG baseline year. The immunization coverage a static and stands at 50%.

Against the above backdrop, the issues that call for attention are: Is there a mandate and statement of political will for enhancing gender equality at the national level? Do Ministries / Departments have specific policies for gender mainstreaming ? Do policies in each sector or policy area reflect a gender perspective ? Have indicators been developed to measure progress towards fulfilling each objective ?

gender Mainstreaming Initiatives – A stock taking:

The Ministry of Women and Child Development (MWCD) in 2004-05 adopted the mission statement of ‘Budgeting for Gender Equity’ and framed a strategic framework of activities to implement this mission which it disseminated to all Ministries and Departments of Government of India. The Ministry suggested the clear understanding and appreciation of gender, gender equality and women’s empowerment, generation of sex disaggregated and other gender relevant data, adequate allocations in all areas, identifications of states/districts with severe gender disparities and gender budgeting exercise.

The importance of gender budgeting has been stressed upon Plan after Plan The Finance Minister’s speech makes symbolic reference to women, but we do not see these interventions/declarations being fulfilled. Most of the schemes-under social sector are women centred and therefore these schemes rely heavily on women work force who are paid well below minimum wages. These schemes are SSA,ICDS,NRHM. The budget must keep aside proper allocations that provide universal services to these schemes. For gender budgeting to be effective, the schemes must enhance focus on women and ensure simultaneously that budgetary allocations are fully utilized. Planning Commission has also time and again reiterated upon quantifiable outcomes for women being reflected in State Plans and Annual Plans. The performance, however, has been very unsatisfactory. The Ministry of Finance has also recognized the potential of Gender Budgeting and mandated all Ministries/Departments to establish Gender Budgeting cells by January, 2005. However, in the absence of gender disaggregated data, the exercises as suggested by Ministry of Finance, Planning Commission and MWCD have not been undertaken on an adequate scale. A recent analysis has revealed that gender-specific schemes form only 2.4% of the Women and Child Development Ministry ‘s (WCD) total budget.

Formal earmarking of funds for women began with the Women’s Component Plan in 1997-98. However, gender sensitivity in allocation of resources started with the Seventh Plan. The Tenth Plan (2002-07) clearly stated “…….the tenth plan continues the process

of dissecting the Government budget to establish its gender – differential impact and to translate gender commitments into budgetary commitments”. For the Eleventh Five Year Plan, for the first time there was a sub-group on gender budgeting, as part of the working group on empowerment of women.

Key Issues

Low Budgetary Allocations: India is consistently the lowest in terms of investment in women’s health. The net allocations in health as a proportion of GDP has vacillated from 1.5% in 2002-03 to 2.2% in 2009-10 budget, making it amongst the lowest global spenders on health. Similarly, the expenditure on education as percentage of total budget is 4.4% in 2009-10. As per WHO study, India ranks 171 out of 175 in public health spending. The low investment in health further results in poor health status in terms of increasing inaccessibility to health services especially for those who are poor.

The non-availability of gender disaggregated data : This is one of the major constraint in the way of formulating polices and programmes with a view to mainstreaming. The existing data by and large is ‘gender neutral’ even when there is a large women beneficiary component.

Emphasizing local priorities : Gender Issues differ from country to country, region to region, from state to state, from district to district and village to village in terms of needs/priorities. Therefore, in view of this, it may be emphasized that the local needs/aspirations are adequately incorporated in all


the schemes benefiting mainly the women.

Social barriers :There are a number of gender-specific barriers which prevent women and girls from gaining access to their rightful share in the flow of public goods and services. Unless these barriers are addressed in the planning and development process, the benefits of economic growth are likely to completely by-pass a significant section of the country’s population.

Absence of Monitoring : It has also been observed that there is an absence of the usage of the existing body of literature in terms of research and evaluation reports highlighting the gender issues. Additionally, absence of regular monitoring of health and education programmes which highlights the gender issues also hinders the understanding of major issues concerning women’s programmes.

Women’s Budget : Gender Budgeting is mainly women’s budget and is a process that entails gender perspective at various stages from enactment of legislation to mainstreaming into development process. Gender budgeting should not only confine to the ‘soft’ areas, it should also aim at mainstreaming in the development process as a whole.

Raising Sensitivity : There is also a paramount need to facilitate and raise sensitivity to gender issues in designing literacy materials and programmes and emphasize the gender approach in targeting in all the health and education initiatives.

Multiple dimension of gender imbalances/inequalities need to be identified and understood in terms

of severe deprivations in both the health and education sector.

Developing GDI: There is a need to develop a Gender Development Index (GDI) on similar lines as that of Human Development Index (HDI) so that differentials in indicators can be established. This exercise should be attempted at national/state levels.GDI could be used as a tool to re-allocate resources for programmes and schemes designed to correct gender gaps at all levels of governance through monitoring and tracking of progress regularly.

Inter Sectoral Convergence: There is a need for inter-sectoral convergence for important gender development indices/parameters. In view of this, all the Ministries and Departments to converge effectively with a gender perspective, if HDI is to improve.

Evaluation: The gender outcome assessment and evaluation is of utmost importance for ensuring the success of gender budgeting. The Finance Ministry has made it mandatory that gender outcome form part of the outcome budget prepared by every Ministry/Department as part of the budget documents.

Thrust areas of the Eleventh Plan:

The government has pledged to increase public spending on education to 6% of Gross Domestic Product (GDP). This also reflects the high priority being given to reducing gender disparities. In the health sector, the Eleventh Plan emphasizes the need to transform public health care into an accountable, accessible and affordable system of quality services during the 11th Plan. The plan will

also provide an opportunity to restructure policies to achieve good health for people, especially the poor and the underprivileged and marginalized groups like adolescent girls, women of all ages, older persons and disabled. It will view gender as the cross cutting theme across all schemes. The reduction of Infant and Maternal mortality rates which are sensitive indicator of human development is a priority concern. The plan also takes into account the social, developmental and health consequences of HIV/AIDS and other communicable diseases and aims at tackling them from a gender perspective.

The Government has renamed the National Literacy Mission Authority (NLMA) as National Women Literacy Mission (NWLM) with specific focus on achieving 80% literacy for women by the end of the 11th Plan. The Mission will be launched in 365 districts where the literacy level is below 50%. Under the National Common Minimum Programme, Government will that ensure at least one-third of all funds flowing into Panchayats are earmarked for the development of women and children.

In the end, it may be concluded that gender deprivations are severe and need to be overcome. For women, education is a major catalyst to balance the gendered patterns of discriminations and deprivations. This may eventually promote women’s health and empowerment and ultimately lead to gender equality. The challenge now is to shift to right based approach to gender and budget by linking needs assessments at the grassroots level to national budgetary processes, for achieving gender parity. q

(E-mail : [email protected])


Innovating and Improvising to Increase Agricultural Productivity

ShODh yaTRa

M O T O R C Y C L E adapted to undertake agricultural operations, a b i c y c l e m o u n t e d sprayer and a seed cum fertiliser dribbler, are

creations of an ordinary farmer cum artisan, Mansukhbhai Jagani, with an extraordinary imagination. Mansukhbhai hails from Mota Devaliya village in Amreli district, Gujarat. Born in a middle-class farmer’s family, he went to school only up to the primary level and then had to join his father in agricultural work due to financial problems. He later ventured out and worked in a diamond-cutting-and-polishing factory in Surat for some time. He also worked as a farm labourer in various places. But not satisfied with this work, he returned to his village and got informal training for about a year in iron welding and fabrication work. Then he started a small repairing and fabrication workshop in his own village, and for the last 25 years, he has been running this workshop. He provides services to the villagers for repairing diesel engines, farm implements and also manufactures and sells various farm implements

A like harrow, plough, seed drill, and grills for doors and windows.

A series of innovations

Motorcycle driven multi-purpose farming device (Bullet Santi)

Dwindling population of farm animals like bullocks in the drought prone regions of Amreli in Gujarat, and outward migration of people from the area from the early 1990s onwards, was forcing people to look for mechanical alternatives to bullock led ploughs. In 1994, when Mohan Patel, a farmer, came to Mansukhbhai asking for a replacement for his two bullocks, Mansukhbhai got an idea. Inspired by a local mode of transport, the three-wheel taxi chakdo, he designed what he called the Bullet Santi. This amazing contraption was made from an Enfield Bullet, a hardy motorcycle whose engine was converted to a 5.5 HP diesel engine and the rear wheel was removed and replaced with an attachment with two wheels. Once a tool bar was fixed to the attachment this unique machine could be used to carry out various farming operations like furrow opening,

This implement can be a boon for

a region, where the manpower

is abundant and the process for

sowing is mainly carried out manually.


sowing, inter-culturing and spraying operations. The machine is also cost effective and fuel efficient, it could plough an acre of land in just half an hour consuming only two litres of fuel. Ten hectares of land could be weeded in a day and cost of weeding was a mere eight rupees a hectare. This contraption can be attached to any motorcycle having with at least 325 cc (6.5 HP) .With the help of National Innovation Foundation (NIF), Mansukhbhai got a patent in India and USA for this device.

Given the success of the technology, many other users and innovators have copied this design. Copying, improvement and blending of local innovations with one’s own ideas is quite common at grassroots level. In fact, a process like this has been at the heart of culture of innovation at community level. In May 2008, NIF and GIAN organized a workshop in Rajkot where many innovations similar to or inspired by Jagani's design were compared and discussed. The concept of ‘technology commons’ was also debated, as per which a community of improvisers can collectively own the IPRs and none of them can individually license it to a third party.

A seed-cum fertiliser dibbler

Farmers adopt different methods to ensure the proper sowing of seeds. Rich farmers opt for tractor or animal operated seed drill

for speedy operation while poor farmers, who cannot afford them, sow seeds manually, which can be physically very tiring .

Jagani, while working in his small field, thought of developing an implement economical for the farmer and capable of performing sowing function at a faster rate. He designed and fabricated a seed-cum-fertilizer dibbler. Using this device, sowing can be done more efficiently, quickly and more over this process is much cheaper than the other options available. This implement is helpful in both sowing of seeds, gap filling and fertilization of those crops like coconut and banana, which require fertilizers to be injected into the ground, near their roots. Wastage of seeds and fertilisers is prevented. Due to uniform sowing the germination percentage is also increased.

This implement can be a boon for a region, where the manpower is abundant and the process for sowing is mainly carried out manually.

Bicycle sprayer

Aware of the problem faced in the spraying of agrochemicals in the field, Jagani developed a sprayer which is efficient and affordable. This portable spraying system consists of an adjustable boom, tank, chain and sprockets and cam follower mechanism for converting rotary motion to reciprocating motion. The assembly can be mounted on any bicycle available in the market. A cylindrical tank containing the solution is firmly attached to the frame of the bicycle. While the bicycle is pulled forward, the cam follower provides reciprocating motion to pump, which compresses the fluid in the tank. This comes out through the spraying nozzle, connected to boom, as mist.

This sprayer is energy-efficient and easy to operate and maintain. A labour saving device, it can be used to spray one acre of land in 45 minutes thus covering more area compared to manual spraying. Easy to assemble and dissemble, it serves the dual use of sprayer cum bicycle.

Recognition for rural talent

Mansukhbhai Jagani bagged a National Award in NIF’s First National Competition for Grassroots Innovations and Tradit ional Knowledge in 2001 for his bullet santi and a consolation award in NIF’s Third competition in 2005 for his bicycle sprayer. This innovation was also displayed at the Indian Science Congress, 2000 at Pune as well as at the Swadeshi Vigyan Mela at IIT, Delhi where he got an excellent response. He also got the opportunity to display his innovation in South Africa in an exhibition organized by the Department of Small, Medium & Micro Enterprises (SMME) of the Northern Provinces jointly with Commonwealth Science Council (CSC), London, on June 2002 with the help of SRISTI and NIF. Mansukhbhai’s motorbike-polycultivator is considered a typical example of a product with global applications. With design inputs from NID, Ahmedabad, help in patent-application-filing from a Boston based law firm and business-plan development by Sloan School of Management of Massachusetts Institute of Technology, the innovation has literally gone places. NIF also supported him from the Micro Venture Innovation Fund for pilot production and test marketing of the Bicycle sprayer. q

(E-mail : [email protected], www.nifindia.org)

Bullet Santi


(Declared�by�the�GOI�under�Section�3�of�the�UGC Act,�1956)

website:�www.nuepa.org

ADMISSION�NOTICE�2010-11(i)��M.�Phil.�Programme

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(ii)(iii)

The National University of Educational Planning and Administration (NUEPA), a premier organization of its kind inSouth Asia, is engaged in capacity building and research in educational policy, planning and administration. NUEPA,which is fully maintained by the Ministry of Human Resource Development, Government of India, offers M.Phil., Full-time Ph. D. and Part-time Ph. D.programmes in educational policy, planning and administration from a broader inter-disciplinary social science perspective. The research programmes of NUEPA cover all levels and types of educationfromboth national and international development perspectives.NUEPA invites applications from eligible candidates for admission to its M.Phil. and Ph.D. and Part-time Ph.D.programmes for the year 2010-11. While selecting the candidates for admission, NUEPA will follow all mandatoryprovisions in the reservation policy of the Government of India. Admissions to M.Phil., Ph.D. and Part-time Ph.D.programmeswill bemadepurely on the basis ofmerit following the prescribed criteria of theUniversity.

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North east diary

VILLAgERS TuRN BARREN LAND INTO LuSH FIELD

Rural entrepreneurs along the Burhidehing river near Dongarupathar village within Lahowal revenue circle have transformed a vast stretch of the unutilized deforestated area of Telpani forest reserve, some 38 kilometres from Dibrugarh into rich lush fields.

About 500 bighas of the forest land is now occupied with rich growth of crops. The flowering mustard plants, clinging brinjals and papayas, matured cabbages, radish and sprawling peas in the field gives a fresh look. The crops including chilly, pumpkin, beans and leafy vegetables are still standing in abundance in the area.

Each of the 70 farmers has a holding of about 7 bighas of the forest land on an average and further extension cannot be ruled out. The villagers along with their family members can be seen toiling through the day in the fields. The nearby Burhidehing river, although eroding huge chunk of the fertile land, has found great importance in the area as it is helping the farmers for watering their crops.

Chain of four wheeler carrier vehicles can be seen rushing every day to the area to pick up the fresh vegetables. Loads of vegetables are brought to the district headquarter markets here and ready crops also get transported to other nearby markets.

The involvement of ABITA gramin Krishi Unnayuan Prakalpa in this agricultural area is worth mentioning. The Prakalpa initiated the farmers for multiple-cropping and diversification of market oriented crops. The organization, which has been instrumental in providing improved variety of seeds and fertilizes at nominal price, has also been training farmers on judicious use of fertilizers, soil and water management and proper crop planning for maximization of yield.

(Courtesy: Assam Tribune)

uPSuRgE IN TOuRIST INFLOw INTO POBITRA SANCTuARY

Notwitstading the economic gloom, tourist inflow into the Pobitra Wildlife Sancturary in Morigaon district of Assam has seen a marked rise in recent times.

According to official sources, altogether 9, 107 tourists visited the sanctuary during the period of April 2009 – January 10, 2010. Out of them, 9019 were domestic tourists and 88 foreign tourists.

Revenue collection by the Tourism Department also got a boost due to the upsurge in the tourist inflow. The total revenue collected during that period (till January 10) was Rs. 10,17,550. The figures till 2004-05 hovered between Rs. 15,000 and 20,000.

The main reason for the increase in tourist arrivals in the sanctuary is that the spot is only 52 km from Guwahati city which is well connected by railways and airport. The same, however, is not the case with the Kaziranga National Park and other tourist destinations.

Pobitora, which was officially notified as a wildlife sanctuary in 1998, is a habitat of a number of wild animals, including one-horned rhino, leopard, wild buffalo, etc. It is a favourite place for migratory birds as well.

Pobitora Wildlife Sanctuary is spread over an area of 38.81 square kilometres. Though one can enjoy Jeep safari or pay a visit to the authorities concerned should take some more steps to develop it into a world class rourist spot, including facilities of fooding and lodging.

(Courtesy: Sentinel)


Indian banks are hopeful of becoming

global brands as they are the

major source of financial sector

revenue and profit growth

The Crucial Role of Banks in India’s Economic Development

BaNKiNg

ANKING IN its crude fo rm i s an age -o ld phenomenon. It was in existence even in ancient times. Revilpout, a French

writer, mentions about bank and bank notes in Babylon in 600 B.C. In India, the references to money lending business are found in the Manu Smiriti also. Chaldean, Egyptian and Phoenician history records the existence of rudimentary banking in early days. Banking in India originated in the last decades of the 18th century. Etymologically, the word ‘bank’, is derived from the Greek word ‘banque’ or the Italian word ‘banco’ both referring to a bench at which money-lenders and money-chargers used to display their coins and transact business in the market place.

Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India which started in 1786, and the Bank of Hindustan, both of which are now defunct.

B

The author is Research Scholar, Patna University and Asian Development Research Institute, Patna

The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806 which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India. After India's independence in 1947, the Reserve Bank was nationalized and given broader powers. In 1969 the government nationalized the 14 largest commercial banks; the government nationalized the six next largest in 1980. India.

The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint Stock bank in

gROWTh STORy

Barna Maulick


India. It was not the first though. That honor belongs to the Bank of Upper India, which was established in 1863, and which survived until 1913, when it failed, with some of its assets and liabilities being transferred to the Alliance Bank of Simla.

Types of Banks-

Under the Reserve Bank of India Act, 1934, banks were classified as scheduled and non-scheduled banks. The banks which came under the 2nd Schedule of RBI Act, 1934were classified as scheduled banks. All commercial banks-Indian and foreign, regional rural banks & State co-operatives are scheduled banks whereas non-

scheduled banks are those which have not been included in the 2nd Schedule of RBI Act, 1934. There are only 3 non-scheduled banks in the country.

Progress of Banking in India- The Indian Banking System has gone through a series of crisis and consequent bank failures and thus its growth was quite slow during the first half of the 20rth century. But after independence, Indian Banking recorded a rapid progress

which was due to planned economic growth, increase in money supply and growth of banking habit, control and guidance by the RBI. Above all was the nationalization of banks in July 1969.

Branch Expansion

Branch expansion gained momentum after the nationalization of major commercial banks and the introduction of the Lead Bank Scheme.

SCHEDuLED BANKINg STRuCTuRE IN INDIA

The chart above shows Scheduled Banking Structure in India.

Table1: Branch Expansion of Public Sector & Other Commercial BanksAs on June

30Total no. of branches

Rural Branches

Rural branches as % of the

total

Population per bank office

1969 8260 1860 22 63,8001991 60,650 32,750 54 14,1502007 72,170 30,590 42 15,000

Source: Economic Survey, 2007-08, TableA-58


Source: RBI

The above table shows that within 33 years, after bank nationalization, there was over 800% increase in number of branches but the major progress is in rural branches i.e. 1860 to 30,600 banks. . This rate of branch expansion has been unparalleled anywhere else in the world.”

Development-oriented Banking-

After independence, banking has moved away from the traditional pulls into new directions. The concept of banking has widened from more acceptance of deposits and lending of funds to development-oriented banking. Banks are increasingly catering to the needs of industrial and agricultural sectors. From short-term financing, they have shifted to medium and even long-term lending. From well-established large industrial and business houses, banks are positively assisting small and weak industrial units, small farmers, artisans and other hitherto neglected groups in the country.

The most significant aspect of the new awareness and involvement in the development effort is the adoption of lead bank scheme under which all the districts of the country are allotted to some or the other bank. The function of a lead bank is:-

(a) Opening bank offices in all the important localities.

(b) Providing maximum credit facilities for development in the district.

(c) Mobilizing the savings of the people in the district.

The performance of the lead

bank is judged by the number of projects helped by them for improving productivity or creating employment opportunities which are expected to become catalyst of development of the district.

Priority Sector Lending By Banks-

Before 1969, commercial banks neglected priority sector lendings and

they were owned by and controlled by big industrialists, but after nationalization commercial banks started financing of priority sectors like agriculture, small industry & business, retail trade, professional & self-employed persons, education, housing loans for weaker sections and consumption loans.

The Union Finance Minister had on June 18, 2004 announced certain measures for doubling of flow of credit to agricultural sector within a period of three years. The actual disbursement by banks exceeded the targets in each of the three years. For the years, 2007-08, a target of Rs.2,25,000 crore disbursement by banks was fixed, while adding 5 million farmers to their portfolio. As against this, all banks (including RRBs & Co-operative bank) disbursed Rs.2,54,657 crore forming 113% of the target. During 2007-08, 75.36 lakh new farmers were financed by commercial banks & RRBs. The amount disbursed by all banks during 2008-09 is placed at Rs.2,64,455 crore.

The figure below shows the flow of institutional credit to agricultural and allied activities:

Source: NABARD


Social Banking-

The Government of India used the public sector banks to finance many of its pet programmes of poverty reduction and poverty eradication. The programmes like Integrated Rural Development Programme (1990-91); Prime Minister’s Rojgar Yojana for Educated Unemployed Yo u t h ; S c h e m e f o r U r b a n Micro Enterprise; bank credit to minority communities; Prime Minister’s Employment Generation Programme etc. are financed by the commercial banks. In fact, this has been an essential feature of the country’s development strategy and a major cause for low profitability of public sector banks, because the loans very often do not reach the actual needy people, and the recovery mechanism is also very weak.

This means that social banking is gaining importance in the current economy.

Diversification in Banking Services:

According to the Banking Regulation Act,1949, banks have the right to diversify their functions according to need. The diversification is seen in the following areas:

l Merchant Banking and under writing- Commercial banks have now set up merchant banking divisions and are underwriting new issues, especially preferences shares and debentures, they have been instrumental in the conclusion of deferred payment agreements between Indian industrial houses and foreign firms. Previously, banks provided

seven public sector banks have set up mutual funds.

l Reta i l Bank ing - Reta i l Banking refers to housing loans, consumption loans for the purchase of durables like refrigerators, TVs, air conditioners, auto loans, credit cards, educational loans etc. The loan –value can lie between Rs.20, 000 to Rs.1 crore. These loans are generally for duration of 5 to 7 years or 15 years in case of housing loans. Retail Banking has been facilitated by the growth in banking technology and automation of banking process.

l ATMs- “Automated Teller Machine” have emerged as an alternative banking channel which facilitates low cost banking transaction.

l Anywhere Banking- Under this system, a customer having an account with any selected branch can operate it from other designated branches of the bank throughout the country. The facility includes cash withdrawal, cash-deposit, transfer of funds, collection of local cheques, intra-city and inter-city transactions etc..

l Internet Banking In India- This is still only in a rudimentary stage in India. Every client is supplied with a unique personal identification number (PIN) for transacting with the bank-on-line.

l Venture Capital Funds- Some banks have launched venture capital funds (VCF) to provide equity capital for pilot plants attempting commercial application of indigenous technology and adaptation of

Figures above represent Small scale industries in terms of revised guidelines on lending to priority sector, micro and small enterprises defined on the basis of Micro, Small and medium Enterprises development Act,2006. The bar graphs of three years show that lendings from Public Sector banks to Priority Sector, Micro and Small Enterprises and Weaker sections are showing an increasing trend.

Source: Reserve Bank of India

merchant banking services to few known companies but now they are offering wider services to a large clientele. There are eight commercial banks at present which have set up equipments leasing and merchant banking subsidiaries.

l Mutual Funds- At one time, mutual funds were a monopoly of Unit Trust of India but now


previously imported technology to domestic conditions. The Government of India has issued detailed guidelines and procedures for establishment of VCF, management structure, size and investment of the fund etc.

l Factoring- Banks are permitted to take up factoring by floating subsidiaries. Factoring is a device by which book debts are quickly realized through outright sale of accounts receivable to a financial intermediary (or a bank‘s subsidiary) called the ‘factor’. The RBI has already accepted factoring in principle and banks may float subsidiaries to take up factoring. SBI and Canara Banks are the only two banks which have set up separate subsidiaries exclusively for undertaking factoring services.

20 banks have now been given permission to introduce the stock invest scheme, increasing the total number of such banks to 51.A

number of banks have set up Asset Management Companies(AMCs) to manage their mutual funds.

Future Challenges to Banks in India

The banking industry is slated for growth in future with a more qualitative rather than quantitative approach. The total assets of all scheduled commercial banks by end-March 2010 is projected to touch Rs 40, 90,000 crore. This is going to comprise around 65% of GDP at current market prices as compared to 67% in 2002-03. The bank's assets are estimated to grow at an annual composite rate of growth of 13.4% during the rest of the decade as against 16.7% between 1994-95 and 2002-03. Barring the asset side, on the liability perspective, there will be huge additions to the capital base and reserves. People will rely more on borrowed funds, pace of deposit growth slowing down side by side. However, advances and

investments would not see a healthy growth rate.

Indian banks are hopeful of becoming global brands as they are the major source of financial sector revenue and profit growth. The financial services penetration in India continues to be healthy, thus the banking industry is also not far behind. As a result of this, the profit for the Indian banking industry will surely surge ahead. The profit pool of the Indian banking industry is likely to augment from US$ 4.8 billion in 2005 to US$ 20 billion in 2010 and further to US$ 40 billion by 2015. This growth and expansion pace would be driven by the chunk of middle class population. The increase in the number of private banks, the domestic credit market of India is estimated to grow from US$ 0.4 trillion in 2004 to US$ 23 trillion by 2050. India may well be the third largest banking hub of the globe by 2040 . q (Email : [email protected])

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Shilpa PrabhakarAIR-46(IAS-2008)

Sandeep RathodAIR-136(IAS-2008)

21 Selections in IAS-2008including

Shalini Rathod(Director)

IAS 2010-11

GENERAL STUDIES SOCIOLOGY

Gaurav Sharma115th Rank(Prev.)

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Sachin Kapoor440th Rank(IAS-2007)

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Karthik KashyapAIR-140(IAS-2008)

Tejaswi NaikAIR-132(IAS-2008)

Under the Guidance ofMr. M. Puri(Faculty of Pub. Admn.)

Subjects Offered

HISTORY

ANTHRO

PUB. ADMN.

Special Batches

GS Modules

Prelims Test Series

Postal Guidance is also

Weekend classes forGS, Agri. & Anthro

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Mr. M. Puri(Leading Faculty of Pub. Admn.)

by Vaid Sir(Senior most Faculty in Delhi)

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Community Radio can play a very

important role in bringing about social change.

It covers all developmental and rights based issues,

and can help sustain the diversity of the local cultures

and languages

Community Radio for Rural Development

COMMuNiCaTiON

COMMUNITY radio s t a t i o n i s o n e t h a t i s o p e r a t e d i n t h e communi ty, f o r t he community, is about

t he communi ty and by the community. The community can be territorial or geographical - a township, village, district or island. It can also be a group of people with common interests, who are not necessarily living i n o n e d e f i n e d t e r r i t o r y. Consequently, community radio can be managed or controlled by one group, by combined groups, or of people such as women, children, farmers, fisher folk, ethnic groups, or senior citizens. What distinguishes community radio from other med ia i s t he h igh l eve l o f people’s part icipat ion, both in management and program production aspects. Furthermore, individual community members

A

The author is a Ph. D. Student, Department of Agricultural Communication, G. B. Pant University of Agriculture & Technology, Pantnagar.

and local institutions are the principal sources of support for its operation.

Characteristics of Community Radio

Following are the characteristics of community radio:• I t serves a recognizable

community.• It encourages participatory

democracy.• It offers the opportunity to any

member of the community to initiate communication and participate in program making, management and ownership of the station.

• It uses technology appropriate to the economic capability of the people,

• It is motivated by community well being, not commercial considerations.

Arpita Sharma

iNNOVaTiON


• It promotes and improves problem solving.

why Community Radio?

C o m m u n i t y r a d i o g i v e s community members access to means of communication and therefore, access to information.. Important local issues are aired, a free market place of ideas and opinions is opened up and people are given the opportunity to express themselves socially, p o l i t i c a l l y a n d c u l t u r a l l y. Community radio helps to put the community members in charge of their own affairs. Unlike the state / privately owned radio channels, community radio is community owned, functionally autonomous, preserves local iden t i ty and p romotes two way communication. Whereas radio on an individual level can provide one with entertainment, information, awareness etc. , community radio does this for the entire community and acts as a catalyst for change. It serves as a watchdog for power holders, affording active relationships between leaders and the citizens, helps to develop common objectives by providing debates on issues, exposes options for community action, preserves culture, helps disseminate new ideas, reinforces values, helps maintain social order, offers chance for individuals and groups to speak to each other, thus developing awareness of a common membership of community, and finally, mobilizes both private and collective resources for personal or community needs. It is for these reasons that community radio is

emerging as a powerful tool for rural development.

The concept of Community Rad io has been pe rce ived differently by different nations. As per UNESCO, community radio aims to fulfill the following functions:

Reflect and Promote Local identity, Character, and Culture: Communi ty rad io provides programming that is particular to its community’s identity and character. There are some 6,700 languages in the world and 63 percent of these are in Africa and Asia. National broadcasting and media globalization, combined with other factors such as urban migration, threaten half of the world’s languages with extinction during the next generation. And with them will go their cultures. Community radio is a prime defence against this

Create a Diversity of Voices and Opinions : This emerges from the fact that anybody from the community can participate.

P ro v i d e a D i v e r s i t y o f Programmes and Con ten t : Communi ty rad io provides a diversity of programmes in a variety of formats and styles. For example, roundtable discussions, reportage, talks, interviews, call-in programmes, live broadcasts of meetings in the community, etc. Audience preferences are taken into account in deciding both content and formats .

Encourage Open Dialogue and Democratic Process: It is the

function of community radio to provide an independent platform for interactive discussion about matters and decisions of importance to its community..

Promote Development and Social Change: Community radio provides the perfect platform for internal discussions and for reaching a collective perception of the situation. Specific problems can be analyzed, remedies discussed, and those most affected- or who can help with the solution – mobilized to collective action.

P ro m o t e C i v i l S o c i e t y : Community radio focuses on explaining the implications of democracy and civil society, raising awareness about people’s rights, and also about their obligations.

Promote Good Governance: Community radio helps people to obtain their just rights by giving them a platform to air their grievances. And through playing the community watchdog role, it makes local authorities and politicians more conscious of their public responsibilities.

Encourage Participation, Sharing of Information and Innovation, by providing a platform for debate, analysis, and the exchange of ideas and opinions. In addition, community radio allows for the sharing of information and innovation.

Give Voices to the Voiceless: in many traditional societies, women and youth and ethnic and linguistic minorities are virtually ignored in community affairs. Community


radio gives voice to such voiceless people in the community.

Replacement for the Telephone: In the poor rural areas, community radio replaces telephones to an important extent by broadcasting messages.

Con t r ibu t e t o D ive r s i t y in Broadcasting Ownership: community, commercial, and national or state broadcasting all have roles in society, though community broadcasting is the one that has generally lagged behind the others. Community radio helps to redress this, and provides the balance of broadcast information sources needed by democratic societies for their advancement.

Status of Community Radio in India

According to R. Sreedher, D i r e c t o r , C o m m o n w e a l t h Educational Media Centre for Asia (CEMCA), “Community Radio can be compared to a four year old child who is trying to understand the system." Karthik Panchapakesan of Radio Active agrees with this view and says that Community Radio in India is in a state of infancy, but he adds that it is also delivering and making inroads (in some cases headways) in dissemination and creating awareness of scientific information and empowerment. According to K. Thangaraj, Chief Co-ordinator, Kongu Community Radio, "A vast country like India needs several thousand Community radios [with the permitted antenna height (30 m) and power (50 watts)]. Target has been fixed for

4,000 to 5,000 Community Radios but till now we have realised only 45. Even these 45 stations are on air only for a few hours. More agencies and institutions must come forward to establish Community Radio in the true spirit, and this could really happen now that the government has come forward to permit limited advertising..." J. Paul Bhaskar of Pasumai Community Radio, feels that in India, the Community Radio is still the low-powered, small reach radio. Rahul Joshi, Assistant Station Head, Vivek Community Radio feels that procedural and bureaucratic blocks in the decision making process have to be removed and greater awareness about Community Radio has to be created. Amolina Ray of radio JU (Jadavpur University CR) feels that Community Radio has great potential that is yet to be tapped. It gives a platform to the Community to voice their opinion and can be developed as a medium for community interaction on a one to one basis.

world Experience

According to Alfonso Gumucio, a communications consultant working with community radio networks globally, there are two main models of communications for development -vertical and participatory. Vertical model evolves from marketing and advertising practices of the industrialized world and emphasizes behavioral changes. The participatory model is horizontal and calls upon people to create social change. The participatory model suggests there

are structural causes to poverty such as inequality rather than simply a lack of information. Vertical model uses mass media which is expensive and unsustainable. Participatory model is more process oriented and seeks to empower people. The first is short term, and the other is long term. One emphasizes approaching the individual while the other reaches for the community.

The concept of community radio is 50 years old and had started in Bolivia among the tin mining communities when they needed a format to discuss the issues in their day to day lives. Now the concept has spread worldwide, though development in different regions remains uneven. In Latin America, there is much diversity in the types of noncommercial radio stations, which may focus on education, indigenous people, gender, rural or urban issues. Community based radio stations spread rapidly in South Africa after the fall of apartheid. More than 100 community stations exist today in Mali. With current trends toward empowerment and civic participation, the role of community radio is taking on increased importance, both in the developing and developed worlds. One of the strengths of community radio is that the participants do not need to know how to read or write. Legal, regulatory and policy environments in some countries, however, make community radio difficult for example in Bangladesh.

In Africa, radio is a cultural medium. According to Soule


Issiaka of the Africa Bureau of Radio Netherlands, this is because radio here is a product of the local culture. Although Africa has a high percentage of illiteracy , it has an oral tradition, which has helped this medium to grow.

In East Timor training was provided to rural reporters in the early 2000s to support the national radio system, and acquisition of small scale equipment. Residents needed an outlet to express themselves. The World Bank launched a project which sought to promote community radio. Potential radio stations were identified by surveying demand. Proposals were put together by hopeful recipients. Technical assistance was provided by a central community radio network.. A bottom-up consultation process with the communities proved invaluable. Also important was taking advantage of existing networks and infrastructure. The East Timorese are now using

radio to promote reconciliation, solidarity, and local development planning in the post-conflict period.

Challenges

C o m m u n i t y r a d i o f a c e s challenges in effective and quality programme production in terms of content, production quality and community involvement. The staff lacks journalist ic, management or technical skills, training modules do not address specific needs of the medium, getting people's participation is very difficult, infrastructure like electricity is very often a major problem, in many countries there is also a lack of a clear regulatory framework for Community Radio to operate.

Among the various challenges faced by the community radio, the participation from the people is a major one. Concerted efforts are required in this direction, like involving opinion leaders, elder,

religious leaders, women, different occupational groups like farmers, artisans, fisherman, minority groups etc in consultation processes , group discussions and programme evaluation. This would give a reality check on people's preferences and priorities, and also encourage their participation.

Community Radio can play a very important role in bringing about social change. It is truly a people's radio that perceives listeners not only as receivers and consumers, but also as active participants and creative producers of content. Community Radio covers all developmental and rights based issues, and can help sustain the diversity of the local cultures and languages. Community radio has been used in many countries in various fields of development like health, nutrition, sanitation, women empowerment and also agriculture. This medium needs to be supported through legislative, administrative, and financial measures. q(Email : [email protected])

HEALTH BuDgET - RS 2,700-CR BOOST FOR HEALTH

Even as the government hiked the Ministry of Health and Family Welfare's allocation by Rs 2,700 crore for 2010-11, the UPA's flagship programme National Rural Health Mission (NRHM) saw an increase of only 10 per cent over last year.

Saying there was a need to provide health facilities to both rural and unban households, Finance Minister Pranab Mukherjee said the allocation for the Health Ministry was being increased from Rs 19,534 crore to Rs 22,300 crore. He also announced that an annual health survey would be carried out to prepare district health profiles. "The findings of the survey should be of immense benefit in major public health initiatives, particularly the NRHM, which has successfully addressed the gaps in delivery of critical health services to rural areas."

While the overall health sector got a boost, the capital expenditure for the year 2010-11 also saw a reduction of over Rs 390 crore. The main focus is on 18 states with weak public health infrastructure. The Budget simplifies the duty regime on medical equipments and appliances, proscribing a uniform, concessional basic duty of 5 per cent, with full exemption from special additional duty, on all medical equipments.


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FARMERS TO DEVELOP MuLBERRY NuRSERIES

Mulberry tea, which is being relished in some parts of the world, is set to reach our teapots soon. Scientists at Jammu and Kashmir’s Sher-e-Kashmir University of Agriculture Science and Technology (SKUAST) have extracted various tea varieties from mulberry leaves and say they

could be marketed in Kashmir and outside within next two years.Trials for mulberry tea began in 2007 at the university and the results were very encouraging. Mulberry is

grown for silk production in Kashmir, its surplus leaves can now be used to extract tea. This can be marketed once the department is ready with its findings next year. Trials on a few more varieties have to be conducted over the next year. During the trials it was found that mulberry tea could be best developed from indigenous varieties. Around 70 varieties of mulberry are grown in Kashmir.

A senior researcher associated with the mulberry tea trials said the tea was also found to have medicinal values. It tastes much like Kashmir’s famous sweet tea Kehwa. “It also has medicinal values and could be useful for patients suffering from Type II Diabetes and blood pressure,” the researcher added. Trials in this respect are also underway. At present, mulberry is grown in vast swathes of fields in north and south Kashmir. Mulberry nurseries, however, are yet to come up.

The department is trying to motivate farmers to develop mulberry nurseries. If the health drink is successful, the nurseries will come up in large numbers across Kashmir. Jammu and Kashmir is the country’s fourth largest silk producing state and the mulberry trees are also grown in forest areas here.

“I have so far been producing mulberry for silk. Now I am planning to extract tea from its leaves as SKUAST had offered to teach me its technology,” said Mohammad Yasin, a farmer who owns a big mulberry nursery in Kashmir.

J&K WiNDOW

AN EXTRAORDINARY REPOSITORY OF SEEDS IN THE HIMALAYAS

Seeds prioritised for yield or resistance to temperature, pests

It is India’s doomsday vault. If the land lies cracked and barren waiting for the rain, if the sea swallows coastal paddy fields, if plagues of pests wipe crops out of existence, India has an insurance policy- a set of seeds carefully preserved in permafrost, ready to be restored, that can be cultivated and sown to feed

its people.Nestled 17,500 m high on a cliff top in the Himalayas, Chang-La has the sub zero temperatures and low

humidity necessary to suspend seed life for future generations. It is a site carefully chosen. It is far from rising seas and tectonic plate movement but around 75 km from the Leh airport, it is close enough to human civilisation today to deposit the country’s agricultural heritage with ease.

Mr. W. Selvamurthy distinguished Scientist and Chief Controller (R&D) Ministry of Defence feels that India is a herbal garden. It is now getting threatened or endangered or extinct and there is a dire necessity to preserve this rich wealth of biodiversity, to give it to the next generation. Chang-La, opened last December, now holds 5,000 seeds from the Ministry of Defence. Government departments, research organisations and more are welcome to store useful and viable seeds for free. Their qualities will be digitally indexed and available through open access software to further science globally.

Crop seeds, developed slowly and carefully over thousands of years, are not only the source of sustenance for humankind but the best repository of genetic material scientists can use to help develop food resistant to the vagaries of climate change.

Transgenic cropping to ensure that our grains, pulse and vegetables can reproduce at high altitudes, in salty water, less water and high temperatures, is essential to provide future generations with the same opportunities of today.

(Courtesy : Newspapers)


The states need to initiate

economic reforms in consonance with economic reforms

of the centre, which comprise fiscal consolidation, reduction of

fiscal deficits, and development with a

human face

Fiscal Federalism: Emerging Challenges in India

BuDgET 2010-11

NDIA IS the largest and probably the most diverse democratic country in the world, with a federal form of government and more

importantly, clearly demarcated financial powers between different layers of the government.. Fiscal federalism in India has evolved since the early days of planned development in the 1950’s, but is faced with major challenges today, necessitating modifications in the existing architecture.

Fiscal Federalism is concerned with understandings as to which functions and instruments are bes t cent ra l ized and which are best placed in the sphere o f d e c e n t r a l i z e d l e v e l s o f government. In other words, it is the study of how competencies (expenditure side) and fiscal ins t ruments ( revenue s ide) are allocated across different layers of the administration.

I

The author is a Doctoral Research Scholar and Guest Lecturer, Dept of Political Science, Faculty of Social Sciences, Jamia Millia Islamia, New Delhi

An important part of its subject matter is the system of transfer payments or grants by which a central government shares its revenues with lower levels of government

Thus according to the theory of Fiscal Federalism, functions which involve national interest, economies of sca le , lumpy investments and substant ial spatial externalities should be left to the national government. Functions, the benefits of which are largely confined to regional jurisdictions and which are subject to heterogeneous preferences should be assigned to the state governments. Sanitation, street lightning, and fire safety are services the benefits of which are localized and performed by local governments , [e .g. M u n i c i p a l i t i e s ] . I n s h o r t e x p e n d i t u r e a n d s e r v i c e r e s p o n s i b i l i t i e s s h o u l d b e

T Sadashivam

ViEW POiNT


assigned according to the benefit area of each service( M.M.Sury, 2008)

Evolution of Fiscal Federalism in India

Pre- Independence Period

The present fiscal structure of India is the result of a gradual evolution over the last 140 years. The first step for devolving financial provisions to the provinces was taken by Lord Mayo in a resolution which said: “I believe as I have repeatedly said that we place administration of portions, both of our revenue and expenditure, in the hands of local government. It will enable the rulers of the country gradually to institute, in various parts of the empire, something in the shape of local self government, and will eventually tend to associate more and more natives of this country in the conduct of public affairs.”

The Government of India Act of 1919 brought in decentralization in matters of land revenue, irrigation receipts, excise duty and judicial stamp, and this was taken further by the Government of India Act 1935, according to which revenue of provinces came to comprise land revenue, sales tax, excise duties on alcoholic liquors and narcotics, shares of central taxes, such grants in aid ‘or’ specific purpose grants as might be approved by the central legislature. The government of India appointed Sir Otto Niemeyer to recommend transfer of revenue to the provinces under various sections of the 1935 Act. His recommendations were embodied in the Government of India

(Distribution of Revenue) order 1936. The Niemeyer Award was followed till the implementation of the recommendations of the First Finance Commission in 1952.

Post- Independence Period

The Indian Constitution provides for a division of legislative, administrative and financial powers between the union and state governments as laid down in the Union, State and Concurrent Lists. The constitution also requires the President to appoint a Finance Commission every 5 years ‘or’ earlier to review the finances of the Union and States and recommend in respect of • The distribution of the net

proceeds of taxes to be shared between the centre and the states and allocation between the states.

• The principle which should govern the grants-in-aid to the states by the centre.

• The measures needed to augment the consolidated fund of a state to supplement the resources of the panchayats and the municipalities in the state on the basis of the recommendations made by the State Finance Commission.

• Any other matter referred to the commission by the President in the interests of sound finance.

Emerging challenges in Fiscal Federalism

Since in a federal polity, two sets of governments operate simultaneously and directly upon the same people and have to perform their distinct functions

in relation to them, it is most desirable that the centre and each of the state governments must have under its own independent cont ro l f inanc ia l resources sufficient to perform its exclusive functions and they should also be allowed to have their own distinct policy. However, of all federal problems, the financial relations between the centre and the units are most difficult.” (Prasad, Anirudh. , “Centre- State Relations in India,” ) Especially, in recent times, where functions and responsibilities of different layers of government becomes dynamic in character.

Impact of globalization and Economic Slowdown

The emergence of a new ‘border less’ world economy coupled with economic liberalization policies are having curious repercussions on centre- state relations in India. A decline is visible in central government economic activities, and it becomes apparent that the nation states are too small to tackle large things in life and too large to address small things. There is now a need for applying market principles for allocating resources to the state. With the gradual emergence of coalition polities at the centre, there are increased demands for a more decentralized federal system. It has also promoted a change in federal relations from, inter-governmental cooperation to inter-jurisdictional competition among the states, for example, competition with each other for foreign investment inflows. The current global financial and economic downturn, will also put a strain on state


budgets, posing new challenges for fiscal federalism.

Indebtedness of States and Basis of Distribution of Taxes

The constitution has given more powers regarding taxation and borrowing to the Centre than to states. States are becoming

increasingly dependent on central assistance. One reason for this is the composition of central assistance for plans given under the GADGIL formula of 1969, which has given loan grant ratio of 70: 30. Even with the implementation of the states Debt Consolidation and Relief Facility as recommended by the 12th Finance

Commission, the proportion of union loan in the total debt liabilities of state governments has increased, because the states have to pay the interest and principal in respect of loans contracted from the centre. Even the First Administrative Reforms Commission study team on centre- state relations, commenting on the

Table 1: Percentage Shares of the States in the Net Proceeds of Income Tax Assigned to the States as Recommended by the Tenth Finance Commission, Eleventh Finance Commission and Twelfth Finance Commission.

State Share ( Per-cent)10th Finance Commission

11th Finance Commission

12th Finance Commission

Andhra Pradesh 8. 465 7. 701 7. 356Arunachal Pradesh 0. 170 0. 244 0. 288Assam 2. 784 3. 285 3. 235Bihar 12. 861 14. 597 11. 028Goa 0. 180 0. 260 0. 259Gujarat 4. 046 2. 821 3. 569Haryana 1. 238 0. 944 1. 075Himachal Pradesh 0. 704 0. 683 0. 522Jammu and Kashmir 1. 097 1. 290 1. 297Karnataka 5. 339 4. 930 4. 459Kerala 3. 875 3. 057 2. 665Madhya Pradesh 8. 290 8. 838 6. 711Maharashtra 6. 126 4. 632 4. 997Manipur 0. 282 0. 366 0. 362Meghalaya 0.283 0. 342 0. 371Mizoram 0. 149 0. 198 0. 239Nagaland 0. 181 0. 220 0. 263Orissa 4. 495 5. 056 5. 161Punjab 1. 461 1. 147 1. 299Rajasthan 5. 551 5. 473 5. 609Sikkim 0. 126 0. 184 0. 227Tamil nadu 6. 637 5. 385 5. 305Tripura 0. 378 0. 487 0. 428Uttar Pradesh 17. 811 19. 798 19. 264West Bengal 7. 471 8. 116 7. 057Chhattisgarh Not Existed Not Existed 2. 654Jharkhand Not Existed Not Existed 3. 361Uttranchal Not Existed Not Existed 0. 939Total 100. 000 100. 000 100. 000

Sources – Report of the 10th Finance Commission, 1994, p.25. Report of the 11th Finance Commission, June 2000, p.59. Report of the 12th Finance Commission, November, p.133.


ever increasing massive indebtedness of the states, had observed that the states find it increasingly difficult to repay their debts, or even the interest charges in some cases, and that repayment of central loans constitute an increasingly large part of the total states borrowings from the centre.( Prasad Anirudh,) The basis of distribution of taxes among different is also a source of conflict. The union government has been asking the successive finance commissions to use 1971 census figures as a criterion for revenue distribution based on population. These formulas are meant to protect the interests of those states who have considerably reduced their population growth rate. But the 1971 population data does not present the current picture, thus some states emphasise on per capita expenditures on social and economic development as an appropriate measure of the fiscal needs of the states whereas, there are some who believe that relative per-capita income of the state is the better indicator of the need of the states. {See the below table for better understanding}

g r o w t h o f I n t e r S t a t e inequalities

Inter regional disparities among the states in economic matters has existed since a long time but it has increased particularly in the 1990’s after market based reforms were initiated. Balanced regional development has been an important objective in our planning and various instruments including fiscal incentives, industrial policies and directly targeted programmes have been deployed in the past to achieve it. Despite this , there is, evidence of increasing regional divides. Growth

performances across states have been varied .The performance of poor states with poorer infrastructure has been lagging.(M M Sury)

Introduction of gST

The country will soon have a dual Goods and Sales Tax structure which centre and state governments will legislate, levy and administer. G.S.T is expected to replace excise duty and service tax at central and VAT at state level. Although many countries have adopted this tax system, we have to see its implication on our financial system, especially the fiscal relationship between centre and states, as the states will lose revenue earning from VAT, when G.S.T. come into force. The 13th Finance Commission has also asked to take into consideration the likely impact of the implementation of the GST

Effects of Climate Change

Climate change is also likely to impact the centre – state fiscal relations. The rise of sea levels will lead to submergence of many areas, global warming and change in monsoon patterns will hit agricultural productivity, fisheries will be affected. All this will result in loss of livelihood for people. The impact of climate change will fall differently on people and the states with majority of poor people will be the worst hit. So the development activities of these states have to be sustainable and need to have consensus based on ecology, environment, and climate change. As it was also included in the terms of reference of 13th Finance Commission [2010 to 2014-15], the National Action Plan on Climate Change adopted by India in July

2008, in which 8 missions in key areas of activity were identified, need to be urgently implemented. They are solar energy, enhanced energy efficiency, sustainable habitat, conserving water, sustaining the Himalayan Eco-System, creating a “Green India” sustainable agriculture and finally establishing a strategic knowledge platform for climate change. To achieve this, nationally appropriate mitigation actions, supported and enabled by technology, financing and capacity – building are required. All this require more money so, the states have to depend more upon the centre for adaptation, mitigation and technology led development, which in coming years will further transform fiscal federalism.

Conclusion

The relationship between the centre and states need to undergo a change in the present time in order to be able to respond to the forces of globalization, the dynamics of coalition politics and the current global financial and economic slowdown. Despite an existence of fiscal arrangements since independence, fiscal imbalances at central and state levels pose a serious threat to macro-economic stability in the country. Thus for achieving and maintaining the national G.D.P. growth of double digit, we need to have more fiscal decentralization The states need to initiate economic reforms in consonance with economic reforms of the centre, which comprise fiscal consolidation, reduction of fiscal deficits, and development with a human face. q



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U G M E N T I N G RESOURCES for the states is an intricate exercise that involves b a l a n c i n g c u r r e n t

revenues, economic growth and political considerations. Mobilizing resources is not a pure economic exercise; it has political dimensions as well. The political economy of mobilizing resources therefore has to consider issues related to both, the economic effects and the fall out in terms of politics.

Mobilizing resources through reforms in non-tax sources serves the twin purpose of having a rational non-tax structure and generating greater means to achieve economic growth. Irrational structure of non-tax sources has adverse economic effects that invalidate growth objectives. From the economic point of view, therefore, one has to keep in mind the objective of equity, efficiency and neutrality; especially the impact of these on the economic growth of the economy. To fulfill these objectives, one often has to adopt an economically rational structure of non-tax sources that may not be palatable politically.

BOOK REViEW

TITLE : NON-TaX SOuRCES iN iNDia: iSSuES iN PRiCiNg aND DEliVERy OF SERViCES

Authors : Mahesh C Purohit and Vishnu Kanta PurohitPage : 221 pagesPrice : Rs. 700/- & US$ 50.00ISBN : 81-85930-15-5

Publisher : gayatri Publications, New Delhi, 2010

Mobilizing Resources for Development

This book entitled ‘Non-tax Sources in India: Issues in Pricing and Delivery of Services’ written by Mahesh C Purohit and Vishnu Kanta Purohit is the outcome of a research study of the Foundation of Public Economics and Policy Research, an autonomous, non-profit organisation. The foundation undertook this study with the support of Socio Economic Research Division of the Planning Commission, Government of India. The objective of the study is to analyze the existing structure of non-tax sources in the Indian states and to recommended requisite changes in its structure, so as to enable the states to mobilize resources for development.

The study analyzes the structure of non-tax revenue sources which includes ten services, namely (i) public services, (ii) education, sports, art & culture, (iii) medical, public health and family welfare, (iv) water supply and sanitation, (v) forestry and wild life, (vi) major and medium irrigation, (vii) minor irrigation, (viii) industries, (ix) mines and minerals, and (x) roads and bridges. These ten services

A


account for about 2/3rd to 3/4th of the administrative component of non-tax revenue in different states. The area of the study included a few selected states like Rajasthan (Northern zone), Karnataka (Southern zone), Maharashtra (Western zone) and West Bengal (Eastern zone).

T h e b o o k u n d e r r e v i e w consists of seven chapters which attempt to provide wide scope and significance of the states’ own non-tax resources, pricing strategy, revenue realization, rationalizing structure of non-tax resources, procedural reforms and issues in delivery of services and policy imperatives. Also, the book is an excellent informative compi l a t ion o f Tab le s and Annexures.

Chapter I of the book begins with an introduction explaining the objective and scope of the study and focuses on taxonomy of non-tax resources and highlights the non-tax sources covered in the study. The Chapter also gives theoretical perspective on optimal recoveries on public services, methodology and data sources.

Chapter II analyses the fiscal significance of the states’ own non-tax resources. In continuation, the chapter examines the role of various social and economic services in the budget. It describes the composition, components and trends in states’ own non-tax revenue sources from ten services. These trends indicate that the non-tax sources are one of the constituents of total revenue receipts which do not play a very

significant role in financing state expenditure. Also the growth of receipts from own tax sources has neither kept pace with receipts from the other revenue sources nor has it shown the requisite buoyancy needed for an efficient fiscal system. It also gives the global figures to help of international comparison of non-tax revenue sources.

Chapter III is a review of literature covering pricing strategy for public utility. The effort is to analyze the intricacies of the theoretical issues confined to social and economic services. This analysis is only confined to the pricing strategy for publicly provided private goods and public utilities. The other forms of non-tax receipts in the nature of interest, dividends have not been taken into account. The analysis also includes a review of various theories of utility pricing dealing with costs and problems in price measurement as well as issues involved in designing the user charges. The chapter has honestly mentioned that in a given politico-economic situation, it is very difficult to apply a purely economic rational policy for user charges.

Chapter IV describes about the revenue realization from non-tax revenue. The chapter has made a good effort to answer how the Government fixes user charges for non-tax sources. The chapter also highlights that the revenue realization as percentage of revenue expenditure in most services is abysmally low as compared to the norms, and points out the necessity

of a review of the user charges of some of the services.

C h a p t e r V i s e n t i t l e d ‘Rationalizing Structure of non-tax Sources’ . Here the authors point out that in order to review the user charges, it is essential to rationalize non-tax structure and also mobilize further resources for planned development, keeping in view the objective of equity and efficiency. It reveals that the selected services mentioned in the chapter face enormous pressure due to the fact that the capability of the public sector has not kept pace with the services.

Chapter VI is on ‘Procedural Reforms and Issues in Delivery of Services’ . The authors have looked at the procedural complexity in delivery of services and have gone ahead to suggest improvements in and rationalization of procedures.

Chapter VII is the final chapter of the book where the authors raise issues and suggest policy measures to improve the delivery mechanism of the services.

The book is a welcome edition and a good source of information on different aspects of non-tax sources in India. If a regular updation of data is undertaken, the book will be a rich source of information for students and academicians, NGOs, policy makers, corporate and consultancy organizations. q

Krishna Dev (Email : [email protected])

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Published on 10 March 2010Posted on 12-13 March 2010

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