Any reactions on the Indian Budget presented by Finance Minister P. Chidambaram..
COMMENTARY
By Manjeet Kripalani
http://www.businessweek.com/bwdaily/dnflash/jul2004/nf2004079_6445_db046.htm
Reason to Hope for Greater India
The new goverment appears determined to fulfill its vow to improve life in rural areas while moving the whole country forward
All of India waited with anticipation on July 8, the day the country’s annual budget was to be announced. In Bombay, the streets of the old city’s Fort area, crushingly busy on most days, were deserted during rush hour, and empty taxis plied the roads. Everybody was glued to their TV sets, awaiting the first statement of intent and plan of action from the new Congress Party-led coalition, which in May came to power on a wave of support from rural India yearning for a better life.
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The wait was worth it. At 11 a.m., as Indian Finance Minister P. Chidambaram unveiled the budget document in the Indian Parliament hall in New Delhi, it quickly became clear that the Congress Party was serious about delivering on its campaign promises. Rural India would receive greater largesse, while national economic reforms would continue – with greater emphasis on social development.
Chidambaram promised 7% to 8% annual growth over the next few years, universal access to education and health care, and increased employment in agriculture and manufacturing. He declared that India’s minimum wage would be enforced and called for huge new investments in infrastructure. He pledged to do all this while reducing the country’s huge fiscal deficit, at 9% of India’s gross domestic product, and vigorously pursuing foreign and private investment.
WIDESPREAD SUPPORT. A tall order, yes. Initially, the stock market rose after the two-hour address, but it later fell by 100 points as investors zeroed in on a Chidambaram proposal for a new “turnover” tax on corporate arbitrage. Still, even Indian execs think the new budget may be just the tonic the country needs to give its poorer parts hope for a more prosperous future. “This is the budget that will build the India that does not live in the 27 larger cities,” said Sunil Mittal, one of India’s sharpest entrepreneurs who built and runs the country’s largest GSM cellular operator, Bharti.
Indeed, it would be hard to find an Indian these days who disagrees with their Finance Minister’s focus on agriculture. After all, 65% of India survives on agriculture, and without investment, the sector has seen a steady decline over the past decades, even as economic liberalization brought jobs and more consumer goods to India’s growing middle class.
Previous governments followed a philosophy of subsidizing the poor, but not fixing their core problems with measures such as land reforms, allowing contract farming, or corporatizing the agriculture sector so that food processing can become a large domestic and export industry. Progress didn’t suit politicians obsessed with playing up caste issues instead of addressing pocketbook problems.
CONTROLLING AIDS AND FLOODS. This budget, hurriedly put together in six weeks by the new government – compared to the five months it normally takes – attempted to take the first steps toward solutions. It would finance several ambitious social schemes, such as mandatory education until eighth grade with free midday meals for all young Indians. And it would tackle India’s water problems by building more reservoirs for storage in rural areas until the monsoon rains return each year.
The government also wants to double health-care spending, moving toward its goal of 6% of GDP devoted to health care and education, with more insurance for families below the poverty line. For the first time, the government acknowledged a rising incidence of AIDS in India, with a proposal to increase funding for control programs by $60 million. And Chidambaram said flood-control programs would be implemented, especially in the cyclone- and flood-prone areas of Eastern India.
For multinationals, he promised to develop the agri-processing industry with less onerous regulations and elimination of tariffs on equipment imports such as tractors. The food and food-processing business in India has attracted much attention from foreign corporations.
WHO’LL BENEFIT? How will the Congress Party pay for all this? Chidambaram declared that India will move to a uniform, value-added-tax system next year, which many economists see as a vast improvement over today’s hopelessly complicated and corrupt system. To finance education programs, he called for an interim 2% increase in income and corporate taxes – the first tax hike in a while that Indians actually welcome.
Though the Congress Party government and its Communist Party allies dissolved the Privatization Ministry, which brought $3.5 billion into government coffers, Chidambaram announced the creation of a new “investment commission” to attract new money from multinational corporations not now in India. And to show his good intentions about continuing economic liberalization, he increased allowable foreign investment in telecom from 49% market share to 74%, insurance from 26% to 49%, civil aviation from 40% to 49%, and he eliminated tariffs on computers.
What’s worrying most Indians isn’t the government’s big spending programs. It’s whether these increased services will get to the right constituencies, without the funds being siphoned off along the way – a big reason for India’s impoverishment all these years. Chidambaram asked the private sector to come forward with ideas for public-private partnerships in many of the new ventures, and the government has already said it will bypass state and district governments and send funds directly to village councils.
“MAGICAL MOMENT.” Other hopeful signs are appearing. For the first time, the government has a team of internationally acclaimed economists and finance experts running the country. They include Prime Minister Manmohan Singh, an economist in his own right, and Chidambaram, who has an MBA from Harvard. Also in top finance roles are former International Monetary Fund Director Montek Singh Ahluwalia and former Revenue Secretary Ajit Kelkar.
“We have arrived at that magical moment,” R. Gopalkrishnan, an executive director at Tata Sons, which controls India’s largest conglomerate, said after the budget speech. “There’s strategy and insight on how to do things.”
Certainly, a feeling of hope and optimism is rising throughout the country, not just among the rural poor but also among the rising middle class. Many are glad to see more Indians benefit from reforms. Virat Bhatia, an executive in New Delhi and son of an army officer, says he’s happy to pay the 2% education levy.
And with the government’s emphasis on providing potable water to every habitat in the country, little girls in rural areas will no longer be dragged out of school by their parents to walk five kilometers to the neighboring village to wait in a long line under a single tap to get one pot of water. Now that will be progress.
Kripalani is BusinessWeek’s Bombay bureau chief Edited by Douglas Harbrecht