Growth in Asia and the Pacific outperformed expectations in late 2023, reaching 5.0 percent for the year. Inflation has continued to decline, albeit at varying speeds: some economies are still seeing sustained
Mar 1 February, which is generally a lean month for car manufacturers as prospective buyers tend to postpone their purchase in anticipation of excise duty cuts in the Budget, saw market leader Maruti Suzuki India Ltd (MSIL) register flat sales in the domestic market at 59,311 units as compared to 59,095 units in February last year. Two-wheelers continued their year-long trend of decline in sales with major Companies witnessing a single digit negative growth. Analysts however, predict that sales will revive with a reduction in excise duty, both on smaller cars and two-wheelers, from 16% to 12% and simultaneous reduction in prices by various manufacturers with effect from March 1. While leading car manufacturers like MSIL, Hyundai Motor India Ltd, Tata Motors and General Motors reduced prices between Rs 7,000 and Rs 20,000 depending on the models, two-wheeler major Hero Honda, TVS Motor and Honda Motorcycle and Scooter India Ltd have also announced reduction in prices by Rs 1,000 to Rs 2,500. During February 2008, General Motor India witnessed a growth of 80% at 5,563 units as against 3,087 units during the same period last year. Sales of premium car manufacturer Honda Siel Cars India (HSCI) also grew 7.2% to 3,774 units during this period as compared to 3,521 units in February last year. Even Skoda India witnessed a growth of 102% at 1,303 units as against 644 units in February 2007. This is in contrast to the two-wheeler industry that has once again failed to recover from the woes of high interest rate and liquidity crunch. Sales of Hero Honda declined 5.37% to 2,65,431 units in February 2008 as compared to 2,80,515 units during the same month last year and that of Bajaj Auto dipped by 8.4% to 1,59,508 units as against 1,74,220 units in February 2007. The entry-level 100 cc segment has been badly hit after high delinquency forced major banks to withdraw finance availability in certain clusters across the country. According to industry estimates, the segment witnessed a decline of about 13%, which had offset stable sales in the 125 cc segment and above, resulting in an overall dip of 10% in the motorcycle industry. No wonder, players are now shifting focus to executive and premium bikes as the segment is comparatively less price sensitive and is giving higher margins to all manufacturers.
A day after presenting his fifth Budget in the UPA government, Finance Minister P Chidambaram said budgets did not win elections, unless they were properly marketed. In a detailed interview on Saturday, Chidambaram said he still aimed at nine per cent growth for the economy in 2008-09. He also indicated that the surcharges on income-tax should go, provided revenues remained buoyant. Excerpts from the interview: You have presented five budgets in a row and looking back at them, what would make you the happiest about them and what would disappoint you? My happiest moments would be that my batting average so far has been 8.8 per cent. That is the economy. What about the Budget per se? The Budget was intended to set the course and pace of the economy and I think we have done fiscal consolidation, although we can argue about some items below the line. I think we have demonstrated that moderate and stable tax rates bring better tax compliance. We have demonstrated what inclusive growth is, that instead of being fixated only on growth, we can use the growth process to promote inclusive growth. I think these are many of the happy memories of the last four years. The disappointment is that we should have taken the reform process forward faster. There are still large areas of the economy which are under government controls. And if these controls had been removed, the economy would have grown faster. In case this is your last Budget? I will be happy if this is my last Budget. There are other things to do in life. People are calling this as an election Budget. Is that the way to look at it? For the last few years, every Budget has been an election Budget because every year is an election year. 2006 was an election year, 2007 was an election year, and 2008 is an election year. I think that is not a very correct way to describe it. I have presented the fifth Budget of this government and, according to schedule, the elections are in May 2009. So I would not agree that it is an election Budget. Will it help you win the elections? Budgets do not decide elections. It is how you communicate to the people what the Budget contains and what it wishes to do in the next year, which happens to be the election year. Take, for example, the Tamil Nadu state elections in 2006. It was the election manifesto which won the election. Likewise, a Budget, if it is communicated well to the people, can help win an election and what is wrong in that? You have done a Budget where there is a lot for the people, for farmers, for the middle class, tax payers, although companies are unhappy. So having done this, why not just go ahead and sign the nuclear deal and tell the Left if it wants to withdraw support, it can go ahead, as you now have something to go to the people with? These are the questions you need to address to the UPA leadership and the Prime Minister. I am only a finance minister. You have introduced many new taxes over the years and now you removed one of them, the banking cash transaction tax. I said so even when I introduced it. It is not a tax revenue raising measure. It is only a source of income issue. I would like to go back to your speech in 1997 when you said I propose to amend certain sections of the Income-Tax Act, to provide for the removal of artificial disallowances, travel and hotel expenses incurred for legitimate business purposes and you said it was a matter of simplification. So using that logic, why would you not do away with the fringe benefit tax, as a matter of simplification? I have explained this a number of times. I can deal with that expenditure as allowable or disallowable expenditure, which means I need discretion in the hands of the assessees. It was the assessing officer who enjoyed the discretion for many years until we brought in FBT. Now the assessing officer has no discretion. If this expenditure is made, you can take a base of 50 per cent or 20 per cent and we tax it. I think this is far better than leaving discretion in the hands of the assessing officer to decide whether the expenditure is allowable or to be disallowed. There is complication in FBT on employee stock options, for which industry might have come to you hundreds of times. I will take you into confidence. The FBT on employee stock options has been worked out in close consultation with industry CFOs. On the personal income-tax front, a tax payer may see halving of his income tax liability. If somebody makes Rs 5 lakh a year, he is earning Rs 40,000 a month. Most probably he lives in a city or a town. Rs 40,000 in a city or a town for a family is not a very large income. Of course, we have given him the tax relief, because compliance has increased, revenues have improved and I think moderation by adjusting the slabs will bring in more revenues. You will lose some of the revenue due to changes in the slabs. A large number of people move on to pay tax so that they can have a larger part of income on their balance-sheet and they can build capital. So when we move the tax slab, an assessee would not stop paying tax. He will still pay the tax that he paid the previous year and even build more capital for himself. So, we will get the revenues. You have assumed that income-tax revenue will climb by 18 per cent in 2008-09. It is a very reasonable assumption. People paying tax will continue to pay tax. They will simply comply better and I do not want to say anything more. They have been very nice to the Government in the past few years. Why should I say anything unkind about tax payers? Compliance will improve and I am sure everybody will comply better and we will get the revenues. That is our assumption and that is our assessment of the situation. There is no reason to assume that direct taxes will not grow at the same rate as this year. That is the question I have on corporation tax, because the trend in corporate profits shows a clear slowdown and is now running at around 15 per cent. Yet you assume a more than 20 per cent increase in corporation tax next year? I expect the demand to push up corporate toplines as well as bottomlines. There are signs that the global economy may slow down. Is it time to ensure that India keeps away from it by taking some measures? I said so in my speech that there is a slowdown especially in the consumer goods, and more particularly in consumer durables. I have identified various sectors - cars, two-wheelers, three-wheelers, paper and we have even cut taxes for buses and chasses. What about the corporation tax rate? Companies are doing well. They are making good profits. They are paying good taxes and it still works out to about 22 to 23 per cent effective tax rate for all companies. There is no reason to tinker with it this year. Why fix something which is not broken? You have been listing tax concessions that the government gives away. Would it not make sense to drop the nominal rate and remove some of the concessions? If you can get me agreement from the three chiefs of the chambers of commerce on which concessions can be removed, I will be very happy to do that. Every exemption provision has a lobby behind it. Let us now turn to the biggest announcement of the Budget, the farm loan waiver scheme. One of the questions is that it is meant only for those whose loans are overdue. But what about those who have sold their jewellery, land and have actually repaid the loans but will not get the benefit? So, what can I do about it? See it is always easy to pit one against the other. People will say what about those who borrowed from moneylenders. There is nothing I can do about it. There is no quantification of that
BUDGET 2008-09 IMPACT DAY-2 No repayment of interest on outstanding loans. The Rs 60,000 crore farm debt waiver and relief package announced in the Budget may not be just in the form of special securities issued by the government, but involve actual money being reimbursed to them. The banks may have to forgo all interest on the outstanding debt amount. The package is only aimed at recovering the principal amount of the loans extended to nearly 40 million small and marginal farmers across the country. In addition, farmers availing of the loan waiver and relief package may have to agree to some conditions, including committing to not seeking debt relief again for a fixed period of time. The banks will be reimbursed over three years from June 30, 2008. In effect, the Rs 60,000 crore may be given in at least three annual tranches. Similarly, the bond component may also be spread in tranches till 2011. Senior government officials told Business Standard that the impression that public sector banks will lose out due to the debt waiver is misplaced. "Banks will actually get strengthened as they now stand to get back at least their principal amount, which otherwise is currently shown as bad debt on their balance sheet. The additional liquidity will help them', he said. However, officials said that the exact details of the debt waiver programme, the biggest hand-out in India's history, will take some time. "There are several options (to compensate banks without burdening the fiscal). We have four months to work that out. The details will be finalised', they added. The rationale for June 30, 2008 being set as the deadline for implantation of the debt waiver and relief scheme is that the loans had to be cleared by that date. The scheme applies to loans disbursed by scheduled commercial banks, regional rural banks and co-operative credit institutions up to March 31, 2007 and overdue as on December 31, 2007. Also read on Page 2: Sharad Pawar asks farmers not to repay money-lenders
DAY-2 BUDGET 2008-09 IMPACT/ OIL AND GAS The exclusion of petroleum and natural gas from the broad category of "mineral oil' has put players in the oil and gas sector in a tizzy. Producers of oil and gas and refiners of crude oil were claiming an income tax exemption under Section 80-IB (9). The Budget proposes an amendment to this section, which says "mineral oil does not include petroleum and natural gas'. ONGC, the country's largest oil and gas production company, is estimated to save close to Rs 4,000 crore annually through this window. Companies slated to begin oil and gas production were planning to seek tax exemptions under this provision. "There is just no clarity on the issue. It contradicts commitments made under Nelp agreements. We will be formally seeking a clarification from the finance ministry,' said a senior official with Reliance Industries.
P. Chidambaram Finance Minister P. Chidambaram on Saturday conceded that the challenge thrown to Opposition members who were dubbing the Rs. 60,000-crore farm loan waiver programme proposed in the Union Budget for 2008-09 as an election sop "to stand up and be counted and not duck the issue' was, in fact, a political one. "It is
Upbeat after the loan waiver for farmers, Union Agriculture Minister Sharad Pawar on Saturday said there was no hurry to hold general elections. Denying that the loan waiver was meant as a pre-poll move, he told reporters, "Let us stay in power for another 14 to 15 months.'
The Budget has evoked mostly a positive response from the automobile industry. About large cars: The General Motors India President, Mr Karl Slym, has said the company expected duty reductions for all types of cars. "Generally, it is all right. We have heard about national highways programme but we are yet to get the details. Large cars (which attract excise duty) at 24 per cent are left out. That is a bit of disappointment.' Positive for the sector: Mr Baba Kalyani, Chairman and Managing Director of auto-parts company Bharat Forge said input cost reduction and lower project import duties are a positive for the sector. "Scrap duty has been an area of concern for the auto component industry and (the fact) that this has been reduced is also good news,' he said. Not hurting: The Sona's group's Chairman and Managing Director, Mr Surinder Kapur, termed the Budget an election year Budget but one which had not hurt the industry. Using-up stocks: While lauding the proposals, the Kinetic Group's Chairman, Mr Arun Firodia, said dealers have stocks purchased at a higher rate of excise duty. When these stocks are exhausted there would be a reduction in prices, he said. Rekindling interest: Mr Ajit Rai, Managing Director of Suprajit Engineering, which makes auto components, said the duty reductions will rekindle consumer interest to buy cars. He said reduction in customs duty on scrap should moderate price increases in steel and aluminium, which has seen a big run up. Softening effect on input cost: Mr V. Mahadevan, Managing Director of Ennore Foundries, said the duty cuts will have a positive impact on the growth of the manufacturing industries. "Removal of custom duty on scrap import will have a softening effect on the input cost of raw materials,' he said. Demand trigger: The Managing Director of Aditya Auto Products & Engineering Pvt Ltd, Mr C. Jayaraman, said the duty reduction would not help the auto component industry directly, since the savings have to be passed on to the customers immediately. Small car hub: The Managing Director of Liners India Ltd, Mr S. Ganesh, pointed out that the Budget was on the same lines of the Automotive Mission Policy and the country was set to become a major hub for small cars.
The Union budget's proposal for clearing the indebtedness of small and marginal farmers is ad hoc. It does not aim at removing the root cause of farmers' deprivation, which is lack of remunerative price for their produce, Subramanian Swamy, Janata Party president said. Describing the budget as "hotch-potch retrograde,' Dr. Swamy said it lacked vision, strategy of reforms or direction. The claims of the Finance Minister on accelerating growth in gross domestic product, output of food grains, institutional credit for agriculture and performance under the Bharat Nirman were misleading as the Economic Survey 2007-2008 revealed the contrary. Besides, "there is no long-term scheme for desperate farmers committing suicide, salaried persons "suffering from inflation,' small and medium industries "suffocated' by globalisation and for stabilising the "volatile' stock market.
They are indebted to moneylenders and middlemen, and pay huge interest Finance Minister P. Chidambaram on Friday unveiled a Rs.60,000-crore debt waiver and debt relief scheme for four crore small, marginal farmers and other institutional loanee farmers. But his proposals did not indicate any provision in the Agriculture Ministry's budgetary allocation, nor was there any explanation on resource mobilisation for the one-time waiver. The Minister later said the government would provide the banking sector liquidity, equivalent to the amount being written off, over three years. The budget ignored 42.3 per cent farmers in the informal sector who are indebted to moneylenders and middlemen and pay phenomenal rates of interest. Their debt stood at Rs. 48,000 crore in 2003 and a majority of farmers who committed suicide borrowed from the informal sector after becoming defaulters in the banking system. No new scheme Nor has any new scheme been announced in this year's agriculture budget. In fact, there have been cuts in the allocations for the National Crop Insurance Scheme and the pilot weather-based crop insurance scheme. At the same time, the Minister did not give in to the wide-scale demand for reduction in the institutional interest rate on farm loans from seven to four per cent. Announcing the never-before debt waiver scheme, Mr. Chidambaram said it was a measure of expressing the nation's gratitude to the farming community. All agricultural loans disbursed by scheduled commercial banks, regional rural banks and cooperative credit institutions up to March 31, 2007 and overdue as on December 31, 2007 will be covered under the scheme. For small and marginal farmers with a holding of up to two hectares, there will be a complete waiver of all loans that were overdue on December 31, 2007 and which remained unpaid till February 29, 2008. OTS for others In respect of other farmers, there will be a one-time settlement (OTS) scheme for all loans that were overdue on December 31, 2007 and which remained unpaid till February 29, 2008. Under the OTS, a 25 per cent rebate will be given against payment of the balance of 75 per cent. The agricultural loans restructured and rescheduled by banks in 2004 and 2006 through special packages and other loans rescheduled in the normal course as per the reserve Bank of India guidelines will also be eligible for either waiver or the OTS on the same pattern. The total value of the overdue loans being waived is estimated at Rs. 50,000 crore and the OTS relief, at Rs. 10,000 crore. Over three crore small and marginal farmers and about one crore other farmers will benefit from the scheme. The farmers, after being granted debt waiver or on signing an agreement for OTS relief, will be entitled to fresh loans from banks in accordance with normal rules
As the UPA government grapples to step up spending on education to 6 per cent of GDP, a commitment made in its governance agenda, a key Finance Ministry official has said accent on primary education will not yield results if not complemented by focus on secondary schooling. Sarva Shiksha Abhiyan (SSA) tantamounts to "fooling ourselves... It (focus) should go to secondary education as well,' Adviser to Finance Minister Shubhashis Gangopadhyay said at a discussion on Budget 2008-09 organised by the Centre for Budget and Governance Accountability here yesterday. SSA is the government's flagship programme for universalisation of primary education implemented in partnership with states. The UPA, in its National Common Minimum Programme, had pledged to raise spending on education to 6 per cent of GDP and at least spend half this amount on primary and secondary sectors. "Whether it is 6 per cent or 8 per cent or 10 per cent. These are just talking points,' Gangopadhyay said, adding that unless the spending gives the desired results it made no sense to talk about percentage alone. He was responding to a query whether the government should revisit its commitment to spend 6 per cent on education, considering the fact that the country's Gross Domestic Product has grown by a robust 8.8 per cent in the last four years. According to the Economic Survey for 2007-08, the government has made a provision of Rs 10,671 crore for SSA. Raising expenditure on education to 6 per cent of GDP was a goal set in 1948 by the Kothari Commission, and reiterated over and again by the National Policy on Education, but successive governments are yet to fulfil it. "You need to spend a minimum of 8 per cent of GDP for education (considering the GDP expansion),' Economist Jayati Ghosh, who was part of an official committee that looked at spending requirement for education, said. "It is very very clear you need very significant expansion. Forget the percentages,' she said, adding that if any government has to really look at meeting the minimum goal on education sector, it has to double the spending. Panelists at the discussion said spending on education has been declining. During the NDA regime, it was 3.6 per cent of GDP and has fallen to 3 per cent now. According to the Economic Survey 2007-08, the achievements under SSA up to September 30, 2007, include construction of 170,320 school buildings, 713,179 additional classrooms, 172,381 drinking water facilities, construction of 218,075 toilets, supply of free text books to 6.64 crore children and appointment of 810,000 teachers, besides opening of 186,985 (till March 31, 2007) new schools. Finance Minister P Chidambaram, in his Budget speech, too had said the focus of SSA will shift from access and infrastructure at the primary level to enhancing retention; improving quality of learning; and ensuring access to upper primary classes. He proposed to increase the total allocation to education sector by 20 per cent from Rs 28,674 crore in 2007-08 to Rs 34,400 crore in 2008-09. Of this, SSA will be provided Rs 13,100 crore.
