Identifier
Created
Classification
Origin
07KOLKATA68
2007-02-23 13:34:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Consulate Kolkata
Cable title:  

LEFT PARTIES TO PUSH THEIR AGENDA AND CHALLENGE UPA DURING

Tags:  ECON EFIN EINV ETRD ENRG EAGR PGOV PREL IN 
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VZCZCXRO5998
OO RUEHBI RUEHCI
DE RUEHCI #0068/01 0541334
ZNR UUUUU ZZH
O 231334Z FEB 07
FM AMCONSUL KOLKATA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1425
INFO RHEHAAA/WHITE HOUSE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 1329
RUEHBI/AMCONSUL MUMBAI PRIORITY 0565
RUEHCG/AMCONSUL CHENNAI PRIORITY 0571
RUEHIL/AMEMBASSY ISLAMABAD 0281
RUEHKA/AMEMBASSY DHAKA 0353
RUEHLM/AMEMBASSY COLOMBO 0144
RUEHBUL/AMEMBASSY KABUL 0038
RUEHKT/AMEMBASSY KATHMANDU 0355
RUEHCI/AMCONSUL KOLKATA 1761
UNCLAS SECTION 01 OF 09 KOLKATA 000068 

SIPDIS

SENSITIVE
SIPDIS

DEPT PASS TO USTR - DHARTWICK/CLILLIENFIELD/AADLER
DEPT PASS TO TREASURY FOR OFFICE OF SOUTH ASIA - ABAUKOL
USDOC FOR 4530/ITA/MAC/OSA/LDROKER/ASTERN

E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRD ENRG EAGR PGOV PREL IN
SUBJECT: LEFT PARTIES TO PUSH THEIR AGENDA AND CHALLENGE UPA DURING
BUDGET SESSION

REF: A) NEW DELHI 00907 B) MUMBAI 00107

UNCLAS SECTION 01 OF 09 KOLKATA 000068

SIPDIS

SENSITIVE
SIPDIS

DEPT PASS TO USTR - DHARTWICK/CLILLIENFIELD/AADLER
DEPT PASS TO TREASURY FOR OFFICE OF SOUTH ASIA - ABAUKOL
USDOC FOR 4530/ITA/MAC/OSA/LDROKER/ASTERN

E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRD ENRG EAGR PGOV PREL IN
SUBJECT: LEFT PARTIES TO PUSH THEIR AGENDA AND CHALLENGE UPA DURING
BUDGET SESSION

REF: A) NEW DELHI 00907 B) MUMBAI 00107


1. (SBU) Summary: India's Parliament's "budget session" opened
on February 23 and is expected to last approximately eight
weeks. During the session, India's Left parties, headed by the
Communist Party of India - Marxist (CPM),plan to challenge the
economic policies of the Congress-dominated United Progressive
Alliance (UPA). The February 21 withdrawal of Samajwadi Party
support to the UPA coalition has decreased the UPA Parliamentary
Majority and increased the political clout of the Left. It will
utilize its improved political position to further block
economic reforms and use concerns about high inflation to call
for expensive financial supports to the agricultural sector.
The Left is propping up the UPA from "outside" and Congress is
more dependent than ever on Left support. As a result, the pace
of economic liberalization will continue to be slow. Further,
the UPA will be hard-pressed to resist populist measures,
although Delhi contacts think Finance Minister Chidambaram will
adhere to deficit reduction targets (Ref A). The Left's budget
proposals to the Finance Minister, provided to post by a local
CPM member, are included at the end of the cable. End Summary.

--------------
"Pro-People" Measures
--------------

2. (U) The February 21 withdrawal of Samajwadi Party (SP)
support to the UPA from outside of the coalition has increased
the political capacity and bargaining power of the Left parties.
Although not part of the UPA, Left support "from outside"
provides the margin that keeps the coalition in power. The
2007-08 budget session started on February 23, and the Left
plans to use the session to pursue its policy goals. These

include: further expenditures to the agriculture and social
sectors, increased taxation on corporate profits and capital
gains, and greater protectionist measures including tariffs and
price controls. (Note: investment in agriculture and reduction
in corporate exemptions are consistent with stated UPA
intentions; higher tariffs and controls are not. End note.)


3. (U) The bulk of the Left's plans fall under what it calls
"pro-people expenditures." The Left wants to protect Indian
agriculture with a mechanism that would automatically increase
tariffs should prices of agricultural products crash. The Left
argues that Indian agriculture is in a state of crisis, as
"shortages of food items like wheat, sugar and pulses have
arisen is a direct fallout of the sustained neglect of
agriculture in general and the food economy in particular." The
Left will push other measures for protection of farmers as well,
including:

-- Creation of a fund to assist farmers affected by crop losses.

-- Reduction of interest rate for farm loans to 4%.

-- Implementation of an "all-India Debt survey" and "appropriate
measures" for debt relief, including a waiver of outstanding
debts for farmers in distress.

-- Creation of a price stabilization fund for agricultural
commodities.

-- Revamping of Agricultural Extension services through the
establishment of farm schools and village knowledge centers
across the country.

-- Expansion of crop insurance to the entire country and to
include coverage of all crops, with greater flexibility to
respond to local needs of farmers.

-- An Increase of the minimum support price policy, which
guarantees farmers a minimum price for crops such as wheat, to
include additional crops in additional regions of the country.

-- Stopping the price rise of essential commodities.
Strengthening procurement and increasing agricultural
production. Universalizing the Public Distribution System by

KOLKATA 00000068 002 OF 009


increasing food subsidies.

-- Increasing customs duties on sectors hit by cheap imports.
Reduction of excise duties for Small Scale Industries.

-- Ensuring that at least 50% of total agricultural credit goes
to small and marginal farmers.

These policies would also result in a substantial increase in
outlays for agriculture-related activities, such as irrigation
and flood control, also called for in the Planning Commission's
Eleventh Five-Year Plan, approved by the Prime Minister.


4. (U) The Left's "pro-people" measures also touch on social
sector issues such as education and healthcare. The Left plan
includes increasing spending on health to 2-3% of GDP, ensuring
social security for workers in the unorganized sector,
universalizing Integrated Child Development Services (ICDS) and
providing a legal guarantee of at least 100 days of employment
for at least one able-bodied person in every rural, urban poor
and lower-middle class household. (Note: All of these goals
were sought by the Left in the UPA-adopted Common Minimum
Program, so the Left will probably push for faster
implementation and funding. End Note.) Other proposals include:

-- Bringing down prices of petrol and diesel by restructuring
the duty structure on petroleum products.

-- Extending the National Rural Employment Generation Act to 200
more districts. Allocating more funds for rural employment and
infrastructure development.

-- Increasing expenditure on education to 6% of GDP. Funding
expansion of education at all levels.

-- Allocating funds to extend social security coverage to
unorganized workers.

-- Universalizing the ICDS. Introducing a gender component in
all development programs and requiring that at least one-third
of all beneficiaries be women.

-- Commencing a national program for minor irrigation of lands
owned by dalits and adivasis. Redistributing land to landless
families.

-- Allocating 15% of total resources on all development programs
for minorities, especially Muslims. Ensuring a 15% of priority
sector lending target for minorities.

-- Reintroducing a standard deduction for salaried employees.

-- Enhancing the health allowance for pensioners and allocation
on widow pensions.

--------------
Putting the Screws to Corporations
--------------


5. (U) The Left believes that the government and central bank's
recent measures to combat inflation, including interest rate
hikes and import duty reductions, (reftel b) are insufficient,
and are pushing for reintroduction of a long-term capital gains
tax of 15% as well as an increase in the rate of the Securities
Transaction tax to a flat 0.1% on trading of financial
instruments. Characterizing India's current 10% short-term
capital gains tax and zero long-term capital gains tax (compared
to the more than 30% rate of corporate tax which overwhelmingly
affects Indian corporations) as, "an open invitation for
reckless speculative activities," the Left can also play the
nationalist card by claiming to provide Indian corporations a
level playing field with foreign investors.


6. (U) They can also fan anti-corporate sentiment by arguing
that, "corporate tax exemptions in a context where corporate

KOLKATA 00000068 003 OF 009


profits have increased sharply in the past few years, besides
being morally unjustifiable makes little economic sense." This
approach, which calls for elimination of tax breaks including
those for SEZs will play well with the Left's traditional vote
bank and the lower economic classes. (Note: Finance Minister
Chidambaram has also considered the removal of corporate tax
exemptions and has argued against the provision of tax breaks in
SEZs. End Note.)

--------------
Comment
--------------


7. (SBU) The growth of the Left's political influence at the
Center enables it to more effectively push its ideological
agenda and to continue to block economic reforms. The Left is
looking to the upcoming parliamentary debate to compel the UPA
to increase spending in rural areas where the Left seeks to make
future electoral gains. In effect, the Left hopes to write the
check that the UPA will have to cash. The UPA has already
indicated its plans to increase agricultural spending, but the
clash is likely to be over how that spending occurs. While
certainly more needs to be done to help India's destitute rural
masses, in India, populist big-budget government projects, like
those envisioned by the Left and others in the coalition, have a
dismal record of meeting the needs of India's poor and have
perpetuated a system of political patronage and graft. The Left
is also using inflation as another stick to hit the UPA. In a
reflection of the pure political opportunism of the Left's
approach, the measures they recommend, such as increasing
corporate taxes and tariffs on imports, will actually exacerbate
inflation by increasing costs. The Left has successfully
limited UPA economic reforms, such as retaining caps on FDI
investment in insurance and restrictions on FDI in retail, and
preventing privatization of public entities. The Left is now
further emboldened to prevent further opening of the economy to
private and foreign players. In addition, while the Left is
unlikely to affect ongoing trade negotiations with ASEAN or in
the WTO, it could hamper implementing legislation down the road.
End Comment.


8. (U) This message was coordinated with Embassy New Delhi.

-------------- --------------
--------------
(SBU) BEGIN LEFT PARTIES' PROPOSAL FOR BUDGET 2007-08
-------------- --------------
--------------

The Importance of Budget 2007-08

Budget 2007-08 would be the third Budget of the UPA Government.
The Budget is going to be presented at a time when the people of
India are suffering due to rising prices of essential
commodities, especially food items. The 6% plus inflation rate
surely cannot be justified by the 8% GDP growth rate being
experienced in India today, since developing countries like
China have succeeded in holding inflation at much lower levels
despite having a higher GDP growth rate than India. The shortage
in food items like wheat, sugar and pulses that has arisen is a
direct fallout of the sustained neglect that agriculture in
general and the food economy in particular has suffered since
the policies of liberalization were initiated in the early
1990s. Being the first Budget of the Eleventh Five Year Plan,
Budget 2007-08 should accord topmost priority to addressing
issues concerning agriculture and food management.

The Approach Paper to the Eleventh Plan, as approved by the
National Development Council, has also set several important
objectives reflecting the commitments made in the National
Common Minimum Programme. There are at least six areas in which
specific commitments have been made in the NCMP and the
fulfillment of which require substantial fund allocation. These
include increasing public investment in agriculture, spending 6%
of GDP on education, spending 2-3% of GDP on health, ensuring

KOLKATA 00000068 004 OF 009


social security for workers in the unorganized sector,
universalization of the ICDS and providing a legal guarantee for
at least 100 days of employment for at least one able-bodied
person in every rural, urban poor and lower-middle class
household. Besides, there are other crucial commitments made in
the NCMP like ensuring fair and remunerative prices for farmers,
strengthening the Public Distribution System and moving towards
universal food security. Budget 2007-08 should take decisive
steps in the direction of meeting these commitments through
adequate outlays for the Central Plan. The Budget should also
demonstrate the political will to mobilise resources, primarily
through taxation of burgeoning corporate profits, capital gains
and wealth. The seriousness, which the UPA Government attaches
to the NCMP, would be assessed in terms of the extent to which
Budget 2007-08 meets these objectives.

Central Plan Outlay and Resource Mobilization


1. The Approach Paper to the Eleventh Plan has called for
an increase of budgetary resources for the Plan by 2.5% of GDP,
to be attained by the end of the Plan period. While questions
remain whether the crucial NCMP commitments mentioned above can
be fulfilled with the amount of resources envisaged in the
Approach Paper, a serious effort in that direction needs to be
made in Budget 2007-08 itself. The Gross Budgetary Support for
the Plan should be increased by at least 1% of GDP in Budget
2007-08. This increase should be over and above a 14% increase
in Plan expenditure from what was incurred in Budget 2006-07, in
keeping with the current growth rate of nominal GDP. In nominal
terms this would imply increasing Plan expenditure, which was
estimated at Rs. 172728 crore in Budget 2006-07, by over Rs
55,000 crore.


2. Resources for such an increase in Plan expenditure is
not difficult to find. According to the Note on tax Expenditures
circulated in the meeting of the Consultative Committee attached
to the Ministry of Finance held in November 2006, total tax
exemptions/concessions granted in the year 2004-05 stood at Rs
176073 crores out of which corporate tax exemptions alone
accounted for Rs 57852 crores. While the scheduled corporate tax
rate is 33.66% including the surcharge and the education cess,
it has been recently reported that the effective tax rate for
the corporate sector in 2005-06 has only been around 16.5-17%,
due to the myriad tax breaks. Continuing with such corporate tax
exemptions in a context where corporate profits have increased
sharply in the past few years, besides being morally
unjustifiable makes little economic sense. Doing away with the
myriad corporate tax exemptions, which are nothing but subsidies
to the corporates, would be sufficient to finance the entire
increase in Plan expenditure that is being sought. The
Amendments to the SEZ Act suggested by the Left Parties in view
of the proliferation of SEZ proposals should also be brought
about immediately in order to eliminate the undeserving tax
concessions to the SEZs. Tax exemptions for sectors like IT,
which have been registering record profits in recent times, have
also outlived their economic rationale.


3. The reintroduction of the long-term capital gains tax
and increasing the rate of the Securities Transaction Tax should
be seriously considered, in view of the speculative excesses
currently being witnessed in the financial markets. The entire
exercise of differentiating between traders and investors among
the FIIs, currently being undertaken by the Finance Ministry, is
meaningless. Why should the effective tax rate of any FII be
substantially lower than what is being paid by Indian
corporates? The dismally low rate of capital gains taxation
currently prevailing in the country, with a 10% short-term
capital gains tax and zero long-term capital gains tax as
compared to above 30% rate of corporate tax, is an open
invitation for reckless speculative activities, which stifle
genuine entrepreneurship. Reimposition of a long-term capital
gains tax of 15% and a flat STT rate of 0.1% on the trading in
all financial instruments, including equities, bonds,
derivatives and government securities, would not only remove the
anomaly but also contribute to the resource mobilisation effort.

KOLKATA 00000068 005 OF 009




4. The list of Indian billionaires show that within one
year, i.e. between August 2005 to August 2006, the wealth of the
richest Indian grew by over Rs. 32000 crore, which is nearly 1%
of India's GDP. One wonders why in such a backdrop, the wealth
tax collection of the Government remained at a paltry Rs. 265
crore in 2005-06, and exactly the same amount was budgeted for
2006-07. The Wealth tax rate should be increased from 1% to 3%
without further delay and initiatives need to be taken to
broaden the wealth tax base by bringing all the urban as well as
rural crorepatis into the wealth tax net.


5. The obsession with cutting customs duties down to ASEAN
levels with scant regard for its implications for revenue and
adverse impact on domestic industries and agriculture need to be
abandoned. The recent cut in customs duty on a host of items
including cement, metals and chemicals just ahead of the Budget,
was an ill-conceived move. The justification provided for the
move in terms of curbing inflation is not at all convincing,
since consumer price inflation is being mainly driven by primary
articles like food items. These import duty cuts need to be
reversed in Budget 2007-08, at least partially.

Priorities for Pro-People Expenditure in Budget 2007-08

National Commission on Farmers: In view of the continuing crisis
in agriculture, a substantial increase in the Plan outlays for
Agriculture and allied activities and Irrigation and Flood
Control should be made in Budget 2007-08. The recommendations of
the National Commission on Farmers, which should be considered
on an immediate basis, are:

a. Constitution of a Fund to assist farmers affected
by crop losses.

b. Reduction of the interest rate for farm loans to
4%.

c. Undertaking an all-India Debt survey and taking appropriate
measures for debt relief including waiver for those farmers who
are in distress.

d. Creation of a price stabilization fund for
agricultural commodities.

e. Revamping of Agricultural Extension services through the
establishment of farm schools and village knowledge centres
across the country.

f. Expansion of crop Insurance to the entire country and cover
all crops, and with greater flexibility to respond to local
needs of farmers.

Tariff Protection for Agriculture: The Approach Paper to the
Eleventh Plan has also made some significant observations
regarding agriculture: "There have also been too many cases in
recent years when world prices have declined very sharply and
compensating changes in tariffs have been unduly delayed. All
this has lent credence to the view that WTO and globalisation
are against farmers' interests and that the government is no
longer committed to supporting farm prices. Such sentiments
contribute to pessimism about farming, although in fact our
tariff bindings in WTO are in most cases adequate to prevent
prices falling below costs of production through WTO-compatible
interventions...We also need to evolve a clearer understanding
of how best to adjust import tariff to insulate farmers from
collapses in international prices. This may require an internal
mechanism that includes the Commission for Agricultural Costs
and Prices for signaling automatic tariff revision." Budget
2007-08 should put in place a mechanism on the lines suggested
in the Approach paper, whereby automatic tariff revision can be
made in the case of price crashes in agricultural products.

Strengthening Procurement: The management of the food economy
has become a matter of grave concern. Procurement of wheat has

KOLKATA 00000068 006 OF 009


fallen drastically eventually necessitating imports at prices
much above the procurement price paid to Indian farmers. The
NCMP states "Farmers all over the country will receive fair and
remunerative prices". This has clearly not happened so far. The
Minimum Support Price policy has to be extended to more crops as
well as more regions, where production increases are likely to
take place, as has been noted in the Approach Paper to the
Eleventh Plan. Fair prices have to be ensured for the farmers.
This cannot be achieved by allowing private players to replace
the FCI in procurement and storage of foodgrains. Rather, the
FCI needs to be strengthened and procurement operations expanded
through more fund allocation.

Food Security and PDS: No concrete steps have been taken so far
to strengthen the Public Distribution System, let alone moving
towards universal food security as was promised in the NCMP. The
linkage between controversial poverty estimates to allocations
under the BPL quota for the States has been unjust to the poor.
The number of BPL cardholders needs to be increased
substantially besides bringing more items within the purview of
the PDS like pulses, sugar and edible oil. The Antodaya scheme
has to be expanded, especially in tribal areas afflicted by
severe malnutrition. These steps have to be initiated in Budget
2007-08, by increasing food subsidy if necessary.

Rural Credit: Steps should be taken to revive the Regional Rural
Banks and the Cooperative Credit Institutions and expand their
network in order to reverse the trend of dwindling rural bank
branches and increase the flow of credit to the rural poor.
Currently, 13% of the priority sector lending is earmarked for
agriculture. The Government should set norms to ensure that at
least 50% of total agricultural credit goes to the small and
marginal farmers.

Irrigation: Besides starting new irrigation projects, adequate
funds should be allocated to expedite the completion of ongoing
irrigation projects in a time-bound manner. A specific target
should be set in Budget 2007-08 for the completion of some of
the major irrigation projects by the end of the financial year.

NREGA: The Employment Guarantee Scheme has to be extended to 200
more districts in Budget 2007-08. One of the problems
encountered in the implementation of the scheme so far has been
the inadequacy of the works being undertaken, which has not made
it possible to achieve 100 days of guaranteed employment in most
districts. This needs to be corrected at the earliest. Besides,
other wage employment schemes like SGRY should be expanded in
the districts not covered under the NREGA. Increases in outlays
on Bharat Nirman would also help in generating work in the rural
areas.

Education: Expenditure on Education has to increase
substantially in order to meet the commitment of spending 6% of
GDP on education. As the Right to Education has already been
mandated by Article 21A, it is essential to ensure that
sufficient funds are allocated to enable access to good quality
public school education to all children in the country. The
Central Government has to shoulder the major responsibility of
ensuring the Right to Education by making adequate resource
allocation. The proposed change in expenditure sharing on Sarva
Shiksha Abhiyan between the Central and State governments (from
75:25 as is being followed currently to 50:50) that has been
proposed by the Planning Commission, has been strongly opposed
by most of the States in the NDC meeting. This change should not
be made. Additional funds for expanding secondary and higher
education should be generated by increasing the education cess.
Taxpayers do not resent paying the education cess since it
directly contributes to social welfare through expansion of
education in the country.

Health: Expenditure on health has to increase substantially in
order to meet the NCMP target of 2-3% of GDP. The condition of
the primary health centres as well as the hospitals continues to
be pitiable and falls far short of the requirements of the
people. There should be a substantial increase in the outlay for

KOLKATA 00000068 007 OF 009


both urban health programmes and the National Rural Health
Mission in Budget 2007-08. Besides, the UPA Government has to
live up to the promise of creating six AIIMS-type institutions
in different parts of the country.

Social Security for Workers: The proposed Social Security Scheme
for the unorganized sector workers, a crucial commitment made in
the NCMP, is yet to be initiated. Neither has any initiative
been taken to frame a social security framework for agricultural
workers so far. Budget 2007-08 should allocate sufficient funds
for the initiation of these Social Security Schemes.

Towards a Gender-sensitive Budget: Steps should be taken to
fulfill the NCMP commitment of universalising the ICDS. The
emoluments of ICDS workers should also be increased. While the
initiative for Gender Budgeting in Budget 2006-07 was welcome,
the concept was neither conceived nor implemented properly.
Almost the entire Budget of the Ministry of Social Justice and
Empowerment was shown as the gender component of the Budget as
also the entire funds for the ICDS. This inflated the gender
component substantially. What is required is a specified gender
component in all employment generation, poverty alleviation and
other welfare schemes and a gender-based target of 33% of all
beneficiaries to be women. This should be done in Budget
2007-08. A special allocation should also be made for the
implementation of the Domestic Violence Act. Central allocation
for widow pensions should also be increased.

Special Measures for Dalits and Adivasis: Allocations for the
Special Component Plan and the Tribal Sub-Plan should be
increased substantially. Two specific commitments made in the
NCMP related to the welfare of Scheduled Castes and Tribes are
yet to be initiated. These are:

(i) A comprehensive national programme for minor
irrigation of all lands owned by dalits and adivasis.

(ii) Endowing land to landless families through
implementation of land ceiling and land redistribution
legislation.

These programmes should be initiated in Budget 2007-08.
Steps for the Uplift of the Minorities: In the backdrop of the
Sachar Committee findings regarding the condition of the
minorities, especially Muslims, the following steps should be
initiated in Budget 2007-08:

(i) Formulation of a sub-plan for minorities on the lines
of the Special Component Plan and the Tribal Sub-Plan,
allocating 15% of total resources for employment generation,
poverty alleviation and other development programmes for
minorities, especially Muslims

(ii) A special initiative to commence development
activities under Plan programmes on education, health and
housing in the 100 districts with substantial Muslim population
identified by Sachar Committee. In these welfare programmes,
there should be a special focus on Muslim women.

(iii) It should be ensured that 15% of priority sector
lending by banks goes to Muslims.

Other Important Measures
Reduce Petrol and Diesel Prices by Restructuring Duties and
Taxes: In the backdrop of the inflationary build up in the
economy and in view of the significant fall in international oil
prices, a cut in petrol and diesel prices should be brought
about. This can be done without hurting the bottomlines of the
oil companies if Budget 2007-08 takes concrete steps to do away
with the ad valorem duty structure on oil imports and replace it
by specific duties. Further, taxes on the retail price structure
of petrol and diesel should be rationalized and the funds
collected through the oil cess be used to create a Price
Stabilization fund in order to avoid frequent revisions of petro
prices.

KOLKATA 00000068 008 OF 009



Provide Tax-Relief to Salaried Employees and Pensioners: The
withdrawal of standard deduction of salaried employees along
with the raising of the basic income tax exemption limit to Rs
150000 made in Budget 2006-07 have put the salaried employees in
a disadvantageous position compared to businessmen. Businessmen
are able to book expenditures like travel, depreciation etc. as
business activities while salaried employees cannot claim
exemption on account of travel and other related expenses. This
can be corrected through the reintroduction of standard
deduction for salaried employees. Tax relief should be provided
to senior citizens. The health allowance for pensioners who
cannot access the CGHS should be enhanced.

Revise Customs and Excise Duty to Protect Small Industries: The
Tariff liberalization following Free Trade Agreements with
countries like Thailand, Nepal and Sri Lanka have hurt sections
of Indian manufacturers. This is particularly true for the
Indian vanaspati industry, which is facing serious problems
because of cheap imports from Nepal and Sri Lanka. The domestic
rubber producers, especially the cooperatives, are also worried
about cheap imports. The domestic colour TV manufacturers are
being hit by imports from Thailand. Concerns have also been
raised that some Indian producers are routing their produce
through these countries in order to avail duty exemptions.
Budget 2007-08 should address these concerns effectively by
suitably revising customs and excise duties in order to protect
small domestic producers. Besides revising customs duties
upwards in some cases, a reduction of excise duties for Small
Scale Industries in some of the sectors badly hit by import
competition should be considered.

Increase Investment by Central Public Sector Enterprises: A
disturbing trend being noticed over the past few years is the
unwillingness by highly profitable CPSE's to reinvest their
profits and hold on to cash reserves instead. In fact, according
to a recent report, CPSE's in crucial sectors like heavy
engineering, mining, steel, telecommunications, IT and chemicals
have either reduced their investments or have marginally
increased them despite earning huge profits. According to the
data of the Department of Public Enterprises, net investment by
all CPSEs in 2005-06 stood at Rs. 35118 crore only, whereas they
had reserves and surplus worth over Rs. 300000 crore in 2004-05.
Besides clearly showing the pointlessness of any move towards
disinvestment of CPSEs in order to raise resources, this trend
towards underinvestment by CPSEs have given rise to genuine
concerns whether public investment is being held up in order to
create space for private competitors. Budget 2007-08 should
provide clear signals for a massive expansion of investment by
the CPSEs in all the crucial sectors. Announcing the upgradation
of some of the Miniratna PSEs into Navaratnas in the Budget
would have a positive impact on the overall climate of public
sector investment.


Summing-up the Pro-People Measures Suggested for Budget 2007-08

* Increase Plan allocations to meet NCMP commitments. Raise
resources by taxing the corporates and the rich.
*
* Increase public investment in agriculture and irrigation.
Expedite completion of ongoing irrigation works.
*
Reduce interest rate on farm loans for farmers to 4%. Provide
Debt Relief to all debt-stressed farmers. Ensure 50% of priority
sector lending to agriculture goes to small and marginal
farmers.
*
* Check price rise of essential commodities. Strengthen
procurement and increase agricultural production. Universalize
the PDS by increasing food subsidy.
*
* Bring down prices of petrol and diesel by restructuring
the duty structure on petroleum products.
*

KOLKATA 00000068 009 OF 009


* Extend NREGA to 200 more districts. Allocate more funds
for the rural employment and infrastructure development.
*
* Increase expenditure on education to meet 6% of GDP.
Increase education cess to fund expansion of education at all
levels.
*
* Increase expenditure on health to 2-3% of GDP.
*
* Allocate funds to initiate social security scheme for
unorganized workers.
*
* Universalize the ICDS. Introduce gender component in all
development programmes and set gender based target of at least
one-third of total beneficiaries being women.
*
* Commence national programme for minor irrigation of lands
owned by dalits and adivasis. Redistribute land to landless
families.
*
* Formulate sub-Plan allocating 15% of total resources on
all development programmes for minorities, especially Muslims.
Ensure 15% of priority sector lending target for minorities.
*
* Reintroduce standard deduction for salaried employees.
Enhance health allowance for pensioners and allocation on widow
pensions.
*
* Increase customs duties on sectors being hit by cheap
imports. Reduce excise duties for Small Scale Industries.
JARDINE