Of farmers and pay hikes | business | Hindustan Times
Today in New Delhi, India
Aug 24, 2017-Thursday
-°C
New Delhi
  • Humidity
    -
  • Wind
    -

Of farmers and pay hikes

At first sight, it appears that the cost will be borne by the banking system rather than the budget, writes Sanjeev Sanyal.

business Updated: Mar 02, 2008 21:52 IST

The two most interesting aspects of the Central Government Budget announcements for 2008/09 include one item that is not strictly-speaking a part of the Budget and another that we cannot yet quantify. The first is the Rs 600 billion worth of farmer loan waivers announced by the finance minister.

At first sight, it appears that the cost will be borne by the banking system rather than the budget. The second is the likely increases in civil service pay that will follow the Pay Commission's recommendations.

If one ignores these two issues, the rest of the budget is quite blameless. One could quibble about changes in certain import tariffs or the hike in short-term capital gains tax, but one cannot quarrel with the apparent fall in the fiscal deficit to 2.5 per cent of GDP (with a primary surplus to boot).

The farmer loan waiver is a more difficult issue. No one argues that the rural sector should not be helped – India is now richer and should help those who are being left behind. The issue is whether or not the loan waiver is the best strategy.

Clearly there are problems of ‘moral hazard’ that could affect the country's credit culture.

(Sanjeev Sanyal is the Regional Chief Economist, Deutsche Bank)