Loan waiver for farmers will boost economy: FM
Finance Minister P Chidambaram on Saturday defended the 60,000 crore-rupee loan waiver for farmers, saying the plan combined with the tax giveaways and the duty cuts announced in his budget will help keep the economy from flagging.
A day after the budget, Chidambaram told Hindustan Times that the debt relief plan was guided by his government’s commitment to inclusive growth and the need to boost agriculture, which has lately become a drag on the economy. “This government has stood up and has said: Count on us; we are in favour of farmers,” he said in an interview.
The debt relief package cheered the farming community, but critics said it would dent profitability at public sector banks and encourage defaulters.
Many believe the move is aimed to win votes and does not address the real issues affecting agriculture and people living off it. Some opposition parties said the relief was not enough, given the enormity of indebtedness among farmers, which routinely triggers suicides in rural areas.
Chidambaram countered the criticism saying his government had done “what was doable” in the present circumstances. “When we do something which is doable, you can not pitch it against something which is not doable and say: this is bad.”
He said the scheme must be implemented by June 2008, so that farmers could access fresh loans in time for the Kharif crop — sowing for which is around that time.
The loan waiver plan, the biggest takeaway from Budget 2008-09, comes at a time when agricultural growth is estimated to drop to 2.8 percent in the 2007-08 from 3.6 percent in the previous fiscal year.
Besides agriculture, a contraction in the consumer durable sector coupled with a deceleration in other areas of manufacturing has contributed to slowing of the Indian economy in recent quarters. These industries have been hit because of high interest rates and a slump in demand.
Chidambaram said he is confident the trend would be reversed in the coming months and the economy would grow close to 9 per cent for another year. “We have been right in 2006-07, we have been right in 2007-08. So, we can start 2008-09 assuming that we will be right,” he said.
“The cuts in excise duties, deeper cuts in some manufactured products and leaving more money in the pockets of tax payers, all of these will provide stimulus to consumption and demand.”
In his budget, the finance minister rejigged the income tax slabs in a manner that an taxpayer could gain between 4,000 rupees and 55,000 rupees annually, depending on his income and where he parks his savings.
Chidambaram also reduced duties on automobiles and a host of other goods and cut the CENVAT rate from 16 percent to 14 percent, although some said that was not enough.
“We have not only cut the excise duties, we have also boosted demand side by leaving more money in the tax payers’ pockets. You have to read both together,” Chidambaram said. “16 to 14 is a deep enough cut.”
The duty cuts and tax giveaways, however, have added to fears about higher inflation, as these might create a situation of too much money chasing few goods.
“If capacity does not increase, your question certainly will be relevant,” the finance minister said responding to concerns about inflation.
“But, capacity is being added. Investment boom is still in tact. Therefore, if demand rises manufacturing sector will produce the goods and services,” he said. “There should be no cause for inflationary pressures, but if there are inflationary pressures we will take steps to moderate that inflation.”
A major concern relates to the Pay Commission report, which may translate into huge arrear payments to government employees and add to liquidity in the system.
He did not allocate any money for this in the budget. Some analysts say that could be because the government may want to calibrate the outgo depending on where inflation stands. Chidambaram evaded questions on the subject saying: “we will take a view on the pay commission once the report comes.”