Indian minister asks for billions to help poor

Posted in India | 01-Mar-07 | Author: Anand Giridharadas and Amelia | Source: International Herald Tribune

People at the stock exchange in Mumbai watching the budget address on Wednesday.

MUMBAI: Buoyed by a strong economy, India's finance minister called on Wednesday for billions of dollars in investment in agriculture and education to spread the benefits of growth more evenly.

In an annual budget address, Finance Minister Palaniappan Chidambaram proposed billions of dollars in spending to buoy the ailing rural economy and to open access to quality education, a dearth of which has hindered India's thriving outsourcing industry.

Answering calls for greater investment by Indian outsourcers and multinationals, like Microsoft, which have vast operations here, Chidambaram proposed to raise federal spending on education by 34 percent, to $7.3 billion, including a doubling of outlays on secondary education. He proposed to raise health care spending by 22 percent, to $3.4 billion, and to inject an extra $1.3 billion into Bharat Nirman, a New Deal- style effort to build rural infrastructure like roads and telephone lines.

"Education and health care are the prime imperatives as far as this budget is concerned," Prime Minister Manmohan Singh said after the speech.

By focusing on the nation's grinding poverty, the budget proposal suggested that the government, led by the Congress party, was already turning its eye toward the 2009 general election, said Kuldip Nayar, a veteran political commentator in Delhi. That emphasis appeared to come at the expense of some of the business-friendly measures that industry had hoped for.

A widely expected corporate tax cut was not included in the package, which included new taxes on dividend payments, office space rentals and the profits of information technology firms.

Infosys, the Indian software giant, immediately announced that its margins would fall by 1.5 percent under the proposed tax regime.

"The finance minister is making a simple statement: 'I'm happy companies are making money, but give me more of that,'" Uday Kotak, the vice chairman and managing director of Kotak Mahindra Bank, one of India's largest financial houses, said on a televised discussion by business leaders.

The benchmark Sensex index of the Bombay Stock Exchange, which had fallen about 300 points before the speech as part of the worldwide stock- market tumble, plunged an additional 240 points, closing at 12,938.09, down 4 percent from the start of trading.

Some investors and economists interpreted the emphasis on poverty as a signal that economic liberalization was

sliding ever further down the priority list.

Ifzal Ali, the chief economist of the Asian Development Bank, in Manila, and one of Asia's vocal champions of anti-poverty efforts, was nevertheless gloomy about what he said was the lack of measures to sustain high growth rates.

"A disappointing feature of the budget speech is the omission of reforms for labor markets, privatization, financial sector, foreign direct investment caps, etc., which are critically needed to improve the business and investment climate," Ali said by e-mail after the speech.

He added: "Have reforms gone into a deep slumber?"

Chidambaram used the speech to propose a multifront attack on inflation, which has crept above 6 percent in recent weeks. Declaring inflation to be a grave threat to the average Indian, the government has recently lifted short- term interest rates, tightened the money supply and curbed duties on essential commodities.

The finance minister announced a handful of additional tax cuts on Wednesday intended to further dampen inflation, including the reduction of peak import tariffs on nonagricultural goods to 10 percent from 12.5 percent. The government also announced a ban on new futures contracts for wheat and rice on commodities exchanges, fearing that speculative investing is helping to inflate prices.

But a major thrust of Chidambaram's speech was on the need to curb inflation by addressing the bane of the Indian economy: 115 million farming families, dispersed among more than 600,000 villages, whom growth has left behind. They are unable to increase their yields at the pace at which urban consumption is growing, causing prices to rise.

The farm sector, which employs two- thirds of the country but accounts for just one-fifth of the economy, has grown at slightly more than 2 percent a year for the last several years.

That is a far cry from the 9.2 percent growth that is projected for the broader economy in the fiscal year ending March 31.

"Everything else can wait, but not agriculture," he added, quoting the first Indian prime minister, Jawaharlal Nehru.

Chidambaram proposed to increase bank credit to induct five million more farmers into the formal banking system, and away from the murky world of


He proposed to extend death and disability insurance to eight million families of landless villagers.

Chidambaram was at pains to emphasize the government's commitment to its vision of "inclusive growth," especially given election defeats on Tuesday in two northern states — defeats that Singh, the prime minister, conceded were linked to anger over high prices.

Chidambaram devoted the first 40 minutes of his 90-minute speech to outlining how his government proposed to widen opportunity, focusing not only on agriculture but also on education.

He introduced plans for more and better training in vocational and technical institutes, along with plans to build 500,000 more classrooms and employ another 200,000 teachers.

A proposed scholarship program would pay for 100,000 students to continue their education beyond the age of 11, to curb the high rate of dropouts.

But criticism emerged instantly from business groups that said the budget focused too heavily on the poor — and, contrarily, from left-of-center economists who said it was not pro-poor enough.

Jayati Ghosh, an economist at Jawaharlal Nehru University in Delhi, said too little money would go to health care, the reversal of food price increases and new employment schemes.

"This was a historic opportunity," she said. "Tax revenues are up, the economy is buoyant. There was a real chance to allocate money to these critical areas. That opportunity wasn't taken."

Amelia Gentleman reported from New Delhi.