labels: governance, union budget 2006
Some reflections on what this budget should aim to achievenews
27 February 2006

World trade in food products, seafood, herbal products and flowers is a whopping $395 billion. Logically, we ought to have at least a 20-per cent share in this huge market because India possess 20 per cent of the world's irrigated land resources! And, also because the country has substantial agricultural strengths such as fertile land, up to 10 months of sunshine, an average rainfall of over 1000mm and an extremely rich biodiversity. We should leverage these ''natural'' advantages and focus on exports of a variety of processed food, seafood, herbal products and flowers.

Farmers need infrastructure support to break away from the grip of the money lenders and middlemen. This nexus controls the rates at which finance is made available to the prices which farmers should receive for their produce. Thriving agri-businesses within easy reach of farmers would help them get more remunerative prices.

To bring about the development of agribusiness units, initially tax incentives and exemptions from income tax, sales tax and excise duty can help. Other irritants to the development of an active agribusiness sector, like outdated laws including the Essential Commodities Act, Agriculture Produce Market Committee (APMC) Act, etc, ought to be removed or at least revised. Free movement of produce across state borders should be permitted and the whole country should be allowed to function as one common market. Rural India can then become an agribusiness powerhouse to the world.

Because of past resource scarcity, the country today is starved of modern infrastructure. Bringing better connectivity to farmers and ensuring efficiency in conducting trade and commerce requires infrastructure to ensure efficient movement of goods and people. Despite the remarkable development efforts of the past, India in 2006 is still starved of enough expressways, highways, bridges, fly-overs, tunnels, link roads, railways, ports, airports, to ensure swift and timely movement.

Innovative financing like providing incentives to the parallel economy to invest in infrastructure bonds, floated by infrastructure companies, could help beef-up financing for infrastructure. Those with concealed or unaccounted funds could be provided the incentive to release their money in to the mainstream by providing them immunity from prosecution or questioning them about the source of their funds. Long-term tax exemptions for infrastructure companies, too would help hasten the process of rapid infrastructure development since infrastructure needs a long gestation period.

Ironically, while the country is starved for funds to finance infrastructure, ironically, India''s $146-billion worth of Forex Reserves reserve is currently invested in US Treasury Bonds to finance infrastructure in the US! Moreover, we lose 2 to 3 per cent on the lower interest on these low-yield bonds. These reserves should be used to finance infrastructure in India even if the surplus liquidity from the forex reserves being injected in the monetary system creates some inflationary pressures.

We can also attract FDI to finance infrastructure and also bring in new technologies and expertise, too. And, with the large forex reserves lying abroad at a low interest rate, we are well placed to offer repayment guarantees, as well.

China owes its export performance to SEZs, which attract FDI in manufacturing, ensures ready market access and creates jobs for local labour. Manufacturing has a 72 per cent share in world trade. With our 30 - 35 per cent cost advantage in manufacturing, over the US or Europe, we should aggressively aim to keep improving our share in global manufacturing.

As a developing country we cannot skip the manufacturing stage and try to sustain the economy only through a services economy. This sector holds great employment potential and developing SEZs should be encouraged. The SEZ bill has been passed only recently and their development now needs to be put on the fast track to ensure rapid development of the identified zones. SEZs should be granted single window clearances to cut down time on procedural lags to just 90 days. Customs duty, excise, VAT and IT exemptions and flexible labour laws would help attract investment in these zones.

The recent skyrocketing of international crude oil prices coupled with our dependence on imports for 70 per cent of our requirements urgently demands the development of alternate fuels like bio gas, ethanol and bio diesel to offset the country''s dependence on imported fuels to cater to our growing energy needs. Cultivation of plants capable of yielding alternate fuels, will itself create new rural employment opportunities, improve spending power in the villages and expand consumer markets in addition to cutting down our dependence on fuel imports.

Announcing a bio energy policy in the budget and according it the status of infrastructure will go a long way in addressing rural employment and energy self-sufficiency. If the budget succeeds in providing a thrust to these four areas, it would be on course to setting India on a virtuous growth path.


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Some reflections on what this budget should aim to achieve