This is the traditional pre-budget period when the media and businessmen make it their mission to ferret out advance information on budget proposals. The new trend towards increased transparency in the budget making has fortunately ensured that there are fewer ‘trial balloons’ floated in the media and more open discussions with various interest groups.
For instance, Finance Minister P.Chidambaram’s meeting with finance heads of various states and the stress on certain sectors are an indicator of government thinking and possible action. The repeated emphasis on farm sector reforms in government meetings with bankers is also significant, although the capital market saw this as a return to directed lending and dumped bank stocks.
There were more pointers in Manmohan Singh’s first address to the nation as Prime Minister. He said, ‘‘There has been a neglect of the interests of the farmers in recent years and this is reflected in a significant slowing down in agricultural growth in the past five years. Farmers in many parts of the country have faced distress and there has been no helping hand. The Common Minimum Programme of the United Progressive Alliance is committed to giving a ‘new deal’ to rural India’’.
That’s not all. Singh wants agriculture to ‘‘receive the priority attention it deserves’’ and thinks that public and private investment in agriculture has to be greatly increased by providing affordable credit to the farmer.
The Prime Minister also wants ‘‘to see the emergence of new centres of excellence in agriculture’’ and ‘‘sharper focus on expanding opportunities for gainful employment in agriculture and in off-farm rural activities’’ leading to ‘‘more creative interaction between farmers and agro-industries’’.
Earlier, the finance minister had indicated that agriculture credit must be raised by 30 per cent, prompting the Indian Banks Association to firm up a special agricultural credit plan. State Bank of India (SBI) is taking this so seriously that it is reportedly hiring specialist officers to push credit for farmers. Other banks are expected to follow its lead.
What does all this mean? Are Manmohan Singh and Chidambaram determined to turn the economy sharply left? What is this ‘‘new deal’’ that the PM has promised? Also, isn’t it significant that the Maharashtra heavy weight Sharad Pawar chose the Food and Agriculture Ministry, when most people expected him to demand and get the Defence portfolio?
Industry sources say it all points to a certain plan. The PM and the FM are expected to live up to the extremely high expectations built up among people, with a breathtaking move to push agriculture development.
The government, they say, plans to take raise a hefty $5 billion through a Eurobond issue, whose proceeds will be used entirely to boost agriculture, push farm credit and fund all the activities that have been prioritised by the PM and FM over the last few weeks.
Despite the turmoil in international bond markets over interest rate hikes and the steady rise in the benchmark London Inter-bank Offered Rate (Libor), the government is expected to be able to raise funds at around 4 per cent. This could be a floating rate of Libor plus. This way the government won’t have to find money for boosting agricultural in the budget, nor will it have to force reluctant banks to lend to farmers.
I have no precise information on whether the Eurobond proposal will definitely be a part of the budget; or how the money would be utilised. However, various developments suggest that the enormous branch network of Indian banks will be used to reach out to farmers and agriculturists, with government re-financing the lending.
The biggest problem for farmers is the reluctance of organised financial institutions to lend to them. This pushes them into th arms of private lenders who charge usurious rates and often drive farmers to suicide. All that may soon end. Business sources feel that the Eurobond move would electrify agriculture and attract increased investment to its value added businesses. The UPA promise of ‘reform with a human face’ will also be on course to fulfilment.
The government may also boost rural development and job creation through infrastructure development; this may be a continuation of former Finance Minster Jaswant Singh’s proposal of a Rs 50,000 crore infrastructure fund with some modification.
Having said that, business sources also say government is toying with plans for a dubious black money scheme. The UPA government, which mentioned a voluntary disclosure scheme for black money in its Common Minimum Programme, plans to unearth black money and use it for financing investment in education. All amnesty schemes reward tax-evaders and anger honest taxpayers.
In 1997-98, the United Front government told the Supreme Court that there would be no further amnesty for tax fraudsters after the notorious Voluntary Disclosure Scheme. That time, bureaucratic manipulation had allowed black money hoarders to disclose wealth in the form of gold jewellery and silver utensils by paying as little as 5 per cent tax with the help of shady chartered accountants. Will a similar outrage become acceptable this time because the proceeds will be invested in education? Why do tax-evaders need amnesty when tax rates have been substantially reduced? Instead of making taxpayers look foolish, the government must unearth hidden income by cracking down on evaders and its own corrupt officials.
The Indian education system is already highly politicised and the frequent leakage of all major examination papers (including those of prestigious competitive examinations) last year had exposed the deep malaise in the system.
Will this improve or worsen if investment of black money in education is encouraged? Somehow the thought of sullying education by linking it with a black money scheme sounds appaling. Maybe, the government will drop the idea or surprise us with another innovation.
Only July 8 will confirm whether the expectations from businesses based on ‘inside information’ turn out to be true. But for the present, the curious strength in the capital market and an undercurrent of bullishness is probably explained by these expectations.