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NATIONAL EXECUTIVE 13 April, 2002 - Panaji, Goa

Economic Resolution


The Central Budget for 2002-03 was presented in the background of many difficult challenges before the government on the economic front as well as on national security front. No doubt, fundamentals of the economy have remained strong with inflation rate falling to a record level of 1.1 percent, foreign exchange reserves crossing 54 billion U.S. dollars and, food stock of around 60 million tonnes. These would certainly, have been reassuring factors instilling confidence to face any crisis situation but for the major challenges such as slow down in economy, consequent shortage in revenue collections by over Rs. 20,000 crores, rising burden of interest payments -on debt accumulated over decades - (50.5 percent of the total revenue receipts), pressure on resource mobilisation to promote social sector and infrastructure developments, apart from the need to step up public investment in agriculture and increased expenditure to meet threat on national security.

The fiscal situation is such that the total revenue receipts of Rs. 2,12,572 crores in 2001-02 would infact, fall short (by Rs. 17,982 crores) to meet even debt servicing at Rs. 2,30,554 crores - let alone enabling the government to meet current and developmental expenditure. In this background the budget for 2002-03 rightly evolved a strategy to step up revenue mobilisation. Strategic priority has been to strengthen the aggregate demand in order to revive the economy through innovative measures to accelerate rural development, infrastructure development, promotion of housing and tourism.

The National Executive Committee appreciates the proposed steps to initiate the much awaited agricultural reforms. The proposed amendment to the Milk and Milk Products Control Order would remove restrictions on new milk processing capacity. This would promote growth of dairy industry which has enormous potential for employment generation. Similarly, removal of small scale industry reservation related to various agricultural equipment items as well as reduction in import duties on agricultural equipment from 25% to 15% should benefit farmers with availability of cheaper and quality inputs. Expansion of futures and forward trading to cover all agricultural commodities would effectively insulate farm products against fluctuations in market prices and benefit farmers by ensuring better returns for their products.

It may also be recalled, here, that the Cabinet decision to facilitate free movement of foodgrains and also to lift export restrictions would go a long way in farmers realising better returns for their products. Besides, stepping up of agricultural credit from Rs. 64000 crores to Rs. 75000 crores, extending micro credit support to additional 1.25 lakh families, proposal to set up a new corporation for Agricultural Insurance, increased allocation for irrigation programme from Rs. 2000 crore to Rs. 2800 crores, diversification and modernisation of agricuture through Krishi Vigyan Kendras, farmers associations and NGOs, proposed 15 Agri-export zones, additional allocation of Rs. 2,500 crores for Pradhan Mantri Sadak Yojana, proposal to upgrade village haats etc should help in strengthening the rural economy with better infrastructure facilities and enhanced employment opportunities.

The Government has come out with a number of proposals to deplete the bulging foodstock with increased allocation for BPL families from 25 kgs to 35 kgs a month, launching of major food-for-work programme, allocation of 30 lakh tonnes of foodgrains to states for relief works in areas affected by natural calamities etc.. However, these steps may not be adequate to correct the mismatch between procurement and poor off-take. The National Executive Committee hopes that adequate steps would be taken to minimise issue prices through efficient and decenralised food management and also flexible distribution system so that the poorest of poor would have access to food security.

Housing construction plays an important role in kickstarting the economy along with acceleration in employment opportunities. Due to various fiscal incentives offered by the NDA government there has been remarkable improvement in this sector. For instance, housing finance institutions disbursed Rs. 26,300 crores in 2000-01, a 28 percent increase. This amount financed construction of 28 lakh houses, much higher than the target of 20 lakh houses. To strengthen the efforts further, the current years budget proposed steps such as securitisation of housing loans, Mortgage Credit Guarantee Scheme to all housing loans, increased financing of 2.25 lakh houses in 2002-03 (as against 1.7 lakh houses this year) under the Golden Jubilee Rural Housing Finance Scheme, 13 per cent increase in allocation to Rs. 1725 crore under the Indira Awas Yojana etc. In a major step in this direction the current year's budget proposes to set up Urban Reform Incentive Fund with an initial allocation of Rs. 500 crores to provide reform linked assistance to states. The states which intend to make use of the scheme could remove major hassles in housing construction by addressing the related issues such as reform of Rent Control Laws, Urban Land Ceiling Acts, rationalisation of stamp duties, streamlining the process of approvals for construction, clearance of land titles etc. The states which would cooperate in this respect would enormously be benefited in the form of rise in building activities and employment opportunities.

Infrastructure development plays a key role in facilitating flow of investment and generation of employment opportunities. Public Investment in key infrastructure is being sharply hiked up to a total of Rs. 37919 crore. Extra budgetary resources in power, roads, national highways, and railways is being increased by 22 per cent, 39 per cent and 23 per cent respectively. Similarly steps have been proposed to facilitate the private sector participation in ports, airports and roads. The party would like to congratulate the government for its progress in the Prime Minister's National Highway Development Programme launched three years back. The Golden Quadrilateral is expected to be completed substantially by December 2003, a year ahead of schedule. This example may be followed in the case of other infrastructural projects through effective coordination and by resolving the related hassles in time. It may also be mentioned, here, that the government has prepared a crash programme for increasing indigenous crude oil production.

Non-performance assets worth around Rs. 65,000 crores has been a major handicap for the banking sector effectively playing a supporting role in economic development. Due to measures initiated by the NDA Government net NPAs as percentage of net advances came down to 6.7 per cent as on March 31, 2001 as compared to 7.4 per cent in the previous year. The current year's budget proposes major steps to contain NPAs in future. In this direction a new bill on Banking Sector Reforms would be introduced in Parliament to strengthen creditors' rights through foreclosure and enforcement of securities by banks and financial institutions. Similarly, a pilot Asset Reconstruction Company will be set up by June 30, 2002 to initiate measures for taking over NPAs in the banking sector. This along with the proposed labour Laws reforms is bound to contain NPAs in future. However, that alone may not be sufficient. While the proposed measures may contain NPAs in the case of genuine commercial failures, it is essential to be vigilant and do adequate homework by the financial institutions at the stage of lending itself in order to prevent NPAs by the wilful defaulters.

The Budget proposes many social security measures to protect the weaker sections. Major steps in this direction are: a proposal to set up pension funds to enable individuals to subscribe on a defined contribution basis to obtain the benefits of pensions on their retirement, Janaraksha Scheme to provide protection to the needy population with a payment of one rupee a day insurance premium - entitling Rs. 30,000 a year health insurance cover for indoor treatment and Rs. 2000 a year for outdoor treatment, proposal to institute 100 scholarships a year to women scientists and technologists, National Nutrition Mission under which foodgrains would be made available at subsidised rate to adolescent girls, expectant and nursing mothers belonging to below poverty line families and, increase in outlay by 21 per cent to improve economic life of scheduled tribes through various schemes such as access to quality education and establishment of grain banks. Monthly remuneration of Aganwadi workers has been doubled from Rs. 500 to Rs. 1000.

The Budget contains certain measures which may appear harsh to certain sections. Five per cent surcharge on income tax, a half per cent cut in interest rate on small savings, reduction in tax rebate on taxable income of over Rs. 1-5 lakh and hike in prices of cooking gas, kerosene and urea may appear harsh. However, in the present critical fiscal situation, increased burden of expenditure on account of deployment of armed forces in border, a 20% increase in Plan outlay and also, as a strategy to strengthen the aggregate demand in order to revive the economy which has been passing through a stage of slowdown, these steps have become essential parts of the overall strategy. The National Executive Committee earnestly appeal to the affected sections of society to cooperate with the government at this hour of crisis. At the same time the Committee would like to appeal to the government to set an example by following austerity measures which should be visibly felt by people - specially by cutting down wasteful expenditure so as to enthuse people to cooperate.

Suggestions

The National Executive Committee would like to suggest the following steps which may be considered by the government.

  • Since the Administered Price Mechanism on petroleum products has been phased out with effect from April 1, 2001-as per the decision of the United Front Government in November 1997 - the government should clearly distance itself from pricing process. The government's role should be confined to providing subsidy support on time bound decreasing scale to products like cooking gas and kerosene during the next three to five years. For instance, the government may announce subsidy support to per cylinder of cooking gas and per litre of kerosene -leaving the net price effect to the market forces.
  • Steps should be taken to minimise issue prices of the PDS foodgrains through efficient and decentralised food management and also, flexible distributin so that the poorest of poor would have access to food security.
  • Though low interest regime is essential for boosting economic growth, long-term savings should be encouraged with appropriate fiscal incentives. Special tax rebate of 20%. under section 88 may be restored for taxable income between Rs. 1.5 lakh to Rs. 5 lakh.
  • The proposed service tax on insurance may be reconsidered.
  • Attractive monthly income scheme could be started exclusively for senior citizens who could invest their savings and lead retired life peacefully through interest earnings.
  • The government should expedite introduction of the proposed pension scheme for individuals.
  • The government should seriously examine providing subsidy support on fertilisers directly to farmers instead of routing it through fertiliser companies. In this case also pro-rata subsidy should be announced - not prices of fertilisers unlike as recommended by the Expenditure Reforms Commission.
  • Criterion of owning telephone for compulsory filing of income tax return may be deleted under the one-by-six scheme. It may restricted to mobile phones (other than WLL which is as good as landline telephone).
  • Goodwill of the general public is crucial for carrying out economic reforms - specially the second generation. In this context, austerity measures by the Ministers and senior government officials would go a long way.
  • The government should rapidly proceed on amendments to the SEBI act so as to get regulation of the securities markets on sound footing.
  • The government should give top priority on getting economic legislations passed through the Parliament.
  • The privatisation programme is a key to improving resource allocation specially, to the social sector and, in sending out signals about commitment to economic reforms. Hence, it should be aggressively pursued.
  • Implementation of various developmental and welfare schemes should be strictly monitored.
  • Efforts should be made to recover tax arrears - income, corporate, excise, custom duties - at the earliest with tough measures.
  • Crop insurance scheme should be modified in such a way that farmers would have easy access.
  • Achievements of the government during the last four years - specially the social welfare measures should be adequately publicized.
  • Removal of tax concession on diesel used by the fishermen should be reconsidered.