A political excercised

By S.V. Vaidyanathan

The budget 2008-09 is a politically motivated election year exercise. But it has many elements which in the long run will erode the basic parameters of sound economic management. The Finance Minister, Mr. P. Chidambaram, and astute politician and economist, in a sense, has tried to reconcile many contradictory elements such as controlling inflation, accelerating economic growth and getting more for less expenditure by improving efficiencies. A study of budgeted expenditure pattern shows that economic growth will slow down, which is already decelerating as compared to earlier two years.

Last year he was accused of fudging the deficit reduction in the form of the bonds issued to oil companies, the Food Corporation of India and the fertilizer industry, by acknowledging that the deficit figures would be higher if they were included. This year these bonds would come to about two per cent of the gross domestic product. So the claimed deficits, on revenue of 1.4 per and the fiscal of 3.1 per cent, are misleading and the expenditures proposed would add significantly to the inflationary pressures.

India has seen considerable buoyancy in tax revenues. To GDP they were 9.2 per cent in 2003-04 and 12.5 per cent in 2007-08, due principally to superior information. It also reflects better compliance because of lower tax rates and general economic buoyancy.

The budget emphasizes the inflationary pressures because of rising world prices of crude oil, iron ore, copper, tin, wheat and rice, the difficulties of managing their supplies, and the short-term management of capital inflows for which India's absorptive capacity is poor. Chidambaram stated that temporary measures would be needed to manage inflows.

The electoral politics of the budget are clear. The deadline of June 30 for completing the unprecedented write-off of Rs. 60,000 crore of bank loans to four crore farmers (amounting to 4 per cent of all bank lending) is a strong indication that Parliament will be dissolved after the budget session.

The other indicator of elections being near is the targeting of substantial supports for scheduled castes, scheduled tribes and minority communities (indicated by the acceptance of the Sachar report). These groups need help. However, governments did little for them in past years but is now pouring money on them, obviously hoping to win their votes. Social programmes introduced in recent years receive much attention. The Bharat Nirman Programme, Sarva Shiksha Abhiyan, the National Rural Employment Guarantee Programme, special programmes for girls, mid-day meal schemes, focus on minority employment in defence, all point to money being poured in before forthcoming elections to attract votes.

Such social programmes for the poor, women, SCs, STs, minorities and farmers are long overdue. They have added a new concern in Indian politics for the poor and the disadvantaged. Even if poorly administered, there is growing opportunity for them to climb in society. However, by the time this budget is passed and money disbursed to the lowest levels in the departments concerned, there will be little time for these programmes to be actually effective. The only one that might happen in time will be the debt write-off to farmers because this is to be administered by banks. It is unlikely that they will have any effect in swinging an election.

As the industrial growth has decelerating, Mr. Chidambaram has tried to help accelerate manufacturing growth by reducing Cenvat by two per cent, cutting excise duties for pharmaceuticals, two- and three-wheelers, small cars, materials for housing and other such items. These could help stimulate most of them.

The concessions for the power sector and especially for transmission and distribution, roads, urban infrastructure and housing for the poor will, along with the excise duty reductions, certainly help to stimulate demand for most of them. Industry must also be pleased that there is no lowering of the peak rate of customs duty and so no increased price competition by imported goods. Industry did expect some adjustment if not abolition of the tax surcharge and some softening of the fringe benefit tax. Neither has happened.

However, the removal of duplicate taxation on dividend distribution by subsidiary companies is a welcome move. Companies are now leveraging lower equity with a lot more debt by setting up subsidiaries over which they can retain control. This will help them start new businesses with less equity. The extension of 125 per cent weighted deduction to outsourced research by companies will also expand research farmed out to other laboratories and is in the long-term interest of industry.

The most welcome feature of the budget is its attention to higher education and skills development. This is essential if the growing working population in India is not to become a demographic disaster instead of a demographic dividend. But most of the technically educated graduates are migrating to foreign countries because of lack of opportunities within India.

The write-off of Rs. 60,000 crore of farmer loans is a response to the spate of farmer suicides and to the need for farmer votes. There is no specific commitment to fully reimburse banks. Most are quoted in the stock exchange and have other shareholders than the government. It also raises a serious moral hazard in penalizing farmers who repaid loans on time and rewarding those who did not. It will tempt farmers and other large borrower groups to hope for similar forgiveness in future. It could wreck the stability of nationalized banks that have only recently been strengthened after the disaster of the loan melas in the Indira Gandhi years.

The pay commission will report by end-March, 2008 and add substantially to Central and state expenditures, upsetting budgetary calculations. The Finance Minister talked last year of monitoring outcomes rather than merely outlays. He is now setting up a monitoring mechanism and independent evaluation for 1,000 plan schemes. This will not, of course, apply to government employees for whom no performance orientation was accepted in the last pay commission report, nor will be in the present one.

Budget 2008-09 damages the stability of the banking system by loan write-offs and waivers, and does nothing to improve government efficiencies in delivering services. It is free for all budget without any accountability whether the targeted beneficiaries will get any monetary assistance or all the money goes down the drains. INAV

Farmers need easy finance

By Arun Nehru

There is talk of a 'political' budget and populism and I think we have a tendency of getting carried away by the situation. Write off's of farmer loans in theory is bad but politically correct in election year and clearly these were 'NPA' amounts in the bank books and will have few financial repercussions! Agriculture assumes great importance as we head towards record harvests and record consumption as increased incomes are resulting in 'changed' food preferences and we need massive investments and repeal of archaic land usage laws to bridge the gap between supply and demand. The village money lender still dominates the marginal agriculturalists and the scheduled banks still service less than 10% of the marginal farmers. Sharad Pawar makes a political statement urging farmer's to refuse payment to village moneylenders [worse than the Mafia] and I wonder if Sharad Pawar will provide security cover on a 24 hour basis to the many millions who suffer from this extortion in virtually every village in India ? The 60,000 Crore write off will help 10% of the farmer's but can more than upset 90% of the farmers who have no access to bank credit and pay close to 100% interest to the village money lender! The Congress will follow a 'popular' budget [media projection] with changes in the government and the party and a 'new' power center for the future may well take shape and all these matters pertain to 'internal politics' within the Congress. There will be constant speculation on the timing of the election and I can see a 'limited' benefit of a October - November 08 election [six months early] for the UPA.

The Gujarat elections gave a very clear message and this may well be the pattern for the future. Narender Modi was much maligned but he had the integrity and the performance to beat the anti incumbency trend and to contain the Congress who did everything possible on all fronts [media, defections etc] but can anyone in the current situation see a similar situation in any state? Nitesh Kumar in Bihar will get the credit for integrity/law and order and may well maintain the Assembly trend in the Lok Sabha election but even Navin Patnaik despite good integrity levels will suffer on the performance issue and will lose some seats and initial assessments show strong anti incumbency trends for the Left in West Bengal and Kerala, BJP in MP, Rajasthan, Chattisgarh and Punjab. The Congress in Delhi, Haryana , Assam , AP, Tamil Nadu, Jharkhand and in Maharashtra are in a similar predicament and in Uttar Pradesh the BSP/SP fight for supremacy but there is little in terms of governance and both Congress and the BJP can make limited gains if 'political accidents' continue to take place at regular intervals. Political astrology is fraught with risks but I see the Congress combine ahead of the Third Front formation with the BJP third but it is a very close race. Current allies [with a few exceptions]may well switch sides among the three Fronts as the theory of numbers prevails over ideology. The 2004 election was lost by the NDA by a sharp and decisive vote swing in Tamil Nadu where the AIDMK was literally decimated and the TDP were defeated by the Congress [total of 50 seats went from NDA to the UPA]. This time the AIDMK is set to sweep TN [can go into any formation or like BSP can stay independent till convenient] and Chandra Babu and the TDP may have to do little to defeat the Congress and we may find 40-50 seats changing hands all over again and if happens then change is inevitable in Front formation at the Center.

The bad financial news is compensated by the cricket victory on both fronts and I think we should give a special award to Harbhajan Singh who has shown determination and nerve in tackling the big 'bully' attitude adopted by some players and the media. The financial muscle of the BCCI ensures that no partisan action will be taken as in the past as we have seen during the Second Test match where we were cheated out of a certain victory. The IPL auction placed Harbhajan Singh and Ishant Sharma at twice the sum offered to Ricky Ponting , Mathew Hayden and Adam Gilchrist [Dhoni,Tendulkar and Yuvraj get four times] and this could be a possible reason for 'heartburn' and I suppose it is difficult for many to digest that India today offers the biggest financial package to cricketers from all over the world. Cricket is no longer a 'Colonial Club'. The IPL and the 20:20 competition with global super stars may well trigger changes in the structure of the game and I sometimes wonder what effect this may have on our traditional 5 day test matches.

Elections in Pakistan are over but the power equations are far from clear and only time will tell if Asif Zardari and the PPP will match the hard line approach adopted by Nawaz Sharif or will a suitable compromise be worked out by the USA between General Mussarraf and the two political forces. The problem confronting everyone is the public reaction and the people of Pakistan who have clearly opted for a democratic structure and it would be very embarrassing for the USA to lean towards the General. We have a rather fluid situation and we wish the people of Pakistan well and a democratic structure will always be better than the Army and 'single' supreme leaders. We have a 'lull' on security issues and elections in the North East have gone by without any problems and the full alert on our borders was the correct decision taken and until things settle down in Pakistan and Bangladesh the possibility of any troop reductions do not exist. Sad that we hear little of the action taken on the assassination of Benazir Bhutto who had made all this possible and had the courage to face the terrorists.

Terror footprints travel South

By Sunita Vakil

The arrest of highly educated youths in Banglore signifies a changing trend in terrorism wherein the brand image of terror has undergone a drastic alteration.

With the rapidly expanding theatre of voilence the southern states particularly Karnatka appear to be new hubs of terror as indicated by attacks on key targets in South India in recent months. The arrest of young Engineer as well medical professionals in Banglore marks a paradigm shift in strategy and tactics of terrorist organisations. Indeed it signifies that Jihadis are hellbent upon making the region a major theatre of their operation after J&K. The choice of the target, hitherto considered immune from Jehadi voilence, suggests that the Southern cities, more so Banglore are high on the agenda of terrorists. Investigators believe the SIMI, that has a formidable presence in Karnatka is making available logistic support to foreign terrorists.

In the last two years, many educated professionals have been arrested on the basis of their links with dreaded terror networks. That in tune with the changing times terror has acquired a new face is shocking enough. Even more shocking is the ease and finesse with which they plan and execute their bloody plans, managing to abscond at the same time. What is disturbing is that a large number of educated youth are falling prey to this sinister Jihadi ideology with the result that terror outfits are finding it easy to recruit them in order to keep alive and advance their nefarious agenda. This has been exposed by the arrest of radical techies in Banglore who are believed to be important links between banned organisations like SIMI and other terror modules. These professional youth appeared to be networking and helping radical groups under the banner of Muslim information Technology professionals Association, which is concentrated in Banglore with proliferations across the country.

It needs no reiteration that India is fast becoming a safe heaven for terrorists with such states emerging as new hubs of terror that were so far considered as peaceful areas. The terror sleeper cells that have made inroads into almost every major city have created a domestic infrastructure to carry on with their anti India campaign.

Terrorism has assumed a new dimension with the increasing recruitment of Muslim youth who have swelled the ranks of organisation like SIMI as well as other terrorist groups. Increasingly, a dangerous pattern of home grown terrorism is being unveiled which has many cells of educated youth with wide penetrations across India.

At one time, poverty and unemployment were cited as probable reasons for Muslim youth to join the Jihadi ranks. But now, with the changing face of terror, educated and highly trained professionals are being recruited . With the shift in strategy aimed a looking for new terror destinations in South, the techno Savvy youth are getting ample opportunities by using their technological expertise to send messages, crack Internet Zones or communicate for triggering IEDS while planning a terror attack.

This has been revealed by the arrest of Yahya Khan, a Banglore-based Software Engineer who also happens to be a top functionary of the SIMI for the last eight years. Incidently, Glasgow bomber Kafeel Ahmad was also a Ph.D scholar in aeronautical Engineering . In fact, as many as seven highly educated youths with professional degrees have been arrested so far and the number is slated to go up as investigations proceed. All these revelations are a pointer to the fact that terror groups are recruiting highly trained professionals which are increasingly using latest technology while plotting terror attacks.

Needless to say, the recent occurrences have altered the profile of Banglore on the terror map. For years, the city was viewed as a safe hideout for terrorists and underworld operators. In the 70s and mid 80s, smugglers made the city their safe home. Then in 90s, Andhra Naxals and Tamil extremists made it their secret abode. Then the first footprints of terror in the hitherto safe city came into focus in July 2000 when members of Deendar Anjuman outfit triggered bomb blasts in Churches at Gulberga, Hubli and Banglore. With December 2005 attack of LeT on the prestigious Indian Institute of Science, the drift towards terrorism gained ground.

Meanwhile, Islamic terror saw a perceptible rise in the state. Terrorists driven out of Kashmir found safe havens in various southern cities and towns. Intelligence reports indicated that the city was on the terror radar. Investigations revealed that terror outfits were scouting the city for easy availability of chemicals and explosives. In fact one of the arrested terrorists happened to have a degree in analytical chemistry. All this indicates that the city had morphed from being a safe hideout to breeding ground of terror.

What is noteworthy is that the government has a dismal record when it comes to tackling terrorism. Nothing better demonstrates just how ineffectual India's response to terrorism has been than the unabated terror strikes that have become almost a daily occurrence. Terrorists are having a free run because of the laxity in policing and intelligence departments which seem to be looking more after the leaders than then the comman man.

Unarguably, fighting terrorism needs a clarity of purpose and a single minded focus but India's response to terror has so been limited to setting up committees which do nothing else but making suggestions. With a dangerous pattern of home grown terrorism making its presence felt in more ways then one, there need to be a strong delink between anti-terrorism and votebank politics.

Our intelligence agencies have woefully fallen short in successfully anticipating and intercepting the activities of terrorists. They only wake up after the event. The result is that the support network of terrorists is rapidly growing and violence is making fresh inroads in rest of the states, also, which had so far been free from the scourge of terrorism. Due to our lop-sided police and intelligence apparatus only a few culprits get caught in the dragnet. Even many among those are set free due to the patronage of our politicians. It is, therefore, not surprising that the nation is yet clueless about most of the major bomb blasts that occurred in Delhi, Kashmir, Mumbai, Malgaon, Ludhiana, Hyderabad and many other states. All these are pointers to the inefficient intelligence networking of the country. They also put a question mark on the government's ability to ensure the safety of the common man.

The growing support network of terrorists and its proliferation across the country showcases big holes in India's preparedness to tackle the increasing terror menace. The rapidly spreading theatre of terror is an eye-opener for the government to swing into action and strike at the root of terrorism. That the Centre had to stop Mr. Advani from embarking on his Yatra in view of the terror threats highlights fatal flaws in our crippling fight against terrorism.