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| Sunday, 18 July 2004 |
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India, Sri Lanka on same economic path by Gamini Warushamana The newly elected United Progressive Alliance (UPA) government of India and the UPFA of Sri Lanka are going to follow the same economic policies. These similarities are to be seen in the Indian budget presented on July 9 by Finance Minister P. Chidambaram and the policy statement of the Sri Lankan government announced recently. An expansionary budget presented by Chidambaram emphasises on the poorer sectors of society, agriculture and rural development. Chidambaram announced billions of dollars in spending for the poor and taxed the rich. But critics say it lacked the 'punch' to tackle a nagging deficit. Chidambaram said that the electoral mandate the UPA Government got was for continuing the reforms process and taking up new measures in agriculture and rural economy that had not been addressed during the previous NDA Government rule. He said: "It is a complex electoral mandate. As the Finance Minister, it is my duty to interpret it and act accordingly. If I don't, I face rejection like the previous Government did," The Hindu reported. The new budget of the government has proposed an increase in investment on education and health. It is proposed to introduce a 2% education cess on all taxes to fetch Rs.4,000-5,000 crores. Focusing on irrigation, a new scheme for rainwater harvesting is proposed as well as a pilot food stamp programme. A new health insurance programme has been proposed for the poor. The Indian Government has decided to set up a new board for reconstruction of public sector enterprises and the National Manufacturing Competitive Council. It is proposed to cut the revenue deficit from 3.6% to 2.5%. Income tax exemption is granted to persons with a taxable income of Rs.1 lakh, while rates are unchanged for others. Service tax has been increased to 10% while the tax net will be widened. It is proposed to increase the Direct tax by Rs.2,000 crores. Interest rate on central government loans to states have been cut and special packages have been proposed for Bihar, Jammu and Kashmir and the North-East. Rs.25,000 crore Backward States Grant Fund is proposed from April 2005. Dispute after budget Meanwhile, an internal dispute in the coalition UPA government has arisen after the government decided to open telecommunication, insurance and civil aviation sectors to foreign direct investments. The Communist Party of India (Marxist) CPI(M) a constituent party in the ruling coalition has however opposed the move. It has been proposed to raise the FDI cap in those three sectors. The party has also opposed the proposed amendments to the Insurance Regulatory and Development Authority. The CPI(M) politburo met on Monday (12) to discuss the government's move and has expressed its surprise about these policy changes. Pointing out wide security implications in the telecommunication sector, the politburo has said that this decision would lead to some of the existing Indian companies being owned and controlled by foreigners. The new policy has proposed to raise the FDI cap in those three sectors from 49% to 74%. The CPI(M) has pointed out that even the USA has 25% FDI cap in the telecommunication sector and any investment above that limit requires special approval. The CPI(M) is continuously opposing the move to open up the insurance sector for foreign investment. The party is not ready to buy the government argument that more foreign capital is required for the expansion of the insurance sector. The politburo says that privatising half of the sector would adversely affect the overall economic development. However CPI(M) leaders have emphasised that they would not take any step that would destabilise the government. |
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