The Telegraph
Since 1st March, 1999
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Triple worry rocks budget boat
We are not going to roll back anything, we are going to convince people that what we are doing is right
— P. Chidambaram

New Delhi, July 9: A day after presenting the budget, finance minister P. Chidambaram faced three problems: a monsoon that is suddenly playing truant, a stock market revolt and threats from trade unions over easing foreign investment regulations.

Of all these, the first obviously has the greatest potential to damage Chidambaram’s calculations for the budget, particularly as economists across the country have been asking for the past 24 hours where the finance minister is going to find the money to finance his huge spending plans for rural India.

The minister’s calculations till now are simple. If the country sees even a normal monsoon, farm growth will be positive and, in his own words, “services and manufacturing can be counted upon to do at least as well as they have been doing so far”.

That could translate to “a 6-7.4 per cent GDP growth”. With even a 6.5-7 per cent growth, finance ministry officials believe tax revenues can go up by 22 per cent to over Rs 2,33,000 crore. This would bring the government’s deficit — the difference between expenditure and income — down to the low targets Chidambaram has indicated in his budget.

But this calculation could turn out to be the Achilles’ heel in his budget. The monsoon has suddenly started playing truant. The Met office today said the monsoon has entered a weak phase. July and August rains are important as the harvest largely depends on their geographical spread and timing.

The monsoon revived last week after a lull at the end of June, but has again lost momentum this week.

Chidambaram is not worried, at least not yet. He had said yesterday: “I am not coming to any conclusion as yet (on the monsoon)... I have helped agriculture, I believe the monsoon will help agriculture, too.”

His second worry is the trouble over the 0.15 per cent tax he has imposed on transactions in securities. Traders had started protesting since yesterday and today they took to the streets, forcing police to intervene.

Although market sentiment turned around after a sharp post-budget plunge, day traders, who square off transactions during a day’s trading, shouted slogans outside the Bombay Stock Exchange against the turnover tax.

After a 112-point drop yesterday, the exchange’s sensitive index recovered over 100 points.

Taking the initiative to muffle the uproar, Chidambaram invited brokers to meet him on Tuesday. It was also explained early in the morning that the tax would take hold only after the finance bill, which contains the proposal, is passed.

“We never thought this (tax) would have an all encompassing charge on securities. It should have been applicable only to equities,” a broker said.

While brokers want the tax to be cut from 0.15 to 0.10 per cent, what is troubling them more is that the levy applies also to trading in bonds, and futures and options. It appears there is no major objection to a tax on share transactions alone.

Chidambaram, however, said the idea for the tax came from foreign institutional investors and brokers. “Please get that on record. We have accepted their suggestion,” he said.

“Why should I roll back' We have thought through all these things. We are not going to roll back anything, we are going to convince people that what we are doing is right,” he said.

The third tricky aspect of the budget is the increase in the foreign investment ceiling in insurance, telecom and civil aviation, to which Left MPs had protested in Parliament yesterday. Trade unions today threatened to hit the streets.

The Left, supporting the government from outside, is not expected, however, to take its opposition to a point where it would be playing into the hands of the BJP.

Chidambaram himself made soothing noises. He said the Left was not a constraint in economic reform. “They are not a problem. They are my conscience. They tell me when I am likely to forget the constituency of the poor.”

He said he would like the budget to be remembered as one “which cared about the poor people and as a budget which dared to continue the reform process”.

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