VZCZCXRO5614
PP RUEHBI RUEHCI
DE RUEHCI #0067/01 0540817
ZNR UUUUU ZZH
P 230817Z FEB 07
FM AMCONSUL KOLKATA
TO RUEHC/SECSTATE WASHDC PRIORITY 1417
INFO RUEHNE/AMEMBASSY NEW DELHI PRIORITY 1321
RUEHBI/AMCONSUL MUMBAI 0557
RUEHCG/AMCONSUL CHENNAI 0563
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC
RUEHKA/AMEMBASSY DHAKA 0345
RUEHKT/AMEMBASSY KATHMANDU 0347
RUEHIL/AMEMBASSY ISLAMABAD 0273
RUEHBJ/AMEMBASSY BEIJING 0096
RUEHCI/AMCONSUL KOLKATA 1753

UNCLAS SECTION 01 OF 08 KOLKATA 000067 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON SOCI IN
SUBJECT: LEFT PARTIES TO PUSH THIER AGENDA AND CHALLENGE  UPA DURING 
BUDGET SESSION 
 
 
¶1.  (SBU) Summary:  India's Parliament's "budget session" opened 
on February 23 and is expected to last approximately eight 
weeks.  During the session, India's Left parties, headed by the 
Communist Party of India - Marxist (CPM), plan to challenge the 
economic policies of the Congress-dominated United Progressive 
Alliance (UPA). The February 21 withdrawal of Samajwadi Party 
support to the UPA coalition has decreased the UPA Parliamentary 
Majority and increased the political clout of the Left.  It will 
utilize its improved political position to block economic 
reforms and use concerns about high inflation to justify 
expensive financial supports to the agricultural sector.  The 
Left is propping up the UPA from "outside" and Congress is more 
dependent than ever on Left support.  As a result, the UPA is 
likely to temper the pace of its economic liberalization 
policies, resulting in little short-term movement and increased 
spending on what are essentially populist and protectionist 
measures.  The Left's budget proposals to the Finance Minister, 
provided to post by a local CPM member, are included at the end 
of the cable.   End Summary. 
 
---------------------------- 
"Pro-People" Measures 
---------------------------- 
¶2.  (U) The February 21 withdrawal of Samajwadi Party (SP) 
support to the UPA from outside of the coalition has increased 
the political capacity and bargaining power of the Left parties. 
 Although not part of the UPA, Left support "from outside" 
provides the margin that keeps the coalition in power.  The 
2007-08 budget session started on February 23, and the Left 
plans to use the session to pursue its policy goals.  These 
include:  further expenditures to the agriculture and social 
sectors, increased taxation on corporate profits and capital 
gains, and greater protectionist measures including tariffs and 
price controls. 
 
¶3.  (U) The bulk of the Left's plans fall under what it calls 
"pro-people expenditures."  The Left wants to protect Indian 
agriculture with a mechanism that would automatically increase 
tariffs should prices of agricultural products crash.  The Left 
argues that Indian agriculture is in a state of crisis, as 
"shortages of food items like wheat, sugar and pulses have 
arisen is a direct fallout of the sustained neglect of 
agriculture in general and the food economy in particular." The 
Left will push other measures for protection of farmers as well, 
including: 
 
-- Creation of a fund to assist farmers affected by crop losses. 
 
-- Reduction of interest rate for farm loans to 4%. 
 
-- Implementation of an "all-India Debt survey" and "appropriate 
measures" for debt relief, including a waiver of outstanding 
debts for farmers in distress. 
 
-- Creation of a price stabilization fund for agricultural 
commodities. 
 
-- Revamping of Agricultural Extension services through the 
establishment of farm schools and village knowledge centers 
across the country. 
 
-- Expansion of crop insurance to the entire country and to 
include coverage of all crops, with greater flexibility to 
respond to local needs of farmers. 
 
-- An increase of the minimum support price policy, which 
guarantees farmers a minimum price for crops such as wheat, to 
include additional crops in additional regions of the country. 
 
-- Stopping the price rise of essential commodities. 
Strengthening procurement and increasing agricultural 
production.  Universalizing the Public Distribution System by 
increasing food subsidies. 
 
-- Increasing customs duties on sectors hit by cheap imports. 
Reduction of excise duties for Small Scale Industries. 
 
-- Ensuring that at least 50% of total agricultural credit goes 
to small and marginal farmers. 
 
KOLKATA 00000067  002 OF 008 
 
 
 
These policies would also result in a substantial increase in 
outlays for agriculture-related activities, such as irrigation 
and flood control. 
 
¶4.  (U) The Left's "pro-people" measures also touch on social 
sector issues such as education and healthcare. The Left plan 
includes increasing spending on health to 2-3% of GDP, ensuring 
social security for workers in the unorganized sector, 
universalizing Integrated Child Development Services(ICDS) and 
providing a legal guarantee of at least 100 days of employment 
for at least one able-bodied person in every rural, urban poor 
and lower-middle class household.  Other proposals include: 
 
-- Bringing down prices of petrol and diesel by restructuring 
the duty structure on petroleum products. 
 
-- Extending the National Rural Employment Generation Act to 200 
more districts.  Allocating more funds for rural employment and 
infrastructure development. 
 
-- Increasing expenditure on education to 6% of GDP.  Funding 
expansion of education at all levels. 
 
-- Allocating funds to extend social security coverage to 
unorganized workers. 
 
-- Universalizing the ICDS. Introducing a gender component in 
all development programs and requiring that at least one-third 
of all beneficiaries be women. 
 
-- Commencing a national program for minor irrigation of lands 
owned by dalits and adivasis.  Redistributing land to landless 
families. 
 
-- Allocating 15% of total resources on all development programs 
for minorities, especially Muslims. Ensuring a 15% of priority 
sector lending target for minorities. 
 
-- Reintroducing a standard deduction for salaried employees. 
 
-- Enhancing the health allowance for pensioners and allocation 
on widow pensions. 
 
------------------------------------------ 
Putting the Screws to Corporations 
------------------------------------------ 
 
¶5.  (U) Inflation in India reached a two-year high of 6.73% last 
week, prompting the UPA government to cut customs duties on many 
items including edible oils and pulses. On Feb 14, the central 
bank hiked the cash reserve ratio (CRR) by 0.5% in two phases to 
6%.  This was the third such hike in the last three months. On 
Jan 31, the Reserve Bank of India increased the key short-term 
interest rate by 0.25% to 7.5%. 
 
¶6.  (U) The Left believes these measures are insufficient, and 
are pushing for reintroduction of a long-term capital gains tax 
of 15% as well as an increase in the rate of the Securities 
Transaction tax to a flat 0.1% on trading of financial 
instruments.  Characterizing India's current 10% short-term 
capital gains tax and zero long-term capital gains tax (compared 
to the more than 30% rate of corporate tax which overwhelmingly 
affects Indian corporations) as, "an open invitation for 
reckless speculative activities,"  the Left can also play the 
nationalist card by claiming to provide Indian corporations a 
level playing field with foreign investors. 
 
¶7.  (U) They can also fan anti-corporate sentiment by arguing 
that, "corporate tax exemptions in a context where corporate 
profits have increased sharply in the past few years, besides 
being morally unjustifiable makes little economic sense."  This 
approach, which calls for elimination of tax breaks including 
those for SEZs will play well with the Left's traditional vote 
bank and the lower economic classes. 
 
------------ 
Comment 
------------ 
 
KOLKATA 00000067  003 OF 008 
 
 
 
¶8.  (SBU) The growth of the Left's political influence at the 
Center enables it to more effectively push its ideological 
agenda and to block economic reforms.  The Left is looking to 
the parliamentary debate to compel the UPA to increase spending 
in rural areas where the Left seeks to make future electoral 
gains.  In effect, the Left hopes to write the check that the 
UPA will have to cash.  While certainly more needs to be done to 
help India's destitute rural masses, in India, big-budget 
government projects have a dismal record of meeting the needs of 
India's poor and have perpetuated a system of political 
patronage and graft.  The Left is also using inflation as 
another stick to hit the UPA.  In a reflection of the pure 
political opportunism of the Left's approach, the measures they 
recommend, such as increasing corporate taxes and tariffs on 
imports, will actually exacerbate inflation by increasing costs. 
 The Left has successfully limited UPA economic reforms, such as 
retaining caps on FDI investment in insurance and restrictions 
on FDI in retail, and preventing privatization of public 
entities.  It is likely that with its stronger political clout, 
the Left's proposals, especially protections for agricultural, 
will be incorporated to some extent in the 2007-2008 Budget.  In 
addition, the Left could well be able to hamper the UPA's 
ability to negotiate international trade agreements with the 
Association of South East Asian Nations (ASEAN) and more 
importantly, the World Trade Organization (WTO).  End Comment. 
 
¶9.  (U) This message was coordinated with Embassy New Delhi. 
 
--------------------------------------------- --------- 
(SBU) BEGIN LEFT PARTIES' PROPOSAL FOR BUDGET 2007-08 
--------------------------------------------- --------- 
 
The Importance of Budget 2007-08 
Budget 2007-08 would be the third Budget of the UPA Government. 
The Budget is going to be presented at a time when the people of 
India are suffering due to rising prices of essential 
commodities, especially food items. The 6% plus inflation rate 
surely cannot be justified by the 8% GDP growth rate being 
experienced in India today, since developing countries like 
China have succeeded in holding inflation at much lower levels 
despite having a higher GDP growth rate than India. The shortage 
in food items like wheat, sugar and pulses that has arisen is a 
direct fallout of the sustained neglect that agriculture in 
general and the food economy in particular has suffered since 
the policies of liberalization were initiated in the early 
1990s. Being the first Budget of the Eleventh Five Year Plan, 
Budget 2007-08 should accord topmost priority to addressing 
issues concerning agriculture and food management. 
 
The Approach Paper to the Eleventh Plan, as approved by the 
National Development Council, has also set several important 
objectives reflecting the commitments made in the National 
Common Minimum Programme.  There are at least six areas in which 
specific commitments have been made in the NCMP and the 
fulfilment of which require substantial fund allocation. These 
include increasing public investment in agriculture, spending 6% 
of GDP on education, spending 2-3% of GDP on health, ensuring 
social security for workers in the unorganized sector, 
universalization of the ICDS and providing a legal guarantee for 
at least 100 days of employment for at least one able-bodied 
person in every rural, urban poor and lower-middle class 
household. Besides, there are other crucial commitments made in 
the NCMP like ensuring fair and remunerative prices for farmers, 
strengthening the Public Distribution System and moving towards 
universal food security. Budget 2007-08 should take decisive 
steps in the direction of meeting these commitments through 
adequate outlays for the Central Plan. The Budget should also 
demonstrate the political will to mobilise resources, primarily 
through taxation of burgeoning corporate profits, capital gains 
and wealth. The seriousness, which the UPA Government attaches 
to the NCMP, would be assessed in terms of the extent to which 
Budget 2007-08 meets these objectives. 
 
Central Plan Outlay and Resource Mobilization 
 
¶1.      The Approach Paper to the Eleventh Plan has called for 
an increase of budgetary resources for the Plan by 2.5% of GDP, 
to be attained by the end of the Plan period. While questions 
 
KOLKATA 00000067  004 OF 008 
 
 
remain whether the crucial NCMP commitments mentioned above can 
be fulfilled with the amount of resources envisaged in the 
Approach Paper, a serious effort in that direction needs to be 
made in Budget 2007-08 itself. The Gross Budgetary Support for 
the Plan should be increased by at least 1% of GDP in Budget 
2007-08. This increase should be over and above a 14% increase 
in Plan expenditure from what was incurred in Budget 2006-07, in 
keeping with the current growth rate of nominal GDP. In nominal 
terms this would imply increasing Plan expenditure, which was 
estimated at Rs. 172728 crore in Budget 2006-07, by over Rs 
55,000 crore. 
 
¶2.      Resources for such an increase in Plan expenditure is 
not difficult to find. According to the Note on tax Expenditures 
circulated in the meeting of the Consultative Committee attached 
to the Ministry of Finance held in November 2006, total tax 
exemptions/concessions granted in the year 2004-05 stood at Rs 
176073 crores out of which corporate tax exemptions alone 
accounted for Rs 57852 crores. While the scheduled corporate tax 
rate is 33.66% including the surcharge and the education cess, 
it has been recently reported that the effective tax rate for 
the corporate sector in 2005-06 has only been around 16.5-17%, 
due to the myriad tax breaks. Continuing with such corporate tax 
exemptions in a context where corporate profits have increased 
sharply in the past few years, besides being morally 
unjustifiable makes little economic sense. Doing away with the 
myriad corporate tax exemptions, which are nothing but subsidies 
to the corporates, would be sufficient to finance the entire 
increase in Plan expenditure that is being sought. The 
Amendments to the SEZ Act suggested by the Left Parties in view 
of the proliferation of SEZ proposals should also be brought 
about immediately in order to eliminate the undeserving tax 
concessions to the SEZs. Tax exemptions for sectors like IT, 
which have been registering record profits in recent times, have 
also outlived their economic rationale. 
 
¶3.      The reintroduction of the long-term capital gains tax 
and increasing the rate of the Securities Transaction Tax should 
be seriously considered, in view of the speculative excesses 
currently being witnessed in the financial markets. The entire 
exercise of differentiating between traders and investors among 
the FIIs, currently being undertaken by the Finance Ministry, is 
meaningless. Why should the effective tax rate of any FII be 
substantially lower than what is being paid by Indian 
corporates? The dismally low rate of capital gains taxation 
currently prevailing in the country, with a 10% short-term 
capital gains tax and zero long-term capital gains tax as 
compared to above 30% rate of corporate tax, is an open 
invitation for reckless speculative activities, which stifle 
genuine entrepreneurship. Reimposition of a long-term capital 
gains tax of 15% and a flat STT rate of 0.1% on the trading in 
all financial instruments, including equities, bonds, 
derivatives and government securities, would not only remove the 
anomaly but also contribute to the resource mobilisation effort. 
 
¶4.      The list of Indian billionaires show that within one 
year, i.e. between August 2005 to August 2006, the wealth of the 
richest Indian grew by over Rs. 32000 crore, which is nearly 1% 
of India's GDP. One wonders why in such a backdrop, the wealth 
tax collection of the Government remained at a paltry Rs. 265 
crore in 2005-06, and exactly the same amount was budgeted for 
2006-07. The Wealth tax rate should be increased from 1% to 3% 
without further delay and initiatives need to be taken to 
broaden the wealth tax base by bringing all the urban as well as 
rural crorepatis into the wealth tax net. 
 
¶5.      The obsession with cutting customs duties down to ASEAN 
levels with scant regard for its implications for revenue and 
adverse impact on domestic industries and agriculture need to be 
abandoned. The recent cut in customs duty on a host of items 
including cement, metals and chemicals just ahead of the Budget, 
was an ill-conceived move. The justification provided for the 
move in terms of curbing inflation is not at all convincing, 
since consumer price inflation is being mainly driven by primary 
articles like food items. These import duty cuts need to be 
reversed in Budget 2007-08, at least partially. 
 
Priorities for Pro-People Expenditure in Budget 2007-08 
National Commission on Farmers: In view of the continuing crisis 
 
KOLKATA 00000067  005 OF 008 
 
 
in agriculture, a substantial increase in the Plan outlays for 
Agriculture and allied activities and Irrigation and Flood 
Control should be made in Budget 2007-08. The recommendations of 
the National Commission on Farmers, which should be considered 
on an immediate basis, are: 
            a. Constitution of a Fund to assist farmers affected 
by crop losses. 
 
            b. Reduction of the interest rate for farm loans to 
4%. 
 
                c. Undertaking an all-India Debt survey and taking 
appropriate measures for debt relief including waiver for those 
farmers who are in distress. 
 
            d. Creation of a price stabilization fund for 
agricultural commodities. 
 
        e. Revamping of Agricultural Extension services through 
the establishment of farm schools and village knowledge centres 
across the country. 
 
        f. Expansion of crop Insurance to the entire country and 
cover all crops, and with greater flexibility to respond to 
local needs of farmers. 
 
Tariff Protection for Agriculture: The Approach Paper to the 
Eleventh Plan has also made some significant observations 
regarding agriculture: "There have also been too many cases in 
recent years when world prices have declined very sharply and 
compensating changes in tariffs have been unduly delayed. All 
this has lent credence to the view that WTO and globalisation 
are against farmers' interests and that the government is no 
longer committed to supporting farm prices. Such sentiments 
contribute to pessimism about farming, although in fact our 
tariff bindings in WTO are in most cases adequate to prevent 
prices falling below costs of production through WTO-compatible 
interventions...We also need to evolve a clearer understanding 
of how best to adjust import tariff to insulate farmers from 
collapses in international prices. This may require an internal 
mechanism that includes the Commission for Agricultural Costs 
and Prices for signaling automatic tariff revision." Budget 
2007-08 should put in place a mechanism on the lines suggested 
in the Approach paper, whereby automatic tariff revision can be 
made in the case of price crashes in agricultural products. 
 
Strengthening Procurement: The management of the food economy 
has become a matter of grave concern. Procurement of wheat has 
fallen drastically eventually necessitating imports at prices 
much above the procurement price paid to Indian farmers. The 
NCMP states "Farmers all over the country will receive fair and 
remunerative prices." This has clearly not happened so far. The 
Minimum Support Price policy has to be extended to more crops as 
well as more regions, where production increases are likely to 
take place, as has been noted in the Approach Paper to the 
Eleventh Plan. Fair prices have to be ensured for the farmers. 
This cannot be achieved by allowing private players to replace 
the FCI in procurement and storage of foodgrains. Rather, the 
FCI needs to be strengthened and procurement operations expanded 
through more fund allocation. 
 
Food Security and PDS: No concrete steps have been taken so far 
to strengthen the Public Distribution System, let alone moving 
towards universal food security as was promised in the NCMP. The 
linkage between controversial poverty estimates to allocations 
under the BPL quota for the States has been unjust to the poor. 
The number of BPL cardholders needs to be increased 
substantially besides bringing more items within the purview of 
the PDS like pulses, sugar and edible oil. The Antodaya scheme 
has to be expanded, especially in tribal areas afflicted by 
severe malnutrition. These steps have to be initiated in Budget 
2007-08, by increasing food subsidy if necessary. 
 
Rural Credit: Steps should be taken to revive the Regional Rural 
Banks and the Cooperative Credit Institutions and expand their 
network in order to reverse the trend of dwindling rural bank 
branches and increase the flow of credit to the rural poor. 
Currently, 13% of the priority sector lending is earmarked for 
agriculture. The Government should set norms to ensure that at 
 
KOLKATA 00000067  006 OF 008 
 
 
least 50% of total agricultural credit goes to the small and 
marginal farmers. 
 
Irrigation: Besides starting new irrigation projects, adequate 
funds should be allocated to expedite the completion of ongoing 
irrigation projects in a time-bound manner. A specific target 
should be set in Budget 2007-08 for the completion of some of 
the major irrigation projects by the end of the financial year. 
 
NREGA: The Employment Guarantee Scheme has to be extended to 200 
more districts in Budget 2007-08. One of the problems 
encountered in the implementation of the scheme so far has been 
the inadequacy of the works being undertaken, which has not made 
it possible to achieve 100 days of guaranteed employment in most 
districts. This needs to be corrected at the earliest. Besides, 
other wage employment schemes like SGRY should be expanded in 
the districts not covered under the NREGA. Increases in outlays 
on Bharat Nirman would also help in generating work in the rural 
areas. 
 
Education: Expenditure on Education has to increase 
substantially in order to meet the commitment of spending 6% of 
GDP on education. As the Right to Education has already been 
mandated by Article 21A, it is essential to ensure that 
sufficient funds are allocated to enable access to good quality 
public school education to all children in the country. The 
Central Government has to shoulder the major responsibility of 
ensuring the Right to Education by making adequate resource 
allocation. The proposed change in expenditure sharing on Sarva 
Shiksha Abhiyan between the Central and State governments (from 
75:25 as is being followed currently to 50:50) that has been 
proposed by the Planning Commission, has been strongly opposed 
by most of the States in the NDC meeting. This change should not 
be made. Additional funds for expanding secondary and higher 
education should be generated by increasing the education cess. 
Taxpayers do not resent paying the education cess since it 
directly contributes to social welfare through expansion of 
education in the country. 
 
Health: Expenditure on health has to increase substantially in 
order to meet the NCMP target of 2-3% of GDP. The condition of 
the primary health centres as well as the hospitals continues to 
be pitiable and falls far short of the requirements of the 
people. There should be a substantial increase in the outlay for 
both urban health programmes and the National Rural Health 
Mission in Budget 2007-08. Besides, the UPA Government has to 
live up to the promise of creating six AIIMS-type institutions 
in different parts of the country. 
 
Social Security for Workers: The proposed Social Security Scheme 
for the unorganized sector workers, a crucial commitment made in 
the NCMP, is yet to be initiated. Neither has any initiative 
been taken to frame a social security framework for agricultural 
workers so far. Budget 2007-08 should allocate sufficient funds 
for the initiation of these Social Security Schemes. 
 
Towards a Gender-sensitive Budget: Steps should be taken to 
fulfill the NCMP commitment of universalising the ICDS. The 
emoluments of ICDS workers should also be increased. While the 
initiative for Gender Budgeting in Budget 2006-07 was welcome, 
the concept was neither conceived nor implemented properly. 
Almost the entire Budget of the Ministry of Social Justice and 
Empowerment was shown as the gender component of the Budget as 
also the entire funds for the ICDS. This inflated the gender 
component substantially. What is required is a specified gender 
component in all employment generation, poverty alleviation and 
other welfare schemes and a gender-based target of 33% of all 
beneficiaries to be women. This should be done in Budget 
2007-08. A special allocation should also be made for the 
implementation of the Domestic Violence Act. Central allocation 
for widow pensions should also be increased. 
 
Special Measures for Dalits and Adivasis: Allocations for the 
Special Component Plan and the Tribal Sub-Plan should be 
increased substantially. Two specific commitments made in the 
NCMP related to the welfare of Scheduled Castes and Tribes are 
yet to be initiated. These are: 
 
(i)        A comprehensive national programme for minor 
 
KOLKATA 00000067  007 OF 008 
 
 
irrigation of all lands owned by dalits and adivasis. 
 
(ii)       Endowing land to landless families through 
implementation of land ceiling and land redistribution 
legislation. 
 
These programmes should be initiated in Budget 2007-08. 
 
Steps for the Uplift of the Minorities: In the backdrop of the 
Sachar Committee findings regarding the condition of the 
minorities, especially Muslims, the following steps should be 
initiated in Budget 2007-08: 
 
(i)        Formulation of a sub-plan for minorities on the lines 
of the Special Component Plan and the Tribal Sub-Plan, 
allocating 15% of total resources for employment generation, 
poverty alleviation and other development programmes for 
minorities, especially Muslims 
 
(ii)        A special initiative to commence development 
activities under Plan programmes on education, health and 
housing in the 100 districts with substantial Muslim population 
identified by Sachar Committee. In these welfare programmes, 
there should be a special focus on Muslim women. 
 
(iii)      It should be ensured that 15% of priority sector 
lending by banks goes to Muslims. 
 
Other Important Measures 
 
Reduce Petrol and Diesel Prices by Restructuring Duties and 
Taxes:  In the backdrop of the inflationary build up in the 
economy and in view of the significant fall in international oil 
prices, a cut in petrol and diesel prices should be brought 
about. This can be done without hurting the bottomlines of the 
oil companies if Budget 2007-08 takes concrete steps to do away 
with the ad valorem duty structure on oil imports and replace it 
by specific duties. Further, taxes on the retail price structure 
of petrol and diesel should be rationalized and the funds 
collected through the oil cess be used to create a Price 
Stabilization fund in order to avoid frequent revisions of petro 
prices. 
 
Provide Tax-Relief to Salaried Employees and Pensioners: The 
withdrawal of standard deduction of salaried employees along 
with the raising of the basic income tax exemption limit to Rs 
150000 made in Budget 2006-07 have put the salaried employees in 
a disadvantageous position compared to businessmen. Businessmen 
are able to book expenditures like travel, depreciation etc. as 
business activities while salaried employees cannot claim 
exemption on account of travel and other related expenses. This 
can be corrected through the reintroduction of standard 
deduction for salaried employees. Tax relief should be provided 
to senior citizens. The health allowance for pensioners who 
cannot access the CGHS should be enhanced. 
 
Revise Customs and Excise Duty to Protect Small Industries: The 
Tariff liberalization following Free Trade Agreements with 
countries like Thailand, Nepal and Sri Lanka have hurt sections 
of Indian manufacturers. This is particularly true for the 
Indian vanaspati industry, which is facing serious problems 
because of cheap imports from Nepal and Sri Lanka. The domestic 
rubber producers, especially the cooperatives, are also worried 
about cheap imports. The domestic colour TV manufacturers are 
being hit by imports from Thailand. Concerns have also been 
raised that some Indian producers are routing their produce 
through these countries in order to avail duty exemptions. 
Budget 2007-08 should address these concerns effectively by 
suitably revising customs and excise duties in order to protect 
small domestic producers. Besides revising customs duties 
upwards in some cases, a reduction of excise duties for Small 
Scale Industries in some of the sectors badly hit by import 
competition should be considered. 
 
Increase Investment by Central Public Sector Enterprises: A 
disturbing trend being noticed over the past few years is the 
unwillingness by highly profitable CPSE's to reinvest their 
profits and hold on to cash reserves instead. In fact, according 
to a recent report, CPSE's in crucial sectors like heavy 
 
KOLKATA 00000067  008 OF 008 
 
 
engineering, mining, steel, telecommunications, IT and chemicals 
have either reduced their investments or have marginally 
increased them despite earning huge profits. According to the 
data of the Department of Public Enterprises, net investment by 
all CPSEs in 2005-06 stood at Rs. 35118 crore only, whereas they 
had reserves and surplus worth over Rs. 300000 crore in 2004-05. 
Besides clearly showing the pointlessness of any move towards 
disinvestment of CPSEs in order to raise resources, this trend 
towards underinvestment by CPSEs have given rise to genuine 
concerns whether public investment is being held up in order to 
create space for private competitors. Budget 2007-08 should 
provide clear signals for a massive expansion of investment by 
the CPSEs in all the crucial sectors. Announcing the upgradation 
of some of the Miniratna PSEs into Navaratnas in the Budget 
would have a positive impact on the overall climate of public 
sector investment. 
 
Summing-up the Pro-People Measures Suggested for Budget 2007-08 
 
Increase Plan allocations to meet NCMP commitments. Raise 
resources by taxing the corporates and the rich. 
 
 Increase public investment in agriculture and irrigation. 
Expedite completion of ongoing irrigation works. 
 
 Reduce interest rate on farm loans for farmers to 4%. Provide 
Debt Relief to all debt-stressed farmers. Ensure 50% of priority 
sector lending to agriculture goes to small and marginal 
farmers. 
 
Check price rise of essential commodities. Strengthen 
procurement and increase agricultural production. Universalize 
the PDS by increasing food subsidy. 
 
Bring down prices of petrol and diesel by restructuring the duty 
structure on petroleum products. 
 
Extend NREGA to 200 more districts. Allocate more funds for the 
rural employment and infrastructure development. 
 
Increase expenditure on education to meet 6% of GDP. Increase 
education cess to fund expansion of education at all levels. 
 
Increase expenditure on health to 2-3% of GDP. 
 
Allocate funds to initiate social security scheme for 
unorganized workers. 
 
Universalize the ICDS. Introduce gender component in all 
development programmes and set gender based target of at least 
one-third of total beneficiaries being women. 
 
Commence national programme for minor irrigation of lands owned 
by dalits and adivasis. Redistribute land to landless families. 
 
Formulate sub-Plan allocating 15% of total resources on all 
development programmes for minorities, especially Muslims. 
Ensure 15% of priority sector lending target for minorities. 
 
Reintroduce standard deduction for salaried employees. Enhance 
health allowance for pensioners and allocation on widow 
pensions. 
 
Increase customs duties on sectors being hit by cheap imports. 
Reduce excise duties for Small Scale Industries. 
JARDINE