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INFO RUEHNE/AMEMBASSY NEW DELHI PRIORITY 1784
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RUEHBI/AMCONSUL MUMBAI 0824
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC
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RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEIDN/DNI WASHINGTON DC
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RUEHCI/AMCONSUL KOLKATA 2325

UNCLAS SECTION 01 OF 02 KOLKATA 000074 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT PASS USTR  - CLILIENFELD/AADLER 
DEPT PASS TREASURY FOR OFFICE OF SOUTH ASIA - MNUGENT 
USDOC FOR 4530/ITA/MAC/OSA/LDROKER/ASTERN 
USDA PASS TO TERPSTRA AND FAS/CARVER/RADLER/RIKER 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD EAGR PREL PGOV IN
SUBJECT: INDIA'S LEFT TO PUSH FOR MORE TAXES AND EXPENDITURES IN 
2008-2009 BUDGET 
 
REF: DELHI  0604 
 
¶1. (SBU) SUMMARY:  February 25-26, the Communist Party of 
India-Marxist (CPM) leadership met with Union Finance Minister 
¶P. Chidambaram to present the Left's budget proposals prior to 
Finance Minister's submission of the budget to parliament on 
Friday, February 29.  The Left is hoping to pressure the United 
Progressive Alliance (UPA) government to adopt a range of 
measures that would increase taxes and expenditures.  Some 
highlights of the proposals include:  reintroduction of 
long-term capital gains taxes and increasing the short-term 
gains taxes, writing off debts for small and marginal farmers 
and increasing food subsidies.  While some of the Left's 
proposals may not be incorporated into the Budget, the Left has 
been successful in past budgets in increasing expenditures, such 
as in the national Employees Provident Fund Organization and 
have had a significant influence in broader economic matters, 
such has blocking reforms in insurance, pensions and Foreign 
Direct Investment (FDI).  As the political parties prepare for 
national elections to be called prior to May 2009, the wrangling 
over this budget will take on greater significance, prompting 
the Left to take a strong line in pushing its proposals.  END 
SUMMARY. 
 
-------------------- 
The Expenditure Side 
-------------------- 
 
¶2. (U) The CPM and its allies, the Communist Party of India 
(CPI), Forward Bloc (FB) and Revolutionary Socialist Party 
(RSP), presented their proposals against a backdrop of what they 
describe as an agrarian crisis in India and rising income 
disparities.  (Note:  The complete Left budget proposal is 
available online at http://www.cpim.org.  End Note.)  The Left 
argued, "resources have to be mobilized by taxing profits and 
capital gains, which are increasing at rates many times faster 
than the overall growth of national income.  Myriad tax 
concessions to corporates and affluent sections, which are 
nothing but subsidies to the rich, should be progressively 
eliminated in the backdrop of growing income inequalities. 
Rather than being obsessed with the growth rate, Budget 2008-09 
should concentrate on redistributing the benefits of growth to 
all sections of the people, particularly the socio-economically 
weaker sections."  The Left outlined the following key goals: 
 
(i) Significantly increasing public investment in agriculture, 
 
(ii) Spending 6% of GDP on education, 
 
(iii) Spending 2-3% of GDP on health, 
 
(iv) 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, 
 
(v) Ensuring a comprehensive social security scheme for workers 
in the unorganized sector, 
 
(vi) Universalizing the Integrated Child Development Services 
(ICDS) and 
 
(vii) Moving towards universal food security. 
 
¶3. (U) The Left's recommendations identified 13 specific areas 
where more resource must be provided; of which one of the more 
notable proposals was a Farmers' Debt Relief Commission, with 
the mandate to write off the debts for small and marginal 
farmers.  The interest rate on farm loans should be reduced to 4 
percent (simple interest) from the present 7 percent.  The Left 
also want the food subsidy raised in order to expand procurement 
operations and to create a universal public distribution system. 
 
¶4. (U) Another important demand was to extend the National Rural 
Employment Guarantee Assistance (NREGA) to all districts in 
India.  Under this scheme, the GOI guarantees 100 days of 
employment to a member of a rural family.  The Left pushed for 
extension of NREGA to urban areas as well. 
 
¶5. (U) The Left also demanded budgetary allocation to implement 
 
KOLKATA 00000074  002 OF 002 
 
 
the Sachar Committee recommendations on improving the state of 
minorities, primarily Muslims; higher allocations in development 
schemes for Scheduled Tribes and Scheduled Castes; housing for 
the urban poor and a threefold increase in the allocation for 
ICDS. 
 
---------------- 
The Revenue Side 
---------------- 
 
¶6. (U) On resource generation and taxation issues, the Left had 
five points for the Finance Minister.  It wanted an additional 
USD 15 billion gross budgetary support for the central Five Year 
Plan to meet commitments made in 2004 under the Common Minimum 
Program (CMP) agreed to by the UPA and the Left parties.  The 
Left was opposed to deficit targets laid down by the Fiscal 
Responsibility and Budgetary Management (FRBM) Act.  This Act 
mandates the Finance Minister to report to the Parliament steps 
taken to contain fiscal deficit.  The Left position was that 
fiscal deficit targets specified by the FRBM Act restrict 
development expenditure. 
 
¶7. (U) The government must also accept the recommendations of 
the Parliamentary Standing Committee on Commerce and rationalize 
"exorbitant tax concessions" given to Special Economic Zones 
(SEZs).  The Left would like the government to amend the SEZ 
Act.  It has also called for reintroduction of the long-term 
capital gains tax and an increase in the rate of the short term 
capital gains tax.  The Left was opposed to the increase in the 
price of petroleum products.  Instead, it required withdrawal of 
the ad valorem duty structure and introduction of specific 
duties.  It also wanted a price stabilization fund for petroleum 
products to be set up with resources generated through the oil 
cess.  Conceptually, this is similar to the oil pool account 
which the Government of India dismantled on April 1, 2002. 
 
¶8.  (U) Finance Minister Chidambaram will have to give some 
consideration to the Left's budget as in the past, Left parties 
have successfully influenced the budget and, in general, have 
blocked important economic reform measures.  In August 2004, 
Finance Minister Chidambaram had reduced the interest rate on 
the national Employees Provident Fund (EPF) from 9.5 percent to 
8.5 percent.  The Left prevailed on UPA government and forced it 
to reverse the decision.  The government reverted back to 9.5 
percent in February 2005.  Although the Commerce Ministry is in 
favor of setting up SEZs, the Left has used its influence to 
block amendments to SEZ laws.  In broader economic issues, the 
Left has also been instrumental in blocking FDI in retail and 
insurance, and stopping provident fund reforms planned by the 
GOI. 
 
¶9. (SBU) COMMENT:  As the last budget prior to national 
elections expected in 2009, the political parties will be 
maneuvering during the budget negotiations to extract political 
benefit, introducing sops that they can claim credit for during 
the anticipated campaigning.  The UPA's dependence on the Left 
to maintain its coalition government has given the Left 
significant influence over budgetary matters and economic 
policy.  While the Left's proposals will not all be accepted, 
the budget will likely reflect aspects of the Left's demand for 
increased expenditures on various social projects, many of which 
are already part of the UPA's National Common Minimum Program 
and some of which are arguably critical areas of needed public 
investment, such as in health and education. If the Finance 
Minister can limit the Left's impact to necessary public 
investments, he will be able to blunt the stifling influence of 
India's Left as it seeks to block reforms, raise taxes and to 
expand the public sector. 
 
10 (U)  This message was coordinated with AmEmbassy New Delhi 
JARDINE