WORLD Bank on Tuesday launched a new catastrophe loan facility and revised an existing contingency credit line designed to help increase its business with middle-income countries. The World Bank board on Tuesday approved the Catastrophe Risk Deferred Drawdown Option that will give middle-income countries access to emergency funds in the event of a natural disaster such as a hurricane or earthquake. Countries stricken by disaster will be able to access funding of up to $500 million once a state of emergency is declared. Countries may qualify for the loan facility if they have a hazard risk management programme already in place that is monitored by the World Bank. World Bank president Robert Zoellick said the facility was an example of how the institution could be useful to middle-income countries, a diverse group that includes fast-growing economic powerhouses like China. In September, Mr Zoellick cut the price the World bank charged on its loans and simplified a complex set of fees and waivers for emerging economies, which were increasingly tapping global capital markets for funding. "These financial product enhancements reflect the World Bank Group's commitment to using creative ways to expand resources for our country partners,' Mr Zoellick said. "As our client relationships with middle-income countries become more sophisticated, the World Bank is responding with development solutions that share knowledge, build markets and institutions, and provide capital,' he added. The World Bank board separately also approved changes to its existing Deferred Drawdown Option (DDO), a pre-approved line of credit for countries which do not immediately need the funding but have access to it in the future in case of an unforeseen event. Only two countries

The Plan outlay of Maharashtra for 2008-09 has been pegged at Rs 25,000 crore inclusive of additional Central Assistance of Rs 250 crore for projects of special interest to the State. This was agreed at a meeting between the Deputy Chairman Planning Commission, Mr Montek Singh Ahluwalia, and the Chief Minister of Maharashtra, Mr Vilasrao Deshmukh, here today. In his opening remarks, Mr Ahluwalia said performance in both human development and growth rate of the State was satisfactory as it is all set to achieve growth rate above national target for the Eleventh Plan. Against 3.8 per cent growth rate in Ninth Plan, the State has recorded growth of 8.2 per cent in the Tenth Plan. Improving urban infrastructure, housing, irrigation and agriculture should be given priority during the Eleventh Plan. He said the Commission was keen to improve performance of centrally sponsored programmes and invited suggestions on flexibility needed in the guidelines of these programmes.

A plan of Rs 25,000 crore for Maharashtra for the year 2008-09 was on Wednesday approved by the Planning Commission at a meeting in New Delhi. The approval was given during today's meeting of Chief Minister Vilasrao Deshmukh with Planning Commission deputy chairman Dr M S Ahluwalia. This year's plan is Rs 4,800 crore higher than the previous year, an official release said here. The Planning Commission expressed satisfaction over the performance shown by the state government in various sectors and the formation of the minority welfare department in the state. The chief minister had demanded allocation of Rs 210 crore for Youth Commonwealth Games scheduled to be held in October at Pune. He had also demanded Rs 400 crore for the Mithi river beautification project. Complimenting the State on satisfactory growth rate and fiscal performance, Ahluwalia said Maharashtra was poised to exceed the projected national average growth rate of nine per cent for the 11th Plan (2007-12). He, however, stressed the need to improve urban infrastructure, irrigation and agriculture during the Plan. He further said the Centre was keen to improve connectivity with Mumbai. Also, the Western Freight Corridor Construction Work was likely to begin this year. He also drew the attention of the state towards depleting forest cover, rural poverty and child sex ratio. It was pointed out that state needed to step up efforts in the power sector for encouraging investment.

Even as there were no easy ways of balancing high economic growth with low inflation, Finance Minister P. Chidambaram on Tuesday said the Government would strive to peg the overall growth rate at near nine per cent while containing the inflation rate at close to four per cent. In his post-Budget interaction with the Confederation of Indian Industry (CII) here, Mr. Chidambaram said: "The goal is to have a growth close to nine [per cent] and inflation close to four [per cent]. That is why we assume 13 per cent [nominal] GDP growth.' Pointing out that in this exercise, while the Government sometimes succeeded and also missed the target at other times, he said: "In a country where economy is growing close by over eight per cent, close to nine per cent, there is bound to be some inflation.' Inflation in India, he said, was caused by supply-demand mismatch between food items and the oligopolistic tendencies in some industries. Besides, the growth in money supply was yet another reason which, in a sense, was a reflection of the high growth the country was experiencing. However, to keep the India growth story intact, Mr. Chidambaram pointed to the numerous measures announced in the budget for 2008-09. "I think we have announced a number of measures that are intended to ensure that the growth story is intact... I am betting on your [corporates] growth. I am bullish on your growth. I hope you are as bullish as I am about the growth story,' he said. Projecting that India Inc. would provide Rs. 5,50,000 crore next year by way of taxes, excluding personal income-tax, Mr. Chidambaram noted that while steps had been taken to provide more money to the consumer for spending, the fiscal stimulus to the economy would come from the cuts in excise and customs duties and the Central Sales Tax. "Unless my friend Shubhashis Gangopadhyay [Adviser to Finance Minister] and other economists are hopelessly wrong about their economics, all these make up for the text-book prescription for higher growth,' he said. These measures together, including the across-the-board excise cut from 16 per cent to 14 per cent, were a powerful combination to keep the growth story intact. "I have taken the first step to signal the whole country, especially States, that I prepare to look forward in order to accommodate my financial interests with the final number [for goods and services tax], and you can prepare to accommodate your financial interests with the final number,' Mr Chidambaram said.

A GLOBAL economic slowdown is underway. What began as a problem in a single sector in a single economy

Support for further economic reforms in the context of India's globalisation will be mustered more easily if the deprived sections are assured of some safety net, says M K Venu FINANCE minister P Chidambaram's fifth budget stumped the chattering classes, mostly with incomes of well over Rs 10 lakh a year. The Rs 10-lakh income threshold is relevant because there are less than 300,000 people in India showing a taxable income of Rs 10 lakh and above. But they exercise disproportionate influence on policy. There are many more in the above income category, who do not pay taxes and probably have even greater influence on public policy! The budget also stumped economists, who are also part of the chattering classes. Initially they did not know what to make of a budget that seemed to give everything to everybody. The budget certainly did not lend itself to instant analysis on television channels where many economic pundits were sitting. In the first flush, one economist simply said he was overwhelmed, and didn't know how the numbers would work after so much goodies were handed out by the finance minister. "I am overwhelmed', is what he kept saying. The impatient TV anchor, obviously looking for a one liner, kept pressing, 'Is it good or bad?'. The only reply was,' I am overwhelmed.' It didn't take long for everyone to realise that it is not necessary for numbers to strictly add up in politics. In certain situations, sentiment and psychology can subsume numbers that don't add up. Which is why politics is often described as the art of the possible. While economics parades as an exact science, there are times when economists get lost in their linear frameworks and miss the wood for the trees. Further, what really stunned the chattering classes was someone like Dr Manmohan Singh or P Chidambaram could come up with such a massive loan waiver package. They associated such acts with politicians like the late Devi Lal, Charan Singh or among contemporaries, Prakash Singh Badal and M Karunanidhi. How could Manmohan Singh and Chidambaram do this, was the main question on their lips. However, at the end of the day the budget seemed to have got overwhelming support, if one went by how the vernacular press treated the finance minister's announcements. Politically, it is one of the sharpest statements one has come across in the past decade and a half. Chidambaram's dream budget in 1997 too had a mesmeric impact on the people but this one covers a much wider terrain in its inclusiveness, whatever critics may carp about. It took a while for the immensity of the political statement to sink into the BJP leaders. Initially some leaders tried to attack the Rs 60,000 loan waiver as irresponsible. Later, possibly after deeper consultations within the BJP leadership, it was decided to tone down the attack. The politics of it was visible even in Parliament when Chidambaram said only kulak landlords will oppose loan waivers for small farmers holding up to two hectares of land. The invocation of kulak landlords has an interesting dimension. Politically, it is significant that the Congress is attempting to wean the poorest among the backward caste, scheduled castes and minorities away from regional parties that have established themselves over the years. This would easily rank as among the most audacious attempts by the Congress to upset the present political arithmetic of various strong regional parties. If viewed in this perspective, it becomes easy to understand why considerations such as fiscal profligacy and misplaced budget assumptions do not stand a chance. In any case, of late, a feeling had developed in non-urban India that the country was reaping the riches of globalisation, in terms of mounting forex reserves, high corporate profits, and government revenues doubling in three years. IN SUCH a situation it becomes difficult to convince the other India that fiscal belt tightening is the way to go. Besides, this would be most hypocritical as even anecdotal evidence would suggest that the bulk of the growing government subsidies today are consumed by the urban middle class. Just take the Rs 71,000-crore energy subsidy. Over 80% of it must be going to the urban middle class. The finance minister has also been careful in not going overboard while opening the purse strings. He has kept enough head-room in his fiscal deficit target to ensure that some discipline remains. For instance, he has budgeted fiscal deficit at 2.5% of GDP, when he could have kept a target of 3% as per the FRBM timeline. He can technically spend extra about 0.5% of GDP or Rs 20,000 crore, without violating the FRBM Act. In fact, the expenditure on loan waiver in the first year could be no more than Rs 20,000 crore. Operationally, the waiver of Rs 60,000 crore will occur over three years. More interestingly, much of the write-offs will happen among loans which are already sitting as non-performing assets (NPAs) in banks. So the bank books will get cleaned up to that extent. In lieu of the write-offs, the banks could receive government bonds which they could liquidate in the market or sell to the Reserve Bank of India. True, this may constitute another offbalance sheet borrowing by the government. Even after taking some of the off-balance sheet items, heavens won't fall if the fiscal deficit moves up to 4% of GDP. What is the great sanctity to the 3% figure, one fails to understand. Both oil and food subsidies today are being enjoyed across the board by urban and rural India, and these subsidies have helped to keep food prices under control. It is difficult to imagine the political class surviving if the price of wheat in India were to track international trend. Global wheat prices have doubled in the past year. The price of other mass consumption items such as edible oil too has been maintained at lower than international price. Bad economics, but good for collective survival. So current circumstances in the global economy are exceptional and the budget has done well to admit that there are off-balance sheet subsidies whose value is growing by the day on account of rising global prices. Finally, support for further economic reforms in the context of India's globalisation will be mustered more easily if the deprived sections are assured of some safety net. The benefit of all this will eventually accrue to the growing aspirational middle class. This perspective must not be lost sight of. After all, it is in the interest of the emerging bourgeoisie to keep the present system alive and ticking.

Is the 2007-08 fiscal deficit 3.1 per cent of GDP, or is it 3.5 per cent

The All-India Democratic Women's Association (AIDWA) has hailed Union Finance Minister P. Chidambaram's initiative of taking cognisance of the huge agrarian crisis and taking steps to bring relief to farmers, who include a large number of women also. In a statement, Subhashini Ali, president, and Sudha Sundararaman, general secretary of the AIDWA, said the measures for debt waiver and debt relief did not, however, address the critical issue of loans taken from private moneylenders. Secondly, many regions in the grip of crisis such as Vidharbha and Rayalaseema were dry land, where individual holdings were usually more than two hectares, eligible for relief. The crucial question of reduction in the rate of interest to 4 per cent on agricultural loans was ignored. Finally, it was not just debt relief but rejuvenation of the entire agricultural sector through a massive increase in public spending that would alleviate this crisis, the statement said. After four years, the United Progressive Alliance (UPA) government heeded to the voice of lakhs of anganwadi employees but their demand for an increase in wages was met only partially. Secondly, the budget did not reflect the allocations for universalisation of the Integrated Child Development Services and make 14 lakh anganwadi centres functional by the end of 2008 as per a Supreme Court directive, especially at a time when child malnourishment and infant mortality continued to remain high. Given the huge increase in the prices of essential commodities, especially wheat, rice, pulses, it was expected that the budget would suggest measures to curb inflation, which was exacerbated by the recent increase in fuel prices. Food security The statement said the UPA gave an undertaking in the Common Minimum Programme (CMP) to strengthen the public distribution system and move towards universalising it. However, the meagre increase in the food subsidy allocation from Rs. 31,456 crore last year to Rs. 32,667 crore was hardly adequate to ensure basic food security for more than 70 per cent of the population that lived below poverty line. "This cannot meet the needs of food-deficit States such as Kerala, as well as States that were adversely affected by the recent cuts in allocations of foodgrains,' it said. The allocations for health and education remained far below the targets set in the CMP and the decision to shift the burden of the Sarva Shiksha Abhiyan to the States showed the lack of commitment of the Centre to implement the constitutional guarantee of right to education. "As far as gender budgeting is concerned, we welcome the fact that more Ministries had provided a gender budget analysis of their expenditure,' the statement added.

P. Chidambaram Finance Minister P. Chidambaram on Saturday conceded that the challenge thrown to Opposition members who were dubbing the Rs. 60,000-crore farm loan waiver programme proposed in the Union Budget for 2008-09 as an election sop "to stand up and be counted and not duck the issue' was, in fact, a political one. "It is

A day after presenting his fifth Budget in the UPA government, Finance Minister P Chidambaram said budgets did not win elections, unless they were properly marketed. In a detailed interview on Saturday, Chidambaram said he still aimed at nine per cent growth for the economy in 2008-09. He also indicated that the surcharges on income-tax should go, provided revenues remained buoyant. Excerpts from the interview: You have presented five budgets in a row and looking back at them, what would make you the happiest about them and what would disappoint you? My happiest moments would be that my batting average so far has been 8.8 per cent. That is the economy. What about the Budget per se? The Budget was intended to set the course and pace of the economy and I think we have done fiscal consolidation, although we can argue about some items below the line. I think we have demonstrated that moderate and stable tax rates bring better tax compliance. We have demonstrated what inclusive growth is, that instead of being fixated only on growth, we can use the growth process to promote inclusive growth. I think these are many of the happy memories of the last four years. The disappointment is that we should have taken the reform process forward faster. There are still large areas of the economy which are under government controls. And if these controls had been removed, the economy would have grown faster. In case this is your last Budget? I will be happy if this is my last Budget. There are other things to do in life. People are calling this as an election Budget. Is that the way to look at it? For the last few years, every Budget has been an election Budget because every year is an election year. 2006 was an election year, 2007 was an election year, and 2008 is an election year. I think that is not a very correct way to describe it. I have presented the fifth Budget of this government and, according to schedule, the elections are in May 2009. So I would not agree that it is an election Budget. Will it help you win the elections? Budgets do not decide elections. It is how you communicate to the people what the Budget contains and what it wishes to do in the next year, which happens to be the election year. Take, for example, the Tamil Nadu state elections in 2006. It was the election manifesto which won the election. Likewise, a Budget, if it is communicated well to the people, can help win an election and what is wrong in that? You have done a Budget where there is a lot for the people, for farmers, for the middle class, tax payers, although companies are unhappy. So having done this, why not just go ahead and sign the nuclear deal and tell the Left if it wants to withdraw support, it can go ahead, as you now have something to go to the people with? These are the questions you need to address to the UPA leadership and the Prime Minister. I am only a finance minister. You have introduced many new taxes over the years and now you removed one of them, the banking cash transaction tax. I said so even when I introduced it. It is not a tax revenue raising measure. It is only a source of income issue. I would like to go back to your speech in 1997 when you said I propose to amend certain sections of the Income-Tax Act, to provide for the removal of artificial disallowances, travel and hotel expenses incurred for legitimate business purposes and you said it was a matter of simplification. So using that logic, why would you not do away with the fringe benefit tax, as a matter of simplification? I have explained this a number of times. I can deal with that expenditure as allowable or disallowable expenditure, which means I need discretion in the hands of the assessees. It was the assessing officer who enjoyed the discretion for many years until we brought in FBT. Now the assessing officer has no discretion. If this expenditure is made, you can take a base of 50 per cent or 20 per cent and we tax it. I think this is far better than leaving discretion in the hands of the assessing officer to decide whether the expenditure is allowable or to be disallowed. There is complication in FBT on employee stock options, for which industry might have come to you hundreds of times. I will take you into confidence. The FBT on employee stock options has been worked out in close consultation with industry CFOs. On the personal income-tax front, a tax payer may see halving of his income tax liability. If somebody makes Rs 5 lakh a year, he is earning Rs 40,000 a month. Most probably he lives in a city or a town. Rs 40,000 in a city or a town for a family is not a very large income. Of course, we have given him the tax relief, because compliance has increased, revenues have improved and I think moderation by adjusting the slabs will bring in more revenues. You will lose some of the revenue due to changes in the slabs. A large number of people move on to pay tax so that they can have a larger part of income on their balance-sheet and they can build capital. So when we move the tax slab, an assessee would not stop paying tax. He will still pay the tax that he paid the previous year and even build more capital for himself. So, we will get the revenues. You have assumed that income-tax revenue will climb by 18 per cent in 2008-09. It is a very reasonable assumption. People paying tax will continue to pay tax. They will simply comply better and I do not want to say anything more. They have been very nice to the Government in the past few years. Why should I say anything unkind about tax payers? Compliance will improve and I am sure everybody will comply better and we will get the revenues. That is our assumption and that is our assessment of the situation. There is no reason to assume that direct taxes will not grow at the same rate as this year. That is the question I have on corporation tax, because the trend in corporate profits shows a clear slowdown and is now running at around 15 per cent. Yet you assume a more than 20 per cent increase in corporation tax next year? I expect the demand to push up corporate toplines as well as bottomlines. There are signs that the global economy may slow down. Is it time to ensure that India keeps away from it by taking some measures? I said so in my speech that there is a slowdown especially in the consumer goods, and more particularly in consumer durables. I have identified various sectors - cars, two-wheelers, three-wheelers, paper and we have even cut taxes for buses and chasses. What about the corporation tax rate? Companies are doing well. They are making good profits. They are paying good taxes and it still works out to about 22 to 23 per cent effective tax rate for all companies. There is no reason to tinker with it this year. Why fix something which is not broken? You have been listing tax concessions that the government gives away. Would it not make sense to drop the nominal rate and remove some of the concessions? If you can get me agreement from the three chiefs of the chambers of commerce on which concessions can be removed, I will be very happy to do that. Every exemption provision has a lobby behind it. Let us now turn to the biggest announcement of the Budget, the farm loan waiver scheme. One of the questions is that it is meant only for those whose loans are overdue. But what about those who have sold their jewellery, land and have actually repaid the loans but will not get the benefit? So, what can I do about it? See it is always easy to pit one against the other. People will say what about those who borrowed from moneylenders. There is nothing I can do about it. There is no quantification of that