labels: economy - general, union budget 2004 (feb 2004)
FM pleases the electorate again news
Our Economic Bureau
10 January 2004

In his second unpredictable announcement, Finance Minister Jaswant Singh followed up Thursday's "unexpected" package of wide ranging downward duty revisions, through what he referred to as a mini-budget (directed at the urban middle-class and the industry), with yet another package on Friday, aimed at promoting small and medium scale industry, agricultural infrastructure, rural housing and sanitation. In addition, he also announced schemes for the elderly and students.

For senior citizens above 60, hit hard by the decline in bank saving rates, he has announced a bond scheme (be introduced from April 1, 2004) with higher interest than the prevailing market rate, and higher educational loans for students at two per cent below existing prime lending rate (PLR). These announcements were made at a meeting with editors at a select briefing. On Thursday, Singh had granted duty relief (usually contained in part B of the budget) worth Rs 10,000 crore to various sectors of industry.

Friday's announcements, which supplement those made on the previous day, also attempt to minimise the food subsidy burden on the budget. The Food Corporation of India (FCI) will be allowed to borrow from the market from April 1, 2004, through bonds backed by a government guarantee. This will enable FCI to fund its requirements at a rate that broadly reflects the cost of capital for the government, which at present averages 7.5 per cent per annum. This is expected to reduce the revenue expenditure on food subsidy by Rs 2,000 crore a year.

Observing that the rapid growth of the housing sector has been confined to urban areas, Singh said the government would rationalise the existing schemes and give a similar fillip to rural housing and sanitation through the 'Atal Grameen Griha Yojana' . This will include, among others, a mechanism to provide insurance cover against defaults arising from any non-enforceability of the security because of defects in the title or title disputes.

Singh also proposed incentives to lending agencies for rural housing finance and compensate all commercial banks, regional rural banks (RRBs) and housing finance institutions for higher non-performing assets (NPAs) in rural areas by introducing a new fiscal benefit by way of tax exemption on the entire income derived from advances for rural housing. The National Housing Bank in consultation with RBI will identify ways of introducing an element of flexibility for repayment in line with harvesting seasons and other conditions peculiar to rural areas.

Most of these schemes entail funding by appropriate agencies at 2 per cent below the prime lending rate (PLR). The difference of 2 per cent rate of interest will be made good to the lending agencies.The cost to the exchequer is not expected to be more than about Rs 40-Rs 50 crore per scheme annually. Besides, all the schemes are to be implemented either within four weeks or by April 1, 2004.

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FM pleases the electorate again