Budget: Impact on Commodity Sector

Budget: Impact on Commodity Sector


Indian Finance Minister Palaniappan Chidambaram presented the federal Budget for 2008/09 on Friday, the fifth and final full one of the Manmohan Singh government before the general elections due for May 2009.

In the Budget, the government has expressed its determination to be self-sufficient in food grains. This will be helpful for sustaining the growth of Indian economy. The Ministry of Agriculture has estimated the total output of food grain in 2007-08 to be 219.32 million tonnes, which will be an all-time record.

From the point of view of the commodity sector, most of the small farmers should get the leverage of their debts being waived. Chidambaram has announced that the government will waive debts of small farmers. Farms up to 2 hectares will have a complete waiver of loans. The debt waiver scheme will cover 500 billion rupees of loans.

This loan waiver move is expected to benefit small farmers. All agricultural loans disbursed by scheduled commercial banks, regional rural banks and cooperative credit institutions up to March 31, 2007, and overdue as of December 31, 2007 will be covered under the scheme.

In the Budget, Chidambaram has allocated Rs 500 crore in 2008-09 for a Micro Irrigation Scheme, which will cover 400,000 hectare of agricultural land.

National Horticulture Mission covering 340 districts in 18 States and two Union Territories, will be provided Rs.1,100 crore in 2008-09.

500 soil testing laboratories are to be set up during the Eleventh Plan with government assistance of Rs.30 lakh per laboratory; there is going to be a one-time allocation of Rs.75 crore to the Ministry of Agriculture in order to provide one fully-fitted mobile soil testing laboratory each to 250 districts of the country.

Special Purpose Tea Fund for re-plantation and rejuvenation will be provided Rs.40 crore in 2008-09; similar support to cardamom, rubber and coffee; crop insurance scheme for tea, rubber, tobacco, chilli, ginger, turmeric, pepper and cardamom are to be introduced. This will be helpful for re-plantation and developing the existing plantation.

National Plant Protection Training Institute at Hyderabad will be converted and upgraded into an autonomous National Institute of Plant Health Management.

National Agriculture Insurance Scheme (NAIS) will be continued in its present form for Kharif and Rabi 2008-09. Rs.644 crore is provided for the scheme. The scheme assures insurance for the crop under Kharif and Rabi. Also the Weather Based Crop Insurance Scheme implemented as a pilot scheme in selected areas of five States is to be continued; Rs.50 crore provided for this purpose in 2008-09.

The government will continue to provide fertilizers to farmers at subsidized prices; Proposals to move to a nutrient based subsidy regime and alternative methods of delivery being examined.

But the proposal to introduce a transaction tax in Commodity Futures Trading, on the same lines as STT on options and futures, may affect the turnover of commodity exchanges.

It would be an additional burden for everyone involved in commodity future trading as the government has proposed increasing short-term capital gains tax to 15 percent.
 
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