Indian budget to widen trade deficit, fuel inflation

The Indian budget is going to impact Nepali economy as it has continued huge subsidy to the agriculture sector and slashed taxes on export items.

Finance secretary Shanta Raj Subedi – a discussion today at the ministry on possible impact of interim Indian budget and its impact on the Nepali economy – during asked senior ministry officials to study the possible impact and find a solutions to address them in the budget for the next fiscal year.

The interim Indian budget ahead of the general election in India has allocated huge subsidy to the agriculture sector, slashed taxes on export items and reduced excise duty on small cars and motorcycles.

But Nepali exports will be hit and trade deficit will continue to widen due to the Indian budget, the officials concluded, particularly concerning about the possible surge in imports of agricultural products – due to subsidy – from the southern neighbour and put extra pressure on domestic agriculture sector.

The huge subsidy to agriculture sector will make Indian agricultural products competitive compared to local products, Subedi said, adding that it would also increase exports of Indian agricultural products to Nepal.

Nepal's trade deficit with India has reached Rs 190.95 billion, out of the overall trade deficit of Rs 288.76 billion, according to the central bank.

Likewise, the ministry officials also discussed on possibility of capital flight due to expansion drive of Indian insurance companies in the bordering towns.

However, the reduction of excise duty on sports utility vehicles (SUVs) from 30 per cent to 24 per cent, and large and mid-segment cars will have no impact on Nepali economy.

Government hikes gold import duty

To check the cross border smuggling, the government today revised the custom duty in the imports of gold upwards.

After India hiked the duty in the fiscal policy, there has been rise in the cross border smuggling of the precious yellow metal.
A cabinet meeting today hiked the import duty of gold to Rs 2,300 per 10 gram from Rs 1,500.
Earlier, the government had revised the custom duty on imports of gold to
Rs 1,500 from Rs 1,000 per 10 gm and to Rs 4,600 from Rs 2,400 per kg of silver in February.
According to Nepal Gold and Silver Dealers’ Association (Negosida), with the hike in the imports duty, the gold price might go up by around Rs 500 per tola (11.644 gm).
The gold and silver traders had been demanding Rs 2,500 hike in the custom duty on gold to check cross border smuggling due to lower customs duty in Nepal than in India. After India had hiked the custom duty on standard gold to four per cent from two per cent, and customs duty on non-standard gold to 10 per cent from five per cent in its budget in March.

Highlights of Indian interim Budget

Following are the highlights of the Indian interim budget presented by Minister for External Affairs Pranab Mukherjee in the Lok Sabha on Monday.
* Plan expenditure for 2009-10 pegged at IRs.952,231 crore (IRs.9.52 trillion)
* Budgetary support for 2009-10 at IRs.2,85,149 crore (IRs.2.85 trillion), 17.16 percent
* Additional plan expenditure between 0.5 percent to 1 percent of GDP may be considered
* Fiscal deficit forecast 5.5 percent of GDP for 2009-10
* Revenue deficit forecast 4 percent of GDP for 2009-10
* Subsidy for food, fertiliser and petroleum at IRs.95,579 crore
* Defence allocation increased to IRs.141,703 crore (IRs.1.417 trillion)
* Urban renewal spending pegged at IRs.11,842 crore (IRs.118.42 billion)
* Rural sanitation spending at IRs.1,200 crore (IRs.12 billion)
* National rural health mission spending at IRs.12,070 crore (IRs.120.7 billion)
* Rural infrastructure development outlay at IRs.14,000 crore (IRs.140 billion)
* Midday meal scheme spending at IRs.8,000 crore (IRs.80 billion)
* India remains second-fastest growing economy in the world
* Economy expected to grow 7.1 percent this fiscal
* Need to make economic growth inclusive
* Government spent IRs.70,000 crore (IRs.700 billion) on 37 infrastructure projects in 2008-09 * Under public-private partnership (PPP), 54 central infrastructure projects approved
* Total expenditure of PPP projects estimated at IRs.67,700 crore (IRs.677 billion)
* India Infrastructure Finance Company to raise IRs.10,000 crore (IRs.100 billion) by end-March
* India has weathered inflation crisis, but no room for complacency
* Country's agriculture outlook is encouraging
* Focussed attention to agriculture
* Plan allocation for farm sector hiked 300 percent in past five years
* Three-fold increase in short-term agriculture credit to IRs.250,000 crore (IRs.2.5 trillion)
* Farm debt worth IRs.65,300 crore (IRs 653 billion) waived
* Government will continue to provide additional subsidy to farmers
* Corpus of Rural Infrastructure Development Fund hiked to IRs.14,000 crore (IRs.140 billion) from IRs.5,500 crore (IRs.55 billion)
* Outlay for higher education hiked 900 percent for 11th Five Year Plan
* Country's social security net will be strengthened
* New scheme unveiled for young widows in the age group of 18-40
* New disability pension scheme introduced for age group of 18-40
* 15 point programme for welfare of minorities set up
* Record foreign direct investment of $32.4 billion attracted
* Global economic situation not encouraging
* Extraordinary situation merits extraordinary measures
* Need to consider additional fiscal measures in regular budget
* Financial sector reforms need to be accelerated
* Non-performing assets (NPAs) of public sector banks have declined
* State-run banks see NPAs drop from 7.8 percent to 2.3 percent in four years
* Number of loss-making state-run units down from 73 to 58
* Profit-making units up from 143 units to 158 units
* In past three years, India grew by average of over 9 percent
* Per capita income expanded by 4.7 percent per annum
* Fiscal deficit was brought down from 4.5 percent to 2.7 percent
* Revenue deficit was cut from 3.6 percent to 1.1 percent
* Exports increased 26.4 percent per annum
* Foreign trade increased from 27.3 percent to 35.5 percent
* Tax to gross domestic product ratio expanded by 9.2 to 12.5 percent
* Agriculture grew by 3.7 percent per annum
* Revised estimates for 2009-09 peg plan expenditure at IRs.282,957 crore (IRs.2.83 trillion)
* Central plan increased for host of areas like telecom, rural development
* Tax collections expected to fall to IRs.627,949 crore (IRs.6.28 trillion)
* Revised revenue deficit is 4.4 percent of GDP against one percent
* Revised fiscal deficit at 6 percent of GDP against 2.5 percent