Voluntary Report - public distribution

**Date:** 7/13/2004

**GAIN Report Number:** IN4070

IN4070

**India**

**Agricultural Situation**

**The Indian Budget - Agricultural Highlights**

**2004**

**Approved by:**

![](media/image1.wmf)Michael Riedel

U.S. Embassy, New Delhi

**Prepared by:**

A. Govindan

**Report Highlights:**

On July 8, the GOI revealed its budget for Indian Fiscal Year 2004/05.
The budget, adhering to the UPA's populist and rural election-mandate,
offered no new market openings. Rather, it imposed an additional
surcharge on all taxes, including customs duties, and focused on the
financial health of the agricultural sector and poverty alleviation.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

New Delhi \[IN1\]

\[IN\]

# The Indian Budget - Agricultural Highlights

On July 8, Finance Minister Chidambaram presented the new government's
budget for Indian Fiscal Year (IFY) 2004/05 (Apr-Mar). Taking the Common
Minimum Program (CMP) of the United Progressive Alliance (UPA) coalition
government as the guiding light, the Budget puts increased emphasis on
agricultural and rural development, poverty alleviation, employment,
education, and health.

There is nothing in the Budget for additional market access for
agricultural products. On the contrary, the Finance Minister has
proposed a 2 percent education cess (special surcharge) on all direct
and indirect taxes, including customs duties, which would result in
higher tariff rates for most agricultural and other products (except for
those where the current effective rate is at the WTO bound rate and for
some specific notified items).

# The Focus is on Agriculture and Agro-processing ...

Boosting agricultural growth through crop diversification and
development of agro-processing industry is one of the objectives of the
CMP. The Budget therefore proposes:

-   Doubling the flow of agricultural credit by public and private
    sector banks in three years

-   Increasing the budgetary allocation for the Accelerated Irrigation
    Benefit Program (for increasing irrigation coverage) and the Rural
    Infrastructure Development Fund. Increased emphasis is on restoring
    water bodies, water harvesting, and flood control.

-   Setting up a National Horticultural Mission to double horticultural
    production from the current level of 150 million tons to 300 million
    tons by 2011-12.

-   Providing risk mitigation to farmers through crop insurance.

-   Helping farmers diversify into oilseeds by promoting superior
    seed-technology and an effective price support operation.

-   Exempting new agro-processing industries that process, preserve, and
    package fruits and vegetables from 100 percent of income tax for 5
    years, and from 25 percent for the following five years.

-   Reducing the excise duty on meat preparations, poultry, and fish
    from 16 percent to 8 percent.

**... and on Poverty and Unemployment**

The Budget aims to empower the poor with universal access to education
and health, and by facilitating their full participation in the growth
process through gainful employment. Therefore the GOI proposes:

-   Expanding the *Antyodaya Anna Yojana* (a government scheme for the
    distribution of wheat and rice to the poorest-of-the-poor families
    at highly subsidized rates) from the current 15 million families to
    20 million families.

-   Strengthening and expanding the existing Public Distribution System.

-   Introducing a new food-for-work program in 150 districts.

-   Implementing a pilot Food Stamp Program.

# Agricultural Market Access Further Curtailed

While reiterating the government's commitment to align India's tariff
structure with those of ASEAN countries, the Budget does precious little
to achieve this objective. On the contrary, market access has been
further restricted with the introduction of a 2 percent education cess
(surcharge) on all direct and indirect taxes, including custom duties,
which would result in higher tariff rates for most agricultural and
other products (except for those where the current effective rate is at
the WTO bound rate and for some specific notified items).

To encourage value addition in India, the import duty on refined palm
oil was increased to 75 percent from the current 70 percent, while
maintaining the import duty on crude palm oil at 65 percent.

On the excise duty front, the Budget proposed lowering the excise duty
on branded and packed preparations of meat, poultry, and fish from 16
percent to 8 percent; fully exempting tractors and dairy machinery; and
raising the excise duty on cakes and pastries from 8 percent to 16
percent. Ice cream and non-alcoholic beverages that are prepared and
dispensed by vending machines are already exempt from excise duty; this
exemption has now been extended to malted food drinks and chocolate
drinks dispensed through vending machines.

The Finance Minister's Budget Speech and various Budget documents are
available at <http://indiabudget.nic.in/ub2004-05/ubmain.htm>. The
pre-Budget Economic Survey, which contains useful information on the
performance of the Indian Economy in IFY 2003/04, is available at
<http://indiabudget.nic.in/es2003-04/esmain.htm>