India Budget - Commodities June 2009

Dear Members,

NEW DELHI: Union Finance Minister Pranab Mukherjee has announced several commodity-friendly measures in the budget including withdrawal of Commodity Transaction Tax. (CTT) apart from the stated objective of raising agricultural growth to 4% by substantial increase in plan allocation and capital formation and increase in infrastructure investment to more than 9% of GDP.

These measures are expected to boost the agri-commodities, metals, cements and chemicals industries in the medium to long term and also add further impetus to stimulus packages already announced to boost growth.

"A very positive sign for Indian commodities market. Being in the nascent stage of development, abolition of CTT will reduce transaction costs in commodities trading, thereby the burden will come down and participation in these markets shall increase.CTT was to be introduced in the last budget and was causing concern in the growth of the Indian commodities market. This news of abolition of CTT has brought in great relief," according to Dinesh Thakkar, CMD of Angel Broking.

Anjani Sinha, Director, MCX, said, "The Budget  is visionary and good for the commodity markets, for which the government should be applauded with highest intensity. It will stimulate huge investment in the warehousing sector since the uncertainty of commodity market viability with respect to the cost of transaction (CTT) has been removed and now it will be at par with top 25 global commodities exchanges which constitute 99.99% of the world's exchange traded commodity derivative volume. This announcement will put Indian commodity market ecosystem at par with international exchanges with respect to cost of hedging, thereby fulfilling the government's vision of making Indian commodity derivative market competitive on a global canvass".

National Rural Employment Guarantee Act that provided employment to 4.47 crore households in 2008-09 has got a further fillip with allocation for the scheme raised to Rs 39,100 cr, a whopping increase of 144%. To increase the productivity of assets and resources under NREGA, convergence with other schemes relating to agriculture, forests, water resources, land resources and rural roads is being initiated, Finance Minister said.

The Budget has restored an eight percent Centre Excise duty on manmade fibre and yarn making ito on par with cotton sector.  The Minister has also reduced the customs duty on wool waste and cotton waste used in cheaper varieties of textile articles such as blankets and rugs to 10% from 15%.

Gold Bars, Silver
Customs duty on gold bars have been hiked to Rs 200 per 10 gm from Rs 100 while other forms of gold excluding jewellery will be levied at the rate of Rs 500 per 10 grams against existing rate of Rs 250. Silver will charged at Rs 1000 per kg as against existing Rs 500.

One mega handloom cluster each in West Bengal and Tamil Nadu and one powerloom mega cluster in Rajasthan have been announced..The minister said that the earlier tow the two mega handloom clusters at Varanasi and Sibsagar and two mega powerloom clusters at Erode and Bhiwandi are under successful implementation..These will generate job opportunities and income. The government also intends to add new mega clusters for Carpets in Srinagar (J&K) and Mirzapur (UP).

Financial inclusion
As a result of financial inclusion initiatives by scheduled commercial banks -3.3 crore no-frill accounts were opened. To develop banking network in unbanked or underbanked areas, a Sub-committee of State Level Bankers Committee will identify such areas and formulate an action plan to bring them under banking network within 3 years, the Minister said. A budget allocation of Rs.100 crore during the current year as one-time grant-in-aid has been made to ensure provision of at least one centre/Point of Sales (POS) for banking services in each of the unbanked blocks in the country.

The RBI has announced a further relaxation in its Branch Authorisation Policy. Scheduled Commercial Banks are now allowed to set up off-site ATMs without prior approval, subject to reporting.

Exports
The adjustment assistance scheme to provide enhanced Export Credit and Guarantee Corporation (ECGC) cover at 95 percent of badly hit sectors have been extended to March 2010.

The allocation for Market Development Assistance Scheme provides support to exporters in developing new markets has been raised by 148% to Rs 124 cr. The interest subvention scheme of 2 percent on pre-shipment credit for seven sectors—textiles including handlooms, handicrafts, carpets, leather, gems and jewellery, marine products and small and medium exporters has been extend till March 31, 2010.

Micro, Small and Medium Enterprises (MSMEs) have been affected by the slowdown in exports and the indirect effect of the global crisis on domestic demand. To support this them credit flow will be ensured by providing a special fund out of Rural Infrastructure Development Fund (RIDF) to Small Industries Development Bank (SIDBI), Pranab Mukherjee said. This fund of Rs.4,000 crore will incentivise Banks and State Finance Corporations (SFCs) to lend to Micro and Small Enterprises (MSEs) by refinancing 50 per cent of incremental lending to MSEs during the current financial year.

Nutrient-Based Subsidy .
To ensure balanced application of fertilizers, the Government intends to move towards a nutrient based subsidy regime instead of the current product pricing regime, Pranab Mukherjee said. It will lead to availability of innovative fertilizer products in the market at reasonable prices. This unshackling of the fertilizer manufacturing sector is expected to attract fresh investments in this sector. In due course it is also intended to move to a system of direct transfer of subsidy to the farmers.

Agriculture
The one-time bank loan waiver of nearly Rs.71,000 crore to cover an estimated 40 million farmers was one of the major highlights of the last Budget. This scheme has been extended to 31 December 2009. A task force will be set up to study the problem of indebtedness among Maharasthra farmers due to credit availed from money lenders and therefore not coming under the loan waiver scheme.

Finance Minister had made an additional Rs.1,000 crore allocation over Interim BE for the Accelerated Irrigation Benefit Programme (AIBP), marking an increase of 75 per cent over the allocation in 2008-09(BE). The allocation for the Rashtriya Krishi Vikas Yojna (RKVY) is also being stepped up by 30 per cent over Budget Estimates of 2008-09.

Agriculture has been the mainstay of our economy with 60 per cent of our population Agriculture credit flow was Rs.2,87,000 crore in 2008-09. The target for agriculture credit flow for the year 2009-10 is being set at Rs.3,25,000 crore. To achieve this, the Minister has proposed to continue the interest subvention scheme for short term crop loans to farmers for loans upto Rs.3 lakh per farmer at the interest rate of 7 per cent per annum. Thereby effective interest rate for farmers will come down to 6%. An additional budget allocation of Rs 411 crore over interim budget is being made.

Power
Allocation for Accelerated Power Development and Reform Programme (APDRP) has been  increased to Rs 2,080 crore, an increase of 160% over interim budget. Minister also announced reduction of the basic customs duty on permanent magnets - a critical component for Wind Operated Electricity Generators - from 7.5 per cent to 5 per cent

Government will evolve a blue print for long distance gas highways leading to National Gas Grid facilitating transportation of gas across the country.

India Infrastructure Finance Company Limited (IIFCL) set up as a special purpose vehicle for providing long term financial assistance to infrastructure projects will be strengthened to fulfill its mandate, the Minister said.

Bio-Fuel
In order to encourage the use of this environment friendly fuel and augment its availability in the country, Government will reduce basic customs duty on bio-diesel from 7.5 per cent to 2.5 per cent - at par with petro-diesel. Biodiesel obtained from vegetable oils and used for blending with petro-diesel, is currently exempt from excise duty. From now on petro-diesel blended with bio-diesel will also be exempted from excise duty.

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Commodity Daily

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