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India Budget 2008-2009

February 29, 2008

chidambaramtimesnow.jpgHere are some aspects (highlights) of the 2008-98 India Union Budget that made the maximum impact on me: (for the latest 2009-2010 budget click here)

1) Sops to farmers: On the face of it the waiver of loans to small farmers (small and marginal farmers with holdings up to 2 hectare, complete waiver plus rebates for others, total cost Rs 60,000 crore) seems a wonderful measure as I have little faith in our aid delivery system. But should there have been a blanket waiver? Couldn’t the loans terms have been extended or rates reduced to say zero interest? But I guess the impact would have been less dramatic. Economists like Swaminathan S. Anklesaria Aiyar feel this massive write-off is a big let down for the banks and weakens the banking credit system, sort of makes a joke of the public sector banks lending system.
But everyone was expecting such populist measures, as this is the last budget before the general elections next year.
But if this loan waiver is to help small farmers, I cannot help thinking of the hundreds of farmers who have taken loans from moneylenders…what happens to them?

Update on the subject of Farmer Waiver: [9th Feb 08]There are two good write-ups on this subject today by two well known columinists. One is S.S. Ankelsaria Aiyer and the other is G. Das. The link to the first article is here. A small quote:

Chidambaram says the waiver will benefit 40 million farmers. This amounts to almost half of India’s 90 million farm households. But only a fraction of farmers have bank loans, and only 5% of these are overdue, according to Bhalla.

The link to the second article is here: A quote:

Cancelling debts of small farmers worth a massive Rs 60,000 crore, equal to 3% of all loans in the entire banking system, was a staggering, seductive but hugely destructive act. When Devi Lal announced a similar loan waiver worth Rs 9,000 crore in 1990, he killed most cooperative and rural banks…Farmers stopped repaying loans, banks stopped lending to them and it took 10 years for the nation to recover from that mistake…The irony is that the UPA government might actually lose more votes than it gains from this loan waiver.

According to NSSO figures, almost 60% of farm loans are from moneylenders. They will not benefit…Imagine the staggering paradox — to turn a nation dishonest in order to win an election, and then go on and lose it! This is one irony that the UPA government might prefer to forget.

Well, I am not sure whether the UPA government will lose the election, but certainly this farmer waiver is going to cause a lot of heartburn amongst the majority of farmers…those who have paid back the loans, those who have borrowed from moneylenders and those who have bigger farms…

2) Income Tax: The other important measure is the reduction of tax rates and I am all for reduction in direct taxes and who wouldn’t be! While I had hoped the FM would reduce taxes for the high income groups as well, I knew it was wishful thinking…but anyway the lowering of the direct taxes on the whole should stimulate the sluggish consumer durables sector. Here’s a nice chart from the Times of India:

toi.jpg

3) Education: It’s good to hear that the education budget has been increased to Rs 38,702 crore, an increase of over Rs 9,000 crore. Some plans on the anvil:

  • Setting up 6000 high quality schools all over the country
  • 16 central universities to be opened in 2008-09
  • 3 IITs to be set up in Andhra Pradesh, Bihar and Rajasthan
  • Indian Institutes of Science Education and Research to be set up at Bhopal and Thiruvananthapuram
  • Schools of architecture and planning to be set up in Bhopal and Vijaywada.
  • Other institutes of higher education to be opened.
  • The Information Technology Ministry to set up national knowledge centres
  • The Mid-day Meal Scheme to be extended to all children upto upper primary level (from class I to VIII) in all areas across the country.

4) North-East: The allocation for the North-East has gone up, from Rs 14,365 crore to Rs 16,400 crore. Perhaps more should have been allocated, knowing the state of this region.

5) Health. Allocation for Healthcare too has increased, by 15 percent. The bulk of this money will go to fund the National Rural Health Mission, to take Health Care to the poor and the “the goal is to establish a fully functional community owned, decentralized health delivery system…” There has been criticism that the scheme has covered selected areas only, but hopefully the extra money provided will help the rural health delivery system to cover more of the needy. A interesting (undated) article on the importance of Rural Healthcare in India can be read here.

6) Defence: The defense budget has risen by 10 percent, but will it be of use? You can read the full article discussing this here…what it basically says is that red tape invariably delays defense spending. However, defense spending has fallen below 2 percent of GDP in more than a decade this year, so there is nothing much to cheer about.

7) Share Market: The short-term capital gains tax has gone up from 10 percent to 15 percent, a dampener for investors. If you sell your shares within the year, then this applies.

8]The Reverse Mortgage scheme for senior citizens, which I had written about in my last year’s write-up apparently failed to take off as senior citizens were unsure about the Income Tax liability. Under this scheme, those over 62 years of age can mortgage their home for 15 years whilst living in it. In return they get either a lumpsum or a monthly income from the bank which has taken the house. On the death of the senior citizen, the bank takes over the house. This year the FM has clarified that there will no tax liability on income under the Reverse Mortgage Scheme and this should help the scheme along.

A list of what’s getting expensive and what’s getting cheaper. Here’s short list:

Cheaper:

  • Anti-AIDS drugs
  • Two wheelers
  • Small cars
  • Bulk drugs
  • Buses, Chassis
  • Water Purifier
  • Refrigeration Components
  • Paper and its products
  • Pharma goods

More expensive:

  • Non filter cigarettes
  • Unbranded petrol and diesel

I will probably update this post tomorrow, as I read the fine print, but this is it for now. (Later: Various changes have been made, in terms of details, and 2 points [7, 8] have been added.

(photo from timesnow)

Related Reading: INDIA BUDGET 2009-2010
Railway Budget 2008-09
Last year’s (2007) Budget

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39 Comments leave one →
  1. February 29, 2008 11:44 pm

    Too busy with getting ready for my stay in India – lost my luggage even before leaving the house… sigh..

    Just dropped by for a big thumps up for this article. 2015 is coming closer right!

    Thanks Purnima. And you are coming to India in the heat of summer! Welcome! – Nita.

  2. February 29, 2008 11:47 pm

    Thanks for putting it in a simple format. This is helpful.

    You are welcome Xylene. I have covered only the important points (as I see them) though. – Nita.

  3. March 1, 2008 12:06 am

    I have a question for those that have looked at the budget closely. So a farmer need not pay back his loan. My question is, what ensures that the farmers that NEED the loan get it. The procedures for applying for a loan have not been modified, and the rules of collateral etc ensure that the real people that need “sops” won’t get any. My personal feeling is that is just a HUGE waste of taxpayers money, because on ground, I expect as many farmers jumping off bridges if the rains don’t come.

    Our indian law makers are great at making laws that are easier to misuse.

    DD, there is no guarantee that the farmers who need the loans get it. That’s why so many go to moneylenders! And moneylenders charge heavy interest rates too and there is no way they are going to let go of the loan! Banks give loans only after close scrutiny, and well, they have to I guess. They will not disburse loans according to need, but the ability to pay back. So you are right, the real sops are needed by those who can’t afford loans! – Nita.

  4. March 1, 2008 12:09 am

    where is the provisioning for 6th pay commission?

    this is one of the most stupid budget where the govt is borrowing from the future and is squandering it in sops and subsidies……

    Rs 64 crore for farmers is a very high amount and I feel the money could have been used more wisely – Nita.

  5. March 1, 2008 12:12 am

    Nita,

    This is a good summary of the budget.Thanks also for the links in the article.

    I wholeheartedly welcome the loan waiver for small and marginal farmers as it was badly needed.But I would also have preferred a long term approach by the Finance Minister.I wish he had also taken steps to ensure that agriculture becomes profitable for the small and marginal farmer.Farmers are in distress throughout the country and they deserved to get a better deal than just a one-time loan waiver.But something is better than nothing,I guess.

    The increased allocation for education is welcome as is the extension of the mid-day meal scheme.The quantum of increase in funds for health and the North-East is simply not enough while the increased allocation for defence would help the modernisation plans in the pipeline.

    I hope the pharmaceutical industry passes on the full benefit of tax cuts to the consumer.

    Raj, when you said:
    //But I would also have preferred a long term approach by the Finance Minister.I wish he had also taken steps to ensure that agriculture becomes profitable for the small and marginal farmer.//
    I agree with you whole-heartedly. Some money should have been allocated for this, to improve irrigation, gives advise to farmers etc. But then long term is not what the govt. is interested in! Next year we have elections! – Nita.

  6. March 1, 2008 12:32 am

    yes ankur this govt is playing a big gamble
    lets see
    the loan waivers will benefit the wrong set of farmers not the starving and suicidal ones who go mostly to moneylenders – plus we are staring basil in the face and this is not good for the psu banks (Dependg on how the fine print opens up later) more direct intervention in psus
    first it was oil cos – now its banks
    lets see how govt manages inflation and the rupee

    there will be feasting in powerland
    and i agree with most of nitas analysis but with the kind of delivery mechanism there is bound to be huge amt of wastage of resources….
    on pharma forget it nita , bulk drug suppliers dont generally mkt their products ….if im not mistaken

    Prax, yes the poor and starving farmers will continue to commit suicide, sadly. About the health allocation, I need to find out more about this. – Nita.
    p.s. oops, sorry you were talking about pharma, and i was thinking about health! yes you are right about the pharma, not all pharma cos market their products, but some do and we should see lowering of prices here. –

  7. Arleen Fields permalink
    March 1, 2008 3:01 am

    Re point #1: What’s a sop? Just the govt “sopping up” a loan so that it doesn’t have to be paid back? Or is it an acronym? Thanks for any clarification you can provide.

    Sop has been used as a noun, and it means something given as a concession to a dissatisfied person. – Nita.

  8. March 1, 2008 4:41 am

    hey thanks Nita.
    was looking for some this like this summary.

    You are welcome Neo, but mine is not a detailed one and has only covered some important points. – Nita.

  9. aquariius permalink
    March 1, 2008 10:33 am

    hi Nita, nice way of putting the salient points in a simple way, thanks.

    a couple of more points that will have an impact are that the STT, securities transaction tax will now be treated as deductible expenditure, which means more impact on day traders and investors who are already sensitive to the margins they make.

    and staying with investors, the increase of short-term of capital gains tax from 10% currently to 15% will encourage investors to stay invested atleast for a year, which in turn is good for the india growth story as it has a downside impact on volatility in the markets.

    not a great deal for NRIs in the budget, but overall a more carrot, less stick budget – so we can atleast smile about it.

    Thanks Aquarius for that additional info.🙂 – Nita.

  10. March 1, 2008 11:04 am

    thanks for ur comment on the budget post
    that post got largest ever hits
    the problem on stcg lies in govt policy and poor regulatory powers with sebi, heavy speculation, and lack of equity culture in this country – and because people cant trust what govt will do next

  11. GARIMA permalink
    March 1, 2008 3:02 pm

    Thanks for giving a concise way of post budget analysis.
    I dont understand the premium discount given on mediclaim policy. Give also insight on diect taxes.
    Dont you think budget was more poulist in ahead of elections? in past budgets common man was ignored

    Garima, as far as I know the discounts are on tax deductibility. As you must be aware what you spend on medical insurance has a tax benefit and this amount is deductible from your income for tax purposes. Earlier this amount was Rs 15,000 + Rs 5000/ for old parents so the total was Rs 20,000/-. Now the total deductible amount is Rs 30,000/- but half of this has to be medical insurance for old parents. You can read about this here.
    About direct taxes, what clarification do you want exactly?
    And yes there is no doubt that the budget is a populist one. Spending Rs 60,000 crore on farmers has never been done before iin any budget. – Nita.

  12. Sandeep permalink
    March 1, 2008 3:39 pm

    giving a free bee of 60000 crores waiver of loan is rubbish
    the benefit will not reach to the person intended to. as commonly know 50%of laon amount is siphoned by the hierarchy so will be 60000 crores.

    It is high time now to tax the agricultural income but the question is who will bell the cat as farmer community is dearer to all political parties

    You put it aptly, Sandeep…who will bell the cat? No one has the guts to in a democracy! – Nita.

  13. biplab roy permalink
    March 1, 2008 4:17 pm

    it is the procedure to put money in to the lower level
    of indian people.

  14. March 1, 2008 4:59 pm

    although stcg hurts me personally,
    i see no reason why the gains in equity be taxed at a lower rate then regular income or income from interest/property.

    Well, that seems logical Ankur, but then our economy needs to stimulate and grow the stock market, I guess that’s why they do it. – Nita.

  15. March 1, 2008 11:11 pm

    This is an election budget.
    My problem with the loan waiver is that we are sending a wrong message to the lawabiding citizens.Farmers who have paid their loans on time will feel cheated. There are other ways of helping the farmers. Nobody is bothered about long term solutions. Small farmers are dependent on monsoons and as long as we don’t find a solution to that the farmers will fall in the debt trap again and again.

    Prerna, nice to see here after a long time. Thanks for your comment. I agree that this is a short-term solution. I am down with flu and my eyes are smarting so will cut short here…- Nita.

  16. March 2, 2008 12:09 am

    #our economy needs to stimulate and grow the stock market, I guess that’s why they do it. #

    let me be a bit cynical…..
    India is a socialistic country and the only persons who earn a dividend income or invest in capital markets are the rich….
    hence going by the spirit of socialism we tax the poor and give rebates to the rich

  17. March 2, 2008 1:54 am

    nita mediclaim total benefit is 35000 if parents are 65+
    ive detailed it in my budget post
    but tell me how many policys are oriented towards them seniors ???
    this is the sad part – why not allow actual expenses instead that makes a lot more sense as most medical problems arr outpatient ones.

    the loan waiver in mah will benefit more farmers in the 2/3 crop irrigated belt than the poor so the agri mantris minions in baramati will benefit more than the suicidal ones in the arid vidharbha region

    ankur what about the rich agriculturists like powar, mulayam, badal bansi lal etc ??? they go scot free no tax for them
    i think fds and sb accounts should be tax free – something like the 80l provn
    equity should be fairly taxed and most of all individual losses should be fairly compensated through proper setoffs

  18. March 2, 2008 8:00 am

    #ankur what about the rich agriculturists like powar, mulayam, badal bansi lal etc ??? they go scot free no tax for them#
    exactly.. in india socialism means transfer of wealth from poor to rich (i am in process of compiling a post on this topic)

    #i think fds and sb accounts should be tax free – something like the 80l provn#
    NOOOOOOOO.
    its bad for a society to have a section of the population living just off the interest income and doing nothing productive…. we had such a situation a few years ago.. and luckily we r out of it now🙂

  19. March 2, 2008 2:04 pm

    with this kind of inflation at least the sb accounts and pensions / family pensions should be tax free
    or the govt should give some sort of proper social security to regular taxpayers – who r now senior citizens and paid atrociously high taxes and are left with little pensions

  20. ishaan permalink
    March 2, 2008 2:54 pm

    petrol should have been under the cheaper section..fuel will become a total rip off specially for the middle class

  21. March 2, 2008 6:30 pm

    hi, i am vivek,
    P.chidambaram gaves the fantastic budget but i know he is the persion who increased our GDPand GNP to 9.6%,but, according to the budget farmars will get the most benifite but what about the bankers who gave loan to farmars,one side govt tells to govt bank that why you are behind the private banks like HSBC,ICICI etc. If got do these kind of things with govt bank then how it will devolope there standerds.But even these controversy i am agree with unoin budget but one more problem is,
    i will tell these problem after some time

  22. March 2, 2008 6:51 pm

    Rs 60,000 Crore loan waive off !. Does our policy makers and so called ‘Think Tanks” lack brains ?

    We all know that we are a sort of agrerian economy and have our feelings and empathy for farmers. Any encouragement to farmers and share their plight is most welcome. The plight of farmers is not because of bad loans, its fundamentally because of poor supply chain, infrastructure, education, unavailability of informaion, health facilities etc etc.

    The Rs 60,000 crore investment across India on farm focussed projects can help large number of farmers, other peope, and the country as a whole. We in India lost a potential opportunity.

    Our Finance minister has only helped few corrupt and inefficient Banks to clear off their NPA and nothing more.

  23. I. Das Gupta permalink
    March 2, 2008 9:41 pm

    The government’s been practically throwing money at the North East for years now, and with no vision. They think that spending crores per annum will help solve the region’s problems, like a quick fix solution. They clearly don’t know the intricacies and complexities of the Seven Sister states.

    Unless they have a workable road map strategy for bringing peace and then development, it could work. This budget decision is just further proof about how clueless the centre is about NE issues.

  24. sangeeta permalink
    March 3, 2008 1:55 am

    Why are small cars cheaper!!Look at the congestion on the roads,Why don’t they invest more on public transport and infrastructure instead of making cars cheaper.

    You have raised a question which was discussed in this post (and even more in the comments) on the Tata Nano. You can check it out if you like. – Nita.

  25. Vivek Khadpekar permalink
    March 3, 2008 10:26 am

    Sangeeta,

    If you are currently located in Pune (that’s the impression I get), you are in good company. There is a group called the Pune Traffic & Transportation Forum which has been raising these issues and trying to mobilise public opinion on them for several years. You can visit them at http://www.pttf.net.

  26. Vivek Khadpekar permalink
    March 3, 2008 10:28 am

    PS: Sangeeta, please remove the full stop after .net before clicking the link I have provided.

  27. Yatin Nath permalink
    March 3, 2008 2:55 pm

    dear friends,
    as u aware that budget is subject to up coming election, before may 2009. as a result there is no provision for climate changing, how can we improve the agriculture condition in india. 2/3 of debt taking people are from unorganised sector. so, how F.M. policies will help to them

  28. March 4, 2008 12:35 am

    MODERN LOAN MELAAS …

    This new Finance Bill FY09 has presented the unthinkable in populist policy … proposing to write off up to rupees 60,000 crores in farmer ‘bad debts’ without even a fig leaf of budgetary support.

    Writing off farmer ‘bad debts’, reminds me of an earlier era. During PM Indira Gandhi’s time, one of her Ministers: Janardhan Poojari, would go about arranging ‘loan melaas’ and distribute money (actually loans which were to be treated as ‘grants’), and garner votes. This was considered a great socialist move and praised such that ‘Indira became synonymous with India’. She outdid her father the great Jawaharlal who abdicated on ‘market compensation’ for ‘land nationalization’. She is remembered for ‘prince purses abdication’, bank nationalization’, ‘collieries nationalization’ and the ’emergency’. Lest we forget, all these constitutional amendments were passed by the majority of then parliamentarians. We citizens are still enjoying the fruits of these great deeds. It seems there is no shortage of fools, right from Md. Bin Tuglak’s time, who gave away gold coins for copper. These ‘gigantic personalities’ are revered-reviled, even today.

    This single proposal (being already treated as a given), announced by FM P. Chidambaram, has dealt a body blow to financial prudence. Now the farmer will always think that a ‘loan’ after delinquency becomes a ‘grant’. In some ways, this has been going on every few years but in small measure. Note, he has no thought for the farmers who PAID ON TIME or who borrow from money-lenders (India’s banking system reaches about 20% of households in the rural areas and only 66 million Kisan Credit Cards have been issued to 127 million Cultivators-2001 census). He has not realised that in Maharashtra where farmer suicides have been going on for some years now, poorer farmers in Vidharba have more than 2 Hectares but are worse off than farmers in Madya-Maharashtra who while having less than 2 hectares make more money due to ‘grape’ and cash crops. Yet the new proposal gives hand outs to the better off Madhya-Maharashtra farmers and nothing to the desperate Vidharba farmer, due to the land limit of 2 Hectares. How’s that for justice?

    A prudent policy would have been to reduce interest rates to 1% retroactively, grant a five year period to pay off amount thru EMIs, allow fresh loans to be permitted, again at lower rates. After all farm sector has required a boost for the past ten years. Why was this delayed for so long? The FM could allow ‘market’ driven economy for farm products, provide supply-delivery chains free of state borders, better seeds and technology free to the marginal farmers, and also tax the rich farmers who earn more than Rs. 3 lakhs per year. Force the 28 states to fall in line, by denying their farmers the above benefits. The marginal farmers are bound by laws of economics to remain marginal for perpetuity and thereby be a major burden on society. So most important, encourage thru fiscal measures, marginal farmers to combine with other littoral one’s so that their joint holdings reach 100 hectares, which will allow economies of scale. Such cooperatives to be like village panchayats, keep all politicians and boffins out of it. Dissolve all politician driven farm cooperatives by denying them tax deductions and subsidies of any kind.

    Such reforms are pragmatic and create permanent traditions, yet our FM has no heart for it for the past five years. Giving a fish instead of teaching how to fish, ensures that the target group remains enmeshed in poverty to be then browbeaten every election year. I am certain this FM will join the other ‘gigantic personalities’ mentioned before and be revered-reviled for ages to come. Jai Hind.

  29. sangeeta permalink
    March 4, 2008 1:05 am

    Thanks Vivek,for the link provided,I will sure go through it .Yes,I am from Pune,though based in US right now.I do feel Pune needs a much much better Public Transport System.BEST(Mumbai),I feel is much better compared to PMT(Pune)

  30. sangeeta permalink
    March 4, 2008 2:44 am

    Thanks Nita, I will check the post on Tata Nano.

  31. sandeep1963 permalink
    March 4, 2008 11:42 am

    majority of loans taken by needy farmers are from small time lenders. Such community is not getting any benefit. On the contrary farmers who have promptly paid of their loans would be cursing themselves. Happier would be most of the bank officials as their NPAa are reduced. Such decisions should be taken in proportoinate to the asset holding of the farmers so that farmers with less land are only benefitted or they can keep a min. criteria of area of land 1 acre max

    Yes, that is the thing…the people who should benefit won’t benefit! That’s what I dislike about this blanket scheme which is only going to demoralise the banks. – Nita.

  32. sandeep1963 permalink
    March 5, 2008 9:23 am

    Thanks Nita for your reciprocating comments

    I became a memeber of this blog just 5 days back. The discussion are very enlighting. Thanks to wordpress and many other active members like u

  33. sunil jogdeo permalink
    March 10, 2008 10:32 am

    dear all, I hv started blogging on this from today. Well, just to comment on the budget. Any budget which is `deficit` oriented will always be popular and not productive. We have been following a traditional budget system introduced by british which was primarily to transfer wealth from India to Britain. There has been no attemp either by economists or by finance ministers to `shift the paradigm` of budget related issues like revenue generation and revenue expenditute. Our betget is `lobby` based, it has never been reality based except probably first two budgets. Another defect is `budget control` which is not at all there. Therefore, any budgetary plans do not succeed. YOUTH has a potential to change this. Blogger’s meet is a place to see this potential. Lets try to attend many such meetings.

  34. sunil jogdeo permalink
    March 10, 2008 10:40 am

    dear vivek, GDP is no correct measure of where do we stand. If at all GDP is to be taken into account, we also have to take into account the rate of inflation which is growing. The growth in inflation nullyfies the increase in GDP. The real GDP therefore would not be more than 3 to 3.5%. All those who dance on GDP growth must think on this. Today the edible oil cost has shoot up from Rs.50 to 98. This means the purchasing power of even higher middle class has come down. Imagine what must have happened to those who earn Rs.50 or less a day. This is real practical learning of economics.

  35. Sani permalink
    March 12, 2008 7:08 pm

    I was looking for something on the construction industry, infrastructure and housing. How much would this be?

    The northeast requires more on infrastructure and industrialisation.

    There should be a massive movement to train farmers, construction workers and entrepreneurs.

  36. sunil jogdeo permalink
    March 13, 2008 10:24 pm

    sani, what is that exactly you wish to know about the industries you hv mentioned?? I completely agree on your point related with training. The canvass of training is very large and needs to be categorically specified.

  37. sunil jogdeo permalink
    March 14, 2008 2:07 pm

    Here is an interesting input on how are we fooled. The finance ministry fools us through `indirect taxes`. Very few of us know that we pay around 55% tax in petrol per litre and 33% in diesel. That mean when we purchase Rs.50/- petrol, every time we pay around 26 to 27 towards tax. We pay it on telephone, we pay it on tuition fees, we pay it for electricity. In general we all pay more than 60% of our income in taxes when we purchase various commodities. And what we get out of it is (a) worst medical facility (b) worst roads to travel (c) worst govt. primary education (d) crowdy railways (f) parking problems (e) dirty environment around and the like. However, writing does not make much impact as many people have been writing on such issues. The end result is `NO CHANGE!!!

  38. May 2, 2008 11:46 am

    INDIA VS. CHINA
    WHAT’S THE FASTEST ROUTE TO ECONOMIC DEVELOPMENT? WELCOME FOREIGN DIRECT INVESTMENT (FDI), SAYS CHINA, AND MOST POLICY EXPERTS AGREE. BUT A COMPARISON WITH LONG-TIME LAGGARD INDIA SUGGESTS THAT FDI IS NOT THE ONLY PATH TO PROSPERITY.
    Readiness:When asked to name the barrier that most held their organization back from being more entrepreneurial, executives said little readiness to change and adapt.
    Bureaucrats: China is the only country surveyed to mention this as the greatest problem—most countries site a lack of resources as the greatest barrier. Respondents believe that Chinese executives tend to behave more like bureaucrats rather than executives, preferring to maintain stability and the status quo rather than creating value.

    The biggest source of worry is the state of China’s banking sector, which is technically broke.
    The reasons they have done so are complex but, in general, China has depressed or actively damaged local entrepreneurship in favor of an foreign direct investment-dependent approach, they say.
    India, on the other hand, is building an infrastructure—however slowly—that allows entrepreneurship and free enterprise to increase. By making fuller use of its resources, India’s long-term outlook may be far stronger, they suggest. Macroeconomics statics is show china clearly in the lead but the real issue is not where china and india are today,but where they will be tomorrow.
    China and India are the world’s next major powers
    In terms of similarities, both are conscious of their role in the world economy. Both seek to play a bigger political role on the world stage.
    The differences include the fact that China is taking real but slow steps towards acceptance private entrepreneurship, a big departure from the past. India is continuing to struggle with production things easier for multinationals. So the differences are arguably narrowing; but our view is that the first-order effect of all this is still “a big difference.”
    For China, however, the government liberalized its external sector way ahead of its internal sector. The government should speed up its reforms in the internal sector rather than scale back external sector reforms.
    Finding fault with China’s: The Chinese government manages the development of enterprises with a view to driving economic
    growth. You can be a small entrepreneur in China, but if you want to be big you will have to get
    money from a government-affiliated source at some point. Government officials essentially have the power to decide which companies grow.
    You might argue that this development model has dissatisfied entrepreneurship. But there weren’t any entrepreneurs in the industry at the time. There were no private companies that could partner with Volkswagen, let alone compete with it

    Moreover, I don’t believe that foreign direct investment is linked to
    the development of China’s capital markets or to a reform of the
    banking system. Multinationals account for only 15 percent of
    fixed-asset investment, so they don’t drive the economy to a very
    great extent. China must rely on its own domestic financial
    resources to finance growth. As a result, the country’s capital
    markets are being developed
    The strength of the Chinese and Indian economies will actually be decided at the industry level.
    there are such big differences in the performance of different sectors within the same country, it makes sense to compare the performance of India and China at the sector rather than the national level. In IT and business-process outsourcing, India is so far ahead of the game that China can’t do anything during the next 10 or 15 years that would bring it close to catching up.

    JOINT VENTURES ABROAD/THIRD COUNTRY PROJECTS
    It provides information and assistance to Indian entrepreneurs for setting up joint ventures in other countries.
    It provides information and assistance to foreign entrepreneurs in locating suitable Indian parties for collaboration in the establishment of projects abroad including third country projects.
    The Chinese economy is powered by the Govt. and people are joining in. By contrast, in India, the economy is powered by the people (read entrepreneurs) and the Govt. (sometimes reluctantly) joining in. The Govt. is effective in China in spite of certain level of corruption and all other criticisms.
    Taxation problem in china:
    In general, executives in China are more likely to emphasize the barriers to entrepreneurship in their organizations than executives in other countries.
    There is a significant culture of aversion to risk. 83 percent saw this as a barrier to entrepreneurship in their organisation. In fact, 64 percent of senior executives described their organization as risk-averse, compared to a global average of 42 percent.
    69 percent of senior executives see government legislation as a barrier to entrepreneurship—greater than the global average. But perhaps the most surprising figure is the percentage of executives who feel that taxes are a barrier to entrepreneurship—79 percent said this, much higher than the global average of 44 percent.
    On a global scale, the level of taxation is not excessive, but it is substantially higher than neighboring countries/regions such as Hong Kong, Malaysia, Singapore and Taipei. On top of these come various ‘fees’ levied in a rather unpredictable way by local government agencies—these may cover local infrastructure projects, community welfare needs, sponsorship of cultural activities, social security contribution, etc, and contribute to making the tax burden a major barrier to entrepreneurship for many organizations.

    Little readiness to adapt change: People over there including the government are reluctant for change. I am not talking in terms of technology but in terms of government policy and other environment which are usually suitable for an entrepreneur. Yes chinese government are able to accumulate more fdi then india but this would not help the small time entreprenuers .

    An expert in the innovation field found the following factors in large corporations that are successful innovators:
     Atmosphere and vision
     Orientation to market
     Small, flat organization
     Multiple approaches
     Interactive learning
     Skunk works

  39. swati permalink
    May 14, 2008 11:12 pm

    in my opinion instead of donating
    rs.60000 crore to farmers so that they are relived of the burden of repaying loans taken for agricultural purposes ,our FM should have directed this huge amount to actually make the indian farmers capable of repaying there debts themselves by establishing institutions that could provide poor farmers free education about the modern agricultural techniques,providing them proper loan facilities at easy interest rates etc; so that they could improve their agricultural production and able to generate huge profits every year
    i think the conditions of the indian farmers needs to be improved through permanent and long term support and solutions rather than just providing them a one-time support.

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