Budget has strong bias to rural economy: ICC-B

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FE Report
International Chamber of Commerce, Bangladesh (ICC-B) said the budget for fiscal 2007-08 has a strong bias towards rural economy as provisions for financial assistance and increased subsidy for agriculture, diesel and fertiliser as well as for research and development in the agricultural sector are clear indications of the government's priority for stepping up efforts for poverty reduction.
"Different features of the budget, such as higher allocations for key sectors, changes made in income tax administration and also better safety net for the poor are welcome move," said the ICC-B in the editorial of its Quarterly News Bulletin-Budget '07-'08: Industry needs more attention-released Tuesday.
The caretaker government, for the first time in its history, has presented a budget for the whole year (FY 2007-08), it said adding that the approved budget with a size of Tk. 871.4 billion, which is 30.38 per cent higher than that of previous fiscal, is both development- and welfare-oriented.
"Allocation of Tk 1.0 billion for SME Foundation and Tk 0.23 billion Trust Fund for industrial loans to small entrepreneurs are also commendable," it added.
The ICC-B said 57 per cent of the overall budget has been allocated to projects linked to poverty reduction. However, given the performances of the previous governments in implementation of development plans as well as the existing structural deficiencies in the rural areas, one may be sceptical about the achievement of basic budgetary goal -- poverty reduction, it added.
"The national budget is not merely a document containing the government's proposals and projections about revenue earnings and expenditure. It is supposed to reflect the mission and vision of the government and aspirations of the people. In a least developed country like Bangladesh, donors' prescription at times overshadows the national priorities in formulating budget due to heavy dependence on external assistance for development programme," the ICC-B observed.
However, many such provisions may be seen as a standard prescription for the benefit of the country but may not be practical for implementation under the given geographical and social conditions. This may have been reflected in this year's budget as well when one considers the tariff measures.
In formulating the tariff rationalisation, the budget seems to have followed the trade policy prescriptions, which would not hold good for the growth and development of the country as a whole. Neither would it help mobilise internal resources, it said adding that the tariff changes will definitely hurt the country's industrial sector.
"The strong import bias of the budget will encourage importers at the cost of local industries," it said.
The country's business leaders voiced their concern about the tariff structures during their consultation with the finance adviser and called for maintaining status-quo for import duty on raw materials and capital machinery for the local industries in order to be competitive on the global market, the ICC-B said adding that they further proposed to change some Tax/VAT provisions and asked for sufficient allocation for human resource development with an aim to promote efficient manpower export.
While the decision to withdraw duty on capital machinery and computer accessories in the approved budget are commendable, but significant duty reduction for the telecommunication sector seems to have little justification in comparison to the industrial sector as a whole, it added.
It said business leaders welcomed the proposal for increasing power generation by 2300 megawatt (MW) over the next three years to help improve supply against projected demand. But considering the projected gross domestic product (GDP) growth the demand by 2010 for power would be much more than that estimated by the government.
Therefore, a realistic projection of future demand of electricity should be done on a priority basis. At the same time, the government should encourage more private investment in this sector, the ICC-B said.
It is, therefore, advisable that to rejuvenate the economy as well as to improve growth under the changed circumstances when there is no political pressure, the government should seriously consider helping local industries to come up and compete in global market place.