Proposed budget for 2007-08
Saturday, 9 June 2007
THE proposed budget for fiscal 2007-08 having an over-all size of Tk 871.37 billion, announced by Finance Adviser Mirza Azizul Islam last Thursday, is both development and welfare oriented. However, some of the issues contained therein merit reconsideration. It lays emphasis on tackling inflation, improving power supply and other basic infrastructures, social safety net and supporting agriculture with subsidised inputs and intensive research. The proposed budget, having a revenue budget component of Tk 529 billion and an Annual Development Programme (ADP) of Tk 265 billion, also includes a provision for repayment of the Bangladesh Petroleum Corporation's outstanding bank loan of Tk 75.23 billion by issuing bonds. The broad sector-wise allocations are 34.4 per cent for physical infrastructure, 34.3 per cent for social infrastructure, which includes human resources development through education, training and healthcare, and 19.3 per cent for public administration. The rest 12 per cent is for payment of interest on government loans and some other purposes.
The proposed budget has recommended withdrawal of both supplementary duty and customs duty on crude edible oil and lentil in order to drive down their prices. According to the finance adviser, as claimed in his budget speech, inflation stood at 6.9 per cent in March, this year, and, on a point-to-point basis, at 7.4 per cent. But others estimate it to be much higher, between 12 per cent and 15 per cent for the average men. For the same purpose, the current facility for duty-free import of some other essential commodities, which have recorded price spirals, such as rice, wheat, onion, peas, life-saving drugs including insulin, and fertilisers, will continue. These measures may blunt the import-induced inflation slightly as the prices of many or most of these products have markedly spiralled in the world market. The domestic price hike of rice, whose production in the recent boro season was not up to the mark, is still speculative and high. An import boom may drive down its prices considerably to everyone's relief.
It becomes clear on a broad scrutiny of details that the finance adviser and his officials in the finance division and the internal resources division have done gruelling exercises for searching out as many new sources of revenue as possible in an effort to reconcile the soaring requirements for state spending with resources. They have done so as the revenue growth was only 9.0 per cent in the outgoing fiscal against the 21 per cent projected in the original budget. In doing so, they have sought to expand the net of the value added tax (VAT) to cover, among many others, toilet soap, soft drink, mineral water, telephone, tele-printers, telex, fax alongside coaching centres, English-medium schools, private engineering and medical colleges, private universities and the services of the Water and the Sewerage Authority (WASA). This proposed measure is likely to adversely affect the development of the social infrastructure and the quality of life and the cost of living in many instances. Rethinking on this matter prior to finalisation of the budget is essential.
The proposal for enhancing the effective tariff on imported industrial raw materials does not seem entirely logical. It recommends withdrawal of the existing 4.0 per cent infrastructure development surcharge and introduction of duty slab of 10 per cent on imported industrial raw materials, 15 per cent on intermediate products and 25 per cent on finished products, instead of existing 5.0 per cent, 15 per cent, and 25 per cent. It has a serious import-bias and would discourage and negate both spirit and efforts of local and foreign entrepreneurs for establishing basic industries in this country. The sheer difference of 5.0 per cent between the proposed slab of duty on primary industrial raw materials and that on intermediate products -- mostly used in assembling or one-stage transformation of semi-finished products in final products in industries in namesake may encourage converting the country into a host of nominal industries. The scope of employment generation and actual value addition in such industries are always minimal. The bulk of employment generation and value addition actually takes place in the countries of origin of the intermediate products. If that remains the case, such namesake industries will thrive on creeping defects in the fiscal measures. There will be hardly any incentive for setting up basic industries. The caretaker government should not run the risk of being crudely charged with lack of foresight subsequently. The proposal should be rescinded while the budget is finalised. Hopefully, none should require reminding the government that the social safety net, which is to expand nominally on the face of resources constraint, is at best cosmetic in effect in poverty reduction. But expansion of employment opportunities creates the most durable solution to this vexing problem.
The proposal for withdrawal of zero duty on textile machinery, computer and computer accessories is equally weird. How will the information and communication technology (ICT) emerge as a thrust sector, as contemplated both in the export policy and the proposed budget, if the basic instruments for generating the surge are not available at encouragingly lower costs? The proposal for withdrawal of zero duty on textile machinery is baffling at this time when the level of local value addition in knitwear and garments remains the pre-eminent criterion in determining their origin for access on concessional duty or no duty under the free and the preferential trade agreements and the generalised system of preference (GSP) in the developed countries. If accepted in the finalised budget, it will hurt and seriously undermine the interest of the country. Local fabrics in export garments raise the level of local value addition to satisfy any tough rules of origin criterion. The country will be prepared to meet even tougher criterion if the textile sector grows well under proper policy support. The proposal should be folded once and for all.
The idea of load-shedding free Bangladesh by 2010, as articulated by the finance adviser in his budget speech, is encouraging. The proposed allocation in the ADP for the next fiscal, which is Tk 38.28 billion, for the sector is 31 per cent higher than the commitment in the current fiscal. Power generation has been projected to increase by 345 MW in the next fiscal and by 900 MW and 1050 MW in the subsequent two fiscals. One may ask: What are the projected industrial growth and expansion of general consumers' base in the intervening three fiscals on the basis of which the estimate has been made. While it is variously estimated that the present daily load shedding range between 1000 MW and 1500 MW, one may only anticipate that with the projected growth in power generation, the nation will have its problem of electricity supply of fiscal 2006-07 solved in 2010. The growth in demand in the subsequent three fiscals will remain a nagging problem. It means that if the rest of the world is not stagnated in the search for more competitiveness, this country will at least lose its competitive advantage further to the bewilderment of all concerned. Yet what is reassuring is that the caretaker government has clearly set its objectives in this regard with a clear-cut time frame. But the fact of its life in power being additional 14 months gives one reasons to be unsure about the number of possible slips between the cup and the lip.
The proposed budget has recommended withdrawal of both supplementary duty and customs duty on crude edible oil and lentil in order to drive down their prices. According to the finance adviser, as claimed in his budget speech, inflation stood at 6.9 per cent in March, this year, and, on a point-to-point basis, at 7.4 per cent. But others estimate it to be much higher, between 12 per cent and 15 per cent for the average men. For the same purpose, the current facility for duty-free import of some other essential commodities, which have recorded price spirals, such as rice, wheat, onion, peas, life-saving drugs including insulin, and fertilisers, will continue. These measures may blunt the import-induced inflation slightly as the prices of many or most of these products have markedly spiralled in the world market. The domestic price hike of rice, whose production in the recent boro season was not up to the mark, is still speculative and high. An import boom may drive down its prices considerably to everyone's relief.
It becomes clear on a broad scrutiny of details that the finance adviser and his officials in the finance division and the internal resources division have done gruelling exercises for searching out as many new sources of revenue as possible in an effort to reconcile the soaring requirements for state spending with resources. They have done so as the revenue growth was only 9.0 per cent in the outgoing fiscal against the 21 per cent projected in the original budget. In doing so, they have sought to expand the net of the value added tax (VAT) to cover, among many others, toilet soap, soft drink, mineral water, telephone, tele-printers, telex, fax alongside coaching centres, English-medium schools, private engineering and medical colleges, private universities and the services of the Water and the Sewerage Authority (WASA). This proposed measure is likely to adversely affect the development of the social infrastructure and the quality of life and the cost of living in many instances. Rethinking on this matter prior to finalisation of the budget is essential.
The proposal for enhancing the effective tariff on imported industrial raw materials does not seem entirely logical. It recommends withdrawal of the existing 4.0 per cent infrastructure development surcharge and introduction of duty slab of 10 per cent on imported industrial raw materials, 15 per cent on intermediate products and 25 per cent on finished products, instead of existing 5.0 per cent, 15 per cent, and 25 per cent. It has a serious import-bias and would discourage and negate both spirit and efforts of local and foreign entrepreneurs for establishing basic industries in this country. The sheer difference of 5.0 per cent between the proposed slab of duty on primary industrial raw materials and that on intermediate products -- mostly used in assembling or one-stage transformation of semi-finished products in final products in industries in namesake may encourage converting the country into a host of nominal industries. The scope of employment generation and actual value addition in such industries are always minimal. The bulk of employment generation and value addition actually takes place in the countries of origin of the intermediate products. If that remains the case, such namesake industries will thrive on creeping defects in the fiscal measures. There will be hardly any incentive for setting up basic industries. The caretaker government should not run the risk of being crudely charged with lack of foresight subsequently. The proposal should be rescinded while the budget is finalised. Hopefully, none should require reminding the government that the social safety net, which is to expand nominally on the face of resources constraint, is at best cosmetic in effect in poverty reduction. But expansion of employment opportunities creates the most durable solution to this vexing problem.
The proposal for withdrawal of zero duty on textile machinery, computer and computer accessories is equally weird. How will the information and communication technology (ICT) emerge as a thrust sector, as contemplated both in the export policy and the proposed budget, if the basic instruments for generating the surge are not available at encouragingly lower costs? The proposal for withdrawal of zero duty on textile machinery is baffling at this time when the level of local value addition in knitwear and garments remains the pre-eminent criterion in determining their origin for access on concessional duty or no duty under the free and the preferential trade agreements and the generalised system of preference (GSP) in the developed countries. If accepted in the finalised budget, it will hurt and seriously undermine the interest of the country. Local fabrics in export garments raise the level of local value addition to satisfy any tough rules of origin criterion. The country will be prepared to meet even tougher criterion if the textile sector grows well under proper policy support. The proposal should be folded once and for all.
The idea of load-shedding free Bangladesh by 2010, as articulated by the finance adviser in his budget speech, is encouraging. The proposed allocation in the ADP for the next fiscal, which is Tk 38.28 billion, for the sector is 31 per cent higher than the commitment in the current fiscal. Power generation has been projected to increase by 345 MW in the next fiscal and by 900 MW and 1050 MW in the subsequent two fiscals. One may ask: What are the projected industrial growth and expansion of general consumers' base in the intervening three fiscals on the basis of which the estimate has been made. While it is variously estimated that the present daily load shedding range between 1000 MW and 1500 MW, one may only anticipate that with the projected growth in power generation, the nation will have its problem of electricity supply of fiscal 2006-07 solved in 2010. The growth in demand in the subsequent three fiscals will remain a nagging problem. It means that if the rest of the world is not stagnated in the search for more competitiveness, this country will at least lose its competitive advantage further to the bewilderment of all concerned. Yet what is reassuring is that the caretaker government has clearly set its objectives in this regard with a clear-cut time frame. But the fact of its life in power being additional 14 months gives one reasons to be unsure about the number of possible slips between the cup and the lip.