By HARSH JOSHI
It is fashionable to criticize New Delhi's clumsiness. But on Monday, India's government got something right.
Agence France-Presse/Getty Images
India's Finance Minister Pranab Mukherjee, center, left for India's Parliament with India's annual budget papers in New Delhi, Feb. 28, 2011.
In the annual budget, Finance Minister Pranab Mukherjee took a step toward solving two chronic problems India faces: food insecurity and poor infrastructure. Moreover, he did so despite the fact that this spending won't yield results for years.
On food security, Mr. Mukerjee was detailed in his plans. The entire $450 million increase in funding for rural infrastructure will go toward creating warehouses. This is critical to prevent the waste of tons of food grains and vegetables each year. To further encourage investment in cold storage, he exempted air-conditioning units and refrigeration equipment from excise duty.
In addition, India will set aside $330 million for investing in clusters of farmlands and villages that will produce lentils, palm oil and vegetables. Because of supply shortages, these have been key drivers of food inflation in recent months. True, India needs much more, but this shows New Delhi is at last taking practical steps that can be built upon in subsequent budgets.
The investment in palm cultivation, for example, in five years will increase palm oil yields fivefold to 300,000 tons annually, Mr. Mukherjee said.
On infrastructure, Mr. Mukherjee was less specific.
New Delhi has long touted a goal of drawing $1 trillion in infrastructure investment in the coming six years, and on Monday he laid out some steps toward achieving this.
The limit on foreign investment in bonds issued by infrastructure companies will be increased five times to $25 billion, ensuring that investors wary of investing directly in projects can instead choose to lend to companies.
To encourage domestic investors, the option for individuals to buy $450 worth of infrastructure bonds as tax-free investment was extended by one year.
Of course not all of this will go smoothly. For example, Mr. Mukherjee has a target of building 15 new mega food parks—zones for growing, storing and processing food—in the coming year. This is as many as New Delhi has managed to build in the prior four years.
And not everything was a break from the usual. Increasing the limits on income-tax exemption and lowering the age to be eligible for senior-citizen benefits are surely aimed at assuaging Indians irked by inflation—in other words, motivated by short-term political concerns.
But thanks to the nation's fast-growing economy, New Delhi expects gross tax collections to rise 25% next year. It means Mr. Mukherjee has the luxury of making the political handouts, while also channeling resources toward long-term solutions to India's problems. It's a small start but a welcome one.
Write to Harsh Joshi at harsh.joshi@dowjones.com
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