Allocations in the power and agriculture sectors in the proposed budget have fallen in the real terms, which, a local think-tank said, will badly hit the economy.
Unnayan Onneshan, a leading development research organisation, Saturday said in a post-budget reaction that the increase in allocations was meagre considering the rise in inflation rate.
"As there is a sharp increase in the inflation rate it is expected that the proposed increase in allocation may not really go up in real terms in the sector compared to that of the previous year. Our inflation-adjusted estimate shows that the real increase in the development allocation for agriculture is only 3.78 per cent compared to non-adjusted figure of increase by 11 per cent," it said.
Although the power sector investment is capital-intensive in nature, the allocation in the Annual Development Programme (ADP) for this sector is meagre and the growth compared to the preceding year has been negative in current price.
If the allocations are adjusted to inflation their growth rates will be negative, meaning that the power shortage in the national grid will continue and the situation is likely to be more acute in the coming years as energy demand is increasing day by day, the report said.
It also noted that the only sector showed a negative growth in terms of ADP share and allocation. It was 15.73 per cent of ADP in the revised budget of FY06 and further decreased to 12.16 per cent in the proposed allocation for FY07. The allocation in absolute terms also decreased to 6.53 per cent in FY07.
The reduction is sharper than any other sector of the economy. The allocation for the power sector makes the situation more acute when the inflation-adjusted allocation is calculated. It shows more than 12 per cent decrease in allocation undermining the urgent need for resolving the power crisis.
The government borrowing from the domestic sources, especially from the banking sources, will continue to remain high in the fiscal 2006-07, which is 10.65 per cent higher than the revised budget of the fiscal 2005-06.
Thus the growing dependence of the government on the banking sector to meet the deficit financing, coupled with the existing contractionary monetary policy, would shrink the funds for the private sector, the analysis said.
"This is already evident from the current fiscal as liquidity crunch in the banking sector led to an unhealthy competition among the private commercial banks to attract depositors by raising the rates up to 13 per cent in some instances. What is worrying is that low availability of fund and high interest rate will obviously cast a negative impact on investment scenario," it added.