Arun Jaitley – 2014 Budget

Finance Minister : Arun Jaitley
Budget Year :2014

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Arun Jaitley

Madam Speaker,

I rise to present the Budget for the year 2014-15.

I. STATE OF THE ECONOMY

2. The people of India have decisively voted for a change. The verdict represents the exasperation of the people with the status-quo. India unhesitatingly desires to grow. Those living below the poverty line are anxious to free themselves from the curse of poverty. Those who have got an opportunity to emerge from the difficult challenges have become aspirational. They now want to be a part of the neo middle class. Their next generation has the hunger to use the opportunity that society provides for them. Slow decision making has resulted in a loss of opportunity. Two years of sub five per cent growth in the Indian economy has resulted in a challenging situation. We look forward to lower levels of inflation as compared to the days of double digit rates of food inflation in the last two years. The country is in no mood to suffer unemployment, inadequate basic amenities, lack of infrastructure and apathetic governance.

3. The slowdown in India broadly reflects the trend in many economies. In contrast to the aftermath of the crisis of 2008-09 when restoration of growth in advanced economies was the primary concern, the continuing slowdown being presently witnessed in many emerging economies has posed a threat to a sustained global recovery. Fortunately, there are green shoots of recovery being seen in the global economy. As per IMF, the world economy is projected to grow at 3.6 per cent in 2014 vis-à-vis 3.0 per cent in 2013, with the Euro area expected to register a positive growth after the contraction witnessed in 2012 and 2013. However, the performance of the US economy with attendant implication for the unconventional monetary policy stance and global financial conditions is pivotal to the fate of global recovery in the coming years. These are the head winds against which the Indian economy would have to maneuver its way to attain high growth trajectory.

4. As Finance Minister I am duty bound to usher in a policy regime that will result in the desired macro-economic outcome of higher growth, lower inflation, sustained level of external sector balance and a prudent policy stance. The Budget is the most comprehensive action plan in this regard. In the first Budget of this NDA government that I am presenting before the august House, my aim is to lay down a broad policy indicator of the direction in which we wish to take this country. The steps that I will announce in this Budget are only the beginning of a journey towards a sustained growth of 7-8 per cent or above within the next 3-4 years along with macro-economic stabilization that includes lower levels of inflation, lesser fiscal deficit and a manageable current account deficit. Therefore, it would not be wise to expect everything that can be done or must be done to be in the first Budget presented within forty five days of the formation of this Government.

5. While higher growth is a sine qua non, we cannot be oblivious of the fact that there is a large population of this country which is below the poverty line. It is the poor who suffer the most. We have to ensure that our anti-poverty programs are well targeted. The growing aspirations of the people will be reflected in the development strategy followed by the Government led by the Prime Minister Shri Narendra Modi and its mandate of “Sab ka Saath Sab ka Vikas”. Allow me to assure this House that we have taken up the challenge in the right earnest. We shall leave no stone unturned in creating a vibrant and strong India.

6. The prevailing economic situation presents a great challenge. It calls for a conscious choice to be made by all of us. Should we allow this drift to carry on and watch helplessly? Should we allow our future to suffer because of our indecisiveness? Should we be victims of mere populism or wasteful expenditure? To me, the response and the remedy are both clear. The task before me today is very challenging because we need to revive growth, particularly in manufacturing and infrastructure to raise adequate resources for our developmental needs. On the other hand, the task is simple if we accept the principle that we cannot spend beyond our means. We need to introduce fiscal prudence that will lead to fiscal consolidation and discipline. Fiscal prudence to me is of paramount importance because of considerations of inter-generational equity. We cannot leave behind a legacy of debt for our future generations. We cannot go on spending today which would be financed by taxation at a future date. There is an urgent need to generate more resources to fuel the economy. For this, the tax to GDP ratio must be improved and non-tax revenues increased. We must remember that the decline in fiscal deficit from 5.7 per cent of GDP in 2011-12 to 4.8 per cent in 2012-13 and 4.5 per cent in 2013-14 was mainly achieved by reduction in expenditure rather than by way of realization of higher revenue. Although, the external sector witnessed a turn-around with the year ending with a Current Account Deficit of 1.7 per cent of the GDP against 4.7 per cent in 2012-13, this was mainly achieved through restriction on non-essential imports and slowdown in overall aggregate demand. Going forward, we must continue to be watchful of the CAD.

7. My predecessor has set up a very difficult task of reducing fiscal deficit to 4.1 per cent of the GDP in the current year. Considering that we had two years of low GDP growth, an almost static industrial growth, a moderate increase in indirect taxes, a large subsidy burden and not so encouraging tax buoyancy, the target of 4.1 per cent fiscal deficit is indeed daunting. Difficult, as it may appear, I have decided to accept this target as a challenge. One fails only when one stops trying. My Road map for fiscal consolidation is a fiscal deficit of 3.6 per cent for 2015-16 and 3 per cent for 2016-17. I am conscious of the fact that Iraq crisis is leaving an impact on oil prices and the situation in the middle-east continues to be volatile. Monsoon this year appears more unpredictable. While inflation has remained at elevated levels relative to what is perceived as acceptable, there has been a gradual moderation in WPI recently, from a high of 7.35% in 2012-13 and 5.98% in 2013-14. But we are still not out of the woods. We also must address fully the problem of black money which is curse of our economy. Faced with these adversities we have no option but to undertake some bold steps in order to enhance economic activity and spur growth in the economy. These steps are only the beginning of our effort to revive the growth spirit of the Indian Economy. They are directional.

Expenditure Management Commission

8. My Government is committed to the principle of “Minimum Government Maximum Governance”. To achieve this goal, time has come to review the allocative and operational efficiencies of Government expenditure to achieve maximum output. The Government will constitute an Expenditure Management Commission, which will look into various aspects of expenditure reforms to be undertaken by the Government. The Commission will give its interim report within this financial year. I also propose to overhaul the subsidy regime, including food and petroleum subsidies, and make it more targeted while providing full protection to the marginalized, poor and SC/STs. A new urea policy would also be formulated.

GST

9. The debate whether to introduce a Goods and Services Tax (GST) must now come to an end. We have discussed the issue for the past many years. Some States have been apprehensive about surrendering their taxation jurisdiction; others want to be adequately compensated. I have discussed the matter with the States both individually and collectively. I do hope we are able to find a solution in the course of this year and approve the legislative scheme which enables the introduction of GST. This will streamline the tax administration, avoid harassment of the business and result in higher revenue collection both for the Centre and the States. I assure all States that government will be more than fair in dealing with them.

Tax Administration

10. The sovereign right of the Government to undertake retrospective legislation is unquestionable. However, this power has to be exercised with extreme caution and judiciousness keeping in mind the impact of each such measure on the economy and the overall investment climate. This Government will not ordinarily bring about any change retrospectively which creates a fresh liability. Hon’ble Members are aware that consequent upon certain retrospective amendments to the Income Tax Act 1961 undertaken through the Finance Act 2012, a few cases have come up in various courts and other legal fora. These cases are at different stages of pendency and will naturally reach their logical conclusion. At this juncture I would like to convey to this August House and also the investors community at large that we are committed to provide a stable and predictable taxation regime that would be investor friendly and spur growth. Keeping this in mind, we have decided that henceforth, all fresh cases arising out of the retrospective amendments of 2012 in respect of indirect transfers and coming to the notice of the Assessing Officers will be scrutinized by a High Level Committee to be constituted by the CBDT before any action is initiated in such cases. I hope the investor community both within India and abroad would repose confidence on our stated position and participate in the Indian growth story with renewed vigour.

Advance Ruling and Other Tax Related Measures

11. Tax demand of more than `4 lakh crore is under dispute and litigation before various Courts and Appellate authorities. This is one of the serious concerns of all taxpayers in this country. In order to reduce litigation in direct taxes, I propose to make certain legislative and administrative changes.

12. Currently, an advance ruling can be obtained about the tax liability of a non-resident from the Authority for Advance Rulings. This facility is not available to resident taxpayers except Public Sector Undertakings. I propose to enable resident taxpayers to obtain an advance ruling in respect of their income tax liability above a defined threshold. I also propose to strengthen the Authority for Advance Rulings by constituting additional benches. I further propose to enlarge the scope of the Income-tax Settlement Commission so that taxpayers may approach the Commission for settlement of disputes. This would continue to be once in a lifetime opportunity for any taxpayer.

13. As an administrative measure, I propose to set up a High Level Committee to interact with trade and industry on a regular basis and ascertain areas where clarity in tax laws is required. Based on the recommendations of the Committee, the Central Board of Direct Taxes and the Central Board of Excise and Customs shall issue appropriate clarifications, wherever considered necessary, on the tax issues within a period of two months.

14. Transfer Pricing is a major area of litigation for both resident and non-resident taxpayers. I have proposed certain changes in the Transfer Pricing regulations, which I would spell out in Part-B of my speech.

15. I hope these measures would go a long way in improving the confidence of taxpayers in the tax system and would provide certainty and clarity in tax laws.

FDI

16. The policy of the NDA Government is to promote Foreign Direct Investment (FDI) selectively in sectors where it helps the larger interest of the Indian Economy. FDI in several sectors is an additionality of resource which helps in promoting domestic manufacture and job creation. India today needs a boost for job creation. Our manufacturing sector in particular needs a push for job creation.

17. India today is the largest buyer of Defence equipment in the world. Our domestic manufacturing capacities are still at a nascent stage. We are buying substantial part of our Defence requirements directly from foreign players. Companies controlled by foreign governments and foreign private sector are supplying our Defence requirements to us at a considerable outflow of foreign exchange. Currently we permit 26 per cent FDI in Defence manufacturing. The composite cap of foreign exchange is being raised to 49 per cent with full Indian management and control through the FIPB route.

18. The Insurance sector is investment starved. Several segments of the Insurance sector need an expansion. The composite cap in the Insurance sector is proposed to be increased up to 49 per cent from the current level of 26 per cent, with full Indian management and control, through the FIPB route.

19. To encourage development of Smart Cities, which will also provide habitation for the neo-middle class, requirement of the built up area and capital conditions for FDI is being reduced from 50,000 square metres to 20,000 square metres and from USD 10 million to USD 5 million respectively with a three year post completion lock in.

20. To further encourage this, projects which commit at least 30 per cent of the total project cost for low cost affordable housing will be exempted from minimum built up area and capitalisation requirements, with the condition of three year lock-in.

21. FDI in the manufacturing sector is today on the automatic route. The manufacturing units will be allowed to sell its products through retail including E-commerce platforms without any additional approval.

Bank Capitalization

22. Financial stability is the foundation of a rapid recovery. Our banking system needs to be further strengthened. To be in line with Basel-III norms there is a requirement to infuse `2,40,000 crore as equity by 2018 in our banks. To meet this huge capital requirement we need to raise additional resources to fulfill this obligation. While preserving the public ownership, the capital of these banks will be raised by increasing the shareholding of the people in a phased manner through the sale of shares largely through retail to common citizens of this country. Thus, while the government will continue to have majority shareholding, the citizens of India will also get direct shareholding in these banks, which currently they hold indirectly. We will also examine the proposal to give greater autonomy to the banks while making them accountable.

PSU Capital Expenditure

23. To give a thrust to investment in the economy, PSUs will also play their part constructively. I am assured that the PSUs will invest through capital investment a total sum of `2,47,941 crores in the current financial year to create a virtuous investment cycle.

Smart Cities

24. As the fruits of development reach an increasingly large number of people, the pace of migration from the rural areas to the cities is increasing. A neo middle class is emerging which has the aspiration of better living standards. Unless, new cities are developed to accommodate the burgeoning number of people, the existing cities would soon become unlivable. The Prime Minister has a vision of developing ‘one hundred Smart Cities’, as satellite towns of larger cities and by modernizing the existing mid-sized cities. To provide the necessary focus to this critical activity, I have provided a sum of `7,060 crore in the current fiscal.

e-Visa

25. Tourism is one of the larger job creators globally. Many economies world over are supported by tourism. In order to give a major boost to tourism in India, the facility of Electronic Travel Authorization (e-Visa) would be introduced in a phased manner at nine airports in India where necessary infrastructure would be put in place within the next six months. The countries to which the Electronic Travel authorisation facility would be extended would be identified in a phased manner. This would further facilitate the visa on arrival facility.

REITs & InvITs

26. Real Estate Investment Trusts (REITS) have been successfully used as instruments for pooling of investment in several countries. I intend to provide necessary incentives for REITS which will have pass through for the purpose of taxation. As an innovation, a modified REITS type structure for infrastructure projects is also being announced as Infrastructure Investment Trusts (InvITs), which would have a similar tax efficient pass through status, for PPP and other infrastructure projects. These structures would reduce the pressure on the banking system while also making available fresh equity. I am confident these two instruments would attract long term finance from foreign and domestic sources including the NRIs.

Kissan Vikas Patra

27. Kissan Vikas Patra (KVP) was a very popular instrument among small savers. I plan to reintroduce the instrument to encourage people, who may have banked and unbanked savings to invest in this instrument.

Skill India

28. A national multi-skill programme called Skill India is proposed to be launched. It would skill the youth with an emphasis on employability and entrepreneur skills. It will also provide training and support for traditional professions like welders, carpenters, cobblers, masons, blacksmiths, weavers etc. Convergence of various schemes to attain this objective is also proposed.

Pradhan Mantri Krishi Sinchayee Yojana

29. Bulk of our farm lands are rain fed and dependent on monsoons. Therefore, there is a need to provide assured irrigation to mitigate risk. To improve access to irrigation we propose to initiate the scheme “Pradhan Mantri Krishi Sinchayee Yojana”. I propose to set aside a sum of `1,000 crore for this purpose.

Swatchh Bharat Abhiyan

30. The need for sanitation is of utmost importance. Although the Central Government is providing resources within its means, the task of total sanitation cannot be achieved without the support of all. The Government intends to cover every household by total sanitation by the year 2019, the 150th year of the Birth anniversary of Mahatma Gandhi through Swatchh Bharat Abhiyan.

Shyama Prasad Mukherji Rurban Mission

31. Gujarat has demonstrated successfully the Rurban development model of urbanization of the rural areas, through which people living in the rural areas can get efficient civic infrastructure and associate services. Shyama Prasad Mukherji Rurban Mission will be launched to deliver integrated project based infrastructure in the rural areas, which will also include development of economic activities and skill development. The preferred mode of delivery would be through PPPs while using various scheme funds for financing.

Deendayal Upadhyaya Gram Jyoti Yojana

32. Power is a vital input for economic growth and the Government is committed to providing 24×7 uninterrupted power supply to all homes. “Deen Dayal Upadhyaya Gram Jyoti Yojana” for feeder separation will be launched to augment power supply to the rural areas and for strengthening sub-transmission and distribution systems. I propose to set aside a sum of `500 crore for this purpose.

Statue of Unity

33. Government of Gujarat has embarked upon the mission to build the largest statue of Sardar Vallabh Bhai Patel. Sardar Patel stands as the symbol of the unity of the country. To support the Gujarat Government in this initiative to erect the Statue of Unity, I propose to set aside a sum of `200 crore.

II. PLAN & BUDEGTARY ALLOCATIONS

34. I now turn to budgetary allocations. While announcing the allocations, I want to reiterate my Government’s firm commitment to strengthen the federal structure of the country and our resolve to work closely with the state governments for the larger good of the people.

Welfare of Scheduled Castes/Scheduled Tribes

35. Government is committed to the welfare of SCs and STs. This year an amount of `50,548 crore is proposed under the SC Plan and `32,387 crore under TSP.

36. To provide credit enhancement facility for young start up enterpreneurs from Scheduled Castes, who aspire to be part of the neo-middle class, I propose to set aside a sum of `200 crore which will be operationalised through a scheme by IFCI.

37. For the welfare of the tribals “Van Bandhu Kalyan Yojana” is being launched with an initial allocation of `100 crore.

Welfare of Senior Citizens

Varishtha Pension Bima Yojana

38. NDA Government during its last term in office had introduced the Varishtha Pension Bima Yojana (VPBY) as a pension scheme for senior citizens. Under the scheme a total no. of 3.16 lakh annuitants are being benefitted and the corpus amounts to `6,095 crore. I propose to revive the scheme for a limited period from 15 August, 2014 to 14 August, 2015 for the benefit of citizens aged 60 years and above.

39. A large amount of money is estimated to be lying as unclaimed amounts with PPF, Post Office, saving schemes etc. These are mostly out of investments belonging to the senior citizens and on their demise, remain unclaimed for want of relevant payment instructions. I propose to set up a committee to examine and recommend how this amount can be used to protect and further financial interests of the senior citizens. The committee will give its report not later than December this year.

40. Government is fully committed to the social security and welfare of employees serving in the organized sector. The Government is notifying minimum pension of `1,000 per month to all subscriber members of EP Scheme and has made an initial provision of `250 crore in the current financial year to meet the expenditure. Further, increase in mandatory wage ceiling of subscription to EPS from `6,500 to `15,000 has been made and a provision of `250 crore has been provided in the current budget. For the convenience of the subscribers, EPFO will launch the “Uniform Account Number” Service for contributing members to facilitate portability of Provident Fund accounts.

Empowerment of the Differently Abled Persons

41. Government will make all out efforts to create a more inclusive society for Persons with Disabilities to enable them to enjoy equal opportunities to lead an empowered life with dignity. I propose to extend the scheme for Assistance to Disabled Persons for purchase/fitting of Aids and Appliances (ADIP) to include contemporary aids and assistive devices. It is also proposed to establish National level institutes for Universal Inclusive Design and Mental Health Rehabilitation and also a Centre for Disability Sports.

Incentives for the Visually Challenged

42. The Braille Presses in the Government and private sector are not able to meet the demand of Braille Text books for the visually impaired students. It is proposed to provide assistance to the State Governments to establish fifteen new Braille Presses and modernize ten existing Braille Presses in the current financial year. Government will also print currency notes with Braille like signs to assist the visibly challenged persons.

Women & Child Development

43. Women’s safety is a concern shared by all the honourable members of this House. We need to test out different approaches that can be validated and scaled up quickly. An outlay of `50 crores will be spent by Ministry of Road Transport & Highways on pilot testing a scheme on “Safety for Women on Public Road Transport”. A sum of `150 crores will also be spent by Ministry of Home Affairs on a scheme to increase the safety of women in large cities. It is also proposed to set up “Crisis Management Centres” in all the districts of NCT of Delhi this year in all government and private hospitals. The funding will be provided from the Nirbhaya Fund.

Beti Bachao, Beti Padhao Yojana

44. It is a shame that while the country has emerged as a major player amongst the emerging market economies, the apathy towards girl child is still quite rampant in many parts of the country. Therefore I propose to launch Beti Bachao, Beti Padhao Yojana which will be a focused scheme which would help in generating awareness and also help in improving the efficiency of delivery of welfare services meant for women. I propose to set aside a sum of `100 crore for this.

Gender Mainstreaming

45. Government would focus on campaigns to sensitize people of this country towards the concerns of the girl child and women. The process of sensitization must begin early, therefore, the school curriculum must have a separate chapter on gender mainstreaming.

Rural Development

Pradhan Mantri Gram Sadak Yojana

46. Pradhan Mantri Gram Sadak Yojana initiated during the NDA-I under the stewardship of Prime Minister Atal Behari Vajpayee has had a massive impact in improvement of access for Rural population. It is time to reaffirm our commitment to a better and more energetic PMGSY under the dynamic leadership of Prime Minister Shri Narendra Modi. I propose to provide a sum of `14,389 crore.

MGNREGA

47. The Government is committed to providing wage and self-employment opportunities in rural areas. However, wage employment would be provided under MGNREGA through works that are more productive, asset creating and substantially linked to agriculture and allied activities.

National Livelihood Mission

48. Ajeevika, the National Rural Livelihood Mission (NRLM), aims to eliminate rural poverty through sustainable livelihood options. Under this mission, Women SHGs are provided bank loans at 4% on prompt repayment in 150 districts and at 7% in all other districts. I propose to extend the provision of bank loan for women SHGs at 4% in another 100 districts. I also propose to set up a “Start Up Village Entrepreneurship Programme” for encouraging rural youth to take up local entrepreneurship programs. I am providing an initial sum of `100 crore for this.

Rural Housing

49. The Rural Housing Scheme has benefited a large percentage of rural population who have availed credit through Rural Housing Fund (RHF). Accordingly, I propose to increase the allocations for the year 2014-15 to `8,000 crore for National Housing Bank (NHB) with a view to expand and continue to support Rural Housing in the country.

Watershed Development

50. To give an added impetus to watershed development in the country, I propose to start a new programme called “Neeranchal” with an initial outlay of `2,142 crores in the current financial year.

Panchayati Raj

51. Backward Region Grant Fund (BRGF) is being implemented in 272 backward districts in 27 States, to fill up the critical gaps in development of basic infrastructure facilities and for capacity building of Panchayats/ Gram Sabhas in backward areas. It is proposed to restructure the BRGF to address intra-district inequalities to ensure that backward sub-districts units within States receive adequate support.

Safe Drinking Water

52. Many of our drinking water sources have excess impurities like flouride, arsenic and manmade contaminations due to untreated sewage, industrial effluents and leaching of pesticides and fertilizers. It is proposed to earmark `3,600 crore under National Rural Drinking Water Programme for providing safe drinking water in approximately 20,000 habitations affected with arsenic, fluoride, heavy/ toxic elements, pesticides/ fertilizers through community water purification plants in next 3 years.

Health and Family Welfare

53. To move towards “Health for All”, the two key initiatives i.e. the Free Drug Service and Free Diagnosis Service would be taken up on priority.

54. In order to achieve universal access to early quality diagnosis and treatment to TB patients, two National Institutes of Ageing will be set up at AIIMS, New Delhi and Madras Medical College, Chennai. A national level research and referral Institute for higher dental studies would be set up in one of the existing Dental institutions.

55. It is a matter of great satisfaction that all the six new AIIMS at Jodhpur, Bhopal, Patna, Rishikesh, Bhubaneswar and Raipur, which are part of Pradhan Mantri Swasthya Suraksha Yojana, have become functional. A plan to set up four more AIIMS like institutions at Andhra Pradesh, West Bengal, Vidarbha in Maharashtra and Poorvanchal in UP is under consideration. I propose to set aside a sum of `500 crore for this. Presently 58 government medical colleges have been approved. It is also proposed to add 12 more government medical colleges. In addition, dental facilities would also be provided in all the hospitals.

56. For the first time, the Central Government will provide central assistance to strengthen the States’ Drug Regulatory and Food Regulatory Systems by creating new drug testing laboratories and strengthening the 31 existing State laboratories.

57. In keeping with the Government’s focus on improving affordable healthcare and to augment the transfer of technology for better health care facilities in rural India, fifteen Model Rural Health Research shall be set up in the states, which shall take up research on local health issues concerning rural population.

Education

School Education

58. Elementary education is one of the major priorities of the Government. There is a residual gap in providing minimal school infrastructure facilities. Government would strive to provide toilets and drinking water in all the girls school in first phase. An amount of ` 28,635 crore is being funded for Sarva Shiksha Abhiyan and `4,966 crore for Rashtriya Madhyamik Shiksha Abhiyan. A School Assessment Programme is being initiated at a cost of `30 crore. To infuse new training tools and motivate teachers, “Pandit Madan Mohan Malviya New Teachers Training Programme” is being launched. I am setting aside an initial sum of `500 crore for this.

59. To take advantage of the reach of the IT, I propose to allocate a sum of `100 crore for setting up virtual classrooms as Communication Linked Interface for Cultivating Knowledge (CLICK) and online courses.

Higher Education

60. The country needs a large number of Centres of higher learning which are world class. I propose to set up Jai Prakash Narayan National Centre for Excellence in Humanities in Madhya Pradesh. I also intend to set up five more IITs in the Jammu, Chattisgarh, Goa, Andhra Pradesh and Kerala. Five IIMs would be set up in the States of Himachal Pradesh, Punjab, Bihar, Odisha and Maharashtra. I propose to set aside a sum of `500 crore for this.

61. Government also proposes to ease and simplify norms to facilitate education loans for higher studies.

Digital India

62. There is an imminent need to further bridge the divide between digital “haves” and “have-nots”. For this it is proposed to launch a pan India programme “Digital India”. This would ensure Broad band connectivity at village level, improved access to services through IT enabled platforms, greater transparency in Government processes and increased indigenous production of IT hardware and software for exports and improved domestic availability. Special focus would be on supporting software product startups. A National Rural Internet and Technology Mission for services in villages and schools, training in IT skills and E-Kranti for government service delivery and governance scheme is also proposed. I have provided a sum of `500 crore for this purpose.

63. A programme for promoting “Good Governance” would be launched and I propose to set aside a sum of `100 crore for this.

Information and Broadcasting

64. So far around 400 permissions for setting up of a Community Radio Stations have been issued. To encourage the growth in this sector, a new plan scheme is being taken up with an allocation of `100 crore. This scheme would support about 600 new and existing Community Radio Stations.

65. Film & Television Institute, Pune and Satyajit Ray Film & Television Institute, Kolkata are proposed to be accorded status of Institutes of national importance and a “National Centre for Excellence in Animation, Gaming and Special Effects will be set up.

Urban Development

Urban Renewal

66. It is time that our cities and towns undergo urban renewal and become better places to live in. While developing housing and other infrastructure, both physical and economic, which can have local variations, four fundamental activities must underpin such development. These are provision of safe drinking water and sewerage management, use of recycled water for growing organic fruits and vegetable, solid waste management and digital connectivity. It is the vision of this Government that at least five hundred (500) such habitations must be provided support, while harnessing private capital and expertise through PPPs, to renew their infrastructure and services in the next ten years.

Pooled Municipal Debt Obligation Facility

67. Pooled Municipal Debt Obligation Facility: This facility was set up in 2006 with participation of several Banks to promote and finance infrastructure projects in Urban Area on shared risk basis. Present corpus of this facility is `5,000 Crores. This Government has a major focus of providing good infrastructure, including public transport, solid waste disposal, sewerage treatment and drinking water in the urban areas. In keeping with the Hon’ble Prime Minister’s vision for urban areas it is proposed to enlarge it to `50,000 Crores with extension of the facility by five years to March 31, 2019.

Urban Transportation

68. Urban Metro Projects have proven to be very useful in decongesting large cities. For two million plus cities, planning of metro projects must begin now. Government will encourage development of metro rail systems, including light rail systems, in the PPP mode, which will be supported by the Central Government through VGF. In the current financial year, I propose to set aside a sum of `100 crore for Metro Projects in Lucknow and Ahemdabad.

Housing for All

69. Our government is committed to endeavour to have housing for all by 2022. For this purpose, I intend to extend additional tax incentive on home loans to encourage people, especially the young, to own houses.

70. I propose setting up a Mission on Low Cost Affordable Housing which will be anchored in the National Housing Bank. Schemes will be evolved to incentivize the development of low cost affordable housing. I propose to allocate this year also a sum of `4,000 crores for NHB with a view to increase the flow of cheaper credit for affordable housing to the urban poor/EWS/LIG segment. I have already outlined some other incentives such as easier flow of FDI in this sector. Government is willing to examine other suggestions that would spur growth in this sector.

71. I also propose to add inclusion of slum development in the list of Corporate Social Responsibility (CSR) activities to encourage the private sector to contribute more towards this activity.

Malnutrition

72. A national programme in Mission Mode is urgently required to halt the deteriorating malnutrition situation in India, as present interventions are not adequate. A comprehensive strategy including detailed methodology, costing, time lines and monitorable targets will be put in place within six months.

Minorities

73. A programme for the up gradation of skills and training in ancestral arts for development for the minorities called “Up gradation of Traditional Skills in Arts, Resources and Goods” would be launched to preserve the traditional arts and crafts which are rich heritage.

74. An additional amount of `100 crores for Modernization of Madarsas has been provided to the Department of School Education.

III. AGRICULTURE

75. Farming as an activity contributes nearly 1/6th to our National GDP and a major portion of our population is dependent on it for livelihood. It has risen to the challenge of making India largely self-sufficient in providing food for a growing population. To make farming competitive and profitable, there is an urgent need to step up investment, both public and private, in agro-technology development and creation and modernization of existing agri-business infrastructure. Indian Agricultural Research Institute, Pusa has been at the forefront of research in this area. However, since independence only one such centre has been established. Government will establish two more such institutions of excellence on similar pattern in Assam and Jharkhand with an initial sum of `100 crore in the current financial year. In addition, an amount of `100 crores is being set aside for setting up an “Agri-Tech Infrastructure Fund”.

76. It is also proposed to establish Agriculture Universities in Andhra Pradesh and Rajasthan and Horticulture Universities in Telangana and Haryana. An initial sum of `200 crores has been allocated for this purpose.

77. Deteriorating soil health has been a cause of concern and leads to sub optimal utilization of farming resources. Government will initiate a scheme to provide to every farmer a soil health card in a Mission mode. I propose to set aside a sum of `100 crore for this purpose and an additional `56 crores to set up 100 Mobile Soil Testing Laboratories across the country. There have also been growing concerns about the imbalance in the utilization of different types of fertilizers resulting in deterioration of the soil.

78. Climate change is a reality which all of us have to face together. Agriculture as an activity is most prone to the vagaries of climate change. To meet this challenge, I propose to establish a “National Adaptation Fund” for climate change. As an initial sum an amount of `100 crore will be transferred to the Fund.

79. We are committed to sustaining a growth of 4% in Agriculture and for this we will bring technology driven second green revolution with focus on higher productivity and include “Protein revolution” as an area of major focus.

80. As a very large number of landless farmers are unable to provide land title as guarantee, institutional finance is denied to them and they become vulnerable to money lenders’ usurious lending. I propose to provide finance to 5 lakh joint farming groups of “Bhoomi Heen Kisan” through NABARD in the current financial year.

81. Price volatility in the agriculture produce creates uncertainties and hardship for the farmers. To mitigate this I am providing a sum of `500 crore for establishing a Price Stabilization Fund.

82. The farmers and consumers’ interest will be further served by increasing competition and integrating markets across the country. To accelerate setting up of a National Market, the Central Government will work closely with the State Governments to re-orient their respective APMC Acts., to provide for establishment of private market yards/ private markets. The state governments will also be encouraged to develop Farmers’ Markets in town areas to enable the farmers to sell their produce directly.

83. I also propose to set aside a sum of `50 crores for the development of indigenous cattle breeds and an equal amount for starting a blue revolution in inland fisheries.

Agriculture Credit

84. Banks are providing strong credit support to the agriculture sector. A target of `8 lakh crore has been set for agriculture credit during 2014-15 which, I am confident, the banks will surpass this.

Interest Subvention Scheme for Short Term Crop Loans

85. Under the Interest Subvention Scheme for short term crop loans, the banks are extending loans to farmers at a concessional rate of 7%. The farmers get a further incentive of 3% for timely repayment. I propose to continue the Scheme in 2014-15.

Rural Infrastructure Development Fund

86. NABARD operates the Rural Infrastructure Development Fund (RIDF), out of the priority sector lending shortfall of the banks, which helps in creation of infrastructure in agriculture and rural sectors across the country. I propose to raise the corpus of RIDF by an additional `5,000 crores from the target given in the Interim Budget to `25,000 crores in the current financial year.

Warehouse Infrastructure Fund

87. Increasing warehousing capacity for increasing the shelf life of agriculture produces and thereby the earning capacity of the farmers is of utmost importance. Keeping in view the urgent need for availability of scientific warehousing infrastructure in the country, I propose an allocation of `5,000 crore for the fund for the year 2014-15.

Creation of Long Term Rural Credit Fund

88. The share of long term investment credit in agriculture is going down as compared to short term crop loan. This is severely hampering the asset creation in agriculture and allied activities. In order to give a boost to long term investment credit in agriculture, I propose to set up “Long Term Rural Credit Fund” in NABARD for the purpose of providing refinance support to Cooperative Banks and Regional Rural Banks with an initial corpus of `5,000 crore.

Allocation of STCRC (Refinance) Fund

89. The Short Term Cooperative Rural Credit (STCRC) – Refinance Fund was announced in Union Budget 2008-09 with initial corpus of `5,000 crore. In order to ensure increased and uninterrupted credit flow to farmers and to avoid high cost market borrowings by NABARD, I propose to allocate an amount of `50,000 crore for STCRC Fund during 2014-15.

Producers Development and Upliftment Corpus (PRODUCE)

90. The issue of profitability of small holding based agriculture has assumed importance in view of increasing proportion of small and marginal farmers in the country. I propose to supplement NABARD’s Producers’ organization development fund for Producer’s development and upliftment called PRODUCE with a sum of `200 crore which will be utilized for building 2,000 producers organizations across the country over the next two years.

Food Security

91. Government is committed to reforms in the food sector. Restructuring FCI, reducing transportation and distribution losses and efficacy of PDS would be taken up on priority.

92. Government is also committed to provide wheat and rice at reasonable prices to the weaker sections of the society. Even if due to inadequate rainfall there is a marginal decline in agriculture production, stocks in the Central pool are adequate to meet any exigency. Government shall, when required, undertake open market sales to keep prices under control.

Kisan TV

93. Kisan TV, dedicated to the interests of the agriculture and allied sector will be launched in the current financial year. This will disseminate real time information to the farmers information regarding new farming techniques, water conservation, organic farming etc. I propose to set aside a sum of `100 crore for this purpose.

IV. INDUSTRY

94. The eBiz platform aims to create a business and investor friendly ecosystem in India by making all business and investment related clearances and compliances available on a 24×7 single portal, with an integrated payment gateway. All Central Government Departments and Ministries will integrate their services with the eBiz platform on priority by 31 December this year.

95. A National Industrial Corridor Authority, with its headquarters in Pune, is being set up to coordinate the development of the industrial corridors, with smart cities linked to transport connectivity, which will be the cornerstone of the strategy to drive India’s growth in manufacturing and urbanization. I have provided an initial corpus of `100 crore for this purpose.

96. The Amritsar Kolkata Industrial master planning will be completed expeditiously for the establishment of industrial smart cities in seven States of India. The master planning of three new smart cities in the Chennai-Bengaluru Industrial Corridor region, viz., Ponneri in Tamil Nadu, Krishnapatnam in Andhra Pradesh and Tumkur in Karnataka will also be completed.

97. The perspective plan for the Bengaluru Mumbai Economic corridor (BMEC) and Vizag-Chennai corridor would be completed with the provision for 20 new industrial clusters.

98. Kakinada, its adjoining area and the port will be developed as the key drivers of economic growth in the region with a special focus on hardware manufacturing.

99. Exports cannot be exponentially increased unless the states play a very active role in export promotion by providing good infrastructure and full facilitation. It will be our endeavor to engage with the states to take India’s exports to a higher growth trajectory. It is proposed to establish an Export promotion Mission to bring all stakeholders under one umbrella.

Special Economic Zones

100. The Government is committed to revive the Special Economic Zones (SEZs) and make them effective instruments of industrial production, economic growth, export promotion and employment generation. For achieving this, effective steps would be undertaken to operationalize the Special Economic Zones, to revive the investors’ interest to develop better infrastructure and to effectively and efficiently use the available unutilized land.

Apprenticeship

101. Comparing the size of the Indian economy, the performance of the Apprenticeship Training Scheme is not satisfactory and a large number of training facilities in the industry are unutilized. Apprenticeship Act will be suitably amended to make it more responsive to industry and youth. We will also encourage MSMEs to avail of the benefits of this scheme.

Micro, Small and Medium Enterprises sector

102. SMEs form the backbone of our Economy. They account for a large portion of our industrial output and employment. The bulk of service sector enterprises are also SMEs. Most of these SMEs are Own Account Enterprises. Most importantly a majority of these enterprises are owned or run by SCs, STs and OBCs. Financing to this sector is of critical importance, particularly as it benefits the weakest sections. There is need to examine the financial architecture for this sector. I propose to appoint a committee with representatives from the Finance Ministry, Ministry of MSME, RBI to give concrete suggestions in three months.

103. Promotion of entrepreneurship and start-up Companies remains a challenge. While there have been some efforts to encourage, one principal limitation has been availability of start-up capital by way of equity to be brought in by the promoters. In order to create a conducive eco-system for the venture capital in the MSME sector it is proposed to establish a `10,000 crore fund to act as a catalyst to attract private Capital by way of providing equity, quasi equity, soft loans and other risk capital for start-up companies.

104. To establish technology centre network to promote innovation, entrepreneurship and agro-industry, I propose to set up a fund with a corpus of `200 crore.

105. The definition of MSME will be reviewed to provide for a higher capital ceiling. A programme to facilitate forward and backward linkages with multiple value chain of manufacturing and service delivery will also be put in place.

106. Entrepreneur friendly legal bankruptcy framework will also be developed for SMEs to enable easy exit. A nationwide “District level Incubation and Accelerator Programme” would be taken up for incubation of new ideas and providing necessary support for accelerating entrepreneurship.

Textiles

107. I propose to set up a Trade Facilitation Centre and a Crafts Museum with an outlay of `50 crore to develop and promote handloom products and carry forward the rich tradition of handlooms of Varanasi, where I also intend to support a Textile mega-cluster. I also propose to set up six more Textile mega-clusters at Bareily, Lucknow, Surat, Kuttch, Bhagalpur, Mysore and one in Tamil Nadu. I am allocating a sum of `200 crore for this purpose.

108. I also propose to set up a Hastkala Academy for the preservation, revival, and documentation of the handloom/handicraft sector in PPP mode in Delhi. I have set aside a sum of `30 crore for this purpose.

109. I propose to start a Pashmina Promotion Programme (P-3) and a programme for the development of other crafts of Jammu & Kashmir. I am setting aside a sum of `50 crore for this purpose.

V. INFRASTRUCTURE

110. India has emerged as the largest PPP market in the world with over 900 projects in various stages of development. PPPs have delivered some of the iconic infrastructure like airports, ports and highways which are seen as models for development globally. But we have also seen the weaknesses of the PPP framework, the rigidities in contractual arrangements, the need to develop more nuanced and sophisticated models of contracting and develop quick dispute redressal mechanism. An institution to provide support to mainstreaming PPPs called 3P India will be set up with a corpus of `500 crores.

Shipping

111. A policy for encouraging the growth of Indian controlled tonnage will be formulated to ensure increase in employment of the Indian seafarers. Development of ports is also critical for boosting trade. Sixteen new port projects are proposed to be awarded this year with a focus on port connectivity. `11,635 crore will be allocated for the development of Outer Harbour Project in Tuticorin for phase I. SEZs will also be developed in Kandla and JNPT. A comprehensive policy will also be announced to promote Indian ship building industry in the current financial year.

Inland Navigation

112. Development of inland waterways can improve vastly the capacity for the transportation of goods. A project on the river Ganga called ‘Jal Marg Vikas’ (National Waterways-I) will be developed between Allahabad and Haldia to cover a distance of 1620 kms, which will enable commercial navigation of at least 1500 tonne vessels. The project will be completed over a period of six years at an estimated cost of `4,200 crore.

New Airports

113. Despite increase in air connectivity air travel is still out of reach of a large number of aspirational Indians. Scheme for development of new airports in Tier I and Tier II will be launched for implementation through Airport Authority of India or PPPs.

Roads sector

114. Roads sector constitutes a very import artery of communication in the country. The sector had taken shape from 1998-2004 under NDA-I. The sector again needs huge amount of investment along with debottlenecking from maze of clearances. I propose investment in National Highways Authority of India and State Roads of an amount of `37,880 crores, which includes `3,000 crores for the North East. During CFY a target of NH construction of 8500 km will be achieved.

115. A modern nation needs multiple sources of transport. A country of the size of India must have a transport network which can ensure faster travel across cities which are geographically distant. This will also improve the supply chain in transporting goods across cities. We will initiate work on select expressways in parallel to the development of the Industrial Corridors. For project preparation NHAI shall set aside a sum of `500 crore.

Power

116. To promote cleaner and more efficient thermal power, I propose to allocate an initial sum of `100 crore for preparatory work for a new scheme “Ultra-Modern Super Critical Coal Based Thermal Power Technology.”

Coal

117. Comprehensive measures for enhancing domestic coal production are being put in place along with stringent mechanism for quality control and environmental protection, which includes supply of crushed coal and setting up of washeries. The existing impasse in the coal sector will be resolved and adequate quantity of coal will be provided to power plants which are already commissioned or would be commissioned by March 2015, to unlock dead investments. An exercise to rationalize coal linkages which will optimize transport of coal and reduce cost of power is underway.

New & Renewable Energy

118. New and Renewable energy deserves a very high priority. It is proposed to take up Ultra Mega Solar Power Projects in Rajasthan, Gujarat, Tamil Nadu, and Laddakh in J&K. I have set aside a sum of `500 crores for this. We are launching a scheme for solar power driven agricultural pump sets and water pumping stations for energizing one lakh pumps. I propose to allocate a sum of `400 crores for this purpose. An additional `100 crore is set aside for the development of 1 MW Solar Parks on the banks of canals. Implementation of the Green Energy Corridor Project will be accelerated in this financial year to facilitate evacuation of renewable energy across the country.

Petroleum & Natural Gas

119. It is my Government’s intention to accelerate production and exploitation of Coal Bed Methane reserves. The possibility of using modern technology to revive old or closed wells will also be explored to maximize production from such fields.

120. The usage of PNG will be rapidly scaled up in a Mission mode as it is “clean” and efficient to deliver.

121. We have at present about 15,000 km of gas pipeline systems in the country. In order to complete the gas grid across the country, an additional 15,000 km of pipelines are required. It is proposed to develop these pipelines using appropriate PPP models. This will help increase the usage of gas, domestic as well as imported, which, in the long-term will be beneficial in reducing dependence on any one energy sources.

Mining

122. It is my Government’s intention to encourage investment in mining sector and promote sustainable mining practices to adequately meet the requirements of industry without sacrificing environmental concerns. The current impasse in mining sector, including, iron ore mining, will be resolved expeditiously. Changes, if necessary, in the MMDR Act, 1957 would be introduced to facilitate this.

Revision of Royalty Rate

123. There have been requests from several State Governments to revise rate of Royalty on minerals. Hon’ble Members are aware that rate of Royalty can be revised after a period of three years. Last revision took place in August, 2009. Therefore, another revision, which is due, will be undertaken to ensure greater revenue to the State Governments.

VI. FINANCIAL SECTOR

Capital Market

124. Financial sector is at the heart of the growth engine. Globalization helps channelize external savings to India to bridge the resource gap but also renders the financial sector vulnerable to the vagaries of the global economy. We have seen this in the recent past in ample measure. It is essential to strengthen and modernize the legislative regulatory framework. There are some important recommendations of the Financial Sector Legislative Reforms Commission like the enactment of the Indian Financial Code which is considered necessary for better governance and accountability. It will be my endeavor to complete the ongoing process of consultations with all the stakeholders expeditiously on this. It is also essential to have a modern monetary policy framework to meet the challenge of an increasingly complex economy. Government will, in close consultation with the RBI, put in place such a framework.

125. While the impact of the above measures will be felt in the medium term, towards the same objective, I propose to:

i. Advise financial sector regulators to take early steps for a vibrant, deep and liquid corporate bond market and deepen the currency derivatives market by eliminating unnecessary restrictions.

ii. Extend a liberalized facility of 5% withholding tax to all bonds issued by Indian corporate abroad for all sectors and extend the validity of the scheme to 30.06.2017.

iii. Liberalize the ADR/GDR regime to allow issuance of depository receipts on all permissible securities.

iv. Allow international settlement of Indian debt securities.

v. Completely revamp the Indian Depository Receipt (IDR) and introduce a much more liberal and ambitious Bharat Depository Receipt (BhDR).

vi. Clarify the tax treatment on income of foreign fund whose fund managers are located in India to resolve a long-standing problem. Details will be presented in Part B.

126. The Indian capital markets have been a source of risk capital for a growing India. I propose to take a number of measures to further energize these markets including:

i. Introduction of uniform KYC norms and inter-usability of the KYC records across the entire financial sector.

ii. Introduce one single operating demat account so that Indian financial sector consumers can access and transact all financial assets through this one account.

127. As part of strengthening the regulatory framework for commodity markets, the Warehouse Development and Regulatory Authority (WD&RA) has begun a transformation plan to invigorate the warehousing sector and significantly improve post-harvest lending to farmers against negotiable warehouse receipts. This plan will be implemented with vigor.

128. There is an urgent need to converge the current Indian accounting standards with the International Financial Reporting Standards (IFRS). I propose for adoption of the new Indian Accounting Standards (Ind AS) by the Indian companies from the financial year 2015-16 voluntarily and from the financial year 2016-17 on a mandatory basis. Based on the international consensus, the regulators will separately notify the date of implementation of AS Ind for the Banks, Insurance companies etc. Standards for the computation of tax would be notified separately.

Banking

129. There have been some suggestions for consolidation of Public Sector Banks. Government, in principle, agrees to consider these suggestions.

130. To provide all households in the country with banking services, a time bound programme would be launched as Financial Inclusion Mission on 15 August this year. It would particularly focus to empower the weaker sections of the society, including women, small and marginal farmers and labourers. Two bank accounts in each household are proposed to be opened which will also be eligible for credit.

131. Long term financing for infrastructure has been a major constraint in encouraging larger private sector participation in this sector. On the asset side, banks will be encouraged to extend long term loans to infrastructure sector with flexible structuring to absorb potential adverse contingencies, sometimes known as the 5/25 structure. On the liability side, banks will be permitted to raise long term funds for lending to infrastructure sector with minimum regulatory pre-emption such as CRR, SLR and Priority Sector Lending (PSL).

132. After making suitable changes to current framework, a structure will be put in place for continuous authorization of universal banks in the private sector in the current financial year. RBI will create a framework for licensing small banks and other differentiated banks. Differentiated banks serving niche interests, local area banks, payment banks etc. are contemplated to meet credit and remittance needs of small businesses, unorganized sector, low income households, farmers and migrant work force.

133. The rising Non Performing Assets of Public Sector Banks is a matter of concern for the Government. Six new Debt Recovery Tribunals would be set up at Chandigarh, Bengaluru, Ernakulum, Dehradun, Siliguri and Hyderabad. Government will work out effective means for revival of other stressed assets.

Insurance Sector

134. Benefits of insurance in India have not reached a large section of the people and insurance penetration and density are very low. The Government would work towards addressing this situation in multi-pronged manner with the support of all stake holders concerned. This would include suitable incentives, using banking correspondents, strengthening micro-offices opened by public sector insurance. It is also proposed to take up the pending insurance laws (amendment) Bill for consideration of the Parliament.

135. As part of the legislative initiatives under financial sector reforms, it is proposed to bridge the regulatory gap under the Prize Chits and Money Circulation Scheme (Banning) Act, 1978. This step is expected to facilitate effective regulation of companies and entities which have duped a large number of poor and vulnerable people in this country.

Small Savings

136. To address the concerns of decline in savings rate and improving returns for small savers, I propose to revitalize small savings.

137. My Government attaches utmost importance to the welfare of Girl Child. A special small savings instrument to cater to the requirements of educating and marriage of the Girl Child will be introduced. A National Savings Certificate with insurance cover will also be launched to provide additional benefits for the small saver.

138. In the PPF Scheme, annual ceiling will be enhanced to `1.5 lakh p.a. from `1 lakh at present.

VII. DEFENCE & INTERNAL SECURITY

139. There can be no compromise with the defence of our country. I therefore propose to allocate an amount of ` 2,29,000 crore for the current financial year for Defence.

One Rank One Pension

140. We reaffirm our commitment to our brave soldiers. A policy of “One Rank One Pension” has been adopted by the Government to address the pension disparities. We propose to set aside a further sum of `1,000 crore to meet this year’s requirement.

Modernization

141. Modernization of the armed forces is critical to enable them to play their role effectively in the Defence of India’s strategic interests. I, therefore, propose to increase the capital outlay for Defence by `5,000 crore over the amount provided for in the interim Budget. This includes a sum of `1,000 crore for accelerating the development of the Railway system in the border areas. Urgent steps would also be taken to streamline the procurement process to make it speedy and more efficient.

War Memorial

142. The country is deeply indebted to the officers and the jawans of the armed forces for having made huge sacrifices to defend its honour. In doing so a very large number of them gave up their lives. It is a privilege for the nation to erect a befitting memorial in their memory. I am happy to announce that a War Memorial will be constructed in the Princes Park. It will be supplemented by a War Museum. I am allocating a sum of `100 crore for this purpose.

The Defence Production

143. In the year 2011 a separate fund was announced to provide necessary resources to public and private sector companies, including SMEs, as well as academic and scientific institutions to support research and development of Defence systems that enhance cutting-edge technology capability in the country. However, beyond the announcement, no action was taken. Therefore, I propose to set aside an initial sum of `100 crore to set up a Technology Development Fund to support this objective.

Internal Security

144. The scheme for modernization of state police forces would be reviewed. I propose to enhance the allocation from a sum of `1,847 crore in the BE of 2013-14 to `3,000 crore in the current financial year. I am also allocating adequate funds for carrying out small but much needed developmental activities as Additional Central Assistance for Left Wing Extremist Affected districts.

145. In order to strengthen and modernize border infrastructure, a sum of `2,250 crore has been set aside. In addition, a sum of `990 crore has been allocated for the socio economic development of the villages along the borders. A sum of `150 crore has also been ear-marked for the construction of Marine Police Station, Jetties, for the purchase of boats etc.

National Police Memorial

146. The nation is equally indebted to the officers and the jawans of the Police forces, including the central armed police forces, who are constantly engaging with the enemy within and in the process sacrificing their lives in the line of duty. I announce the construction of a befitting National Police Memorial. I propose to set aside a sum of `50 crores for this purpose in the current financial year.

VIII. CULTURE & TOURISM

147. India’s rich cultural, historical, religious and natural heritage provides a huge potential for the development of tourism and job creation as an Industry. I propose to create 5 tourist circuits around specific themes and set aside a sum of `500 crore for this purpose.

148. National Mission on Pilgrimage Rejuvenation and Spiritual Augmentation Drive (PRASAD) shall be launched in this financial year. A sum of `100 crore is being set aside for this purpose.

149. National Heritage City Development and Augmentation Yojana (HRIDAY) will also be launched for conserving and preserving the heritage characters of these cities. To begin with I propose to launch this programme in the cities such as Mathura, Amritsar, Gaya, Kanchipuram, Vellankani and Ajmer. I propose to set aside a sum of `200 crore for this purpose. The Project will work through a partnership of Government, academic institutions and local community combining affordable technologies.

150. Archeological sites preservation requires urgent attention lest our ancient heritage is lost to all future generations. For this purpose, I intend to set aside a sum of `100 crore.

151. Sarnath-Gaya-Varanasi Buddhist circuit would also be developed with world class tourist amenities to attract tourists from all over the world.

152. Goa has emerged as a major international convention centre. It has also been declared as the permanent venue for International Film Festival of India. There is an urgent need to develop world class convention facilities. This can best be done in close collaboration with the private sector. Government of India will fully support this initiative to develop the facilities in PPP mode through the VGF scheme.

Water Resources and cleaning of Ganga

Linking of Rivers

153. Rivers form the lifeline of our country. They provide water not only for producing food for the multitudes but also drinking water. Unfortunately the country is not uniformly blessed with perennial rivers. Therefore, an effort to link the rivers can give rich dividends to the country. It is time that we made a serious effort to move in this direction. To expedite the preparation of the Detailed Project Reports, I propose to set aside a sum of `100 crore.

Sacred Rivers

154. Substantial amount of money has been spent in the conservation and improvement of the Ganga, which has a very special sacred place in the collective consciousness of this country. However, the efforts have not yielded desired results because of the lack of concerted effort by all the stakeholders. I propose to set up Integrated Ganga Conservation Mission called “Namami Gange” and set aside a sum of `2,037 crores for this purpose.

Development of Ghats and beautification of Riverfront

155. Our Riverfronts and Ghats are not only places of rich historical heritage but many of these are also sacred. To start this process in the country, I propose to set aside a sum of `100 crore for Ghat development and beautification of river front at Kedarnath, Haridwar, Kanpur, Varanasi, Allahabad, Patna and Delhi in the current financial year.

NRI Ganga Fund

156. NRIs have been a very important contributor to the development process in India, in areas such as education, health and preservation of culture. In this context, to harness their enthusiasm to contribute towards the conservation of the river Ganga, NRI Fund for Ganga will be set up which will finance special projects.

Science and Technology

Technology Research Centres

157. The Department of Science & Technology has some of country’s leading research centres in the areas such as nanotechnology, materials science and bio-medical device technology. The government will strengthen at least five such institutions as Technical Research Centres to make them more effective in the innovation space through Public Private Partnerships.

Stimulating Investment In Biotechnology

158. The development of biotech clusters in Faridabad and Bengaluru will be scaled up and taken to the highest international quality. This effort will include global partnerships in accessing model- organism resources for disease biology, stem cell biology and for high-end electron microscopy.

159. The nascent agri-biotech cluster in Mohali will be scaled up to include plant-genetic and phenotype platforms. Secondary agriculture will be a major thrust in Mohali through collaborations in the public and private sector. In addition, two new clusters, in Pune and Kolkata will be established.

160. Global partnerships will be developed under India’s leadership to transform the Delhi component of the International Centre for Genetic Engineering and Biotechnology (ICGEB) into a world-leader in life sciences and biotechnology.

Indian Space Programme

161. Several major space missions are planned for 2014-15 which include the experimental flight of India’s future heavy capacity launcher GSLV Mk-III, one commercial launch of PSLV and two more navigational satellites.

162. Our Mars Orbiter spacecraft is in its 300 days long voyage to Planet Mars along the designated helio-centric trajectory. Mars Orbiter Spacecraft is expected to be orbiting around Mars on September 24, 2014.

Sports and Youth Affairs

Sports

163. Sports are an integral part of growing up and personality development. Unfortunately, in our country, sports have not been main-streamed to date. Government will set up national level Sports Academies for major games in different parts of the country to mainstream sports.Academies with international level facilities for training of accomplished athletes and for nurturing best talent in the country at junior and sub-junior level will also be set up for Shooting, Archery, Boxing, Wrestling, Weightlifting and various Track and field events.

164. Jammu & Kashmir has a lot of sporting talent which is not finding expression due to inadequate sports facilities. I propose to provide a sum of `200 crore for upgrading the indoor and outdoor sports stadiums to international standards in Jammu and in Kashmir Valley.

165. I also propose to set up a sports university in Manipur. For this I am providing a sum of `100 crore in the current financial year.

166. Unique sports traditions have developed in the Himalayan region in the countries and the states that are a part of it. To promote these, India will start an annual event to promote these games and would invite countries such as Nepal and Bhutan also to participate in addition to the Indian states such as J&K, Uttarakhand, Himachal Pradesh, Sikkim and the North Eastern States.

167. I also propose to set aside a sum of `100 crore for the training of our sports women and men for the forthcoming Asian and Commonwealth games.

Youth

168. Employment exchanges will be transformed into career centres and in addition for providing information about job availability. These centers will also extend counseling facilities to the youth for selecting the jobs best suited to their ability and aptitude. I have set aside a sum of `100 crore for this purpose.

169. Youth of India are pragmatic and forward looking and wish to be leaders in all fields. In order to promote leadership skills, I propose to set up “A Young Leaders Programme” with an initial allocation of `100 crore.

IX. OTHER PROPOSALS

Displaced Kashmiri Migrants

170. Displaced Kashmiri migrants require our special support for rehabilitation. For this, I intend to provide a sum of `500 crore in the current financial year.

Conservation of Himalayas

171. There is a great need to increase the capacity in the country for Himalayan Studies. I propose to set up a National Centre for Himalayan Studies in Uttarakhand with an initial outlay of `100 crore.

Academy for Customs

172. It is proposed to set up the National Academy for Customs & Excise at Hindupur in Andhra Pradesh.

North Eastern States

Organic Food

173. North Eastern Region of India has tremendous potential for development of organic farming. With a growing global demand for organic food, people living in the NE states can reap rich harvest from development of commercial organic farming. To facilitate this, I propose to provide a sum of `100 crore for this purpose in the current financial year.

North East Railway Connectivity

174. North Eastern Region has suffered from under development and a sense of isolation due to lack of proper connectivity. Development of rail system is urgently required to bridge this gap. I intend to expedite the development of rail connectivity in the region and for this purpose I propose to set aside an additional sum of `1,000 crore over and above the amount provided for in the interim Budget.

24×7 Channel for the North East

175. TV is a very powerful tool for the expression of cultural identities and for creating greater awareness of the richness of the diversity of our country. To provide a strong platform to rich cultural and linguistic identity of the North-East, a new 24×7 channel called “Arun Prabha” will be launched.

Andhra Pradesh and Telangana

176. My Government is committed to addressing the issues relating to development of Andhra Pradesh and Telangana in the AP Re-organization Act, 2014. Provision has been made by various Ministries/Departments to fulfill the obligation of Union Government for both the States.

National Capital Territory of Delhi

177. NCT of Delhi faces large in-migration every year. Delhi is plagued by frequent transmission related problems and issues of water distribution and supply. In order to overcome this and make Delhi a world class city, I propose to provide `200 crore for power reforms and `500 crore for water reforms.

178. In addition, to solve the long term water supply issues to the capital region, construction of long pending Renuka Dam would be taken up on priority. I have provided an initial sum of `50 crore for this.

Andaman and Nicobar Island and Puducherry

179. Andaman and Nicobar Island are part of our rich cultural heritage. In order to tide over communication related problems of the Island, I propose to allot a sum of ` 150 crore.

180. Similarly, I propose to provide `188 crore to Puducherry for meeting commitments for Disaster preparedness.

X. BUDGET ESTIMATES

181. I now turn to the Budget estimates for Main Budget 2014-15. We have inherited a legacy, wherein, continuance of fiscal consolidation cannot be compromised while providing for the essential items. However, we have mandate to fulfill for the people. Keeping this in mind we have prepared the estimates of expenditure and receipts for Financial Year 2014-15.

182. Non-Plan expenditure estimates for the Financial Year are `12,19,892 crore. While preparing Non-Plan estimates due care has been taken to fully provide for all the essential activities. Additional amounts have been provided for fertilizer subsidy and capital expenditure of Armed Forces.

183. While preparing estimates of plan expenditure, attention was paid to the absorptive capacity of the Department and on achieving greater outcome with the same financial outlay. In 2013-14, plan funds to the tune of `4,53,085 crore could be utilised. Plan allocation of `5,75,000 crore in the Main Budget 2014-15 mark an increase of 26.9% over actuals for 2013-14 and have been targeted towards Agriculture, capacity creation in Health and Education, Rural Roads and National Highways Infrastructure, Railways network expansion, clean energy initiatives, development of water resources and river conservation plans. Further thorough convergence of programmes greater impact from the money spent will be achieved.

184. Total expenditure estimates thus stands at ` 17,94,892 crore.

185. To finance this expenditure, it is estimated that Gross Tax receipts will be ` 13,64,524 crore. After devolving the share of states, share of centre will be ` 9,77,258 crore. Non Tax Revenues for the current Financial Year will be `2,12,505 crore and capital receipts other than borrowings will be `73,952 crore.

186. With the above estimates, fiscal deficit will be 4.1% of GDP and Revenue deficit will be 2.9 per cent of GDP.

187. Hon’ble Members will recall that it was the initiative of the previous NDA Government under Shri Atal Bihari Vajpayee, which had made compulsory 10% allocation of plan funds for North Eastern Region and had made them Non-lapsable in nature. From the current Budget, we have introduced a Statement which will separately show plan allocation made for North Eastern Region. In Financial Year 2014-15, an allocation of ` 53,706 crore has been made for North Eastern Region. We have further made an allocation of `98,030 crore for women and `81,075 crore for child welfare.

PART B

XI. TAX PROPOSALS

188. Madam Speaker, I shall now present my tax proposals.

189. Taxes are important for every economy to fund Government expenditure on security and welfare of its people. In the interim Budget 2014-15, my predecessor had set revenue collection targets for direct taxes as well as indirect taxes, which appear to be ambitious. I propose to retain these targets and it shall be my endeavour to achieve the same. The impact of the tax changes now proposed have of course been factored into the Budget Estimates, 2014-15.

190. While preparing the tax proposals, I had to encounter the challenge of an extremely limited fiscal space. Nonetheless, I propose to introduce measures to revive the economy, promote investment in manufacturing sector and rationalize tax provisions so as to reduce litigation as well as to address the problem of inverted duty structure in certain areas. I also propose to give relief to individual taxpayers and to certain sectors of the economy.

Direct Taxes

191. Let me begin with direct taxes.

192. Madam Speaker, I do not propose to make any change in the tax rate. However, with a view to provide relief to small and marginal taxpayers and senior citizens, I propose to increase personal income tax exemption limit by `50,000 that is, from `2 lakh to `2.5 lakh in the case of individual taxpayers who are below the age of 60 years. Similarly, I also propose to raise the exemption limit from `2.5 lakh to `3 lakh in the case of senior citizens.

193. I do not propose to make any change in the rate of surcharge either for the corporates or the individuals, HUFs, firms etc.

194. The education cess for all taxpayers shall continue at 3 percent.

195. In the year 2012-13 the gross domestic savings were 30.1% of the GDP as compared to 33.7% in the year 2009-10. Increase in savings and their productive use leads to higher economic growth. The households are the main contributors to savings. Therefore, to encourage domestic investment in long term savings, I propose to increase the investment limit under section 80C of the Income-tax Act from `1 lakh to `1.5 lakh.

196. Housing continues to be an area of concern for middle and lower middle class due to high cost of financing. Therefore, to reduce this burden, I propose to increase the deduction limit on account of interest on loan in respect of self occupied house property from `1.5 lakh to `2 lakh.

197. Infrastructure and construction sectors have a significant role in the economy. Growth in these sectors is necessary to revive the economy and generate jobs for millions of our young boys and girls. As stated earlier and with a view to attract large scale investment in these sectors, I have provided a conducive tax regime for Infrastructure Investment Trusts and Real Estate Investment Trusts to be set up in accordance with regulations of the Securities and Exchange Board of India.

198. The manufacturing sector is of paramount importance for the growth of our economy. This sector has multiplier effect on creation of jobs. Last year, an incentive in the form of investment allowance to a manufacturing company that invests more than `100 crore in plant and machinery during the period from 01.04.2013 to 31.03.2015 was announced. Considering the need to incentivize smaller entrepreneurs, I propose to provide investment allowance at the rate of 15 percent to a manufacturing company that invests more than `25 crore in any year in new plant and machinery. This benefit will be available for three years i.e. for investments upto 31.03.2017. The Scheme announced last year will continue to operate in parallel till 31.03.2015.

199. I also propose to extend the investment linked deduction to two new sectors, namely, slurry pipelines for the transportation of iron ore, and semi-conductor wafer fabrication manufacturing units. This will boost investment in these two critical sectors.

200. Supply of power continues to be a major area of concern for the country. Therefore, instead of annual extensions, I propose to extend the 10 year tax holiday to the undertakings which begin generation, distribution and transmission of power by 31.03.2017. This stability in our policy will help the investors to plan their investments better.

201. Foreign Portfolio Investors (FPIs) have invested more than `8 lakh crore (about 130 billion US $) in India. One of their concerns is uncertainty in taxation on account of characterization of their income. Moreover, the fund managers of these foreign investors remain outside India under the apprehension that their presence in India may have adverse tax consequences. With a view to put an end to this uncertainty and to encourage these fund managers to shift to India, I propose to provide that income arising to foreign portfolio investors from transaction in securities will be treated as capital gains.

202. The concessional rate of tax at 15 percent on dividends received by Indian companies from their foreign subsidiaries has resulted in enhanced repatriation of funds from abroad. I propose to continue with this concessional rate of 15 percent on foreign dividends without any sunset date. This will ensure stability of taxation policy.

203. In order to augment low cost long term foreign borrowings for Indian companies, I propose to extend the eligible date of borrowing in foreign currency from 30.06.2016 to 30.06.2017 for a concessional tax rate of 5 percent on interest payments. I also propose to extend this tax incentive to all types of bonds instead of only infrastructure bonds. I hope this measure will enable the companies to step up their investments in India.

204. In order to reduce litigation on transfer pricing issues, I propose to make certain changes in Transfer Pricing regulations.

(1) An Advance Pricing Agreement (APA) scheme was introduced in the year 2012. It has received good response. I propose to strengthen the administrative set up of APA to expedite disposal of applications. Further, I propose to introduce a “Roll Back” provision in the APA scheme so that an APA entered into for future transactions may also be applied to international transactions undertaken in previous four years in specified circumstances.

(2) In order to align Transfer Pricing regulations in India with the best available practices, I propose to introduce range concept for determination of arm’s length price. However, the arithmetic mean concept will continue to apply where number of comparable is inadequate. The relevant data is under analysis and appropriate rules will be prescribed.

(3) As per existing provisions of Transfer Pricing Regulations, only one year data is allowed to be used for comparable analysis with some exception. I propose to amend the regulations to allow use of multiple year data.

Necessary legislative amendments to give effect to the above proposals including those relating to the Authority for Advance Rulings and Income-tax Settlement Commission will be moved in the current session of the Parliament.

205. In the case of Mutual Funds, other than equity oriented funds, the capital gains arising on transfer of units held for more than a year is taxed at a concessional rate of 10% whereas direct investments in banks and other debt instruments attract a higher rate of tax. This allows tax arbitrage opportunity. This arbitrage has hardly benefitted retail investors as their percentage is very small among such Mutual Fund investors. With a view to remove this tax arbitrage, I propose to increase the rate of tax on long term capital gains from 10 percent to 20 percent on transfer of units of such funds. I also propose to increase the period of holding in respect of such units from 12 months to 36 months for this purpose.

206. In the year 2003, the tax liability on income by way of dividends was shifted from the shareholder to the company. The shareholder was required to pay tax on the gross dividends, but now the company pays tax on the dividend amount net of taxes. Similarly, in the case of Mutual Fund, income distribution tax is paid on the income distributed net of taxes. I propose to remove this anomaly both in the case of the company and the Mutual Fund.

207. Currently, where an assessee fails to deduct and pay tax on specified payments to residents, 100 percent of such payments are not allowed as deduction while computing his income. This has caused undue hardship to taxpayers, particularly where the rate of tax is only 1 to 10%. Hence, I propose to provide that instead of 100 percent, only 30% of such payments will be disallowed.

208. The Direct Taxes Code Bill, 2010 has lapsed with the dissolution of the 15th Lok Sabha. Having considered the report of the Standing Committee on Finance and the views expressed by the stakeholders, my predecessor had placed a revised Code in the public domain in March, 2014. The Government shall consider the comments received from the stakeholders on the revised Code. The Government will also review the DTC in its present shape and take a view in the whole matter.

209. Income-tax Department is expected to function not only as an enforcement agency but also as a facilitator. A number of Aykar Seva Kendras (ASK) have been opened in different parts of the country. I propose to extend this facility by opening 60 more such Seva Kendras during the current financial year to promote excellence in service delivery.

210. The focus of any tax administration is to broaden the tax base. Our policy thrust is to adopt non intrusive methods to achieve this objective. In this direction, I propose to make greater use of information technology techniques.

211. Net Effect of the direct tax proposals is revenue loss of `22,200 crore.

Indirect Taxes

212. I now turn to indirect taxes and shall begin with customs duties.

213. Manufacturing sector is under stress due to a variety of reasons. To boost domestic manufacture as also to address the issue of inverted duties, I propose to reduce the basic customs duty (BCD) on:

- Fatty acids, crude palm stearin, RBD and other palm stearin, specified industrial grade crude oils from 7.5 percent to Nil for manufacture of soaps and oleo-chemicals;

Crude glycerin from 12.5 percent to 7.5 percent and crude glycerin used in the manufacture of soaps from 12.5 percent to Nil;

Steel grade limestone and steel grade dolomite from 5 percent to 2.5 percent;

- Battery waste and battery scrap from 10 percent to 5 percent;

- Coal tar pitch from 10 percent to 5 percent;

Specified inputs for manufacture of spandex yarn from 5 percent to Nil.

214. In order to encourage new investment and capacity addition in the chemicals and petrochemicals sector, I propose to reduce the basic customs duty on reformate from 10 percent to 2.5 percent; on ethane, propane, ethylene, propylene, butadiene and ortho-xylene from 5 percent to 2.5 percent; on methyl alcohol and denatured ethyl alcohol from 7.5 percent to 5 percent; and on crude naphthalene from 10 percent to 5 percent.

215. The demand for electronics is growing very fast. To boost domestic production and reduce our dependence on imports, I intend to take the following steps:

- Impose basic customs duty at 10 percent on specified telecommunication products that are outside the purview of the Information Technology Agreement;

- Exempt all inputs/components used in the manufacture of personal computers from 4 percent special additional duty (SAD);

- Impose education cess on imported electronic products to provide parity between domestically produced goods and imported goods;

- Exempt 4 percent SAD on PVC sheet and ribbon used for the manufacture of smart cards.

216. Cathode ray TVs are used by weaker sections who cannot afford to buy more expensive flat panel TVs. I propose to exempt colour picture tubes from basic customs duty to make cathode ray TVs cheaper. The duty concession will help revive manufacturing of TVs in the SME sector and create employment opportunities. At the same time, to encourage production of LCD and LED TVs below 19 inches in India, I propose to reduce the basic customs duty on LCD and LED TV panels of below 19 inches from 10 percent to Nil. Further, to encourage manufacture of LCD and LED TV panels, I propose to exempt from basic customs duty specified inputs used in their manufacture.

217. The domestic stainless steel industry is presently suffering from severe under-utilization of capacity. To give an impetus to the stainless steel industry, I propose to increase the basic customs duty on imported flat-rolled products of stainless steel from 5 percent to 7.5 percent.

218. We need to maximize our utilization of solar power. The existing duty structure incentivizes imports rather than domestic manufacture of solar photovoltaic cells and modules. Therefore, I propose to exempt from basic customs duty:

- specified inputs for use in the manufacture of EVA sheets and back sheets;

- flat copper wire for the manufacture of PV ribbons.

A concessional basic customs duty of 5 percent is also being extended to machinery and equipment required for setting up of a project for solar energy production.

219. To promote wind energy, I propose to reduce the basic customs duty from 10 percent to 5 percent on forged steel rings used in the manufacture of bearings of wind operated electricity generators. Also, I propose to exempt the SAD of 4 percent on parts and raw materials required for the manufacture of wind operated generators. Further, I propose to prescribe a concessional basic customs duty of 5 percent on machinery and equipment required for setting up of compressed biogas plants (Bio-CNG).

220. I have only highlighted some of the proposals in the Budget 2014-15. I am sure these measures would incentivize value addition, generate income and create more jobs in India.

221. I have also undertaken several tax rationalization measures. At present, coal attracts customs duties at different rates. I propose to rationalize the duty structure on all non-agglomerated coal at 2.5 percent basic customs duty and 2 percent CVD. Henceforth, anthracite coal, bituminous coal, coking coal, steam coal and other coal will attract the same duty. This will eliminate all assessment disputes and transaction costs associated with testing of various parameters of coal.

222. Metallurgical coke is manufactured out of coking coal. The basic customs duty on metallurgical coke is being increased from Nil to 2.5 percent in line with the duty on coking coal.

223. Ships imported for breaking up attract basic customs duty at 5 percent. As against this, melting scrap of iron or steel attracts basic customs duty at 2.5 percent. I propose to rationalize the duty on ship breaking scrap and melting scrap of iron or steel by reducing the basic customs duty on ships imported for breaking up from 5 percent to 2.5 percent.

224. Semi-processed, half cut or broken diamonds are presently exempt from basic customs duty. As against this, cut and polished diamonds and coloured gemstones attract basic customs duty of 2 percent. To prevent mis-use and avoid assessment disputes, the basic customs duty on semi-processed, half cut or broken diamonds, cut and polished diamonds and coloured gemstones is being rationalized at 2.5 percent. To encourage exports, pre-forms of precious and semi-precious stones are being fully exempted from basic customs duty.

225. To encourage exports of readymade garments I propose to increase the duty free entitlement for import of trimmings, embellishments and other specified items from 3 percent to 5 percent of the value of their exports.

226. Considering the need to conserve our natural resources, I propose to increase the export duty on bauxite from 10 percent to 20 percent.

227. The free baggage allowance under the baggage rules was last revised in 2012. As a measure of passenger facilitation, I propose to increase the free baggage allowance from `35,000 to `45,000.

228. I shall now deal with excise duties.

229. To provide a fillip to the capital goods, consumer durables and automobile sectors, and given our commitment to revive economic growth, I have already extended the excise duty concessions beyond 30th June 2014 for a period of 6 months up to 31st December 2014. We expect the industry to show positive results in the coming months.

230. In continuation, I have a few more proposals to boost domestic production. Minimization of harvest and post harvest losses of agricultural produce is an important measure for tackling food inflation and ensuring food security. The losses in fruits and vegetables are mainly due to lack of adequate processing capacity. To incentivize expansion of processing capacity, I propose to reduce the excise duty on specified food processing and packaging machinery from 10 percent to 6 percent.

231. As a measure of relief to the footwear industry, most of which are in SME sector, I propose to reduce the excise duty from 12 percent to 6 percent on footwear of retail price exceeding `500 per pair but not exceeding `1,000 per pair. Footwear of retail price up to `500 per pair will continue to remain exempted.

232. I propose to withdraw the concessional excise duty (2 percent without Cenvat benefit and 6 percent with Cenvat benefit) on smart cards and levy a uniform excise duty at 12 percent. Consequently, imports will attract higher CVD. This will help domestic industry.

233. To develop renewable sources of energy, I propose to exempt from excise duty:

-EVA sheets and solar back sheets and specified inputs used in their manufacture;

- solar tempered glass used in the manufacture of solar photovoltaic cells and modules;

- flat copper wire for the manufacture of PV ribbons for use in solar cells and modules;

-machinery and equipment required for setting up of a project for solar energy production;

-forged steel rings used in the manufacture of bearings of wind operated generators;

- machinery and equipment required for setting up of compressed biogas plants (Bio-CNG).

234. To set at rest an on-going dispute, I propose to exempt PSF and PFY manufactured from plastic waste and scrap including PET bottles from excise duty with effect from 29th June, 2010 to 7th May, 2012. I also propose to levy prospectively a nominal duty of 2 percent without Cenvat benefit and 6 percent with Cenvat benefit on such PSF and PFY.

235. To encourage sports, I propose to prescribe a concessional excise duty of 2 percent without Cenvat benefit and 6 percent with Cenvat benefit on sports gloves.

236. While undertaking all these measures, I also need to mobilize resources. Accordingly, I propose to increase the specific excise duty on cigarettes in the range of 11 percent to 72 percent. Similar increases are proposed on cigars, cheroots and cigarillos. Likewise, the excise duty is being increased from 12 percent to 16 percent on pan masala, from 50 percent to 55 percent on unmanufactured tobacco and from 60 percent to 70 percent on gutkha and chewing tobacco. I also propose to levy an additional duty of excise at 5 percent on aerated waters containing added sugar. These are healthy measures and I hope everyone would welcome them from the point of view of human and fiscal health.

237. Clean Energy Cess is presently levied on coal, peat and lignite for the purposes of financing and promoting clean energy initiatives and funding research in the area of clean energy. I propose to expand the scope of purposes of levying the said cess to include financing and promoting clean environment initiatives and funding research in the area of clean environment. To finance these additional initiatives, I propose to increase the Clean Energy Cess from `50 per tonne to `100 per tonne.

238. I shall now deal with service tax.

239. In recent times, among indirect taxes, service tax has shown the highest rate of growth. Since my overall objective is to prepare the indirect tax regime for a smooth transition to Goods and Services Tax, changes have been kept minimal at this stage. The twin objectives in this sector of indirect taxes are to widen the tax base and enhance compliance. My proposals in relation to Service Tax are in line with these objectives.

240. To broaden the tax base in Service Tax, it is necessary to prune the negative list and exemptions to the extent possible. Accordingly, the negative list has been reviewed and service tax leviable currently, on sale of space or time for advertisements in broadcast media, is being extended to cover such sales on other segments like online and mobile advertising. Sale of space for advertisements in print media however would remain excluded from service tax. Similarly, tax is being proposed on the service provided by radio-taxis to place them on par with rent-a-cab service. These new levies will come into effect from a date to be notified after the passing of the Finance Bill.

241. In furtherance of the effort to broaden the tax base, certain exemptions are being withdrawn, including those extended to services by air-conditioned contract carriages and technical testing of newly developed drugs on human participants.

242. To spur growth in certain sectors, I have tried to correct the bottlenecks which have been brought to my knowledge. Indian shipping industry had been representing that they are losing business in a tough global scenario, due to a provision in the Place of Provision of Services Rules, which is now being addressed through an amendment. Similarly, to encourage growth in the transport of goods through coastal vessels, the tax incidence is being reduced. In response to the request of the tourism sector, services provided by Indian tour operators to foreign tourists in relation to a tour wholly conducted outside India is being taken out of the tax net. A long standing demand of this sector has been to allow Cenvat credit for services of rent-a-cab and tour operators. I now propose to allow credit in the same line of business.

243. I had to accept a few requests for exemptions from the social sector, since exemption-induced distortion would be comparatively less in such sectors. At the request of the Ministry of Agriculture, service tax on loading, unloading, storage, warehousing and transportation of cotton, whether ginned or baled, is being exempted to bring it on par with certain other agricultural produce. Services provided by the Employees’ State Insurance Corporation for the period prior to 1st July 2012 is being exempted.

244. For the benefit of the common man, the exemption presently available for specified micro insurance schemes is being expanded to cover all life micro-insurance schemes where the sum assured does not exceed `50,000 per life insured. Since taxes should not come in the way of safe disposal of medical and clinical wastes, services provided by common bio-medical waste treatment facilities are being exempted.

245. Certain changes are also proposed for bringing about greater clarity and for reducing litigation regarding the scope of exemptions. These include functions ordinarily entrusted to a municipality and services in relation to education.

246. There are a few more decisions which entail small gains or losses of revenue. Certain amendments are also being proposed in the Customs and Central Excise Acts and in the Finance Act, 1994 relating to service tax. These changes are reflected in the budget documents.

247. My tax proposals on the indirect taxes side are estimated to yield `7,525 crore.

248. I have some more proposals which are in the nature of facilitating trade and resolving disputes. I shall highlight only a few.

249. Faster clearance of import and export cargo reduces transaction costs and improves business competitiveness. To help achieve these objectives, measures are being initiated to extend the existing 24×7 customs clearance facility to 13 more airports in respect of all export goods and to 14 more sea ports in respect of specified import and export goods.

250. It is also proposed to implement an ‘Indian Customs Single Window Project’ to facilitate trade. Under this, importers and exporters would lodge their clearance documents at a single point only. Required permissions, if any, from other regulatory agencies would be obtained online without the trader having to approach these agencies. This would reduce interface with Governmental agencies, dwell time and the cost of doing business.

251. The scheme of Advance Ruling in indirect taxes is being expanded to cover resident private limited companies. This will allow these companies to seek advance ruling in respect of new activities being proposed to be undertaken by them. The scope of Settlement Commission is being enlarged to facilitate quick dispute resolution.

252. To expedite the process of disposal of appeals, amendments have been proposed in the Customs and Central Excise Acts with a view to freeing appellate authorities from hearing stay applications and to take up regular appeals for final disposal.

253. Madam Speaker, with these words I commend the Budget to the House.

Previous Budgets

P. Chidambaram- 2013 Budget

Finance Minister :P. Chidambaram
Budget Year :2013

BACK

P. Chidambaram

Madam Speaker,

I rise to present the Budget for the year 2013-14.

2. I recall my last tenure as Finance Minister and acknowledge with gratitude the splendid support that I received from all sections of the House as well as the people of India. Today, more than ever, I seek the same support as we navigate the Indian economy through a crisis that has enveloped the whole world and spared none.

3. I intend to keep my speech simple, straight forward and reasonably short.

I. THE ECONOMY AND THE CHALLENGES

4. I shall begin by setting the context. Global economic growth slowed from 3.9 percent in 2011 to 3.2 percent in 2012. India is part of the global economy: our exports and imports amount to 43 percent of GDP and two-way external sector transactions have risen to 108 percent of GDP. We are not unaffected by what happens in the rest of the world and our economy too has slowed after 2010-11. In the current year, the CSO has estimated growth at 5 percent while the RBI has estimated growth at 5.5 percent. Whatever may be the final estimate, it will be below India’s potential growth rate of 8 percent. Getting back to that growth rate is the challenge that faces the country.

5. Let me say, however, there is no reason for gloom or pessimism. Even now, of the large countries of the world, only China and Indonesia are growing faster than India in 2012-13. And in 2013-14, if we grow at the rate projected by many forecasters, only China will grow faster than India. Between 2004 and 2008, and again in 2009-10 and 2010-11, the growth rate was over 8 percent and, in fact, crossed 9 percent in four of those six years. The average for the 11th Plan period, entirely under the UPA Government, was 8 percent, the highest ever in any Plan period. Achieving high growth, therefore, is not a novelty or beyond our capacity. We have done it before and we can do it again.

6. I acknowledge that the Indian economy is challenged, but I am absolutely confident that, with your cooperation, we will get out of the trough and get on to the high growth path. I shall now outline our plans and priorities.

7. Our goal is ‘higher growth leading to inclusive and sustainable development’. That is the mool mantra.

8. Growth is a necessary condition and we must unhesitatingly embrace growth as the highest goal. It is growth that will lead to inclusive development, without growth there will be neither development nor inclusiveness. However, I may sound a note of caution. Owing to the plurality and diversity of India, and centuries of neglect, discrimination and deprivation, many sections of the people will be left behind if we do not pay special attention to them. As Joseph Stiglitz, Nobel prize-winning economist, said, “There is a compelling moral case for equity; but it is also necessary if there is to be sustained growth. A country’s most important resource is its people.” We have examples of States growing at a fast rate, but leaving behind women, the scheduled castes, the scheduled tribes, the minorities, and some backward classes. The UPA does not accept that model. The UPA Government believes in inclusive development, with emphasis on improving human development indicators. I hope this Budget will be yet another testimony to that commitment.

Fiscal Deficit, Current Account Deficit and Inflation

9. The purpose of a Budget – and the job of a Finance Minister – is to create the economic space and find the resources to achieve the socio economic objectives. At present, the economic space is constrained because of a high fiscal deficit; reliance on foreign inflows to finance the current account deficit; lower savings and lower investment; a tight monetary policy to contain inflation; and strong external headwinds. During the course of my speech, I shall spell out measures that will address each of these issues.

10. In September, 2012, Government accepted the main recommendations of the Dr. Vijay Kelkar Committee. A new fiscal consolidation path was announced. Red lines were drawn for the fiscal deficit at 5.3 percent of GDP this year and 4.8 percent of GDP in 2013-14. I know there is a lot of scepticism. In a little while, I shall tell you how we have fared.

11. My greater worry is the current account deficit (CAD). The CAD continues to be high mainly because of our excessive dependence on oil imports, the high volume of coal imports, our passion for gold, and the slow down in exports. This year, and perhaps next year too, we have to find over USD 75 billion to finance the CAD. There are only three ways before us: FDI, FII or External Commercial Borrowing (ECB). That is why I have been at pains to state over and over again that India, at the present juncture, does not have the choice between welcoming and spurning foreign investment. If I may be frank, foreign investment is an imperative. What we can do is to encourage foreign investment that is consistent with our economic objectives.

12. Finally, the development must be sustainable – economically and ecologically. The development model must have democratic legitimacy and approval.

13. Looming large over our efforts to stimulate growth is inflation. Some inflation is imported. Supply demand mismatch, for example in oilseeds and pulses, also pushes up inflation. Aggregate demand is another cause of inflation. The battle against inflation must be fought on all fronts. Our efforts in the past few months have brought down headline WPI inflation to about 7.0 percent and core inflation to about 4.2 percent. It is food inflation that is worrying, and we shall take all possible steps to augment the supply side to meet the growing demand for food items.

14. Government expenditure boosts aggregate demand and it has both good and bad consequences. Wisdom lies in finding the correct level of government expenditure. In the budget for 2012-13, the estimate of Plan Expenditure was too ambitious and the estimate of non-Plan Expenditure was too conservative. Faced with a huge fiscal deficit, I had no choice but to rationalise expenditure. We took a dose of bitter medicine. It seems to be working. We also took some policy decisions that had been deferred for too long, corrected some prices, and undertook a review of certain tax policies. We have retrieved some economic space. As I outline our plans and priorities, Hon’ble Members will find that I have used that economic space to advantage – and to advance the UPA Government’s socio-economic objectives.

II. THE PLAN AND BUDGETARY ALLOCATIONS

15. The 12th Five Year Plan began in 2012-13. Anticipating a global and domestic recovery, total expenditure had been fixed at `14,90,925 crore. Due to the slowdown and the austerity measures, the revised estimate is `14,30,825 crore or 96 percent of the budget estimate. The economic space that we have gained has given me the confidence to be more ambitious in 2013-14. I have been able to set the BE of total expenditure at `16,65,297 crore and of plan expenditure at `5,55,322 crore. Hon’ble Members will be happy to know that plan expenditure in 2013-14 will be 29.4 percent more than the revised estimate of the current year. All flagship programmes have been fully and adequately funded. I dare say I have provided sufficient funds to each Ministry or Department consistent with their capacity to spend the funds. Now, it is over to the Ministries and Departments to deliver the outcomes through good governance, prudent cash management, close monitoring and timely implementation.

16. Madam Speaker, on the one side is economic policy. On the other side is economic welfare. We are a developing country. The link between policy and welfare can be expressed in a few words: opportunities, education, skills, jobs and incomes. Every mother understands this. Every young man and woman understands this. My budget for 2013-14 has before it one overarching goal: to create opportunities for our youth to acquire education and skills that will get them decent jobs or self-employment that will bring them adequate incomes that will enable them to live with their families in a safe and secure environment.

SC, ST, Women and Children

17. Let me assure Hon’ble Members that their concerns are my concerns too. I know their concern for the welfare and progress of the scheduled castes and the scheduled tribes for whom the Budget has sub plans. I also know their concern that adequate funds must be provided for programmes that benefit women, children and the minorities. I have tried to meet these concerns as fully as possible. I propose to allocate `41,561 crore to the scheduled caste sub plan and `24,598 crore to the tribal sub plan. The total represents an increase of 12.5 percent over the BE and 31 percent over the RE of the current year. I reiterate the rule that the funds allocated to the sub plans cannot be diverted and must be spent for the purposes of the sub plans.

18. I have made sufficient allocations to programmes relating to women and children. Hon’ble Members will find from the budget documents that the gender budget has `97,134 crore and the child budget has `77,236 crore in 2013-14.

19. Women belonging to the most vulnerable groups, including single women and widows, must be able to live with self-esteem and dignity. Young women face gender discrimination everywhere, especially at the work place. Ministry of Women and Child Development has been asked to design schemes that will address these concerns. I propose to provide an additional sum of `200 crore to that Ministry to begin work in this regard.

Minorities

20. I have allocated `3,511 crore to the Ministry of Minority Affairs. This is an increase of 12 percent over the BE and 60 percent over the RE of 2012-13.

21. The Maulana Azad Education Foundation is the main vehicle to implement educational schemes and channelize funds to non-government organisations for the minorities. Its corpus stands at `750 crore. With the objective of raising it to `1,500 crore during the 12th Plan period, I propose to allocate `160 crore to the corpus fund. The Foundation wishes to add medical aid to its objectives. I have accepted that a beginning can be made by providing medical facilities such as an infirmary or a resident doctor in the educational institutions run or funded by the Foundation. I propose to allocate `100 crore to launch this initiative.

Disabled Persons

22. Government is committed to provide support to persons with disabilities. I propose to allocate a sum of `110 crore to the Department of Disability Affairs for the ADIP Scheme in 2013-14, as against the RE of `75 crore in the current year.

Health and Education

23. Health for all and education for all remain our priorities.

24. I propose to allocate `37,330 crore to the Ministry of Health and Family Welfare. Of this, the new National Health Mission that combines the rural mission and the proposed urban mission will get `21,239 crore, an increase of 24.3 percent over the RE.

25. I propose to provide `4,727 crore for medical education, training and research.

26. The National Programme for the Health Care of Elderly is being implemented in 100 selected districts of 21 States. Eight regional geriatric centres are being funded for the development of dedicated geriatric departments. I propose to provide `150 crore for this programme.

27. Ayurveda, Unani, Siddha and Homoeopathy are being mainstreamed through the National Health Mission. I propose to allocate `1,069 crore to the Department of AYUSH.

28. The six AIIMS-like institutions have admitted their first batch of students in the academic session that commenced in September 2012. The hospitals attached to the colleges will be functional in 2013-14. I propose to provide a sum of `1,650 crore for these institutions.

29. Education is the other high priority. I propose to allocate `65,867 crore to the Ministry of Human Resource Development, which is an increase of 17 percent over the RE of the previous year. The Sarva Shiksha Abhiyan (SSA) and the Right to Education Act are firmly in place. I propose to provide `27,258 crore for SSA in 2013-14.

30. Investment in the Rashtriya Madhyamik Shiksha Abhiyan (RMSA) cannot be postponed any longer. Hence, I propose to provide `3,983 crore for RMSA, which is an increase of 25.6 percent over the RE of the current year.

31. Hon’ble Members will be happy to know that thousands of scholarships will be given to students belonging to Scheduled Castes, Scheduled Tribes, Other Backward Classes and Minorities, and girl children, in 2013-14. I propose to allocate `5,284 crore to the various Ministries for the purpose, as compared `4,575 crore in the RE of the current year.

32. The Mid-Day Meal Scheme (MDM) will be provided `13,215 crore.

33. The reconstruction of the Nalanda University has gathered momentum. The Government is committed to the creation of Nalanda University as a centre of educational excellence.

ICDS

34. I commend the ICDS for being able to spend the entire amount of `15,850 crore provided in 2012-13. In recognition of the needs of children, I propose to allocate `17,700 crore in 2013-14, representing an increase of 11.7 percent. The focus will continue to be on early childhood care and education.

35. Maternal and child malnutrition in a country with abundant foodgrains is a shame that we must overcome. A multi-sectoral programme that was announced last year will be implemented in 100 districts during 2013-14 and it will be scaled up to cover 200 districts the year after. I propose to allocate a sum of `300 crore for the programme in 2013-14.

Drinking Water

36. Clean drinking water and sanitation have a number of beneficial externalities. I propose to allocate `15,260 crore to the Ministry of Drinking Water and Sanitation, as against the RE of `13,000 crore in the current year.

37. There are still 2,000 arsenic- and 12,000 fluoride-affected rural habitations in the country. I propose to provide `1,400 crore towards setting up water purification plants.

Rural Development

38. The Ministry of Rural Development steers a number of flagship programmes. We estimate that they will be able to spend `55,000 crore before the end of the current year, and I propose to allocate `80,194 crore in 2013-14, marking an increase of 46 percent. MGNREGS will get `33,000 crore, PMGSY will get `21,700 crore, and IAY will get `15,184 crore.

39. The objectives of PMGSY have been substantially fulfilled in several States. Naturally, these States wish to do more. Hence, it is proposed to carve out PMGSY-II and allocate a portion of the funds to the new programme that will benefit States such as Andhra Pradesh, Haryana, Karnataka, Maharashtra, Punjab and Rajasthan. Details of PMGSY-II will be announced by the Minister of Rural Development in due course.

JNNURM

40. The Jawaharlal Nehru National Urban Renewal Mission (JNNURM) is being continued in the 12th Plan. The 14,000 buses sanctioned during 2009 to 2012 have made a big contribution to urban transport. I propose to provide `14,873 crore for JNNURM, as against the RE of `7,383 crore in the current year. Out of this, a significant portion will be used to support the purchase of upto 10,000 buses, especially by the hill States.

III. AGRICULTURE

41. Thanks to our hard working farmers, agriculture continues to perform very well. The average annual growth rate of agriculture and allied sector during the 11th Plan was 3.6 percent as against 2.5 percent and 2.4 percent, respectively, in the 9th and 10th Plans. In 2012-13, total foodgrain production will be over 250 million tonnes. Minimum support price of every agricultural produce under the procurement programme has been increased significantly under the UPA Government. Farmers have responded to the price signals and produced more. Agricultural exports from April to December, 2012 have crossed `138,403 crore.

42. I propose to allocate `27,049 crore to the Ministry of Agriculture, an increase of 22 percent over the RE of the current year. Of this, agricultural research will be provided `3,415 crore.

Agricultural Credit

43. Agricultural credit is the driver of agricultural production. We will exceed the target of `575,000 crore fixed for 2012-13. For 2013-14, I propose to increase the target to `700,000 crore.

44. The interest subvention scheme for short-term crop loans will be continued and a farmer who repays the loan on time will be able to get credit at 4 percent per annum. So far, the scheme has been applied to loans extended by public sector banks, RRBs and cooperative banks. I propose to extend the scheme to crop loans borrowed from private sector scheduled commercial banks in respect of loans given within the service area of the branch concerned.

Green Revolution

45. Bringing the green revolution to eastern India has been a remarkable success. Assam, Bihar, Chhattisgarh and West Bengal have increased their contribution to rice production. I propose to continue to support the eastern Indian States with an allocation of `1000 crore in 2013-14.

46. The original Green Revolution States face the problem of stagnating yields and over-exploitation of water resources. The answer lies in crop diversification. I propose to allocate `500 crore to start a programme of crop diversification that would promote technological innovation and encourage farmers to choose crop alternatives.

47. The Rashtriya Krishi Vikas Yojana is intended to mobilise higher investment in agriculture and the National Food Security Mission is intended to bridge yield gaps. I propose to provide `9,954 crore and `2,250 crore, respectively, for these two programmes.

48. Small and marginal farmers are vulnerable everywhere, and especially so in drought prone and ecologically-stressed regions. Watershed management is crucial to improve productivity of land and water use. I propose to increase the allocation for the integrated watershed programme from `3,050 crore in 2012-13 (BE) to `5,387 crore.

49. Eminent agricultural scientists have suggested that we start a pilot programme on Nutri-Farms for introducing new crop varieties that are rich in micro-nutrients such as iron-rich bajra, protein-rich maize and zinc-rich wheat. I propose to provide a sum of upto `200 crore to start the pilots. Ministry of Agriculture will formulate a scheme and I hope that agri businesses and farmers will come together to start a sufficient number of pilots in the districts most affected by malnutrition.

50. The National Institute of Biotic Stress Management for addressing plant protection issues will be established at Raipur, Chhattisgarh. The Indian Institute of Agricultural Bio-technology will be established at Ranchi, Jharkhand and will serve as a centre of excellence in agricultural bio-technology.

51. A pilot scheme to replant and rejuvenate coconut gardens that was implemented in some districts of Kerala and the Andaman & Nicobar Islands will be extended to the entire State of Kerala, and I propose to provide an additional sum of `75 crore in 2013-14.

Farmer Producer Organizations

52. Farmer Producer Organizations (FPO), including Farmer Producer Companies (FPC), have emerged as aggregators of farm produce and link farmers directly to markets. To signal our support to them, I intend to provide matching equity grants to registered FPOs upto a maximum of `10 lakh per FPO to enable them to leverage working capital from financial institutions. I propose to provide `50 crore for this purpose. Besides, a Credit Guarantee Fund will also be created in the Small Farmers’ Agri Business Corporation with an initial corpus of `100 crore. I urge State Governments to support such FPOs through necessary amendments to the APMC Act and in other ways.

National Livestock Mission

53. The National Livestock Mission will be launched in 2013-14 to attract investment and to enhance productivity taking into account local agro-climatic conditions. I propose to provide `307 crore for the Mission. There will be a sub Mission for increasing the availability of feed and fodder.

Food Security

54. Food security is as much a basic human right as the right to education or the right to health care. The National Food Security Bill is a promise of the UPA Government. I sincerely hope that Parliament will pass the Bill as early as possible. Hon’ble Members will be happy to know that I have set apart `10,000 crore, over and above the normal provision for food subsidy, towards the incremental cost that is likely under the Act.

IV. INVESTMENT, INFRASTRUCTURE AND INDUSTRY

55. The growth rate of an economy is correlated with the investment rate. The key to restart the growth engine is to attract more investment, both from domestic investors and foreign investors. Investment is an act of faith. We will improve communication of our policies to remove any apprehension or distrust in the minds of investors, including fears about undue regulatory burden or application of tax laws. ‘Doing business in India’ must be seen as easy, friendly and mutually beneficial.

56. While every sector can absorb new investment, it is the infrastructure sector that needs large volumes of investment. The 12th Plan projects an investment of USD 1 trillion or `55,00,000 crore in infrastructure. The Plan envisages that the private sector will share 47 percent of the investment. Besides, we need new and innovative instruments to mobilise funds for this order of investment. Government has taken or will take the following measures to increase investment in infrastructure:

-Infrastructure Debt Funds (IDF) will be encouraged. These funds will raise resources and, through take-out finance, credit enhancement and other innovative means, provide long-term low-cost debt for infrastructure projects. I am happy to report that four IDFs have been registered with SEBI so far and two of them were launched in the month of February, 2013.

-India Infrastructure Finance Corporation Ltd (IIFCL), in partnership with the Asian Development Bank, will offer credit enhancement to infrastructure companies that wish to access the bond market to tap long term funds.

-In the last two years, a number of institutions were allowed to issue tax free bonds. They raised `30,000 crore in 2011-12 and are expected to raise about `25,000 crore in 2012-13. I propose to allow some institutions to issue tax free bonds in 2013-14, strictly based on need and capacity to raise money in the market, upto a total sum of `50,000 crore.

-Multilateral Development Banks are keen to assist in efforts to promote regional connectivity. Combining the ‘Look East’ policy and the interests of the North Eastern States, I propose to seek the assistance of the World Bank and the Asian Development Bank to build roads in the North Eastern States and connect them to Myanmar.

-NABARD operates the Rural Infrastructure Development Fund (RIDF). RIDF has successfully utilised 18 tranches so far. I propose to raise the corpus of RIDF-XIX in 2013-14 to `20,000 crore.

-Pursuant to the announcement made last year, a sum of `5000 crore will be made available to NABARD to finance construction of warehouses, godowns, silos and cold storage units designed to store agricultural produce, both in the public and the private sectors. This window will also finance, through the State Governments, construction of godowns by panchayats to enable farmers to store their produce.

Road Construction

57. The road construction sector has reached a certain level of maturity. But it faces challenges not envisaged earlier, including financial stress, enhanced construction risk and contract management issues, that are best addressed by an independent authority. Hence, Government has decided to constitute a regulatory authority for the road sector. Bottlenecks stalling road projects have been addressed and 3,000 kms of road projects in Gujarat, Madhya Pradesh, Maharashtra, Rajasthan and Uttar Pradesh will be awarded in the first six months of 2013-14.

Cabinet Committee Investment

58. Revival of investment in the industrial sector, especially manufacturing, is a key challenge. Many projects are stalled because they are unable to clear regulatory hurdles. The Cabinet Committee on Investment (CCI) has been set up to monitor investment proposals as well as projects under implementation, including stalled projects, and guide decision-making in order to remove bottlenecks and quicken the pace of implementation. Two meetings of the CCI have been held already and decisions were taken in respect of a number of oil and gas, power, and coal projects. CCI will take up some more projects shortly.

New Investment

59. To attract new investment and to quicken the implementation of projects, I propose to introduce an investment allowance for new high value investments. A company investing `100 crore or more in plant and machinery during the period 1.4.2013 to 31.3.2015 will be entitled to deduct an investment allowance of 15 percent of the investment. This will be in addition to the current rates of depreciation. There will be enormous spill-over benefits to small and medium enterprises.

60. The National Electronics Policy 2012 is intended to promote manufacture of electronic goods in India. We recognise the pivotal role of semiconductor wafer fabs in the eco-system of manufacture of electronics. I propose to provide appropriate incentives to semiconductor wafer fab manufacturing facilities, including zero customs duty for plant and machinery.

Savings

61. Increasing savings and their optimal allocation for productive uses lead to higher economic growth. After touching a high of 36.8 percent in 2007-08, gross domestic saving fell by 6 percentage points in 2011-12. The private sector, comprising households and corporates, remains the main contributor to saving. The household sector must be incentivised to save in financial instruments rather than buy gold. Hence, I propose the following measures:

-Firstly, the Rajiv Gandhi Equity Savings Scheme will be liberalised to enable the first time investor to invest in mutual funds as well as listed shares and she can do so, not in one year alone, but in three successive years. The income limit will be raised from `10,00,000 to `12,00,000;

-Secondly, a person taking a loan for his first home from a bank or a housing finance corporation upto `25,00,000 during the period 1.4.2013 to 31.3.2014 will be entitled to an additional deduction of interest of upto `100,000. This will promote home ownership and give a fillip to a number of industries like steel, cement, brick, wood, glass etc. besides jobs to thousands of construction workers.

-Thirdly, in consultation with RBI, I propose to introduce instruments that will protect savings from inflation, especially the savings of the poor and middle classes. These could be Inflation Indexed Bonds or Inflation Indexed National Security Certificates. The structure and tenor of the instruments will be announced in due course.

Industrial Corridors

62. The Delhi Mumbai Industrial Corridor (DMIC) project has made rapid progress. Plans for seven new cities have been finalised and work on two new smart industrial cities at Dholera, Gujarat and Shendra Bidkin, Maharashtra will start during 2013-14. We acknowledge the support of the Government of Japan. In order to dispel any doubt about funding, I wish to make it clear that we shall provide, if required, additional funds during 2013-14 within the share of the Government of India in the overall outlay for the project.

63. The Department of Industrial Policy and Promotion (DIPP) and the Japan International Cooperation Agency (JICA) are currently preparing a comprehensive plan for the Chennai Bengaluru Industrial Corridor. The corridor will be developed in collaboration with the Governments of Tamil Nadu, Andhra Pradesh and Karnataka.

64. The next corridor will be the Bengaluru Mumbai Industrial Corridor on which preparatory work has started.

Leh-Kargil Transmission Line

65. To improve power supply in the Leh-Kargil region and connect the Ladakh region to the northern grid, the Government will construct a transmission system from Srinagar to Leh at a cost of `1,840 crore. I propose to provide `226 crore in 2013-14 for the project.

Ports

66. Two new major ports will be established in Sagar, West Bengal and in Andhra Pradesh to add 100 million tonnes of capacity. In addition, a new outer harbour will be developed in the VOC port at Thoothukkudi, Tamil Nadu through PPP at an estimated cost of `7,500 crore. When completed, this will add 42 million tonnes of capacity.

National Waterways

67. Five inland waterways have been declared as national waterways. I am happy to announce that the Minister of Water Resources will move a Bill in Parliament to declare the Lakhipur – Bhanga stretch of river Barak in Assam as the sixth national waterway. Preparatory work is underway to build a grid connecting waterways, roads and ports. The 12th Plan has an adequate outlay for capital works, including dredging, on the national waterways. The objective is to choose barge operators, through competitive bidding, to transport bulk cargo on the national waterways. The first transport contract has been awarded in West Bengal from Haldia to Farakka.

Oil and Gas

68. The oil and gas exploration policy will be reviewed to move from profit sharing to revenue sharing contracts. A policy to encourage exploration and production of shale gas will be announced. The natural gas pricing policy will be reviewed and uncertainties regarding pricing will be removed. NELP blocks that were awarded but are stalled will be cleared. The 5 MMTPA LNG terminal in Dabhol, Maharashtra will be fully operational in 2013-14.

Coal

69. Despite abundant coal reserves, we continue to import large volumes of coal. Coal imports during the period April-December, 2012 have crossed 100 million tonnes. It is estimated that imports will rise to 185 million tonnes in 2016-17. If the coal requirements of the existing power plants and the power plants that will come into operation by 31.3.2015 are taken into account, there is no alternative except to import coal and adopt a policy of blending and pooled pricing. In the medium to long term, we must reduce our dependence on imported coal. One of the ways forward is to devise a PPP policy framework, with Coal India Limited as one of the partners, in order to increase the production of coal for supply to power producers and other consumers. These matters are under active consideration and the Minister of Coal will announce Government’s policies in this behalf in due course.

Power

70. Hon’ble Members are aware that the Government has approved a scheme for the financial restructuring of DISCOMS to restore the health of the power sector. I would urge State Governments to prepare the financial restructuring plans quickly, sign the MOU, and take advantage of the scheme.

Micro, Small and Medium Enterprises

71. Micro, small and medium enterprises (MSME) have a large share of jobs, production and exports. Too many of them do not grow because of the fear of losing the benefits associated with staying small or medium. To encourage them to grow, I propose that the benefits or preferences enjoyed by them will stay with them for upto three years after they grow out of the category in which they obtained the benefit. To begin with, I propose that the non-tax benefits may be made available to a MSME unit for three years after it graduates to a higher category.

72. To provide greater support to MSMEs, I propose to enhance the refinancing capability of SIDBI from the current level of `5,000 crore to `10,000 crore per year.

73. SIDBI set up the India Microfinance Equity Fund in 2011-12 with budgetary support of `100 crore to provide equity and quasi-equity to Micro Finance Institutions (MFI). An amount of `104 crore has been committed to 37 MFIs. I have allocated `100 crore to the IME Fund in the budget and I now propose to provide another sum of `100 crore to the Fund.

74. The Factoring Act 2011 has been passed by Parliament. I propose to provide a corpus of `500 crore to SIDBI to set up a Credit Guarantee Fund for factoring.

75. Tool Rooms and Technology Development Centres set up by the Ministry of Micro, Small and Medium Enterprises have done well in extending technology and design support to small businesses. I propose to provide, with World Bank assistance, a sum of `2,200 crore during the 12th Plan period to set up 15 additional Centres.

76. Incubators play an important role in mentoring new businesses which start as a small or medium business. The new Companies Bill obliges companies to spend 2 percent of average net profits under Corporate Social Responsibility (CSR). I am glad to announce that the Ministry of Corporate Affairs will notify that funds provided to technology incubators located within academic institutions and approved by the Ministry of Science and Technology or Ministry of MSME will qualify as CSR expenditure.

Textiles

77. I propose to continue the Technology Upgradation Fund Scheme (TUFS) for the textile sector in the 12th Plan with an investment target of `151,000 crore. The major focus would be on modernisation of the powerloom sector. I propose to provide `2,400 crore in 2013-14 for the purpose.

78. Textile parks have been set up under Scheme for Integrated Textile Parks (SITP). It is proposed to set up Apparel Parks within the SITPs to house apparel manufacturing units. To incentivise such Apparel Parks, I propose to allocate `50 crore to the Ministry of Textiles to provide an additional grant of upto `10 crore to each Park.

79. A new scheme with an outlay of `500 crore called the Integrated Processing Development Scheme will be implemented in the 12th Plan to address the environmental concerns of the textile industry, including improving the effluent treatment infrastructure. I propose to provide `50 crore in 2013-14 for the scheme.

80. The handloom sector is in distress. A very large proportion of handloom weavers are women and belong mainly to the backward classes. I propose to accept their demand for working capital and term loans at a concessional interest of 6 percent. 150,000 individual weavers and 1,800 primary cooperative societies will benefit in 2013-14. I propose to allocate an additional sum of `96 crore in 2013-14 to the Ministry of Textiles for interest subvention.

81. India has a rich heritage of traditional industries. Khadi, village industries and coir were taken up for development during the 11th Plan under the Scheme of Fund for Regeneration of Traditional Industries (SFURTI). The 12th Plan has provided an outlay of `850 crore. I propose to leverage assistance from Multilateral Development Banks to extend SFURTI to 800 clusters during the 12th Plan. 400,000 artisans are expected to be benefited.

Foreign Trade

82. I look forward to the changes that will be made to the Foreign Trade Policy next month and I assure my support to measures that will be taken to boost exports of goods and services.

V. FINANCIAL SECTOR

83. The financial sector is at the heart of the economy.

84. Hon’ble Members are aware that Government constituted the Financial Sector Legislative Reforms Commission (FSLRC) in 2011. I am informed that the report will be presented next month. It is our intention to examine the recommendations and act quickly and decisively so that our financial sector stands on sound legal foundations and remains well-regulated, efficient and internationally competitive. I propose to constitute a Standing Council of Experts in the Ministry of Finance to analyse the international competitiveness of the Indian financial sector, periodically examine the transaction costs of doing business in the Indian market, and provide inputs to Government for necessary action.

Banking

85. Our public sector banks are well regulated, they must also be adequately capitalised. Before the end of March, 2013, we shall provide `12,517 crore to infuse additional capital into 13 public sector banks. In 2013-14, I propose to provide a further amount of `14,000 crore for capital infusion. We shall ensure that public sector banks always meet the Basel III regulations as they come into force in a phased manner.

86. Financial inclusion has made rapid strides. All scheduled commercial banks and all RRBs are on core banking solution (CBS) and on the electronic payment systems (NEFT and RTGS). We are working with RBI and NABARD to bring all other banks, including some cooperative banks, on CBS and e-payment systems by 31.12.2013. Public sector banks have assured me that all their branches will have an ATM in place by 31.3.2014.

87. Women are at the head of many banks today, including two public sector banks, but there is no bank that exclusively serves women. Can we have a bank that lends mostly to women and women-run businesses, that supports women SHGs and women’s livelihood, that employs predominantly women, and that addresses gender related aspects of empowerment and financial inclusion? I think we can. I therefore propose to set up India’s first Women’s Bank as a public sector bank and I shall provide `1,000 crore as initial capital. I hope to obtain the necessary approvals and the banking licence by October, 2013, and I invite all Hon’ble Members to the inauguration of the bank shortly thereafter.

88. The Rural Housing Fund set up through the National Housing Bank is used to refinance lending institutions, including RRBs, that extend loans for rural housing. So far, 400,000 rural families have taken loans. In the last Budget, we provided `4,000 crore to the Fund. In consultation with RBI, I propose to provide `6,000 crore to the Rural Housing Fund in 2013-14.

89. Similarly, it is proposed to start a fund for urban housing to mitigate the huge shortage of houses in urban areas. I propose to ask National Housing Bank to set up the Urban Housing Fund and, in consultation with RBI, I propose to provide `2,000 crore to the Fund in 2013-14.

Insurance

90. A multi-pronged approach will be followed to increase the penetration of insurance, both life and general, in the country. I have a number of proposals that have been finalised in consultation with the regulator, IRDA.

-Insurance companies will be empowered to open branches in Tier II cities and below without prior approval of IRDA.

-All towns of India with a population of 10,000 or more will have an office of LIC and an office of at least one public sector general insurance company. I propose to achieve this goal by 31.3.2014.

-KYC of banks will be sufficient to acquire insurance policies.

-Banks will be permitted to act as insurance brokers so that the entire network of bank branches will be utilised to increase penetration.

-Banking correspondents will be allowed to sell micro-insurance products.

-Group insurance products will now be offered to homogenous groups such as SHGs, domestic workers associations, anganwadi workers, teachers in schools, nurses in hospitals etc.

-There are about 10,00,000 motor third party claims that are pending before Tribunals/Courts. Public sector general insurance companies will organise adalats to settle the claims and give relief to the affected persons/families.

91. The Insurance Laws (Amendment) Bill and the PFRDA Bill are before this House. I sincerely hope that Government and the Opposition can arrive at a consensus and pass the two Bills in this session.

92. The Rashtriya Swasthiya Bima Yojana covers 34 million families below the poverty line. It will now be extended to other categories such as rickshaw, auto-rickshaw and taxi drivers, sanitation workers, rag pickers and mine workers.

93. A comprehensive and integrated social security package for the unorganised sector is a measure that will benefit the poorest and most vulnerable sections of society. The package should include life-cum-disability cover, health cover, maternity assistance and pension benefits. The present schemes such as AABY, JSBY, RSBY, JSY and IGMSY are run by different ministries and departments. I propose to facilitate convergence among the various stakeholder ministries/departments so that we can evolve a comprehensive social security package.

Capital Market

94. I believe that India’s capital market is among the best regulated markets. This year is SEBI’s silver jubilee year and I offer the regulator our congratulations. A proposal to amend the SEBI Act to strengthen the regulator is under consideration.

95. I have a number of proposals relating to the capital market that have been finalised in consultation with SEBI:

-There are many categories of foreign portfolio investors such as FIIs, sub-accounts, QFIs etc. and there are also different avenues and procedures for them. Designated depository participants, authorised by SEBI, will now be free to register different classes of portfolio investors, subject to compliance with KYC guidelines.

-SEBI will simplify the procedures and prescribe uniform registration and other norms for entry of foreign portfolio investors. SEBI will converge the different KYC norms and adopt a risk-based approach to KYC to make it easier for foreign investors such as central banks, sovereign wealth funds, university funds, pension funds etc. to invest in India.

-In order to remove the ambiguity that prevails on what is Foreign Direct Investment (FDI) and what is Foreign Institutional Investment (FII), I propose to follow the international practice and lay down a broad principle that, where an investor has a stake of 10 percent or less in a company, it will be treated as FII and, where an investor has a stake of more than 10 percent, it will be treated as FDI. A committee will be constituted to examine the application of the principle and to work out the details expeditiously.

-FIIs will be allowed to participate in the exchange traded currency derivative segment to the extent of their Indian rupee exposure in India.

-FIIs will also be permitted to use their investment in corporate bonds and Government securities as collateral to meet their margin requirements.

-Angel investors bring both experience and capital to new ventures. SEBI will prescribe requirements for angel investor pools by which they can be recognised as Category I AIF venture capital funds.

-Small and medium enterprises, including start-up companies, will be permitted to list on the SME exchange without being required to make an initial public offer (IPO), but the issue will be restricted to informed investors. This will be in addition to the existing SME platform in which listing can be done through an IPO and with wider investor participation.

-With the object of developing the debt market, stock exchanges will be allowed to introduce a dedicated debt segment on the exchange. Banks and primary dealers will be the proprietary trading members. In order to create a complete market, insurance companies, provident funds and pension funds will be permitted to trade directly in the debt segment with the approval of the sectoral regulator.

-Mutual fund distributors will be allowed to become members in the Mutual Fund segment of stock exchanges so that they can leverage the stock exchange network to improve their reach and distribution.

-The list of eligible securities in which Pension Funds and Provident Funds may invest will be enlarged to include exchange traded funds, debt mutual funds and asset backed securities.

VI. ENVIRONMENT

96. India tosses out several thousand tonnes of garbage each day. We will evolve a scheme to encourage cities and municipalities to take up waste-to-energy projects in PPP mode which would be neutral to different technologies. I propose to support municipalities that will implement waste-to-energy projects through different instruments such as viability gap funding, repayable grant and low cost capital.

97. Clean and Green energy is a priority of the Government. However, despite cost advantages in labour, land and construction, the consumer pays a high price for renewable energy. One of the reasons is high cost of finance. In order to provide low cost finance, Government will provide low interest bearing funds from the National Clean Energy Fund (NCEF) to IREDA to on-lend to viable renewable energy projects. The scheme will have a life span of five years.

98. The non-conventional wind energy sector deserves incentives. Hence, I propose to reintroduce ‘generation-based incentive’ for wind energy projects and provide `800 crore to the Ministry of Non Renewable Energy for the purpose.

VII. OTHER PROPOSALS

Backward Regions Grant Fund

99. The Backward Regions Grant Fund (BRGF) is a vital source of gap funding. I propose to allocate `11,500 crore in 2013-14 as well as another sum of `1,000 crore for LWE affected districts. BRGF will include a State component for Bihar, the Bundelkand region, West Bengal, the KBK districts of Odisha and the 82 districts under the Integrated Action Plan. The present criteria for determining backwardness are based on terrain, density of population and length of international borders. It may be more relevant to use a measure like the distance of the State from the national average under criteria such as per capita income, literacy and other human development indicators. I propose to evolve new criteria and reflect them in future planning and devolution of funds.

Skill Development

100. Hon’ble Members will recall that in 2008-09 I had proposed the establishment of the National Skill Development Corporation. The Corporation has since been set up and has done good work, but there is a long way to go. We have set an ambitious target of skilling 50 million people in the 12th Plan period, including 9 million in 2013-14. We have to pull out all stops to achieve this objective. Funds will be released by the National Rural Livelihood Mission and the National Urban Livelihood Mission to be spent on skill development activities. 5 percent of the Border Area Development Programme Fund, 10 percent of the Special Central Assistance to the Scheduled Caste sub plan and the Tribal sub plan, and some other funds will also be used for skill development.

Defence

101. I propose to increase the allocation for Defence to `203,672 crore. This will include `86,741 crore for capital expenditure. The Minister of Defence has been most understanding, and I assure him and the House that constraints will not come in the way of providing any additional requirement for the security of the nation.

Science & Technology

102. Despite our constraints, we must find resources for science and technology and for Space, Atomic Energy etc. I propose to allocate `6,275 crore to the Ministry of Science & Technology; `5,615 crore to the Department of Space; and `5,880 crore to the Department of Atomic Energy. Hon’ble Members will be happy to know that these amounts are substantial enhancements.

103. While we extol the virtues of science and technology (S&T), I think we do not pay enough attention to science and technology for the common man. With the help of the Ministry of Science and Technology and the Principal Scientific Adviser to the Government, I have identified a few amazing S&T innovations. I propose to set apart `200 crore to fund organisations that will scale up and make these products available to the people. I propose to ask the National Innovation Council to formulate a scheme for the management and application of the fund.

Institutions of Excellence

104. Continuing the tradition of supporting institutions of excellence, I propose to make a grant of `100 crore each to:

-Aligarh Muslim University, Aligarh campus

-Banaras Hindu University, Varanasi

-Tata Institute of Social Sciences, Guwahati campus

-Indian National Trust for Art and Cultural Heritage (INTACH)

Sports

105. Sports of all kind deserve our support. We have many sportsmen and sportswomen but few coaches. Hence, I propose to set up the National Institute of Sports Coaching at Patiala at a cost of `250 crore over a period of three years.

Broadcasting

106. Government proposes to expand private FM radio services to 294 more cities. About 839 new FM radio channels will be auctioned in 2013-14 and, after the auction, all cities having a population of more than 100,000 will be covered by private FM radio services.

Panchayati Raj

107. The Rajiv Gandhi Panchayat Sashaktikaran Abhiyan (RGPSA) was started in the current year with a modest allocation of `50 crore. Keeping in view the importance of building capacity in panchayati raj institutions, I had allocated `455 crore to the Ministry of Panchayati Raj in 2013-14. I propose to provide an additional `200 crore .

Post Offices

108. Government has initiated an ambitious IT driven project to modernise the postal network at a cost of `4,909 crore. Post offices will become part of the core banking solution and offer real time banking services. I propose to provide `532 crore for the project in 2013-14.

Ghadar Memorial

109. To mark the centenary of the Ghadar movement, the Government will fund the conversion of the Ghadar Memorial in San Francisco into a museum and library.

Central Schemes

110. Government is concerned about the proliferation of Centrally Sponsored Schemes (CSS) and Additional Central Assistance (ACA) schemes. They were 173 in number at the end of the 11th Plan. I am glad to announce that the schemes will be restructured into 70 schemes. Each scheme will be reviewed once in two years. Central funds for the schemes will be given to the States as part of central plan assistance. Hon’ble Members will be glad to know that, in 2013-14, I expect to transfer resources to the tune of `5,87,082 crore to the States and UTs under share of taxes, non-plan grants and loans, and central assistance.

I make three promises

111. Madam Speaker, before I close this part of my speech, I wish to draw a picture of three faces that represent the vast majority of the people of India. The first is the face of the woman. She is the girl child, the young student, the sportswoman, the homemaker, the working woman, and the mother. The second is the face of the youth. He is impatient, she is ambitious, and both represent the aspirations of a new generation. The third is the face of the poor who look to the government for a little help, a scholarship or an allowance or a subsidy or a pension. To each of them, on behalf of the Government, the Prime Minister and the Chairperson of the UPA, I make a promise.

112. To the women of India: We have a collective responsibility to ensure the dignity and safety of women. Recent incidents have cast a long, dark shadow on our liberal and progressive credentials. As more women enter public spaces – for education or work or access to services or leisure – there are more reports of violence against them. We stand in solidarity with our girl children and women. And we pledge to do everything possible to empower them and to keep them safe and secure. A number of initiatives are under way and many more will be taken by Government as well as non-government organisations. These deserve our support. As an earnest of our commitment to these objectives, I propose to set up a fund – let us call it the Nirbhaya Fund – and Government will contribute `1,000 crore. Ministry of Women and Child Development and other ministries concerned will be requested to work out the details of the structure, scope and application of the fund.

113. To the youth of India: A large number of youth must be motivated to voluntarily join skill development programmes. I propose to ask the National Skill Development Corporation to set the curriculum and standards for training in different skills. Any institution or body may offer training courses. At the end of the training, the candidate will be required to take a test conducted by authorised certification bodies. Upon passing the test, the candidate will be given a certificate as well as a monetary reward of an average of `10,000 per candidate. Skill-trained youth will give an enormous boost to employability and productivity. On the assumption that 10,00,000 youth can be motivated, I propose to set apart `1,000 crore for this ambitious scheme. I hope that this will be the trigger to extend skill development to all the youth of the country.

114. To the poor of India: The Direct Benefit Transfer scheme has captured the imagination of the people, especially the poor. The Government is the government of the people. The money is the money belonging to the people. When we say “Aapka paisa aapke haath”, why should anyone oppose it? We have made a modest and cautious beginning on the 1st of January, 2013. Nearly 11 lakh beneficiaries have received the benefit directly into their bank accounts. All around us, we see the smiles on the faces of the dalit girls and the tribal boys who have received their scholarships. We see the happiness on the faces of the pregnant women who are assured that the Government cares for the mother and the child before and after child birth. We are redoubling our efforts to ensure that the digitized beneficiary lists are available; that a bank account is opened for each beneficiary; and that the bank account is seeded with Aadhaar in due course. I assure the House and the people of India that the DBT scheme will be rolled out throughout the country during the term of the UPA Government.

Budget Estimates

115. I shall now turn to the Budget Estimates for 2013-14.

116. The estimate of Plan Expenditure is placed at `5,55,322 crore. As a proportion of total expenditure, it will be 33.3 percent.

117. Non Plan Expenditure is estimated at `11,09,975 crore.

118. When we accepted the main recommendations of the Kelkar report, I had drawn some red lines and promised that I would not cross those lines. I am glad to report that I have kept my promise. The fiscal deficit for the current year has been contained at 5.2 percent and the fiscal deficit for the year
2013-14 is estimated at 4.8 percent. The revenue deficit for the current year will be 3.9 percent and the revenue deficit for the year 2013-14 is estimated at 3.3 percent. We must redeem our promise by 2016-17 and bring down the fiscal deficit to 3 percent, the revenue deficit to 1.5 percent and the effective revenue deficit to zero.

PART B

VIII. TAX PROPOSALS

119. Madam Speaker, I shall now present my tax proposals.

120. When I took over in August, 2012, I made a statement that “clarity in tax laws, a stable tax regime, a non-adversarial tax administration, a fair mechanism for dispute resolution, and an independent judiciary will provide great assurance”. That statement is the underlying theme of my tax proposals, both on the direct taxes side and on the indirect taxes side.

121. An emerging economy must have a tax system that reflects best global practices. I propose to set up a Tax Administration Reform Commission to review the application of tax policies and tax laws and submit periodic reports that can be implemented to strengthen the capacity of our tax system.

122. In 2011-12, the tax GDP ratio was 5.5 percent for direct taxes and 4.4 percent for indirect taxes. These ratios are one of the lowest for any large developing country and will not garner adequate resources for inclusive and sustainable development. I may recall that in 2007-08, the tax GDP ratio touched a peak of 11.9 percent. In the short term, we must reclaim that peak.

Direct Taxes

123. Let me begin with direct taxes.

124. In a constrained economy, there is little room to raise tax rates or large amounts of additional tax revenues. Equally, there is little room to give away tax revenues or the tax base. It is a time for prudence, restraint and patience.

125. The rates of personal income tax have survived four Finance Ministers and four Governments. The current slabs were introduced only last year. Hence, I am afraid, there is no case to revise either the slabs or the rates. Besides, even a moderate increase in the level of threshold exemption will mean that hundreds of thousands of tax payers will go out of the tax net and the tax base will be severely eroded. Nevertheless, I am inclined to give some relief to the tax payers in the first bracket of `2 lakh to `5 lakh. Assuming an inflation rate of 10 percent and a notional rise in the threshold exemption from `2,00,000 to `2,20,000, I propose to provide a tax credit of `2,000 to every person who has a total income upto `5 lakh. 1.8 crore tax payers are expected to benefit to the value of `3,600 crore.

126. Fiscal consolidation cannot be effected only by cutting expenditure. Wherever possible, revenues must also be augmented. When I need to raise resources, who can I go to except those who are relatively well placed in society? There are 42,800 persons – let me repeat, only 42,800 persons – who admitted to a taxable income exceeding `1 crore per year. I propose to impose a surcharge of 10 percent on persons whose taxable income exceeds `1 crore per year. This will apply to individuals, HUFs, firms and entities with similar tax status.

127. I also propose to increase the surcharge from 5 percent to 10 percent on domestic companies whose taxable income exceeds `10 crore per year. In the case of foreign companies, who pay the higher rate of corporate tax, the surcharge will increase from 2 percent to 5 percent.

128. In all other cases, such as dividend distribution tax or tax on distributed income, I propose to increase the current surcharge of 5 percent to 10 percent.

129. The additional surcharges will be in force for only one year, that is Financial Year 2013-14.

130. I believe there is a little bit of the spirit of Mr. Azim Premji in every affluent tax payer. I am confident that when I ask the relatively prosperous to bear a small burden for one year, just one year, they will do so cheerfully.

131. The education cess for all tax payers shall continue at 3 percent.

132. In part A of my speech, I had referred to the tax benefit to the first-home buyer who takes a loan for an amount not exceeding `25,00,000. I propose to allow such home buyers an additional deduction of interest of `100,000 to be claimed in AY 2014-15. If the limit is not exhausted, the balance may be claimed in AY 2015-16. This deduction will be over and above the deduction of `150,000 allowed for self-occupied properties under section 24 of the Income-tax Act.

133. I propose to relax the eligibility conditions of life insurance policies for persons suffering from disability or certain ailments by increasing the permissible premium rate from 10 percent to 15 percent of the sum assured. This relaxation shall be available in respect of policies issued on or after 1.4.2013.

134. Contributions made to the Central Government Health Scheme are eligible for deduction under section 80D of the Income-tax Act. I propose to extend the same benefit to similar schemes of the Central Government and State Governments.

135. Donations made to the National Children’s Fund will now be eligible for 100 percent deduction.

136. No large economy can become truly developed without a robust manufacturing sector. Hence, as stated in part A of my speech, I propose to provide an investment allowance at the rate of 15 percent to a manufacturing company that invests more than `100 crore in plant and machinery during the period 1.4.2013 to 31.3.2015.

137. I propose to extend the ‘eligible date’ for projects in the power sector to avail of the benefit under section 80-IA of the Income-tax Act, from 31.3.2013 to 31.3.2014.

138. In order to encourage repatriation of funds from overseas companies, I propose to continue for one more year the concessional rate of tax of 15 percent on dividend received by an Indian company from its foreign subsidiary. Further, the Indian company shall not be liable to pay dividend distribution tax on the distribution to its shareholders of that portion of the income received from its foreign subsidiary.

139. With a view to attract investment in long term infrastructure bonds in foreign currency, the rate of tax on interest paid to non-resident investors was reduced last year from 20 percent to 5 percent. I propose to extend the same benefit to investment made through a designated bank account in rupee-denominated long term infrastructure bonds.

140. In order to facilitate financial institutions to securitise their assets through a special purpose vehicle, I propose to exempt the Securitisation Trust from income tax. Tax shall be levied only at the time of distribution of income by the Securitisation Trust at the rate of 30 percent in the case of companies and at the rate of 25 percent in the case of an individual or HUF. No further tax will be levied on the income received by the investors from the Securitisation Trust.

141. Investor Protection Fund set up by a depository for the protection of interest of beneficial owners will be exempt from income tax.

142. I propose to provide parity in taxation between an IDF-Mutual Fund that distributes income and an IDF-NBFC that pays interest, when the payment is made to a non-resident. The rate of tax on such distributed income or interest will be 5 percent.

143. Venture Capital Funds have been allowed pass through status under the Income-tax Act. The relevant regulations of SEBI have been replaced by Alternative Investment Fund Regulations. Hence, I propose to extend, subject to certain conditions, pass through status to category I Alternative Investment Funds registered with SEBI as venture capital funds. Angel Investors who are recognised as category I AIF venture capital funds will also get pass through status.

144. I propose to modify the Rajiv Gandhi Equity Saving Scheme, details of which I had mentioned in part A of my speech.

145. Transactions in immovable properties are usually undervalued and underreported. One-half of the transactions do not carry the PAN of the parties concerned. With a view to improve the reporting of such transactions and the taxation of capital gains, I propose to apply TDS at the rate of one percent on the value of the transfer of immovable property where the consideration exceeds `50 lakhs. However, agricultural land will be exempt.

146. Some tax avoidance arrangements have come to notice, and I propose to plug the loopholes. Some unlisted companies have avoided dividend distribution tax by arrangements involving buyback of shares. I propose to levy a final withholding tax at the rate of 20 percent on profits distributed by unlisted companies to shareholders through buyback of shares.

147. Another case is the distribution of profits by a subsidiary to a foreign parent company in the form of royalty. Besides, the rate of tax on royalty in the Income-tax Act is lower than the rates provided in a number of Double Tax Avoidance Agreements. This is an anomaly that must be corrected. Hence, I propose to increase the rate of tax on payments by way of royalty and fees for technical services to non-residents from 10 percent to 25 percent. However, the applicable rate will be the rate of tax stipulated in the DTAA.

148. Securities Transaction Tax (STT) has a stabilizing effect on transactions, although it adds to the transaction cost. Taking note of the changes and shifts in the market, I propose to make the following reductions in the rates of tax:

Equity futures: from 0.017 to 0.01 percent

MF/ETF redemptions at fund counters: from 0.25 to 0.001 percent

MF/ETF purchase/sale on exchanges: from 0.1 to 0.001 percent, only on

the seller

149. There is no distinction between derivative trading in the securities market and derivative trading in the commodities market, only the underlying asset is different. It is time to introduce Commodities Transaction Tax (CTT) in a limited way. Hence, I propose to levy CTT on non-agricultural commodities futures contracts at the same rate as on equity futures, that is at 0.01 percent of the price of the trade. Trading in commodity derivatives will not be considered as a ‘speculative transaction’ and CTT shall be allowed as deduction if the income from such transaction forms part of business income. As I said, agricultural commodities will be exempt.

150. Hon’ble Members are aware that the Finance Act, 2012 introduced the General Anti Avoidance Rules, for short, GAAR. A number of representations were received against the new provisions. An expert committee was constituted to consult stakeholders and finalise the GAAR guidelines. After careful consideration of the report, Government announced certain decisions on 14.1.2013 which were widely welcomed. I propose to incorporate those decisions in the Income-tax Act. The modified provisions preserve the basic thrust and purpose of GAAR. Impermissible tax avoidance arrangements will be subjected to tax after a determination is made through a well laid out procedure involving an assessing officer and an Approving Panel headed by a Judge. I propose to bring the modified provisions into effect from 1.4.2016.

151. The Rangachary Committee was appointed to look into tax matters relating to Development Centres & IT sector and Safe Harbour rules for a number of sectors. We have issued a circular covering IT sector exports and will shortly issue a circular covering Development Centres. Rules on Safe Harbour will be issued after examining the reports of the Committee, the last of which is expected by 31.3.2013.

152. The fifth Large Tax payer Unit will be opened at Kolkata shortly.

153. I have also taken a number of administrative measures in the last few months. I propose to expand the scope of annual information returns, extend e-payment facility through more banks, extend the refund banker system to refunds of more than `50,000, and make e-filing mandatory for more categories of assessees. The Income-tax department is rapidly moving towards technology-based processing as would be evident from the Central Processing Cell set up at Bengaluru and the Central Processing Cell-TDS inaugurated a few days ago at Vaishali, Ghaziabad.

154. The Direct Taxes Code (DTC) is work in progress. The DTC is not intended to be an amended version of the Income-tax Act, 1961 but a new code based on the best international practices that will be compatible with the needs of a fast developing economy. The Standing Committee on Finance has submitted its report and we attach great weight to its recommendations. My team in the Ministry of Finance is examining the recommendations and I intend to work with the Standing Committee and its Chairman in order to finalise the official amendments. I shall endeavour to bring the Bill back to this House before the end of the Budget Session.

Indirect Taxes

155. I shall now deal with indirect taxes.

156. There will be no change in the peak rate of basic customs duty of 10 percent for non-agricultural products. There will also be no change in the normal rate of excise duty of 12 percent and the normal rate of service tax of 12 percent.

157. I have a few proposals on customs duties.

158. To encourage manufacture of environment-friendly vehicles, I propose to extend the period of concession now available for specified parts of electric and hybrid vehicles upto 31.3.2015.

159. Leather and leather goods is a thrust sector for exports. I propose to reduce the duty on specified machinery for manufacture of leather and leather goods, including footwear, from 7.5 percent to 5 percent.

160. To encourage exports, I propose to reduce the duty on pre-forms of precious and semi-precious stones from 10 percent to 2 percent.

161. Export duty on de-oiled rice bran oil cake has made our exports uncompetitive. Hence, I propose to withdraw the said duty.

162. Prices of unprocessed ilmenite have gone up several fold in the export market. Considering the need to conserve our natural resources, I propose to impose a duty of 10 percent on export of unprocessed ilmenite and 5 percent on export of upgraded ilmenite.

163. The aircraft manufacture, repair and overhaul (MRO) industry is at a nascent stage. Encouraging the MRO sector will generate employment besides other benefits. Hence, I propose to provide certain concessions to the MRO industry, details of which are in the budget documents.

164. To encourage domestic production of set top boxes as well as value addition, I propose to increase the duty from 5 percent to 10 percent.

165. In order to give a measure of protection to domestic sericulture, I propose to increase the duty on raw silk from 5 percent to 15 percent.

166. Steam coal is exempt from customs duty but attracts a concessional CVD of one percent. Bituminous coal attracts a duty of 5 percent and CVD of 6 percent. Since both kinds of coal are used in thermal power stations, there is rampant misclassification. I propose to equalise the duties on both kinds of coal and levy 2 percent customs duty and 2 percent CVD.

167. There is an affluent class in India that consumes imported luxury goods such as high end motor vehicles, motorcycles, yachts and similar vessels. I am sure they will not mind paying a little more. Hence, I propose to increase the duty on such motor vehicles from 75 percent to 100 percent; on motorcycles with engine capacity of 800cc or more from 60 percent to 75 percent; and on yachts and similar vessels from 10 percent to 25 percent.

168. The baggage rules permitting eligible passengers to bring jewellery was last amended in 1991. Gold prices have risen since, and passengers have complained of harrasment. Hence, I propose to raise the duty-free limit to `50,000 in the case of a male passenger and `100,000 in the case of a female passenger, subject to the usual conditions.

169. Next, I shall deal with excise duties.

170. The readymade garment industry is in the throes of a crisis. The industry needs a lifeline. There is a demand to restore the ‘zero excise duty route’ for cotton and manmade sector (spun yarn) at the yarn, fabric and garment stages. I propose to accept the demand. In the case of cotton, there will be zero duty at the fibre stage also and, in the case of spun yarn, there will be a duty of 12 percent at the fibre stage. The ‘zero excise duty route’ will be in addition to the CENVAT route now available.

171. I propose to totally exempt handmade carpets and textile floor coverings of coir or jute from excise duty.

172. As a measure of relief to the ship building industry, I propose to exempt ships and vessels from excise duty. Consequently, there will be no CVD on imported ships and vessels.

173. What does a Finance Minister turn to when he requires resources? The answer is cigarettes. I propose to increase the specific excise duty on cigarettes by about 18 percent. Similar increases are proposed on cigars, cheroots and cigarillos.

174. SUVs occupy greater road and parking space and ought to bear a higher tax. I propose to increase the excise duty on SUVs from 27 percent to 30 percent. However, the increase will not apply to SUVs registered as taxis.

175. The excise duty rate on marble was fixed in 1996. Keeping in view the increase in prices of marble, I propose to increase the duty from `30 per sq. mtr to ` 60 per sq mtr.

176. I propose to levy 4 percent excise duty on silver manufactured from smelting zinc or lead, to bring the rate on par with the excise duty applicable to silver obtained from copper ores and concentrates.

177. About 70 percent of imported mobile phones and about 60 percent of domestically manufactured mobile phones are priced at `2000 or below. Mobile phones enjoy a concessional excise duty of one percent and I do not propose to change that in the case of low priced mobile phones. However, on mobile phones priced at more than `2000, I propose to raise the duty to 6 percent.

178. To reduce valuation disputes, I propose to provide for MRP based assessment in respect of branded medicaments of Ayurveda, Unani, Siddha, Homeopathy and bio-chemic systems of medicine. There will be an abatement of 35 percent.

179. As regards service tax, I have only a few proposals. The negative list became effective after the last Budget. Stability in the tax regime is important. Hence, I propose to include only two services which deserve to be in the negative list. They are vocational courses offered by institutes affiliated to the State Council of Vocational Training and testing activities in relation to agriculture and agricultural produce.

180. Last year, at the request of the film industry, full exemption of service tax was granted on copyright on cinematography. The industry has now requested to limit the benefit of exemption to films exhibited in cinema halls. I propose to accept the request.

181. At present, service tax does not apply to air conditioned restaurants that do not serve liquor. The distinction is artificial, and I propose to levy service tax on all air conditioned restaurants.

182. Homes and flats with a carpet area of 2,000 sq.ft. or more or of a value of `1 crore or more are high-end constructions where the component of ‘service’ is greater. Hence, I propose to reduce the rate of abatement for this class of buildings from 75 percent to 70 percent. Existing exemptions from service tax for low cost housing and single residential units will continue.

183. While there are nearly 17,00,000 registered assessees under service tax, only about 7,00,000 file returns. Many have simply stopped filing returns. We cannot go after each of them. I have to motivate them to file returns and pay the tax dues. Hence, I propose to introduce a one-time scheme called ‘Voluntary Compliance Encouragement Scheme’. A defaulter may avail of the scheme on condition that he files a truthful declaration of service tax dues since 1.10.2007 and makes the payment in one or two instalments before prescribed dates. In such a case, interest, penalty and other consequences will be waived. I hope to entice a large number of assessees to return to the tax fold. I also hope to collect a reasonable sum of money.

184. There are a few more decisions which entail small gains or losses of revenue. They are reflected in the budget documents.

185. My tax proposals on the direct taxes side are estimated to yield `13,300 crore and on the indirect taxes side `4,700 crore.

Goods and Services Tax

186. Hon’ble Members will recall that I had first mentioned the Goods and Services Tax (GST) in the Budget speech for 2007-08. At that time, it was thought that GST could be brought into effect from 1.4.2010. Alas, that was not to be, although all States swear by the benefit of GST. However, my recent meetings with the Empowered Committee of State Finance Ministers has led me to believe that the State Governments – or, at least, the overwhelming majority – are agreed that there is need for a Constitutional amendment; there is need for State Governments and the Central Government to pass a GST law that will be drafted by the State Finance Ministers and the GST Council; and there is need for the Centre to compensate the States for loss due to the reduction in the CST rate. I hope we can take this consensus forward in the next few months and bring to this House a draft Bill on the Constitutional amendment and a draft Bill on GST. Hope inspires courage. I propose to take the first decisive step by setting apart, in the Budget, a sum of `9,000 crore towards the first instalment of the balance of CST compensation. I appeal to the State Finance Ministers to realise the serious intent of the Government to introduce GST and come forward to work with the Government and bring about a transformational change in the tax structure of the country.

Conclusion

187. Madam Speaker, the last day of February is another day in the life of a nation. We pause today, to reflect on the past and the future, and we shall resume our work tomorrow. Our work will be seen in our actions. How shall we act? I turn to my favourite poet, Saint Tiruvalluvar, who said:

Kalangathu Kanda Vinaikkan Thulangkathu

Thookkang Kadinthu Seyal”

(What clearly eye discerns as right, with steadfast will

And mind unslumbering, that should man fulfil)

188. Any economist will tell us what India can become. We are the tenth largest economy in the world. We can become the eighth, or perhaps the seventh, largest by 2017. By 2025, we could become a $ 5 trillion economy, and among the top five in the world. What we will become depends on us and on the choices that we make. Swami Vivekananda, whose 150th birth anniversary we celebrate this year, told the people: “All the strength and succour you want is within yourself. Therefore, make your own future.”

As a resolute step towards that future, Madam Speaker, I commend the Budget to the House.

Previous Budgets

Pranab Mukerjee – 1984 Budget

Finance Minister :Pranab Mukerjee
Budget Year :1984

BACK

Pranab Mukerjee

 Sir,  I rise to present the Budget for the year 1984-85.
2. The Budget has been formulated against the background of strong recovery  in national income and agriculture, and an equally impressive improvement in our  balance of payments. These and other developments in the economy have been covered  in detail in the Economic Survey, presented to the House a couple of days ago. I shall,  therefore, be brief in reviewing the current economic situation.
3. As the House is aware, the country had to go through two years of severe  drought and one year of indifferent monsoon during the period 1979-80 to 1982-83.  Foodgrains production, which had reached 132 million tonnes in 1978-79, declined to  110 million tonnes in the following year. It recovered to 133 million tonnes in 1981-  82 but then declined again to 128 million tonnes in 1982-83 because of another severe  drought. The current year has seen a major breakthrough in foodgrains production,  and we are not only likely to recover lost ground, but also improve substantially on  the previous peak. Foodgrains production in 1983-84 is expected to exceed the target  of 142 million tonnes. Agricultural production as a whole is likely to increase by 9  per cent over the previous year. Honourable Members will agree that this is convincing  testimony to the soundness of our agricultural strategy and to the hard work of our  farmers.
4. Industrial performance shows an improvement over the previous year, but  the recovery in industrial production still seems weak. Industrial growth in the current  year is likely to be about 4.5 per cent, compared with 3.9 per cent in 1982-83. For the  four year period after 1979-80, industrial growth will average slightly more than 5 per  cent. This is well below the potential of the industrial sector. We must aim at a  growth rate of 7 to 8 per cent in industry if we are to maintain high-rate of growth of  CDP and provide employment for our growing labour force in the years ahead.
5. The national income growth in 1983-84 is likely to be in the range of 6 to  7 per cent. In the four years since the present Government took over, the average  growth rate in national income has been about 5.4 per cent which is higher than the  rate of growth in the first four years of any previous Plan. Per capita income in this  period will have risen at an average rate exceeding 3 per cent per year. This achievement  is all the more noteworthy when viewed against the background of a highly adverse  international economic environment, and-a severe drought.
6. The years 1981-82 and 1982-83 were characterised by exceptionally low  rates of inflation. The annual rate of inflation which had reached a high of 21.4 per  cent in 1979-80 was brought down to 16.7 per cent in 1980-81 and further to only 2.4  per cent at the end of 1981-82. The annual rate of inflation at the end of 1982-83 was  6.2 per cent, which is unusually low for a drought year. But, there has been acceleration  in the annual rate of inflation in the current year despite an excellent crop. The initial  delay in the arrival of the monsoon and the high liquidity in the economy exerted  pressure on prices in the early part of the year. The favourable effects of a good crop  led to a decline in cereal prices after harvesting. However, this was largely offset by  sharp increases in prices of a few commodities such as pulses, certain edible oils,  rubber, tea and cotton because of both domestic and international factors. As a result,  the seasonal dip in prices, which normally occurs towards the end of September has  been weak.
7. As the House is aware, the Government has taken several measures to  minimise the impact of the drought and to contain the price rise. Action was taken to  increase procurement, availability, and releases of sensitive commodities such as wheat,  sugar, and edible oils through the public distribution system. Steps were also taken to  mop up excess liquidity with the banking system and to curtail Government expenditure.  Exports of cotton and CTC teas were restrained in order to increase domestic  availability. Further measures will be taken as required to ensure that there is no  repetition of the experience of 1979-80, when prices were allowed to increase by over  21 per cent.
8. Let me now turn to the external payments situation facing the economy.  In my budget speech last year, I had informed the House of the improvement that had  taken place in our balance of payments in 1982-83. I am happy to say that this  improvement has gained strength in 1983-84. The trade gap, which declined from  Rs.5800 crores in 1981-82 to about Rs.5500 crores in i982-83, is expected to decline  further in the current year. Receipts on invisibles account have remained buoyant and  the incentives for non-resident deposits have been highly successful. Our foreign  exchange reserves, Inclusive of IMF drawings, have increased by Rs.662 crores in the  current financial year upto 10th February.
9. Our strategy for bringing the balance of payments under control, after the  sharp deterioration that occurred in 1979-80, has paid rich dividends. In view of the  improvement in our payments position, the Government has voluntarily decided not to  avail of the balance of 1.1 billion SDR under the Extended Fund Facility of the IMF.  While intervening in the debate on the IMF loan in this House in December, 1981, the  Prime Minister had this to say, and I quote:  “It does not force us to borrow, nor shall we borrow unless it is in the  national interest. There is absolutely no question of our accepting any  programme which is incompatible with our policy, declared and accepted    by Parliament. It is inconceivable that anybody should think that we  would accept assistance from any external agency which dictates terms  which are not in consonance with such policies.  This was true then, and it is true now.
10. Belying the prophecies of doom by many a self styled Cassandra, the  economy has emerged stronger as a result of the adjustment effort mounted by us.  None of the dire consequences that we were being warned about has occurred. We  have not cut subsidies. We have not cut wages. We have not compromised on Planning.  We have not been trapped in a debt crisis. We have not faltered in our commitment  to anti-poverty programmes or the welfare of our people. We entered into this loan  arrangement with our eyes open. We have come out of it with our heads high.
11. We hope that our decision to forgo the balance of the amount available to  us under the IMF loan would, in a small way, help the IMF to provide greater assistance  to other developing countries. I must also take this opportunity to express our  appreciation for the goodwill and mutual-understanding that has marked our relationship  with the IMF during the entire period of the EFF arrangement.
12. However, there can be no room for complacency. We must persist with  the policies that have brought about this favourable outcome. It is necessary to work  even harder to save imports in critical areas and to increase exports. Our exports, net  of oil, in the first seven months of 1983-84 increased by 9.9 per cent. This is a  reasonable performance considering that world trade has been stagnant for quite some  time. We would need to do even better in the future in order to meet the essential  import requirements of a growing economy, and to keep the debt service ratio at a  manageable level.
13. The Government has taken several steps in the last four years to mobilise  resources for public sector investment and to increase the rate of public savings for  financing the Plan. Apart from adjustment of the tax rates, the fiscal instrument has  been used to provide stronger incentives for savings in the form of financial assets.  Interest rates on deposits were also revised upwards with the same objective in view.  These policies have been highly successful and the inflow of funds in small savings as  well as time deposits has exceeded expectations. An important task of fiscal policy in  the years ahead is to strengthen this trend.
14. In considering the strategy for resource mobilisation we have to recognise  that while our tax rates are relatively high, the tax base is narrow. The evils of black  money and tax evasion also have to be reckoned with. The Government is fully  committed to come down heavily on tax evaders. At the same time, we must ensure  that, as far as possible, the tax system itself does not become a source of encouragement  for evasion. Simplification and rationalisation of the tax system must, therefore,  remain important objectives of our fiscal policy.
15. The Central public sector enterprises had shown a net profit of Rs.618  crores in 1982-83. Although a large number of public sector enterprises have continued  to show profits in 1983-84, their overall performance has been below expectations.  The erosion of profitability was largely due to losses incurred in a few sectors, such  as steel and coal. The Government has taken steps to improve their functioning. We  must ensure that capital is used more efficiently so that larger resources are available  for future expansion.
16. In order to fulfil our social commitments and protect jobs, Government  had to take over a large number of sick units and sustain them through injection of  fresh resources. While some of them have turned the corner, a large number of them  continue to incur losses. The time has come to undertake a careful review of the  performance of sick units in the public sector with a view to reducing the drain on our  resources. This Government proposes to do. Economic viability must be the principal  test for the survival of an enterprise.
17. The growth of deposits with the banking system in the current year has  substantially exceeded their requirements of funds for credit expansion. This has, in  the short run, resulted in some excess liquidity with the banking system. In this  situation, and in order to mobilise some resources for public investment, it is considered  desirable to introduce another financial instrument with broadly the same characteristics  as longer term time deposits with banks. Under the scheme, which will be called the  “National Deposit Scheme”, certificates of deposits with a maturity of four years can  be purchased from designated outlets. The investor will have the option to en-cash  these deposits any time after one year. The interest rate will be 10.5 per cent if these  deposits are held for four years, and 10, 9 and 7 per cent if these are held for three,  two and one year respectively. Interest from these deposits will be eligible for tax  exemption upto the full limit of Rs.10,000/- under Section 80L of the Income-tax Act.  The target of receipts under this scheme is Rs.500 crores over a period of time. I  should clarify that this is a temporary scheme, and will be discontinued after this  target is reached or earlier, if monetary developments so warrant.
18. Pursuant to the recommendations of the High Level Committee on financial  institutions set up by the Government last year, it has been decided to make certain  changes in the “convertibility clause”. In view of the increases in capital costs of  projects and the investment limit for the de-licensed sector, the threshold for exemption  from convertibility clause is being raised from the existing level of Rs.1 crore to Rs.5  crores.
19. Further, in the case of non-MRTP companies, convertibility clause will  not be stipulated where the holding of equity by all financial institutions in such a  company exceeds 26 per cent. In the case of M11TP companies/large houses, however,  the existing limit of 40 per cent will continue. In order to encourage investment in  “No Industry” districts there will be complete exemption from convertibility clause in  5  respect of units proposed to be located in these districts. The functioning of nomineedirectors  of institutions on the boards of assisted companies is also being revamped.  Detailed guidelines on these and other related aspects are being issued separately.
20. The Industrial Development Bank of India has been providing liberal  financing facilities for modernisation of industry. The IDBI’s scheme for this purpose  was recently extended to all industrial units and assistance under this scheme upto  Rs.4 crores is being provided at a concessional rate of interest of 12.5 per cent. In  order to reduce financing costs of modernisation schemes, it has been decided that the  rate of interest under the IDBI scheme for loans upto Rs.4 crores will be reduced to  11.5 per cent until further notice. Weak units will be provided assistance upto this  amount at an even lower rate of interest of 10 per cent.
  21. As the House is aware, the Government has been giving consideration to  the desirability of a change in the financial year. As I informed the House last year,  I invited the views of the State Governments on this proposal. The response has been  generally favourable. In order to examine suggestions received from State Governments  as well as trade and industry, and to work out the modalities for effecting a change in  the financial year, I propose to set up an expert committee, which would include  representatives of Central Government, State Governments, Reserve Bank of India,  Comptroller and Auditor General and some non-official members. This committee  will be requested to submit its report by the end of September, 1984.
22. I shall now turn to the Revised Estimates for 1983-84 and the Budget  Estimates for 1984-85.
REVISED ESTIMATES FOR 1983-84
23. The House will recall that the Central sector Plan outlay for 1983-84 was  fixed at Rs.13,870 crores. This was to be financed to the extent of Rs.8,390 crores  from the budget and Rs.5,480 crores through the internal and extra-budgetary resources  of the public sector enterprises. Despite erosion in the internal resources of certain  public sector enterprises, it has been my endeavour to ensure that the total Plan outlay  during the year is not adversely affected. The Central Plan outlay in 1983-84 is now  estimated at Rs.14,059 crores. This has been made possible by an increase in the  budgetary support by Rs.1,007 crores over the Budget Estimates.
24. Budgetary support for the Posts and Telegraphs Plan has been increased  by Rs.203 crores. The Railway Plan outlay has been stepped up by Rs.100 crores  with an additional budgetary support of Rs.54 crores. In the Transport and  Communications sectors, I have provided additional funds for Space projects like  INSAT, and extension of television coverage. To maintain the progress of the  Visakhapatnam Steel Plant, the budget provision has been augmented by Rs.250 crores.  For Chemicals & Fertilizers, the enhanced allocation of Rs.133 crores is largely due  to the fall in internal resources and change in the pattern of financing. In the Energy  sector, coal projects get additional funds of Rs.30 crores to expedite on-going projects.    To improve the capital base of the Industrial Development Bank of India, a special  provision of Rs.130 crores has been made. Rupees 100 crores have been set apart for  the new rural landless employment guarantee programme launched during the current  year. I have also increased the provision for welfare of scheduled castes/ tribes and  backward classes and important social sectors like health and family welfare.
25. The Central assistance for States’ and Union territories’ Plans has been  increased by Rs.392 crores from Rs.4,462 crores to Rs.4,854 crores. This includes  advance Plan assistance of Rs.190 crores to States affected by failure of monsoon  particularly in the first half of the current year. Additional Plan assistance of Rs.82  crores has been provided to the State of Assam, a large part of which is for relief and  rehabilitation of the riot victims in that State.
26. Utmost care has been taken to contain the non-Plan expenditure. There  were, however, certain unavoidable commitments. Additional provision of Rs.400  crores has been made for ways and means advances to State Governments and Technical  Credits under rupee-trade agreements. The short-term loans to States for agricultural  inputs have been stepped up by Rs.110 crores. There is an increase of Rs.300 crores  in loans to State Governments, as their share of small savings will be higher on account  of higher collections. The second half of the current year witnessed floods, cyclones  and hailstorm in as many as 15 States. An additional non-Plan grant of Rs.150 crores  has been provided for the relief of distress on account of these calamities.
  27. Further, I am providing additional non-Plan assistance amounting to Rs.500  crores to States. I shall refer to this later while dealing with the State Plan outlay for  next year. Out of this loan of Rs.500 crores, an amount of Rs.400 crores would help  the States to clear part of their deficits of 1982-83.
28. The provision for Defence has been increased from Rs.5, 971 crores to  Rs.6, 350 crores in the Revised Estimates. The interim relief and bonus sanctioned to  Government employees in the current year is estimated to cost about Rs.280 crores in  respect of all the departments of the Government. Subsidy on imported and domestic  fertilizers will go up by Rs.250 crores to Rs.1,048 crores as the consumer price of  fertilizers was reduced in June 1983. During the current year, because of financial  difficulties, certain public sector undertakings, particularly Heavy Engineering  Corporation, National Textile Corporation and Delhi Transport Corporation, will be  requiring larger non-Plan assistance than provided in the Budget Estimates. It has  also been decided to extend the subsidy scheme for Calcutta Port and Haldia Channel  dredging up to the end of next year.
29. Revised Estimates also include additional provision of Rs.502 crores for  subscription towards our higher quota in the IMF. This, however, will have no net  impact on the budget as payments for quota subscriptions are matched by corresponding  receipts. Taking these and other variations into account, the non-Plan expenditure in   the Revised Estimates is placed at Rs.24,773 crores against the Budget Estimates of  Rs.21,984 crores.
30. Coming to receipts, the Budget Estimates of receipts from income-tax  and customs duties are likely to be achieved. Corporation tax receipts will be higher  by Rs.203 crores due to larger payments by oil companies. Union excise duties are  also estimated to be Rs.85 crores higher mainly due to larger collection of cesses on  crude oil and coal. The Centre’s tax revenue, after paying the States’ share of taxes,  is estimated at Rs.15,700 crores as against the Budget Estimates of Rs.15,460 crores.
31. Under non-tax revenues, the dividend from Railways is likely to be Rs.127  crores less than the Budget Estimates. This decrease will, however, be more than  offset by increases under other heads and total non-tax revenue in the current year is  expected to show an improvement of Rs.130 crores over the Budget Estimates.
32. Under capital receipts, I am happy to inform the House that the net  collections under small savings during the current year may amount to Rs.2,200 crores  against the Budget Estimates of Rs.1,700 crores. This is a welcome response to the  incentives provided for small savings in the current year’s budget. The repayment of  Technical Credits is expected to be Rs.1,150 crores as against Rs.800 crores assumed  in the Budget. The receipt, net of outgo, will be Rs.350 crores against the Budget  Estimates of Rs.200 crores.
33. The receipts from special deposits of non-Government provident funds  and the like are estimated to be Rs.190 crores higher than the Budget Estimates.  Taking into account the deposits of surplus funds of oil sector, additional recoveries of  ways and means and short-term advances to the State Governments and other variations,  capital receipts in the current year are estimated at Rs.15,965 crores as against the  Budget Estimates of Rs.12,656 crores.
34. Total receipts are thus estimated to go up from Rs.33,250 crores to  Rs.36,929 crores. This will leave a budgetary deficit of Rs.1695 crores for the current  year as against the Budget Estimates of Rs.1586 crores. This excludes the special  loan assistance of Rs.400 crores provided to States for clearing their overdrafts at the  end of the previous year 1982-83. I am sure the House will agree that despite  unavoidable budgetary pressures, we have been able to keep the deficit within prudent  limits.  BUDGET ESTIMATES FOR 1984-85
35. Honourable Members will recall that when our Government took office in  January 1980, an important task before us was to revitalise the planning process and  to give a new thrust to the programmes of development. I am happy to say that, in the  last four years, we have been able to achieve an unprecedented increase in the tempo  of public investment.
36. For 1984-85, the approved Plan outlay of the Centre, States and Union  territories will be Rs.30,132 crores as compared to Rs.25,480 crores in 1983-84. The  8  Central Plan outlay for 1984-85 is Rs.17,351 crores, which represents a step up of 25  per cent over the approved Plan outlay of Rs.13,870 crores in 1983-84.
37. The Plan outlay for the States and Union territories is placed at Rs.12,78l  crores as compared with the final approved outlay of Rs.11,678 crores in 1983-84.  Central assistance for the Plans of States and Union territories will be Rs.5050 crores  as against Rs.4462 crores in 1983-84 Budget Estimates, representing an increase of  13.2 per cent over the allocation made for the current year.
38. Within this aggregate, Plans of individual States show a varied picture.  Some States have managed their finances well; they have been able to raise additional  resources and effectively utilise these to implement adequately sized Plans, providing  development and growth to their people. Unfortunately, some States, for reasons of  their own, have used their resources for various other purposes; they have not invested  their resources, including additional resources mobilised, for development and have  also resorted to large overdrafts on the RBI.
39. With a view to assisting even such States, various facilities and  opportunities were provided from time to time. At the beginning of the Sixth Plan  itself, recovery of outstanding advance assistance amounting to Rs.1412 crores was  postponed. This was done to enable States to start with a clean slate. However, State  overdrafts again grew, and in June 1982, I decided to clear States’ closing deficits of  the previous year with a medium term loan of Rs.1743 crores. RBI also doubled the  ways and means limits available to the States. Again last year, while presenting the  budget, I announced an increased level of Central assistance. All these measures were  taken primarily to assist States to readjust their financial affairs and to be able to  implement State Plans of adequate size.
40. Unfortunately, despite these measures, some States continued to rely  heavily on overdrafts even after March 1982. Their proposed deficits at the end of  March 1984 would have harshly affected their Plan sizes if these deficits were adjusted  against next year’ s Plan, as per normal practice. In considering the ways of overcoming  this problem, I have found myself in a predicament. On the one hand, no Finance  Minister of the country can remain unconcerned about the size of a State’s Plan. On  the other hand, if assistance is extended to defaulting States, the well-managed States  can legitimately complain that they have not got their just rewards from the Centre for  their better performance.
  41. In the past few weeks, discussions were again held with the Chief Ministers  of States whose overdrafts with the RBI were high. Several State Governments have  agreed to take the necessary measures to improve their financial position and to reduce  their reliance on overdrafts. On my part, I have agreed to take further steps to provide  additional assistance to States in order to protect their Plans as far as possible. In  doing so, I have been particularly conscious of the need to keep up the momentum of  anti-poverty programmes. Central assistance is also being further increased. With   this, the aggregate assistance during the Plan period will amount to Rs.17,790 crores  as against Rs.15,350 crores envisaged in the Plan document. Further, as I mentioned  earlier, I have made an additional provision of Rs.500 crores in the Revised Estimates  for 1983-84. This special assistance would enable these States to clear part of their  overdrafts with the RBI. States have also been informed that closing deficits, upto the  permissible ways and means limits from the RBI, will not be adjusted from next  year’s Plan resources.
42. For those States who have managed their finances well, I am working out  a suitable scheme to provide some additional assistance to them in 1984-85. This is  only just and appropriate.
43. Mr. Speaker, Sir, I am sure that the House will agree with me that, despite  severe resource constraints of its own, the Central Government has done the maximum  that it can to solve the States’ problems. The rest, however, is upto them.
44. Altogether, in the Sixth Plan period, the public sector Plan at current  prices will be over Rs.110,000 crores. This compares with Plan expenditure of  Es.46,700 crores in the preceding five years, which of course, include three years of  “non-Plan” launched by the previous Government. In real terms too, the Sixth Plan  will constitute a massive increase over the outlays provided for in any previous Plan.  This, Mr. Speaker, is the measure of achievement of this Government in accelerating  the pace of development in the current Plan period.
45. In the last four years, the present Government introduced a number of  schemes for the benefit of the weaker sections of the society, particularly in the rural  areas. These include the Integrated Rural Development Programme, the National  Rural Employment Programme and the two new programmes announced by the Prime  Minister on 15th August, 1983, namely, the Rural Landless Employment Guarantee  Programme and the scheme for providing self-employment opportunities to the educated  unemployed. Each of these programmes is designed to create opportunities for  employment and income generation for particular target groups, while also creating  productive assets.
46. In formulating the next year’s Plan we have provided the maximum support  to these and other programmes that benefit the rural poor directly. The total allocation  for various programmes of the Ministry of Rural Development would be Rs.932 crores,  which is nearly double the amount of Rs.480 crores provided in 1983-84. For the  IRDP an allocation of Rs.216 crores is being provided, which is to be matched by the  States. The number of beneficiaries under the programme in 1984-85 is estimated at  over 3 million. For the NREP, the outlay for 1984-85 is Rs.230 crores, which will  again be matched by the States.
47. The allocation for Rural Landless Employment Guarantee Programme,  which seeks to provide employment for 100 days in a year to at least one member of   every rural landless family, is being stepped up to Rs.400 crores in 1984-85 as against  a provision of Rs.100 crores in 1983-84. This, together with the NREP, will provide  550 million man-days of work in rural areas in 1984-85. An allocation of Rs.25 crores  is being made for the programme for providing self-employment opportunities to the  educated unemployed. As the House is aware, the budgetary provision under this  programme will be used as capital subsidy against loans to be given by banks. I may  add that for these two new programmes, depending on the progress of expenditure,  more funds will be provided during the course of the year as necessary.
48. In the Plan for 1984-85, Rs.243 crores have been earmarked for the  accelerated rural water supply programme. The States on their part are expected to  provide Rs.364 crores for this purpose under the minimum needs programme. Over  50,000 problem villages are expected to be provided with drinking water facilities  during 1984-85.
49. The programme for integrated child development services is an important  part of our efforts to help women and children in the backward areas, urban slums and  tribal areas of our country. This programme is already in operation in 820 blocks. By  the end of 1984, the scheme will become fully operational in an 1000 identified  blocks. A provision of Rs.36 crores has been made for this scheme. A total allocation  of Rs.78 crores is being provided for various schemes of the Department of Social  Welfare in 1984-85.
50. The provision in the Central Plan for the various programmes benefiting  the scheduled castes and scheduled tribes and other backward classes has been increased  to Rs.209 crores in 1984-85 compared to Rs.176 crores only in 1983-84. Plan outlay  for the programmes in education and culture has been substantially stepped up to  Rs.204 crores in 1984-85 as against Rs.155 crores in 1983-84. Likewise, the Plan  outlay for health and family welfare programmes has also been stepped up by nearly  32 per cent from Rs.460 crores in 1983- 84 to Rs.605 crores in 1984-85. The family  welfare programmes will cover an additional 20 million persons.
51. These and other socio-economic priorities of the Government are reflected  in the 20-Point Programme which is being vigorously implemented. The total amount  allocated to the Programme in the Central Plan is Rs.4038 crores, which is an increase  of about 47 per cent over the current year’s provision. Inclusive of the outlays to be  provided by the States and Union territories, the total provision for the 20-Point  Programme will be Rs.11,858 crores, representing nearly 40 per cent of the total  annual Plan outlay of the Centre, States and Union territories.
52. An important source of strength for the economy has been the tremendous  strides made in the agricultural sector. The next year’s Plan will continue the high  priority given by the present Government to the development of this sector. Thus, the  total outlay for the various programmes of the Ministry of Agriculture will be Rs.758  crores compared to Rs.556 crores in the current financial year. The outlay includes  11  Rs.38 crores for the National Oilseeds Development: Project which together with the  on-going programmes, visualises an additional production of 9.4 lakh tonnes during  1984-85 itself.
53. To further strengthen the country’s infrastructure, higher allocations are  being provided for power, coal, railways and ports. The total provision for various  power projects adds to Rs.1764 crores, which represents a 44 per cent increase over  1983-84. The allocation for projects of the Department of Coal is Rs.1310 crores as  against Rs.1076 crores in 1983-84, and the target for coal production is 152 million  tonnes in 1984-85. The provision for the Railways in 1984-85 is Rs.1650 crores,  which is 23 per cent higher than the current year. It is expected that the revenue  earning traffic to be carried by the Railways will increase to 245 million tonnes in  1984-85. An allocation of Rs.201 crores is being made for the development of ports,  including Rs.27 crores for the deepening of the Madras harbour.
54. An outlay of Rs.3127 crores is being provided for petroleum. This includes  a sum of Rs.2685 crores for the programmes of exploration and production, and Rs.443  crores for the various schemes of refining and marketing. The target for production of  crude oil in 1984-85 is about 30 million tonnes. A provision of Rs.200 crores is also  being made for a gas pipeline project for supply of Bassein gas to new fertilizer  projects to be set up at Bijaipur, Jagdishpur, Aonla, Babrala, Shahjahanpur and Sawai  Madhopur.
55. Higher allocations have been provided for steel, non-ferrous metals, paper,  cement and several other sectors, which are important for country’s industrial  development. I would also like to draw the attention of the House to the programmes  for the development of science and technology, conservation of natural resources, and  improvement of the environment in the Plan for 1984-85. The successful positioning  of INSAT-IB in a geocentric orbit in August last, testifies to the excellent work done  by our scientists, engineers and technicians. It is also a matter of pride to us that India  has joined a select group of countries which have permanent scientific stations in the  Antarctica. India has also achieved the distinction of being the only developing country  to be given the status of ‘pioneer investor’ by the Convention on the Law of the Sea,  giving us the right to exploit the mineral resources of the deep sea beds.
56. Finally, I should mention that the incentive schemes for better performance  in selected areas, initiated in 1983-84, will continue in 1984-85 also. As the House is  aware, these schemes are designed to improve the functioning of the electricity boards,  and provide further impetus to the programmes for small and marginal farmers, rural  water supply schemes, environmental improvement in urban slums, construction of  field channels in command area development projects, and adult education for women  and elementary education for girls. A lumpsum provision of Rs.200 crores is being  made for this purpose. Lest the Honourable Members take me to be a magician, who  can do so much with so little, I hasten to clarify that the incentive scheme is designed  12  to provide additional resources linked to performance for specified schemes. There  are, of course, also separate substantial allocations for each of these schemes.
57. I have only briefly touched upon the main priorities and objectives of the  Annual Plan for 1984-85. Further details are available in the budget documents.
58. In order to provide the maximum possible outlay for the Plan, I have  taken special care to ensure that non-Plan expenditure is kept at the minimum. However,  certain increases are necessary and unavoidable. I should also add that the estimates  of receipts from and payments to State Governments take into account the  recommendations contained in the interim report of the Eighth Finance Commission.  I have already kept the House informed of this. The final report of the Commission  is now expected by the end of April, 1984.
59. I have provided Rs.6800 crores for Defence expenditure next year against  the Revised Estimates of Rs.6350 crores. I am sure the House will agree that the  requirements for Defence have to be met fully to protect the security of the country.  Interest payments next year are estimated at Rs.5600 crores against Rs.4850 crores in  the current year. The borrowings are largely for financing our developmental efforts,  and the increase is due to the success of our policies for mobilising savings. A provision  of Rs.850 crores has been made for food subsidy. The requirement for subsidy on  indigenous and imported fertilizers is placed at Rs.1080 crores. Export promotion  and market development have been allocated Rs.530 crores.
60. A lumpsum provision of Rs.300 crores has been made in 1984-85 for  payment of additional instalments of dearness allowance, pensionary relief, etc. to  Central Government employees. Including these and, inter alia, provisions which are  in the nature of adjustments, total non-Plan expenditure in 1984-85 is esimated at  Rs.26,066 crores against Rs.24,773 crores in Revised Estimates for 1983-84.
61. Turning to receipts in 1984-85, the gross tax revenues at existing levels of  taxation are estimated at Rs.22,993 crores compared with Rs.20,946 crores in the  Revised Estimates. The States’ share of taxes in 1984-85 is estimated at Rs.5739  crores as against Rs.5246 crores in the current year, which is an increase of nearly  Rs.500 crores. The net, tax revenues of the Centre will thus be Rs.17,254 crores  compared with Rs.15,700 crores in the current year. The dividend from Railways and  Posts and Telegraphs will be higher by Rs.106 crores than the Revised Estimates for  1983-84. Interest receipts and repayment of loans by public sector undertakings and  State Governments will also be higher.
62. Receipts from market loans are placed at Rs.4100 crores against Rs.4000  crores in the current year. Small savings collections are estimated at Rs.2400 crores  against Rs.2200 crores in the current year. External assistance net of repayments is  estimated at Rs.2089 crores compared with Rs.1902 crores. Next year’s Budget also  includes a receipt of Rs.200 crores from the National Deposit Scheme to which I have   referred in the earlier part of my speech. Taking into account these and other variations  in receipts, the total receipts in 1984-85 are estimated at Rs.40,501 crores. These  receipts include the effect of the changes in fare and freight rates of the Railways.  The total expenditure is placed at Rs.42,536 crores. The overall budgetary gap at  existing rates of taxation will thus be Rs.2035 crores.
63. I have taxed the patience of the House enough. Let me now turn to other  tax proposals
PART B
64. In framing these proposals, I have tried to take into account the realities  of the economic situation to which I referred at the beginning of my speech. While  doing so, I hope I have not been entirely unmindful of a certain forthcoming event  which is of importance to all of us in this Parliament.
65. Mr. Speaker, Sir, my first proposal relates to the non-corporate incometax  sector. I propose to revise substantially the entire rate structure relating to personal  taxation. The present rate of tax in the first slab of taxable income ranging from  Rs.15,001 to Rs.20,000 is 25 per cent. The House will recall that this rate was brought  down last year from the then prevailing level of 30 per cent. I now propose to reduce  this rate further to 20 per cent. Relief has been allowed at all income levels above  Rs.20,000 also. The maximum marginal rate of tax on incomes over Rs.1 lakh is  being reduced from 60 per cent to 55 per cent. The new rates in some illustrative  slabs will be as follows: in the income slab of Rs.25,001 to Rs.30,000, the new rate  will be 30 per cent as against 35 per cent at present; in the income slab of Rs.50,001  to Rs.60,000, the new rate will be 45 per cent as against 50 per cent at present; and in  the income slab of Rs.70,001 to Rs.80,000 the new rate will be 50 per cent as against  55 per cent at present.
66. The above proposal will provide relief at all levels of incomes. Taken  with the increase in the standard deduction introduced last year, I expect this measure  will provide substantial relief in particular to the fixed income groups. The revised  tax schedule will provide a relief in tax of Rs.281/- to a taxpayer with an income of  Rs.20,000, which is 20 per cent of the tax payable by him earlier. For an income level  of Rs.30,000, the relief will be Rs.844/- or 16.67 per cent of the tax payable under the  old strcture, and at income level of Rs.50,000, this relief will be 10 per cent of the  tax payable.
67. The loss of revenue in the proposed rate schedule, assuming no change in  the number of taxpayers and the assessed incomes in different income slabs, is  calculated at Rs.180 crores. However, lowering of the tax rates should normally be  expected to lead to an increase in the coverage of taxpayers in different tax slabs and  also better tax compliance. Taking these factors into account, I have assumed a net   revenue loss of Rs.59 crores only. This loss is entirely attributable to tax relief provided  to the fixed income groups. As far as business and professional incomes are concerned,  I have assumed that the reduction in the rates will encourage better compliance and  reporting and that this will partly cover the revenue loss.
68. This proposal, Mr. Speaker, Sir, in a way continues the tax rationalisation  programme that was started by my Party in 1974; carried forward in 1976 and further  reinforced after we came back to power in 1980. The present tax structure has also  been brought down to a level which I regard as realistic and entirely appropriate. I  hope this measure will have a salutary effect on our tax culture and will induce the  maximum number of taxpayers to come forward and voluntarily declare their true  incomes.
69. At the same time, it is necessary to simplify tax administration and make  it more responsive to the needs of the taxpayers. One essential feature would be the  effort to complete assessments within the shortest possible time. As the Hon’ble  Members are aware, the scope of the summary assessment scheme covers incomes  upto Rs.1 lakh. Only a percentage of cases with incomes in this range is being  scrutinised, the selection of such cases being on random sampling basis. The target  for 1983-84 is to complete 85 per cent of the summary assessments workload. I have  instructed the Income Tax Department to further speed up the assessments.
  70. For some years, the Income-tax Act has contained provisions empowering  the Central Government to acquire immovable property having a fair market value  exceeding Rs.25,000. This power is exercisable in situations where the declared  consideration for transfer of the property is less than the fair market value of the  property. To eliminate unproductive work in handling a large number of relatively  small value cases and also taking into account the rise in market prices I have modified  the provision to say that this power will be exercised only in cases where the fair  market value exceeds Rs.50,000. As a further simplification it is being provided that  the prescribed statement will have to be filed before the registering officer only in  cases where the value of consideration for the transfer exceeds Rs.25,000 as against  Rs.10,000 at present.
71. With the reduction in rates and expeditious disposal of assessments, I  believe there can now be no excuse for any leniency to be shown to those who abuse  our laws. Such cases will necessarily have to be dealt with severely. In order to  discourage tax avoidance and tax evasion, I am also introducing some further measures.  In all cases where the annual turnover exceeds Rs.20 lakhs or where the gross receipts  from a profession exceed Rs.10 lakhs, I am providing for a compulsory audit of  accounts. This is intended to ensure that the books of account and other records are  properly maintained and faithfully reflect the true income of the taxpayer. I am also  proposing that loans or deposits of Rs.10,000 or more shall be taken or accepted only  by crossed cheque or bank draft.
  72. I find that the existing provisions of the Income-tax Act provide that no  suit to enforce any right relating to any property held benami can be instituted in any  court by a person claiming to be the legal owner unless he has declared the Income  from such property in any return of income or the value of such property in any return  of net wealth or furnished a notice in this behalf in the prescribed form to the Incometax  Officer. Such return or notice can at present be given at any time before the suit  is filed. With a view to curbing the practice of benami holding of property I am  proposing that it will henceforth be obligatory in all cases to give notice to the  Commissioner of Income-tax in the prescribed form within one year of the acquisition  of the property. This amendment will enable the Department to initiate appropriate  action in respect of such benami acquisition of property well before the limitation for  such action expires.
73. Having dealt with the non-corporate sector, I now turn my attention to the  corporate sector. The tax rates for this sector are not being changed. I am however  providing one facility. Last year, while raising the surcharge payable by companies  from 2.5 per cent to 5 per cent, I had given companies the option to make deposits of  the additional surcharge with the Industrial Development Bank of India. I am now  further providing that companies can henceforth exercise this option in respect of the  entire amount of the surcharge payable by them. These resources will flow back to  the corporate sector, and will be available for modernisation. In the earlier part of my  speech, I have already referred to the decision to reduce the interest rates on loans  upto Rs.4 crores being extended by IDBI under the soft loan scheme.
74. Representations had been received from various quarters that the ceiling  on the deductible amount of managerial remuneration as contained in the Income-tax  Act is low and should be raised. I am glad to inform the House that having regard to  the changes in the managerial remuneration introduced by the Department of Company  Affairs, I am also raising the ceiling limits for managerial salaries from Rs.5,000 to  Rs.7,500 per month. The ceiling in respect of perquisites will however remain  unchanged.
75. Some relaxations are also being provided to those engaged in the business  of growing, and manufacturing tea. The existing provisions provide exemption from  tax only in respect of subsidy received for replantation or replacement of tea bushes.  I am extending this tax exemption to cover subsidy received for other approved schemes  relating to rejuvenation and consolidation of areas. I hope this measure will further  lend support to our scheme for increasing production of tea.
76. My next proposal, I believe, will be welcomed by a large number of  people. Investors presently can receive dividends and interest on debentures without  deduction of tax at source, if they furnish an exemption certificate from the Incometax  Officer or alternatively file a declaration to the effect that their income for the year  is below the exemption limit. To reduce paper work and avoid inconvenience to small  16  investors, I propose to provide that widely-held companies may, henceforth, pay interest  on debentures and dividend income upto Rs.1,000 without deduction of tax at source  provided that the payment is made by an account payee cheque or a bank draft.
77. Mr. Speaker, Sir, I notice that certain provisions of tax laws are being  misused by a section of the taxpayers. I had occasion last year to deal at some length  with taxation of charitable and religious trusts and institutions. I find that some of  these trusts and institutions are trying to circumvent the investment pattern for trust  funds laid down by the Finance Act, 1983. It is necessary to ensure that all such trusts  and institutions strictly conform to the prescribed investment pattern and that such  income or property is not used for providing benefit to the settlors, trustees, etc. I,  therefore, propose to provide for taxation of the Income of defaulting trusts and  institutions at the maximum marginal rate of income-tax.
78. While on this subject, I would like to refer to a tendency noticed to create  private trusts which carry on business. To curb such practice, I propose to provide  that where such trusts have profits and gains of business, the entire income of the trust  will be charged to tax at the maximum marginal rate, an exception being made only in  the cases where the trust is created by will for dependent relatives.
79. Another undesirable practice noticed is the tendency of some corporate  bodies to make large contributions to the so-called welfare funds. I further understand  that utilisation of these funds is discretionary and subject to no discipline. I am,  therefore, providing that deductions will be available only in respect of contributions  to such funds as are established under statute or an approved provident fund,  superannuation fund or gratuity fund. I am making this change with retrospective  effect to avoid unnecessary litigation.
80. Last year, I liberalised the scheme related to export turnover. I propose to  continue it and watch its operation for a longer period of time.
81. Last year, I had also referred to a large variety of exemptions and deductions  that had been built into our tax system over time. While each deduction by itself may  have its own merits, the aggregate effect was to complicate the tax administration and  to provide loopholes for tax avoidance or tax evasion, as also for litigation. I had,  therefore, initiated a process of review and, where necessary, doing away with  concessions which had outlived their utility. I intend to carry this process further.
82. Our experience has shown that an expenditure related concession leads to  a tendency to inflate expenditure and hence it should have no place in our tax system.  Therefore, I propose to withdraw all weighted deductions as are available under the  different provisions. The expenditure actually incurred will, of course, continue to  qualify for deduction. Only the benefit of weightage will no longer be available.
83. I am also withdrawing the exemptions available under sections 33B, 35C,  8OCC, 80D and 80E of the Income-tax Act. These deductions, notwithstanding their  17  apparent laudable objectives have either been open to misuse or have benefited only  a few. The revenue involved is marginal. I am also reducing the quantum of exemption  available under Sections 80M, 8ON and 80-0.
84. Now, I intend to announce a few concessions in respect of the Wealth-tax  Act. Hon’ble Members, I am sure, will be happy to hear that the monetary ceiling of  exemption in respect of one house owned by a taxpayer is being increased from the  present level of Rs.1 lakh to Rs.2 lakhs. This is being done to take into account the  increase in market value. I am also proposing to raise the exemption limit in respect  of specified financial assets from the present level of Rs.1,65,000 to Rs.2,65,000.  Together with separate exemption of Rs.35,000 available in respect of units of the  Unit Trust of India and proposed to be extended to deposits under the National Deposit  Scheme, the aggregate exemption in respect of the value of specified financial assets  will rise to Rs.3 lakhs as against the present ceiling of Rs.2 lakhs. Honourable Members  would recall that in the earlier part of my speech, I had referred to the success in  mobilising savings in the form of financial assets; I hope that this change will give  further impetus to it.
85. The other changes proposed by me in respect of direct taxes are of relatively  minor nature and I would not like to take the valuable time of this House by elaborating  them.
86. After adjustment of the gain to revenue on account of withdrawal or  modification of certain concessions, my proposal in regard to Income-tax will lead to  a net loss of Rs.75 crores, of which the loss to the Centre would be Rs.36.32 crores  and the loss of the States would be Rs.38.68 crores.
87. Mr. Speaker, Sir, I shall now deal with my proposals in the area of indirect  taxes. Here my main objective has been to provide further impetus to the growth of  Indian industry through tariff adjustments and substantial relief in excise duties in  carefully selected areas. I have also kept in view the need to reduce prices of certain  items for consumers and contain the rate of inflation in the economy. I am sure the  Honourable Members will not grudge, if in doing so, I have also taken a little care of  Government revenues.
88. My principal proposal relating to customs duties is with regard to auxiliary  duty of customs. The levy imposed on an annual basis since the 1973 Budget is  proposed to be continued upto the 31st of March, 1985. I also propose to raise, with  certain exceptions, the present effective rates by 5 percentage points. I am excluding  from the proposed increase essential items like fertilizers, bulk petroleum products  such as kerosene and high-speed diesel oil, and also newsprint. Fuller details of these  proposals are available in the Budget papers. This proposal is expected to yield an  additional revenue of Rs.241.73 crores in a full year.
89. The present customs duty on crude petroleum of Rs.9.50 per metric tonne  (which is being collected by way of auxiliary duty) was fixed in 1973. Without  18  affecting the domestic prices of petroleum products, I propose to raise the duty on  crude to Rs.100 per metric tonne. The revenue gain from this measure will be Rs.132.76  crores. This duty, increase is to be absorbed by the oil companies without their having  to raise consumer prices on this account.
90. The current rates of Import duties on iron and steel Items were fixed a  few years back and they are now out of line with the requirements of Indigenous  industry. I propose to raise the basic customs duty on different items of iron and steel  (other than stainless steel) by 5 percentage points or 10 percentage points, depending  upon the existing rates of duties. I also propose to levy a total customs duty of 20  percent ad valorem on stainless steel melting scrap, which is presently exempt from  customs duty. These measures are expected to yield an additional revenue of Rs.84.  20 crores.
91. I also propose to increase the import duty on zip fasteners and parts thereof,  magnetic tape and petroleum specialities, namely petroleum jelly, sodium petroleum  sulfonate and liquid paraffin. Details of the proposals are available in the Budget  papers. The revenue gain in these proposals would be of the order of Rs.5.32 crores.
92. In order to promote exports in the important sector of gems and jewellery,  customs duties leviable on a number of gem and jewellery processing and manufacturing  machines are proposed to be reduced from the respective existing rates to 40 per cent  ad valorem. The gem processing machines would enable significant reduction in  processing losses and also improve overall quality and productivity. Similarly, I also  propose to reduce customs duties on specified machines used in packaging of food  articles as well as by meat and food processing industries from the respective existing  rates to 40 per cent ad valorem. This measure is expected to encourage export of food  items in value-added form and also in consumer packs instead of in bulk. The revenue  sacrifice involved in the above proposals is of the order of Rs.5.24 crores.
93. With the advancement in machine tool technology, CNC machines are  progressively replacing conventional machine tools due to their higher productivity  and accuracy. To enable the indigenous machine tool manufacturers to offer CNC  machine tools on competitive terms, I propose to reduce the customs duty on CNC  systems to 35 per cent. The revenue sacrifice is of the order of Rs.0.82 crore.
94. To enable the paper industry to obtain its raw materials at reasonable  prices and to relieve the pressure on our forest resources, I propose to totally exempt  from customs duties wood chips for making pulp for the manufacture of paper or  paper board. On similar considerations, I propose to reduce the duty on wood pulp  imported for manufacture of paper from the existing levels to 30 per cent. These  measures involve revenue sacrifice of the order of Rs.1.10 crores.
95. Certain changes in the provisions of the Customs Act, 1962, relating to  warehousing, etc. and in the Customs Tariff Act, 1975 are also proposed. The details  of these proposals have been given in the Budget papers.
  96. Sir, coming now to my proposals in respect of excise duties, my main  objectives are to minimise the effects of inflation, lessen scope for tax avoidance and  evasion, give a boost to selected industries suffering from demand recession, and  ensure better utilisation of the capacity and investment already created.
97. I propose to continue upto 31st March, 1985 the levy of special excise  duties at the existing rates and with the existing exemptions.
98. My first proposal for relief is in respect of khandsari sugar. I propose to  fully exempt khandsari sugar from the levy of excise duty. I am taking this measure  in view of the labour-intensive character of this industry, and to provide further  opportunity for growth of employment in this Industry. The abolition of excise duty  will also help this industry to pay better price to cane growers, and will give relief to  a large number of khandsari units located in far-flung rural areas. The revenue sacrifice  involved in this proposal is Rs.16.42 crores. Khandsari, I am told, is also better for  health. If as a result of this measure, the health of the nation improves, I hope the  credit will flow to me and not to my distinguished colleague, the Health Minister!
99. Hon’ble Members would recall that excise duty was levied on electricity  as a revenue measure in the 1978 Budget. The net proceeds from the duty collected  on electricity are wholly distributed to the States. It is proposed to abolish the excise  duty on electricity leaving it to the State Governments to tap this source, to whatever  extent and in whatever manner they like. This will give to the States one more area  for resource mobilisation. To give the States some time to take appropriate action,  this abolition will be effective from 1st October, 1984.
100. I also propose to provide substantial relief to the textile industry with a  view to making cloth cheaper. Hon’ble Members may recall that in the 1982 and  1983 Budgets, excise duty was reduced to encourage the production of blends with  the desirable proportions of polyester. Such fabrics are becoming increasingly popular  with the people. As a further measure of relief in this area and with the overall  objective of making such fabrics available at lower prices, I propose to reduce the  total excise duty on polyester-cotton blended yarn containing more than 40 per cent  but less than 70 per cent polyester to Rs.5 per kg. The existing rates of duty on such  yarn vary generally from Rs.7.5 per kg. to Rs.22.5 per kg. depending on the extent of  polyester-cotton mix. Under my proposal all blends over 40 per cent but below 70 per  cent of polyester will pay the same reduced rate of duty., For similar blends of polyester  and viscose, the excise duty will get reduced to Rs.10 per kg. from the present rates  which generally vary from Rs.11.25 per kg. to Ra.22.50 per kg. The revenue sacrifice  on these accounts is estimated at Rs.33.25 crores in a full year.  101. Blended fabrics have also received my attention. The excise duty on  polyester-cotton blended fabrics containing more than 40 per cent but less than 70 per  cent polyester will be reduced to 2 per cent ad valorem. The Incidence of duty on  such fabrics at present varies from 7.5 per cent to 17.8 per cent ad valorem. This  20  concession would cost the exchequer Rs.26.50 crores in a fun year. I also propose  that this duty at 2 per cent ad valorem be collected as additional excise duty in lieu of  sales tax. As Hon’ble Members are no doubt aware, proceeds of additional excise  duties on textiles go to the States
102. These changes in the duty structure on polyester-cotton blended yarn and  polyester-cotton blended fabrics will, for a 87:33 blend, reduce the duty incidence by  about Rs.3.30 per square metre on a fabric carrying a wholesale price of about Rs.25  per square metre, and a retail price of Rs.35 to 40 per square metre. This duty reduction  will enable the industry to sell such fabrics at reduced prices.
103. I also propose to provide relief on cotton fabrics which still constitute a  major share of the total production of cloth in the country. I propose to reduce excise  duty on cotton fabrics of less than 51 counts and of assessable value not exceeding  Rs.5 per square metre. Such fabrics at present pay duty of excise at rates varying  from 2.38 per cent to 3.56 per cent ad valorem in the case of composite mills.  Concessional rates of duty are allowed for Independent processors processing  powerloom and handloom fabrics. I propose to fully exempt handloom and powerloom  fabrics of the above varieties processed by Independent processors. The rate of duty  for composite mill fabrics is also being reduced to 1 per cent ad valorem retaining  more or less the present differential between the independent processors and the -  composite mills. This duty would be in the nature of additional excise duty in lieu of  sales tax and will entirely go to the States. Such fabrics are mostly consumed by the  weaker sections of society. The benefits of the reduction should become available to  them in the form of lower prices. This proposal on cotton fabrics would entail a  revenue sacrifice of Rs.28.40 crores.
104. I hope, my proposals would also help the textile Industry. The Industry  should benefit through Increased demand that lower prices would generate.
105. Cotton yarn and cellulosic spun yarn in the form of cross reel hanks are  finding increasing use in the handloom sector. In the Handloom Year, I propose to  reduce the duty incidence on such yarn supplied to registered Handloom Co-operative  Societies or to organisations set up or approved for the development of handlooms, by  about 50 per cent. This would involve a loss of Rs.3 crores to the exchequer in a full  year.
106. In order to recoup some of the revenue loss flowing from the above package  of measures in respect of the textile industry, I propose to increase the incidence of  additional excise duty in lieu of sales tax from 7.5 per cent to 10 per cent on manmade  fabrics of assessable value exceeding Rs.25 per square metre. This increase  will not apply to those blended fabrics in respect of which duty is being reduced. The  impact will be on costlier fabrics which are consumed mainly by the more affluent  sections of society. They should not mind this. On this account, the exchequer will  gain by Rs.27 crores in a full year and this, too, would accrue entirely to the States.
107. I also propose to reduce the duty on shoddy blankets and other similar  blankets made from shoddy yarn processed by composite mills by about 7 per cent.  Such shoddy blankets if processed by independent processors will be wholly exempt.  The revenue loss on this account would be Rs.1 crore in a full year.
108. Another industry needing urgent attention is the paper industry. This  Industry has been passing through a difficult phase troubled by rising cost of raw  materials and other inputs. My proposals aim at encouraging the production of paper  and paper board and preserving scarce natural forest resources. I have already referred  to the proposed exemption from customs duty on import of wood chips and wood pulp  for paper making. As a further measure of relief, I propose to reduce the basic excise  duty on printing and writing paper and also kraft paper produced by large paper mills  by Rs.425 per metric tonne, and corresponding concessions are being given on the  duty leviable on such paper when unconventional raw materials are used in their  manufacture. Simultaneously, the range of permissible unconventional raw materials  is being expanded.
109. No concession for use of unconventional raw material is presently available  in the case of paper boards. I propose to-reduce the basic excise duty payable on  paper boards manufactured from at least 50 per cent unconventional raw materials  from the present general level of 10 per cent ad valorem + Rs.1430 per metric tonne  to R * s.560, Rs.900 or Rs.1120 per metric tonne depending on whether the clearances  of paper and paper board from such paper mills in the preceding financial year did not  exceed 3,000 tonnes, 7,500 tonnes or 16,500 tonnes respectively. For larger paper  mills using unconventional raw materials, the rate of basic excise duty on paper boards  is being reduced to 7 per cent ad valorem + Rs.925 per metric tonne.
110. My proposals relating to the paper Industry would entail a loss of Rs.33  crores in excise duties in a full year. Along with the customs duty exemptions on  Import of wood chips and wood pulp, this package is expected to provide substantial  fiscal support to the development of indigenous paper industry and improve the  availability of paper at reasonable prices.
111. Hon’ble Members may recall that certain time bound concessions were  given in October, 1983, in respect of certain specified commodities. Having regard to  the industry’s response to that measure which was intended to stimulate production by  generating incremental demand, I propose to continue the concession for one year  with certain modifications.
112. In the case of commercial vehicles and three-axled vehicles, the concession  will be continued but the extent of duty concession granted in October, 1983 is being  reduced by 21 percentage points. I propose to remove some models of light commercial  vehicles from the purview of the exemption in order to establish parity among all  models of such vehicles in the matter of the rate of excise duty. These proposals  would entail a revenue loss of Rs.45 crores in a full year.
113. I propose to continue the concessions in the case of refrigerators, deep  freezers and parts of refrigerating appliances, etc. storage batteries and domestic  electrical appliances. The total revenue sacrifice on these items would be to the tune  of Rs.19 crores.  114. In the case of tyres for buses and trucks and tyres for use off-the-road, I  do not propose to continue the concession granted in October, 1983 as there is no  further case for this concession in view of the price increases announced by this  industry. However, as a measure (if rationalisation and in order to reduce scope for  tax evasion, I propose to switch over by and large to a system of specific rates of  duties from the ad valorem rates.
115. Production of china and porcelain tableware over the last few years has  been showing signs of stagnation and the capacity utilisation has been declining.  With a view to providing relief to the industry, I propose to reduce the basic excise  duty from 30 per cent to 15 per cent on these items. This would entail a revenue loss  of Rs.1.5 crores.
116. With summer not very far away, I would like to help the Hon’ble Members  in keeping their tempers cool. I propose to reduce basic excise duty on table fans  from 10 per cent to 5 per cent and on ceiling fans of a diameter not exceeding 107 cms  from 15 per cent to 7.5 per cent. I also propose to reduce the basic excise duty on  evaporative type of coolers, including desert coolers, from 40 per cent to 30 per cent  ad valorem. These proposals would involve a revenue sacrifice of Rs.5.10 crores.
117. As a rationalisation measure, I propose to reduce the basic duty on winding  wires from 10 per cent to 5 per cent and increase the basic duty on copper wire rods  by Rs.1300 per metric tonne. On an overall basis, these changes will neither result in  a loss nor gain in revenue.
118. As Hon’ble Members will remember, many reputed artists had published  an appeal inviting our attention to piracy. As I “just can’t write these names off” I  propose to exempt sound-recorded cassettes wholly from excise duty. In view of the  upward revision of customs duty on magnetic tapes, the revenue loss on this account  is expected, by and large, to be made up.  119. As a general measure of relief I propose to fully exempt laundry soap  manufactured by KVIC units and to reduce basic excise duty from 10 per cent to 5 per  cent on certain mass consumption items such as Imitation jewellery, stainless steel  utensils, glass chimneys for lanterns, high efficient wood burning stoves, umbrellas  and saccharine. The revenue sacrifice involved in these concessions is Rs.1.13 crores.
120. Hon’ble Members may recall that an excise duty relief scheme to encourage  higher production is in operation for the past two years. I propose to continue the  scheme for one more year.
121. Hon’ble Members would also recall that in the last Budget, I had  rationalised the tariff relating to iron and steel items. This year, I have undertaken a  similar exercise in respect of non-ferrous metals. The tariff entries are being revised  on a more scientific basis. These changes as in last year would be brought into effect  from a subsequent date. Tin then, the present effective rates of duty would continue.
122. I propose to increase the additional excise duty in respect of cigarettes,  The present ratio between basic excise duty and additional excise duty is being altered  to 1.75:1. This measure will result in the transfer of Rs.42.89 crores from the basic  excise duty account to the additional excise duty account in the next financial year,  and thus increase the accrual to the States. There will be a corresponding reduction  in the amount allocated to basic excise duty. The total incidence of excise duties on  cigarettes will remain unaltered.
123. There are some other minor proposals which do not have much revenue  significance. These include readjustment of duties in some cases and deletion of  some tariff items which have remained fully exempted for a long time.
124. In the light of the experience gained in the working of the Income Tax  Appellate Tribunal and the Customs. Excise and Gold (Control) Appellate Tribunal,  some amendments are proposed to be carried out in the laws relating to them. These  are mainly of an administrative nature. I do not propose to take the time of the House  over these proposals.
125. Mr. Speaker, Sir, with the phenomenal increase in central excise revenue  from about Rs.100 crores in 1953-54 to about Rs.10,100 crores in 1983-84, the Central  Excise Tariff has also substantially grown. I think, it is time to make a comprehensive  review of the tariff as it has developed over the last three decades with a view to  rationalising it. This would require a detailed study which can best be done only by  a technical study group. I propose, therefore, to appoint such a Group.
126. The proposals that I have presented will yield additional revenue of  Rs.465.41 crores in customs duties and Rs.33.10 crores in excise duties. There would  be a transfer of Rs.43.64 crores from the basic duty account to the additional duty (in  lieu of sales tax) account. The concessions and reliefs aggregate Rs.7.26 crores on the  customs side and Rs.222.43 crores on the excise side. The net yield from customs  duties is Rs.458.15 crores. The net loss from excise duties comes to Rs.189.33 crores  out of which Centre’s share would be Rs.148.95 crores and States’ share would be  Rs.40.38 crores. This takes into account the States, share from additional excise  duties in lieu of sales tax to the extent of Rs.52.31 crores. The accrual to the central  exchequer for the additional tax effort in a full year would be Rs.309.20 crores.
127. Copies of notifications giving effect to the changes in customs and excise  duties effective from the 1st March, 1984 will be laid on the Table of the House in due  course.
  128. I had earlier stated that the budgetary deficit at the existing rates of taxation  would be Rs.2035 crores. The tax measures proposed now, taken together with reliefs  and concessions, are estimated to yield net additional revenue of Rs.272.88 crores to  the Centre. This leaves an uncovered deficit of Rs.1762 crores. It has been my  endeavour to keep the budgetary deficit to a relatively low figure and I am sure the  Hon’ble Members would agree that this order of deficit is appropriate to our  circumstances. I hope that the low deficit, combined with my proposals for boosting  production and lowering prices, will have a salutary effect on the inflationary  psychology in the economy.
129. Four years ago, my distinguished predecessor, while presenting the first  Budget of the present Government, had expressed our firm resolve to repair the damage  and restore the country’s economy to the path of stability, growth and social justice.  Mr. Speaker, we have kept that promise.
130. I commend this Budget to the House.  [February 29, 1984]
Previous Budgets

Morarji Desai – 1969 Budget

Finance Minister : Morarji Desai
Budget Year : 1969

BACK

Morarji Desai

1 SPEECH OF SHRI MORARJI R.DESAI, DEPUTY PRIME MINISTER AND MINISTER OF FINANCE, INTRODUCING THE BUDGET FOR THE YEAR 1969-70

Sir, I rise to present the first Budget of the Fourth Plan period. In doing so, I feel somewhat handicapped as the Plan document is not yet available to Honourable Members. I am, therefore, left to perform the traditional role of a Sutradhar who must make a brief appearance on the stage before the start of the play to arouse the interest of the audience. I hope 1 will not disappoint Honourable Members at least on the score of brevity.

INTRODUCTION

2. The year that is now drawing to a close has been a good one for the Indian economy. The expectation in my last Budget speech that, given the right policies, 1968-69 could become a year of revival has been largely fulfilled. For the second year in succession, It should be possible to reap a satisfactory harvest. There are distinct signs of an industrial revival and industrial Production should register an increase of almost 6 per cent. Transport activity and trade have revived; and there have been no serious shortages of power or raw materials. The general price level now is somewhat lower than last year. There has been a remarkable increase in exports. Imports are now being replaced by domestic production over a wide front as a result of the efforts made over successive Plan periods. Despite heavier repayment obligations and somewhat lower utilization of foreign aid than in 1967-68, It should be possible to close the current year without any material variation in our foreign exchange reserves. Against this background of a new dynamism in agriculture, industrial revival, restoration of Price stability and progress towards self-reliance, It is possible now to approach the next Plan period with a measure of confidence. All the same, there are a number of factors which limit considerably the area of choice before us in the immediate future.

3. While food production has increased, we have still a long way to go before we can assure satisfactory levels of consumption for our growing population. Imports of agricultural raw materials and foodgrains are still sizeable. Investments in agriculture, including those in research, inputs such as fertilizers and water and provision of credit and storage facilities must, therefore, have a prior claim on our limited resources matched only by the attention to family planning.

4. The substantial development of capital goods industries that has already taken place makes it necessary as well as feasible to step up investment outlays. But rising levels of investment can be achieved without inflation only on the basis of a growing volume of production of essential consumer goods. This requires not only a 2 steady Improvement in agricultural productivity but also greater efficiency and expansion of capacity in consumer goods industries. Attention to these industries is all the more important as they help stimulate the motivation for higher productivity and contribute to growth of public revenues.

5. In a year that is dedicated to the memory of the Father of the Nation, we cannot but remind ourselves that the ultimate objective of economic development is to serve certain larger social values. We have, therefore, to respond also to the natural urge of our people for basic amenities, such as drinking water, for education and medical aid, for opportunity to work and indeed for a growing measure of equality in general which is the essence of a socialist society.

6. On the external front, the improvement has been as notable as it is welcome; yet, export earnings amount only to two-thirds of cur current import requirements. There cannot, therefore, be any complacency in regard to export promotion or Import substitution. The abnormal circumstances of 1965-66 and 1966-67 have led to a decline in the rate of saving in the economy. Despite substantial efforts to mobilize resources and considerable restraint on expenditure, the financial position of the Government has weakened over the past few years.

7. In short, general economic conditions in the country are propitious for resuming the threads of progress over a wide front during the next Plan period. Equally, however, there is need for the right balance between consumption and investment, resources and outlays, economic growth on the one hand and external viability on the other and indeed between larger social values and purely economic considerations. Honourable Members will now appreciate why economic planners are often regarded as some of the finest exponents of the art of tight-rope dancing.

REVISED ESTIMATES 1968-69

8. Having outlined briefly the current economic situation and the tasks ahead without, I hope, stealing the show from the Planning Commission, I must now turn to the more mundane matters which fall to the lot of Finance Ministers. In the Revised Estimates for 1968-69, customs revenue will show a shortfall of Rs.94 crores as compared to the Estimates presented last February. Union excise duties and income-tax, on the other hand, are expected to yield Rs.54 crores more. After making allowance for non-tax revenues, total revenue receipts accruing to the Centre are likely to show a shortfall of Rs.11 crores only as compared to the anticipated realisation of Rs.2760 crores. 9. Revenue expenditures are likely to exceed the Budget Estimates of Rs.2629 crores by Rs.116 crores. Almost half of this increase, however, represents a purely accounting change which is balanced by a corresponding gain on capital account. Another Rs.49 crores is accounted for by additional defence expenditure on revenue account. This is the result of increases granted daring the year in allowances to certain categories of service personnel, the dearness allowance which became due last  September, the recent decision to merge a part of the dearness allowance with pay and speedier deliveries of stores against existing orders. On capital account, there has been a reduction in defence expenditure of Rs.13 crores. Honourable Members would see that barring the increase under defence and transactions of a purely accounting nature, revenue expenditure has been held within less than 1 per cent margin of the Budget Estimates.

10. On capital account, the variations have been of a more substantial order. Net external assistance will show a shortfall of Rs.121 crores and PL 480 and other food aid a shortfall of Rs.43 crores. This would be offset to an extent by Improvement under market loans, reduction in the provision for transactions in foodgrains and fertilizers and some shortfall in Plan outlays. There are also a number of variations in other Items which make on balance for an Improvement in the resources position.

11. In the aggregate, the budgetary deficit this year is now estimated at Rs.260 crores as against Rs.290 crores in the Budget Estimates. Honourable Members, I am sure, would not consider this 10 per cent variation in deficit financing as an index of conservative budgeting on my part.

BUDGET ESTIMATES1969-70

12. In the Budget Estimates for 1969-70, I have assumed that at existing rates of taxation, total revenues accruing to the Centre will increase by Rs.151 crores. I anticipate a further decline in customs receipts from Rs.445 crores this year to Rs.426 crores in 1969-70. This reduction is based on the expectation that while there would be some increase in total non-food imports, there would be a shift away from items such as petroleum products which bear duties at a higher rate. Union excise duties are expected to show an increase of Rs.101 crores. Corporate and income taxes should yield Rs.675 crores as against Rs.660 crores this year. Non-tax revenues should also yield Rs.50 crores more.

13. The increase in revenue will, however, be more than absorbed by increases in expenditure on revenue account. Defence expenditure on revenue account will be more by Rs.42 crores. Excluding certain accounting adjustments, the non-Plan civil expenditure will be more by Rs.142 crores. Of this Rs.41 crores are accounted for by interest charges. The Fifth Finance Commission’s recommendations have necessitated an additional devolution of Rs.36 crores to the States. Committed expenditure arising out of completed Plan schemes has meant an increase of nearly Rs.35 crores. Export promotion measures account for another increase of Rs.10 crores. Various miscellaneous Items, including administrative services, tax collection and assistance to neighbouring countries account for the rest of the increase. Detailed explanations have, as usual, been given in the Explanatory Memorandum.

14. On capital account, net market borrowings next year are estimated at Rs.106 crores as against Rs.81 crores this year. Small savings are placed at its.135 crores, i.e., Rs.10 crores more, but of this nearly two-thirds will accrue to the States. 4 The Public Provident Fund should yield Rs.5 crores next year as against Rs.2 crores this year. On the other hand, as the author of the once famous but now almost forgotten Compulsory Deposit Scheme. I propose to redeem myself by making full provision of Rs.25 crores for the repayment of the deposits made in 1963-64.

15. Net external aid, excluding PL 480 and other food aid, should show a marginal increase from Rs.459 crores this year to Rs.467 crores in 1969-70. While debt repayments would be larger, we expect an increase in aid disbursements also mainly as.a result of resumption of aid by the International Development Association.

16. In December 1968, we signed an agreement with the United States Government under PL 480 for the import of 2.3 million tonnes of foodgrains. In addition, we have continued to receive food assistance of a sizeable order from Canada as also some assistance under the International Grain Arrangement from Australia and the U.K. A substantial part of the food assistance thus negotiated will result in imports only next year. Honourable Members would also appreciate that arrangements for the concessional imports of foodgrains and agricultural raw materials will be necessary for some more time. Consequently, the net budgetary support accruing as a result of PL 480 transactions and other food aid, excluding PL 480 grants already accounted for in the revenue estimates, is placed at Rs.224 crores next year as against Rs.226 crores this year.

17. The improvements under internal borrowing and external assistance, just mentioned, i.e., Rs.13 crores in all, will be more than absorbed by the increase in defence expenditure on capital account, Rs.17 crores and on border roads, Rs.4 crores.

18. As regards other capital transactions, the food and fertilizer transactions together show an Improvement of Rs.76 crores. Total stocks of foodgrains with the Food Corporation at the end of March 1969 should be of the order of 3.5 million tonnes. During the coming year, we propose to add another 1.5 million tonnes to these stocks. It is our intention to provide budgetary resources of Rs.25 crores in 1969-70 for this purpose. The balance of the requirements will be provided by way of accommodation to the Food Corporation from commercial banks.

19. The Improvement under foodgrains and fertilizer transactions, however, will be wiped out by the increases in revenue and capital expenditure already mentioned and worsening under various miscellaneous debt-deposit heads. I have also had to provide for some relief to States by way of adjustment in their repayments to the Centre and assistance towards the non-Plan gaps of some of the States to enable them to undertake a satisfactory Plan next year. In the net, the resources available, at the existing rates of taxation and on the basis of the likely availability of internal borrowing and external assistance, leave practically no margin for increasing the provision for the Plan to be financed through the Centre’s Budget next year.

20. The budgetary contribution of public sector undertakings next year is also not likely to show any significant Improvement over the current year. The question of 5 better functioning of public sector undertakings has been examined in detail by the Administrative Reforms Commission as well as by the Bureau of Public Enterprises Government have already taken a number of decisions to Improve the working of these enterprises and I am separately circulating a memorandum on this subject to Honourable Members.

21. Honourable Members may well ask whether the margin of resources available for the Plan could not have been increased by economies in non-Plan expenditure. I have given the most careful thought to this question in framing the expenditure estimates for the coming year. But Honourable Members would appreciate that a certain increase in non-Plan expenditure is inevitable as It arises from contractual obligations or decisions already taken. The transfer of completed Plan schemes to the non-Plan side, interest charges, export promotion, the incidence of dearness allowance, the merger of dearness allowance with pay and the recommendations of the Finance Commission which belong to this category account for the bulk of the increase in civil expenditure. The increase of Rs.59 crores in defence expenditure is explained mainly by normal increases in salaries and pensions, the additional dearness allowance which became due last September, merger of dearness allowance with pay, additional equity investment in the production units under the charge of the Defence Ministry and larger deliveries against contracts already entered into.

22. I should perhaps also say a word at this stage about the scope for deficit financing next year. This scope cannot be defined in terms of the needs of the Budget. It has to be determined in relation to the needs of the economy in the light of the likely growth in production and the saving habits of the people. Taking everything into account, I have come to the conclusion that a budgetary deficit next year of roughly the same magnitude as this year is likely to reconcile best the concern for price stability and the maintenance, of a climate for growth.

23. It is against this background that 1 come now to my proposals for resource mobilization for the coming year. In framing these proposals, however, I have not adopted the simple approach of deciding first on a certain desired level of Plan outlay and of proceeding then to raise resources on the required scale. There are limits beyond which resources cannot be raised in the short-run without impairing the functioning of the economy. Equally, the annual Budget has to take into account not only the needs of the year but the requirements of long-term growth as well. The approach, in other words, has to be one of making such changes in the tax structure as are necessary and feasible to build up the ability of the Government-and even more important of the economy in general-to sustain progressively larger developmental outlays and of limiting the expenditure proposals in the short-run to the total resources that can be so mobilised.

24. Honourable Members would now naturally be anxious to see how well I measure up to my own standards. I hope that in passing judgement, the customary indulgence towards Finance Ministers will not be denied to me merely because this 6 predicament of being held up before my own mirror is not altogether unfamiliar to me in this Honourable House. PART B

25. Broadly speaking, my tax proposals are intended: (a) to provide a measure of relief where necessary, particularly in the interest of exports, savings and modernisation of key industries., (b) to remove anomalies; (c) to provide a further measure of rationalisation and simplification; (d) to plug the loopholes which make for tax avoidance or evasion; (e) to spread the burden of taxation more evenly by bringing within the tax net commodities or incomes which are hitherto not taxed or taxed lightly in relation to essentiality of consumption or capacity to pay; and (f) generally, to make the tax system more responsive to the needs of economic growth. Before Honourable Members conclude that I am about to serve them a rich fare, I should reassure them that I propose to bring up my appetizers at suitable intervals. I shall also concentrate on the main courses, leaving the sundries to be discovered in the Explanatory Memorandum.

CUSTOMS DUTIES

26. To begin with, an export offering to propitiate the gods of international competition. I propose to reduce the export duty on jute hessian from Rs.500 per tonne to Rs.200 per tonne. The duty on jute sacking is also proposed to be reduced from Rs.250 per tonne to Rs.150 per tonne, while the duty on wool sacks and cotton bagging is being completely exempted. The export duty on tea is being reduced from 20 per cent less 35 paise per kilogram to 15 per cent less 55 paise per kilogram. The duty on degreased raw wool and on package tea in metal containers is being completely exempted while the duty on package tea in other containers is being reduced from 15 per cent to 5 per cent. The export duty on mica is proposed to be reduced from 40 per cent to 20 per cent in respect of loose splittings of smaller size. The total effect of these reductions will be a loss in revenues of Rs.23 crores per year.

27. Generally, we levy an import duty of 100 per cent ad valorem on all items of luxury. The duty on Imported motor cars is 60 per cent. I propose to improve the value of imported motor cars as a status symbol by increasing the duty to 100 per cent. 7 In the case of dry fruits, the present valuation for calculating the duty is unrealistic. I propose to adopt a more realistic basis for valuation which will have the effect of raising the duty realisation. The import duty on lubricating oil is being raised from 15 per cent to 271 per cent to bring It in line with the duty on their constant companion, viz., machinery, and to give an edge to their domestic rivals. These changes will bring in a revenue of Rs.6.2 crores.

28. We levy a countervailing import duty whenever a commodity is subject to excise. We also have power to levy a countervailing duty in lieu of the excise on the raw materials and components used in any excisable item. No such power exists when the commodity itself is not excisable. I propose to take power to remedy this omission, in the interest of import substitution. In certain cases such as bearings, ship stores and imports by post or air for personal use, multiplicity of rates or classification depending on use causes unnecessary delay and annoyance; and I propose to rectify this also.

EXCISE DUTIES

29. Coming to Excise Duties, it is now generally recognised that ad valorem duties are more rational than specific duties whose incidence declines during periods of rising prices and increases when prices fall. Ad valorem duties can also act as a spur to reduction in costs and prices. I propose, therefore, to convert the existing specific rates into ad valorem rates for cement, vegetable products, electric fans, lighting bulbs and tubes, soaps, soda ash, caustic soda and sodium silicate. Despite the necessity of rounding, I have resisted the temptation of collecting in the process any appreciable crumbs for the Exchequer.

30. But every rule has an exception; and I have been helped by one special circumstance in deciding on the exception to prove this particular rule. In the case of sugar, we have now a price for controlled releases and a free market price. The incidence of the present specific duty when converted into an ad valorem rate, would obviously give two different rates. In choosing between the two rates, I have shown some partiality for the controlled releases on which the present basic and additional duties work out approximately to an ad valorem rate of 23 per cent on an average. I have applied this rate to all crystal sugar. As a result, there will be no change in the average price of controlled sugar with only marginal variations in the different zones. Correspondingly, the duty on Khandsari is proposed at 121 per cent ad valorem with suitable revisions in existing compounding rates. I hope Honourable Members would not object to free market sugar being taxed at the same ad valorem rate as controlled sugar merely because it has the incidental effect of an additional revenue of Rs.27.45 crores.

31. I propose to levy an excise duty at the rate of 10 per cent ad valorem on specified domestic electrical appliances and processed food. Honourable Members will recall that last year a duty at the rate of one paisa each was imposed on crown corks. I propose now to unite kings and commoners by an extension of the levy to other similar devices for covering bottles, and containers. The levies oil electrical appliances, processed food and pilfer-proof caps will bring in a revenue of Rs.4 crores.

32. Honourable Members would agree that those who benefit by our substantial investments in agriculture, including research, irrigation facilities, fertilizer plants, rural electrification, credit facilities and support prices should contribute a part of their prosperity towards the cost of development in general. This is all the more so when the benefit of improved technology cannot yet be shared by the majority of our farmers, particularly in dry regions where fertilizers and new seeds are not easy to apply. Similarly, the facilities for lift irrigation by power driven pumps are not spread uniformly. If the benefits of the new agricultural technology are to be carried progressively to a growing proportion of our farming population, the resources needed for this purpose should come at least in part from the beneficiaries of the process. Against this background, I propose to levy an excise duty of 10 per cent ad valorem on fertilizers and 20 per cent ad valorem on power driven pumps with a revenue yield of Rs.24 crores of which Rs.22 crores would be in respect of fertilizers.

33. It is obviously time new for me to turn to appetizers once again. As Honourable Members are aware, the cotton textile industry is going through a difficult time. Some relief in the excise duty is, therefore, called for. The excise duty on yarn in the form of hanks of plain straight reels is being abolished in respect of certain counts and lowered in respect of certain other counts. This should benefit the handloom sector. The powerloom sector will benefit by the abolition of the differential duty on sizing even though the duty on unsized yarn of some counts in the fine and superfine category is being increased. Further, duty on grey fabric is proposed to be abolished and the processing surcharges reduced by five paise per square metre on all varieties of Medium A and non-controlled Medium B and coarse categories of fabrics. This relief would very substantially benefit the weaker cotton mills. The total effect of all the relief proposed will be about Rs.15.30 crores.

34. About Rs.9.5 crores of this loss would, however, be made up by levying a higher duty of 5 paise per square metre on superfine and fine and 2.5 paise per square metre on all other categories of printed fabrics except the controlled ones and by selectively levying an ad valorern duty of 15 per cent on costlier varieties of fabrics such as sultings, tapestry and furnishing fabrics, turkish towels and others which at present bear a low incidence of duty in relation to their price. In addition, I propose to double the existing compounded levy on powerloom fabrics and to rationalise the duty structure on fents.

35. The duty on nylon yarn in the lower deniers is being reduced and this would be compensated to some extent by an increase in some of the higher ones. The net effect will be a drop in revenue of Rs.3.9 crores. This concession should help towards eliminating smuggling of nylon yarn about which there has been genuine concern.

36. The duty on confectionery, but not on chocolates, is being reduced from 80 paise per kilogram to 30 paise per kilogram. The duty on electronic valves, transistors and semi-conductor diodes used as components by radio manufacturers is being halved. Low priced sets manufactured by the large manufacturers in the organised sector will, 9 however, bear a duty of Rs.10 per set. In the case of steel ingots and products manufactured out of scrap by electric furnace owners, I propose exemption to the extent of the ingot duty. The duty on embroidery, which is proving rather heavy, is being reduced. I am assured on good authority that in the topsy-turvy world of the cinema, the highest achievements of subtlety belong to those who are accustomed to think in terms of black and white. Accordingly, I propose to give some relief to the black and white cinematograph films and raise the incidence on colour films. I also propose to levy a nominal duty of two paise per metre on unexposed cinema films. The overall effect of the somewhat mixed bag of concessions on confectionery, component parts of radios, scrap based steel ingots, embroidery and cinema films will be a revenue loss of Rs.3.13 crores.

37. To return to more familiar ground, I think the time has come when some of the old faithfuls of indirect taxation everywhere such as cigarettes and motor spirit are relieved of their annual agony. One way of achieving this is to raise the duties sufficiently. I must confess that I did not do a neat enough job in this regard in my last two Budgets. Accordingly, I propose to increase the duty on motor spirit by 7 paise per litre and on cigarettes by 6 per cent to 18 per cent ad valorem in the different value slabs with a revenue of Rs.29.84 crores. The duty on superior kerosene, which is being increasingly used as an adulterant for motor fuels, is also being raised by 4 paise per litre with a yield of Rs.14.40 crores.

38. The basic excise duty on jute manufactures is being raised by Rs.100 per tonne so as to yield a revenue of Rs.4.95 crores. The duty on cellulosic and non-cellulosic staple fibres is being raised by 20 paise per kilogram and Rs.12 per kilogram respectively. The duty on rayon yarn is also being raised by about 10 per cent of the existing rates in all except the industrial deniers and the margin of concession in the rates of duty available to small producers compared to large producers of rayon yarn is being reduced. These proposals on synthetic fibres and yarn will yield an additional revenue of Rs.9.37 crores annually. It is also my intention to transfer the duty on woollen yarn to wool tops; and to begin with, I am levying a small duty on wool tops with a yield of Rs.6 lakhs.

39. The cumulative effect of all the proposals relating to excise duties including a few sundries will be an additional revenue of Rs.104.57 crores in a full year of which Rs.79.95 crores will go to the Centre and Rs.24.62 crores will be the States’ share. As a result of the proposals relating to excise duties, there will be an additional yield of Rs.26 crores on account of countervailing duty most notably on fertilizer imports.

40. The scheme of self-assessment and removal introduced since June 1968 has worked well and I propose to extend it as soon as possible to most excisable commodities.

DIRECT TAXATION

41. In regard to corporate taxation, I propose to extend the tax holiday concession for new industrial undertakings and ships for a further period of five years from April 1, 1971 to March 31, 1976. I have also come to the conclusion that the familiar instrument of development rebate need not be abandoned or replaced by fancier alternatives. Accordingly, the development rebate will continue to be admissible, but in respect of machinery and plant installed after 31st March, 1970, the reduced rates already provided in the law will apply. The ceiling in the Companies (Profits) Surtax Act on the aggregate corporation tax payable by, a widely-held domestic company at 70 per cent of its total income has now become meaningless. But it still continues to mislead people as If the virtually non-operative ceiling is the norm. Accordingly, I propose to do away with this ceiling. Public companies whose shares are listed in a recognised Stock Exchange in India will now be treated as widely-held companies.

42. In order to minimise the repetitive Import of technology and indeed to encourage the development of local know-how, I propose to tax income derived by Indian companies from the transfer or servicing of such know-how on a concessional basis. To encourage the modernisation of two of our important export industries, viz., cotton and jute textiles, I propose to include them in the list of priority industries for the purpose of the development rebate.

43. I propose to introduce later this Session a comprehensive Bill to amend the income-tax Act and other related enactments. In that Bill, I intend to provide for amortization, over a 10-year period, of promotional expenses and expenses on project report, market surveys, etc. In the case of Indian companies, which are not at present eligible for any depreciation allowance or other deduction. The amount to be amortized will be limited to 21/2 per cent of the project cost. The classification of different items of machinery, for the purposes of depreciation, is also being considerably simplified, and the general rate for plant and machinery is being raised from 7 per cent to 10 per cent.

44. In order to bring about a smoother progression in the tax rates on personal incomes, I propose to make a marginal increase in the rate of tax on incomes in the slab of Rs.10,001 to Rs.15,000 by 2 per cent from 15 per cent to 17 per cent, and on incomes in the slab of Rs.15,001 to Rs.20,000, by 3 per cent from 20 per cent to 23 per cent. The full effect of these increases will fall on tax-payers having incomes of Rs.20,000 or more and, taken together with the surcharge of 10 per cent of the basic income-tax, the additional tax will amount in each such case to Rs.275 per year. These changes are expected to yield, in a full year, an additional revenue of Rs.13.82 crores.

45. I propose to simplify and rationalise the taxation of co-operative societies. In the case of registered firms, I propose to increase taxation slightly by introducing a new slab of income between Rs.10,001 and Rs.25,000 on which the rate of basic 11 income-tax will be 4 per cent. This change will yield in a full year additional revenue of Rs.4.32 crores.

46. I have a special word of cheer for authors, artists, play-wrights, musicians and actors. In their case, 25 per cent of the professional income derived from a foreign source and received in India. In foreign exchange will be deducted from taxable income. In case this creates apprehensions of cultural drain, I would remind Honourable Members that the best things in life are generally for export.

47. Honourable Members are aware that there has been renewed interest in the equity market on the part of genuine investors. In order to encourage this trend. I propose to raise the exemption from tax enjoyed by dividend incomes from Indian companies from Rs.500 at present to Rs.1,000 per year. This will bring investment in shares in Indian companies in line with investment in units of the Unit Trust. I also propose to extend the area of existing tax relief in respect of life insurance premiums.

48. Agricultural wealth has so far been exempt from wealth tax. This has encouraged purchase of such land by the richer professional and business classes. While this has often acted as a spur to greater productivity in agriculture, there is no case in equity for taxing other productive wealth but exempting wealth in the form of agricultural land. I am advised by the Attorney General that the Parliament is competent to legislate for the levy of wealth tax on agricultural wealth. Accordingly, I propose to provide in the Wealth Tax Act for the levy of wealth tax on the value of agricultural land including buildings situated on or in the immediate vicinity of such land. Standing crops, tools, Implements and equipment such as tractors will, however, be exempt. Agricultural wealth will be added to other wealth for the purposes of the tax at the existing rates with effect from the assessment year 1970-71. This measure will yield additional revenue of Rs.5 crores in a full year. But in view of what I have just said, there would be no revenue gain in the coming year. It is my intention to pass on the net proceeds of the revenue of wealth tax on agricultural property to the States as grants-in-aid.

49. I am proposing a number of changes in the scheme of advance tax payments so as to make it more effective and also to reduce the burden of compliance on smallincome tax payers. I am also proposing certain changes in the scale of penalties under the Wealth Tax Act for failure to furnish returns of net wealth and to produce accounts, documents, etc. Another change proposed is meant to ensure the smooth working of the provision made last year for greater use of the banking system in making payments for business expenditure. 50. Honourable Members are aware that ordinarily it is not possible for individuals to escape taxation on their income by transferring their assets to their spouse or minor children. This is, however, often circumvented by use of the special provisions relating to taxation of a Hindu undivided family as a separate unit. I intend to close this loophole by making a suitable provision in the Amendment Bill.

51. Altogether, the changes in direct taxation that I have proposed will yield an additional revenue next year of Rs.11 crores for the Centre and Rs.2.5 crores for the States.

POSTS AND TELEGRAPHS

52. The Posts and Telegraphs Department will again run into a deficit next year. It is, therefore, proposed to revise from dates to be notified certain telephone and telegraph tariffs based broadly on the recommendations of the Tariff Enquiry Committee. A memorandum showing the proposed changes is being circulated along with the Budget papers. The telephone rentals in the four principal cities of Bombay, Calcutta, Madras and Delhi as also for other exchanges will be raised. The Directory enquiry service, which was hitherto free will be charged. The additional charge for Particular Person and Fixed Time trunk calls will now be uniformly 50 per cent of the basic charge. Increases are also proposed on greetings telegrams, multiple telegrams and telex and a few other services. These changes are expected to yield in a full year Rs.6.46 crores, and would be just sufficient to cover the anticipated revenue deficit. The effect of these changes has been accounted for in reckoning the total internal resources of public undertakings.

SUMMING UP

53. To sum up, the net additional revenue accruing to the Centre next year from the measures of taxation I have proposed would be about Rs.100 crores, of which Rs.11 crores would be under direct taxes, Rs.80 crores under excise duties and Rs.9 crores under customs duties after allowing for the reduction of Rs.23 crores in export duties. In addition, a sum of about Rs.27 crores will accrue to the States.

54. I may now summarise the Centre’s resources position for the next year. The total gross revenue, after taking into account the additional taxation measures, is estimated at Rs.3,519 crores, of which Rs.519 crores will accrue to the States leaving Rs.3,000 crores for the Centre. Non-Plan expenditure on revenue account, including grants to States, interest charges and defence expenditure, is placed at Rs.2,558 crores, leaving a non-Plan revenue surplus of Rs.442 crores. Next year’s market borrowing and external borrowing, net of repayments, are estimated at Rs.106 crores and Rs.691 crores respectively. After taking into account the transactions under miscellaneous debt deposit heads and after providing for non-Plan capital expenditure and loans, including buffer stock provision and cash losses of some public-sector undertakings, the resources on capital account will be Rs.1,046 crores. The Centre’s budgetary resources for the Plan are accordingly Rs.1,738 crores, including Rs.250 crores of deficit financing. In addition, the public-sector undertakings, including the Railways and Posts & Telegraphs, are expected to find Rs.165 crores for the Plan out of their own resources. The total availability of resources for the Plan next year, exclusive of the States’ resources, will thus be Rs.1,903 crores. Of this Rs.615 crores have already been earmarked for Plan assistance to the States and Rs.65 crores to the Union Territories, leaving Rs.1,223 crores for the Central Plan proper including the Centrally sponsored schemes.

55. Next year’s Budget makes a total Plan provision of Rs.1,738 crores of which Rs.402 crores are in the revenue budget and Rs.1,336 crores are in the capital budget. The provision on revenue account includes Rs.185 crores as grants-in aid for State Plan schemes, being 30 per cent of the block Central Plan assistance payable from next year as against an average of 20 to 25 per cent at present. The rest of the Plan provision in the revenue budget is on account of Union Territories Plan as also Central Plan. The Centrally sponsored schemes account for a provision of Rs.117 crores taking revenue and capital sections together.

56. The Central Plan next year makes a larger provision as compared to the current year for steel production, ports, petrochemicals, fertilizer plants, development of Iron ore mines for export and copper and aluminium production. In the main, the increase in outlay reflects the higher tempo of activity on continuing schemes. Even so, it will give a fillip to industries engaged in construction activity and specially the engineering industries. It is also proposed to accelerate the programme of construction of storage for foodgrains. The institutional arrangements for agricultural credit, particularly for fertilizer distribution and rural electrification, are being strengthened with necessary budget support. Larger outlays have also been proposed for family planning.

57. Sir, I cannot emphasise too strongly that my tax proposals and the modest increase in Plan outlays next year should be considered against the background of the severe constraint on our resources. For the past few years, the surplus on revenue account has been declining. For the next year, a revenue deficit of Rs.60 crores at existing rates of taxation to anticipated in the Centre’s Budget. Even after the proposed measures of additional taxation, the deficit will be converted into a surplus of Rs.40 crores only. On capital account, the position has not shown undue deterioration only because food assistance has been maintained at a high level due to spill-over of imports from this year to next year. As self-reliance in foodgrains to achieved, this resource will progressively dwindle; and If development outlays are not to be curtailed unduly, other measures of raising resources will have to be devised. Honourable Members will also appreciate that the all-pervasive objectives of growth with social and political stability and increasing self-reliance cannot be achieved by budgetary policy alone. It will require the disciplined participation of every section of the community and every region of the country. Only so we can carry this great nation forward in the struggle against mans poverty which is as rewarding as it is arduous. I can only hope that the Budget I have had the honour to present makes a modest contribution towards this end. Thank you. (February 28, 1969)

Previous Budgets

Pranab Mukerjee – 2012 Budget

Finance Minister :Pranab Mukerjee
Budget Year : 2012

BACK

Pranab Mukerjee

 Madam Speaker, 
I rise to present the Union Budget for 2012-13.1. For the Indian economy, this was a year of recovery interrupted. When one year ago, I rose to present the Budget, the challenges were many, but there was a sense that the world economy was on the mend. The Budget was presented in the first glimmer of hope. But reality turned out to be different. The sovereign debt crisis in the Euro zone intensified, political turmoil in Middle East injected widespread uncertainty, crude oil prices rose, an earthquake struck Japan and the overall gloom refused to lift.

2. While I believe that there should be no room for complacency, nor any excuse for what happens in one’s own country, we will be misled if we ignore the ground realities of the world. The global crisis has affected us. India’s Gross Domestic Product (GDP) is estimated to grow by 6.9 per cent in 2011-12, after having grown at the rate of 8.4 per cent in each of the two preceding years. Though we have been able to limit the adverse impact of this slowdown on our economy, this year’s performance has been disappointing. But it is also a fact that in any cross-country comparison, India still remains among the front runners in economic growth.

3. For the better part of the past two years, we had to battle near double-digit headline inflation. Our monetary and fiscal policy response during this period was geared towards taming domestic inflationary pressures. A tight monetary policy impacted investment and consumption growth. The fiscal policy had to absorb expanded outlays on subsidies and duty reductions to limit the pass-through of higher fuel prices to consumers. As a result growth moderated and the fiscal balance deteriorated.

4. But there is good news in the detail. With agriculture and services continuing to perform well, India’s slowdown can be attributed almost entirely to weak industrial growth. While we do not have aggregate figures for the last quarter of 2011-12, numerous indicators pertaining to this period suggest that the economy is now turning around. There are signs of recovery in coal, fertilisers, cement and electricity sectors. These are core sectors that have an impact on the entire economy. Indian manufacturing appears to be on the cusp of a revival.

5. We are now at a juncture when it is necessary to take hard decisions. We have to improve our macroeconomic environment and strengthen domestic growth drivers to sustain high growth in the medium term. We have to accelerate the pace of reforms and improve supply side management of the economy.

6. We are about to enter the first year of the Twelfth Five Year Plan which aims at “faster, sustainable and more inclusive growth.” The Plan will be launched with the Budget proposals for 2012-13. In keeping with the stated priorities, I have identified five objectives that we must address effectively in the ensuing fiscal year. These are:
• Focus on domestic demand driven growth recovery;
• Create conditions for rapid revival of high growth in private investment;
• Address supply bottlenecks in agriculture, energy and transport sectors, particularly in coal, power, national highways, railways and civil aviation;
• Intervene decisively to address the problem of malnutrition especially in the 200 high-burden districts; and
• Expedite coordinated implementation of decisions being taken to improve delivery systems, governance, and transparency; and address the problem of black money and corruption in public life.

7. Today, India has global responsibilities of a kind that it did not have earlier. Our presence at the high table of global economic policy makers is a matter of some satisfaction. It, however, places new responsibilities on our shoulders. If India can continue to build on its economic strength, it can be a source of stability for the world economy and provide a safe destination for restless global capital.

8. I know that mere words are not enough. What we need is a credible roadmap backed by a set of implementable proposals to meet those objectives. In my attempt to do so, I have benefited from the able guidance of Hon’ble Prime Minister, Dr. Manmohan Singh, and strong support of the UPA Chairperson Smt. Sonia Gandhi.

I would now begin with a brief overview of the economy.

Overview of the Economy

9. Yesterday, I laid on the table of the House the Economic Survey
2011-12, which gives a detailed analysis of the economy over the past 12 months. India’s GDP is estimated to grow at 6.9 per cent in real terms in 2011-12. The growth is estimated to be 2.5 per cent in agriculture, 3.9 per cent in industry and 9.4 per cent in services. There is a significant slowdown in comparison to the preceding two years, primarily due to deceleration in industrial growth, more specifically in private investment. Rising cost of credit and weak domestic business sentiment, added to this decline.

10. The headline inflation remained high for most part of the year. It was only in December 2011 that it moderated to 8.3 per cent followed by 6.6 per cent in January 2012. Monthly food inflation declined from 20.2 per cent in February 2010, to 9.4 per cent in March 2011 and turned negative in January 2012. Though the February 2012 inflation figure has gone up marginally, I expect the headline inflation to moderate further in the next few months and remain stable thereafter.

11. India’s inflation is largely structural, driven predominantly by agricultural supply constraints and global cost push. Evidence suggests that prolonged periods of high food inflation tend to get generalised. Fortunately, steps taken to bridge gaps in distribution, storage and marketing systems to strengthen food supply chains have helped us in a more effective management of inflation and led to a decline in food inflation.

12. The developments in India’s external trade in the first half of the current year were encouraging. During April-January 2011-12, exports grew by 23 per cent to reach US Dollar 243 billion, while imports at US Dollar 391 billion recorded a growth of over 29 per cent. What is heartening is that India has successfully achieved diversification of export and import markets. The share of Asia, including ASEAN, in total trade increased from 33.3 per cent in
2000-2001 to 57.3 per cent in the first half of 2011-12. This has helped us weather the impact of global crisis emanating from Europe and to a lesser extent from USA.

13. The current account deficit as a proportion of GDP for 2011-12 is likely to be around 3.6 per cent. This, along with reduced net capital inflows in the second and third quarters, put pressure on the exchange rate.

14. Taking a bird’s eye view of the entire economy and keeping in mind the difficult global environment, I expect India’s GDP growth in 2012-13 to be 7.6 per cent, +/- 0.25 per cent.

15. I expect average inflation to be lower next year. I also expect the current account deficit to be smaller, aided by improvement in domestic financial savings.

II. Growth 
I now turn to growth and fiscal consolidation.

16. Our fiscal balance has deteriorated in 2011-12 due to slippage in direct tax revenue and increased subsidies. On both counts our underlying assumptions at the time of Budget presentation last year were belied by subsequent developments. The profit margins came under pressure due to higher interest rates and material costs. This impacted growth in corporate taxes. Further, as against an assumption of US Dollar 90 a barrel, the average price of crude oil in 2011-12 is likely to exceed US Dollar 115. This has necessitated higher outlay on subsidies than projected. The continuing uncertainty in the global environment makes it necessary for us to strike a balance between fiscal consolidation and strengthening macroeconomic fundamentals to create adequate headroom to deal with future shocks.

Fiscal Consolidation

FRBM Act

17. The implementation of the Fiscal Responsibility and Budget Management Act, 2003 (FRBM Act) at Centre and the corresponding Acts at State level was the pivot in the successful consolidation of our fiscal balance prior to the global financial crisis of 2008. The outbreak of the crisis coincided with the year when the mandated targets of 3 per cent fiscal deficit and elimination of revenue deficit were to be achieved. The Government had to deviate from these targets due to injection of fiscal stimulus at that time. Following my announcement in the last Budget Speech, I am now introducing amendments to the FRBM Act as part of Finance Bill, 2012.

Expenditure Reforms

18. The fiscal targets for Centre under the amendments to the FRBM Act are indicated in the Budget documents. Meanwhile, I would like to highlight two of its features that are steps in the direction of expenditure reforms. First, the concept of Effective Revenue Deficit, introduced in the last Budget, to address the structural imbalances in the revenue account, is being brought in as a fiscal parameter. Effective Revenue Deficit is the difference between revenue deficit and grants for creation of capital assets. Focusing on this will help in reducing the consumptive component of revenue deficit and create space for increased capital spending.

19. Second, a provision for “Medium-term Expenditure Framework Statement” is being introduced in the Act. This statement shall set forth a three-year rolling target for expenditure indicators. It would help in undertaking a de-novo exercise for allocating resources for prioritised schemes and weeding out others that have outlived their utility. This would provide greater certainty in multi-year budgeting framework. It would also encourage efficiencies in expenditure management.

20. In implementing the Twelfth Plan, the recommendations made by the Expert Committees to streamline and reduce the number of Centrally Sponsored Schemes and to address Plan and non-Plan classification, would be kept in view. The Central Plan Scheme Monitoring System would be expanded to facilitate better tracking and utilisation of funds released by the Central Government.

Subsidies

21. Fiscal consolidation calls for efforts both to raise the tax-GDP ratio and to lower the expenditure. In this context, we need to take a close look at the growth of our revenue expenditure, particularly on subsidies. The major subsidies at the Centre are for food, fertilisers and petroleum products. Some subsidies at this juncture in our development are inevitable. But they become undesirable if they compromise the macroeconomic fundamentals of the economy, more so, when they don’t reach the intended beneficiaries.

22. The Government has decided that from 2012-13 subsidies related to food and for administering the Food Security Act will be fully provided for. All other subsidies would be funded to the extent that they can be borne by the economy without any adverse implications. It would be my endeavour to restrict the expenditure on Central subsidies to under 2 per cent of GDP in 2012-13. Over the next three years, it would be further brought down to 1.75 per cent of GDP. Such a step is needed to improve the quality of public spending. Our effort now will be directed towards better targeting and leakage proof delivery of the subsidies.

23. The recommendations of the task force headed by Shri Nandan Nilekani on IT strategy for direct transfer of subsidy have been accepted. Based on these recommendations, a mobile- based Fertiliser Management System (mFMS) has been designed to provide end-to-end information on the movement of fertilisers and subsidies, from the manufacturer to the retail level. This will be rolled out nation-wide during 2012. Direct transfer of subsidy to the retailer, and eventually to the farmer will be implemented in subsequent phases. This step will benefit 12 crore farmer families, while reducing expenditure on subsidies by curtailing misuse of fertilisers.

24. All the three public sector Oil Marketing Companies have launched LPG transparency portals to improve customer service and reduce leakage. A pilot project for selling LPG at market price and reimbursement of subsidy directly into the beneficiary’s bank account is being conducted in Mysore. A similar pilot project on direct transfer of subsidy for kerosene into the bank accounts of beneficiaries has been initiated in Alwar district of Rajasthan. The Aadhaar platform has also been successfully used to validate PDS ration cards in Jharkhand.

25. These pilot projects show that substantial economies in subsidy outgo can be achieved by the use of Aadhaar platform. It will be our endeavour to scale up and roll out these Aadhaar enabled payments for various government schemes in at least 50 selected districts within the next six months.

Tax Reforms

26. As Hon’ble Members are aware, the Direct Taxes Code (DTC) Bill was introduced in Parliament in August 2010. It was our earnest desire to give effect to DTC from April 1, 2012. However, we received the Report of the Parliamentary Standing Committee on March 9, 2012. We will examine the report expeditiously and take steps for the enactment of DTC at the earliest.

27. Similarly, the Constitution Amendment Bill, a preparatory step in the implementation of Goods and Services Tax (GST) was introduced in Parliament in March 2011 and is before the Parliamentary Standing Committee. As we await recommendations of the Committee, drafting of model legislation for Centre and State GST in concert with States is under progress.

28. The structure of GST Network (GSTN) has been approved by the Empowered Committee of State Finance Ministers. GSTN will be set up as a National Information Utility and will become operational by August 2012. The GSTN will implement common PAN-based registration, returns filing and payments processing for all States on a shared platform. The use of PAN as a common identifier in both direct and indirect taxes, will enhance transparency and check tax evasion. I solicit the support of all my colleagues cutting across party lines for an early passage of these landmark legislations.

Disinvestment Policy

29. The Government has further evolved its approach to divestment of Central Public Sector Enterprises (CPSEs). The CPSEs are being given a level playing field vis-a-vis the private sector with regard to practices like buy-backs and listing at stock exchange. The treasury management options for CPSEs have also been enhanced. This will help improve the returns on public assets, support transparent environment for the divestment process, besides unlocking the value and resources for all stakeholders.

30. In 2011-12, as against a target of ` 40,000 crore, the Government will raise about ` 14,000 crore from disinvestment. For 2012-13, I propose to raise
` 30,000 crore through disinvestment. Let me reiterate here that while we are committed to enhancing people’s ownership of CPSEs, at least 51 per cent ownership and management control will remain with the Government.

Strengthening Investment Environment

31. The domestic investment environment has suffered on multiple counts in the past year. It is time to fast track policy decisions and ensure on-time implementation of major projects.

Foreign Direct Investment

32. Organised retail helps in reducing cost of intermediation due to economies of scale, benefiting both consumers and producers. At present, FDI in single brand and in cash and carry wholesale trade is permitted to the extent of 100 per cent. The decision in respect of allowing FDI in multi-brand retail trade up to 51 per cent, subject to compliance with specified conditions, has been held in abeyance. Efforts are on to arrive at a broad based consensus in consultation with the State Governments.

Advance Pricing Agreement

33. In a globalised economy with expanding cross-border production chains and growing trade within entities of the same group, Advance Pricing Agreement (APA) can significantly bring down tax litigation and provide tax certainty to foreign investors. Though, the provision for APA has been included in the DTC Bill, 2010, I propose to bring forward its implementation by introducing it in the Finance Bill, 2012.

Financial Sector

34. Reforms in the financial sector have been pursued with the objective of more efficient market intermediation between savers and investors.

35. To encourage flow of savings in financial instruments and improve the depth of domestic capital market, it is proposed to introduce a new scheme called Rajiv Gandhi Equity Savings Scheme. The scheme would allow for income tax deduction of 50 per cent to new retail investors, who invest up to ` 50,000 directly in equities and whose annual income is below ` 10 lakh. The scheme will have a lock-in period of 3 years. The details will be announced in due course.

Capital Markets

36. During the year 2011-12, we took a series of steps to deepen the capital market and encourage investment in infrastructure sector. These steps included raising of FII investment limit in long-term infrastructure bonds, corporate bonds and government securities. The limit on External Commercial Borrowings (ECB) was also raised and qualified foreign investors were allowed to invest in specified Indian mutual funds and directly in equities.

37. I now propose to take the next steps in deepening the reforms in Capital market by:
• Allowing Qualified Foreign Investors (QFIs) to access Indian Corporate Bond market;
• Simplifying the process of issuing Initial Public Offers (IPOs), lowering their costs and helping companies reach more retail investors in small towns. To achieve this, in addition to the existing IPO process, I propose to make it mandatory for companies to issue IPOs of ` 10 crore and above in electronic form through nationwide broker network of stock exchanges;
• Providing opportunities for wider shareholder participation in important decisions of the companies through electronic voting facilities, besides existing process for shareholder voting, which would be made mandatory initially for top listed companies; and
• Permitting two-way fungibility in Indian Depository Receipts subject to a ceiling with the objective of encouraging greater foreign participation in Indian capital market.

Legislative Reforms

38. We have received the recommendations of the Standing Committee on Finance on “The Pension Fund Regulatory and Development Authority Bill, 2011”, “The Banking Laws (Amendment) Bill, 2011” and “The Insurance Laws (Amendment) Bill, 2008”. The official amendments to these Bills will be moved in this session of the Parliament.

39. To take forward the process of financial sector legislative reforms, the Government proposes to move the following Bills in the Budget Session of the Parliament:
• The Micro Finance Institutions (Development and Regulation) Bill, 2012;
• The National Housing Bank (Amendment) Bill, 2012;
• The Small Industries Development Bank of India (Amendment) Bill, 2012;
• National Bank for Agriculture and Rural Development (Amendment) Bill, 2012;
• Regional Rural Banks (Amendment) Bill, 2012;
• Indian Stamp (Amendment) Bill, 2012; and
• Public Debt Management Agency of India Bill, 2012.

40. The Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011 has already been introduced in Parliament.

Capitalisation of Banks and Financial Holding Company 

41. The Government is committed to protect the financial health of Public Sector Banks and financial institutions. For the year 2012-13, I propose to provide ` 15,888 crore for capitalisation of Public Sector Banks, Regional Rural Banks and other financial institutions including NABARD. The Government is also examining the possibility of creating a financial holding company which will raise resources to meet the capital requirements of Public Sector Banks.

42. To bring banking payment structure at par with global standards, a comprehensive action plan has been prepared for implementation in 2012-13. A central Know Your Customer (KYC) depository will be developed in 2012-13 to avoid multiplicity of registration and data upkeep.

Priority Sector Lending

43. A committee set up by RBI to re-examine the existing classification and suggest revised guidelines on priority sector lending has submitted its report. After stakeholder consultation, revised guidelines will be issued.

Financial Inclusion

44. In 2010-11, “Swabhimaan” campaign was launched to extend banking facilities through Business Correspondents to habitations having population in excess of 2000. I am happy to announce that out of 73,000 identified habitations that were to be covered by March, 2012, about 70,000 habitations have been provided with banking facilities. With this, over 2.55 crore beneficiary accounts would have been operationalised. The remaining habitations are likely to be covered by March 31, 2012. As a next step, Ultra Small Branches are being set up at these habitations, where the Business Correspondents would deal with cash transactions.

45. In 2012-13, I propose to extend the “Swabhimaan” campaign to habitations with population of more than 1000 in North Eastern and hilly States and to other habitations which have crossed population of 2,000 as per Census 2011.

Regional Rural Banks

46. Regional Rural Banks (RRBs) have played a crucial role in meeting the credit needs of rural areas. I am happy to inform that of the 82 RRBs in India, 81 have successfully migrated to Core Banking Solutions (CBS) and have also joined the National Electronic Fund Transfer system.

47. The Government had initiated the process of capitalisation of 40 financially weak RRBs, which has been completed in respect of 12 RRBs by the end of February, 2012. I propose to extend the scheme of capitalisation of weak RRBs by another 2 years to enable all the States to contribute their share.

III. Infrastructure and Industrial Development
Let me now turn to infrastructure and industrial development.

48. Lack of adequate infrastructure is a major constraint on our growth. The strategy we have followed so far is to increase investment in infrastructure through a combination of public investment and public private partnerships (PPP). During the Twelfth Plan period, infrastructure investment will go up to ` 50 lakh crore. About half of this is expected to come from private sector.

49. Viability Gap Funding (VGF) under the Scheme for Support to PPP in infrastructure is an important instrument in attracting private investment into the sector. This year it has been decided to make irrigation (including dams, channels and embankments), terminal markets, common infrastructure in agriculture markets, soil testing laboratories and capital investment in fertiliser sector eligible for VGF under this scheme. Oil and Gas/LNG storage facilities and oil and gas pipelines, fixed network for telecommunication and telecommunication towers will also be made eligible sectors for VGF.

50. The Government has approved guidelines for establishing joint venture companies by defence Public Sector Undertakings in PPP mode. This will serve the dual purpose of achieving substantive self-reliance in the defence sector and production of state-of-the-art defence goods.

51. I had announced the setting up of Infrastructure Debt Funds to tap the overseas markets for long tenor pension and insurance funds. I am happy to inform the House that the first Infrastructure Debt Fund with an initial size of `8000 crore, has been launched earlier this month.

52. For the year 2011-12, tax-free bonds for ` 30,000 crore were announced for financing infrastructure projects. I propose to double it to raise `60,000 crore in 2012-13. This includes `10,000 crore for NHAI, `10,000 crore for IRFC, `10,000 crore for IIFCL, `5,000 crore for HUDCO, `5,000 crore for National Housing Bank, `5,000 crore for SIDBI, `5,000 crore for ports and `10,000 crore for power sector.

53. A harmonised master list of infrastructure sector has been approved by the Government. This will help in removing ambiguity in the policy and regulatory domain and encourage investment in the infrastructure sector.

54. To ease access of credit to infrastructure projects, India Infrastructure Finance Company Limited (IIFCL) has put in place a structure for credit enhancement and take-out finance. A consortium for direct lending and grant of in-principle approval to developers before the submission of bids for PPP projects has also been created.

National Manufacturing Policy

55. The Government has announced a National Manufacturing Policy on October 25, 2011 with the objective of raising, within a decade, the share of manufacturing in GDP to 25 per cent and creation of 10 crore jobs. The Policy encourages the setting-up of National Investment and Manufacturing Zones (NIMZs) across the country.

56. I will now address some issues that have impacted infrastructure and industrial activity in the past months.

Power and Coal

57. In power generation, fuel supply constraints are affecting production prospects. To address this concern, Coal India Limited (CIL) has been advised to sign fuel supply agreements, with power plants that have entered into long-term Power Purchase Agreements with DISCOMs and would get commissioned on or before March 31, 2015. An inter-ministerial group is being constituted to undertake periodic review of the allocated coal mines and make recommendations on de-allocations, if so required.

58. I propose to allow External Commercial Borrowings (ECB) to part finance Rupee debt of existing power projects.

Transport: Roads and Civil Aviation

59. The Ministry of Road Transport and Highways is set to achieve its target of awarding projects covering a length of 7,300 km under NHDP during 2011-12. This would be 44 per cent higher than the best ever length of 5,082 km awarded in 2010-11. Of the 44 projects awarded during 2011-12, 24 projects have fetched a premium. I propose to set a target of covering a length of 8,800 kms under NHDP next year. The allocation of the Ministry has been enhanced by 14 per cent to ` 25,360 crore in 2012-13.

60. To encourage public private partnerships in road construction projects, I propose to allow ECB for capital expenditure on the maintenance and operations of toll systems for roads and highways so long as they are a part of the original project.

61. The airline industry is facing financial crisis. The high operating cost of the sector is largely attributable to the cost of Aviation Turbine Fuel (ATF). To reduce the cost of ATF, Government has permitted direct import of ATF by Indian Carriers, as actual users.

62. To address the immediate financing concerns of the Civil Aviation sector, I propose to permit ECB for working capital requirements of the airline industry for a period of one year, subject to a total ceiling of US Dollar 1 billion.

63. A proposal to allow foreign airlines to participate up to 49 per cent in the equity of an air transport undertaking engaged in operation of scheduled and non-scheduled air transport services is under active consideration of the Government.

Delhi Mumbai Industrial Corridor 

64. The Delhi Mumbai Industrial Corridor (DMIC) is being developed on either side along the alignment of the Western Dedicated Rail Freight Corridor. The project has made significant progress. In September 2011, Central assistance of `18,500 crore spread over a period of 5 years has been approved. The Japanese Prime Minister has announced US$ 4.5 billion as Japanese participation in DMIC project.

Housing sector

65. In view of the shortage of housing for low income groups in major cities and towns, I propose to:
• Allow ECB for low cost affordable housing projects;
• Set up Credit Guarantee Trust Fund to ensure better flow of institutional credit for housing loans;
• Enhance provisions under Rural Housing Fund from ` 3000 crore to ` 4000 crore;
• Extend the scheme of interest subvention of 1 per cent on housing loan up to `15 lakh where the cost of the house does not exceed `25 lakh for another year; and
• Enhance the limit of indirect finance under priority sector from
` 5 lakh to ` 10 lakh.

Fertilisers

66. To reduce India’s import dependence in urea, Government has taken steps to finalise pricing and investment policies for urea. It is expected that with the implementation of the investment policy, country will become self sufficient in manufacturing urea in the next five years. In case of the potassic-phosphatic (P&K) fertiliser, use of single super phosphate (SSP) will be encouraged through greater extension work. This fertiliser is manufactured entirely in the domestic sector. Enhanced production would bring down our dependence on imports in the P&K sector.

Textiles

67. The Government has recently announced a financial package of ` 3,884 crore for waiver of loans of handloom weavers and their cooperative societies.

68. In addition to 4 mega handloom clusters already operationalised, I am now happy to announce two more mega clusters, one to cover Prakasam and Guntur districts in Andhra Pradesh and the other for Godda and neighbouring districts in Jharkhand. I also propose to provide assistance in setting up of dormitories for women workers in the 5 mega clusters relating to handloom, power loom and leather sectors.

69. The Ministry of Textiles runs Weavers’ Service Centres in different parts of the country for providing technical support to poor handloom weavers. I propose to set up three such Centres, one each in Mizoram, Nagaland and Jharkhand. I am also happy to announce ` 500 crore pilot scheme in the Twelfth Plan for promotion and application of Geo-textiles in the North East Region.

70. To address the need of the local artisans and weavers, I propose to set up a powerloom mega cluster in Ichalkaranji in Maharashtra with a Budget allocation of ` 70 crore.

Micro, Small and Medium Enterprises

71. In order to enhance availability of equity to MSME sector, I propose to set up a ` 5,000 crore India Opportunities Venture Fund with SIDBI.

72. The Small and Medium Enterprises (SMEs) are the building blocks of our economy. They rely primarily on loans from banks and informal sources to raise capital. To enable these enterprises greater access to finance, two SME exchanges have been launched in Mumbai recently.

Public Procurement Policy for Micro and Small Enterprises

73. With the objective of promoting market access of Micro and Small Enterprises, Government has approved a policy which requires Ministries and CPSEs to make a minimum of 20 per cent of their annual purchases from MSEs. Of this, 4 per cent will be earmarked for procurement from MSEs owned by SC/ST entrepreneurs.

IV. Agriculture
I now take up agriculture.
74. Agriculture will continue to be a priority for the Government. The total plan outlay for the Department of Agriculture and Cooperation is being increased by 18 per cent from ` 17,123 crore in 2011-12 to ` 20,208 crore in 2012-13.

75. The outlay for Rashtriya Krishi Vikas Yojana (RKVY) is being increased from `7,860 crore in 2011-12 to ` 9,217 crore in 2012-13. I am happy to inform the House that the initiative of Bringing Green Revolution to Eastern India (BGREI) has resulted in a significant increase in production and productivity of paddy. States in eastern India have reported additional paddy production of seven million tonnes in Kharif 2011. I propose to increase the allocation for this scheme from `400 crore in 2011-12 to `1000 crore in 2012-13.

76. This year, under RKVY, I also propose to allocate `300 crore to Vidarbha Intensified Irrigation Development Programme. This Scheme seeks to bring in more farming areas under protective irrigation.

77. The Government intends to merge the remaining activities into a set of missions to address the needs of agricultural development in the Twelfth Five Year Plan. These Missions are:
(i) National Food Security Mission which aims to bridge the yield gap in respect of paddy, wheat, pulses, millet and fodder. The ongoing Integrated Development of Pulses Villages, Promotion of Nutri-cereals and Accelerated Fodder Development Programme would now become a part of this Mission;
(ii) National Mission on Sustainable Agriculture including Micro Irrigation is being taken up as a part of the National Action Plan on Climate Change. The Rainfed Area Development Programme will be merged with this;
(iii) National Mission on Oilseeds and Oil Palm aims to increase production and productivity of oil seeds and oil palm;
(iv) National Mission on Agricultural Extension and Technology focuses on adoption of appropriate technologies by farmers for improving productivity and efficiency in farm operations; and
(v) National Horticulture Mission aims at horticulture diversification. This will also include the initiative on saffron.

National Mission for Protein Supplement

78. Mission for Protein Supplement is being strengthened. To improve productivity in the dairy sector, a `2,242 crore project is being launched with World Bank assistance. To broaden the scope of production of fish to coastal aquaculture, apart from fresh water aquaculture, the outlay in 2012-13 is being stepped up to `500 crore. Suitable allocations are also being made for poultry, piggery and goat rearing.

Agriculture Credit

79. Farmers need timely access to affordable credit. I propose to raise the target for agricultural credit in 2012-13 to `5,75,000 crore. This represents an increase of ` 1,00,000 crore over the target for the current year.

80. The interest subvention scheme for providing short term crop loans to farmers at 7 per cent interest per annum will be continued in 2012-13. An additional subvention of 3 per cent will be available to prompt paying farmers. In addition, the same interest subvention on post harvest loans up to six months against negotiable warehouse receipt will also be available. This will encourage the farmers to keep their produce in warehouses.

81. A Short term RRB Credit Refinance Fund is being set-up to enhance the capacity of Regional Rural Banks to disburse short term crop loans to the small and marginal farmers. I propose to allocate ` 10,000 crore to NABARD for refinancing the RRBs through this fund.

82. Kisan Credit Card (KCC) is an effective instrument for making agricultural credit available to the farmers. KCC scheme will be modified to make KCC a smart card which could be used at ATMs.

Agricultural Research

83. Food security and agricultural development in the coming decades would depend upon scientific and technological breakthroughs in raising productivity. We have to develop plant and seed varieties that yield more and can resist climate change. I propose to set aside a sum of ` 200 crore for incentivising research with rewards, both for institutions and the research team responsible for such scientific breakthroughs.

Irrigation

84. Unless we recognise water as a resource, the day is not far when water stress will start threatening our agricultural production. Focus on micro irrigation schemes to dovetail these with water harvesting schemes is necessary. To maximise the flow of benefits from investments in irrigation projects, structural changes in Accelerated Irrigation Benefit Programme (AIBP) are being made. The allocation for AIBP in 2012-13 is being stepped up by 13 per cent to `14,242 crore.

85. To mobilise large resources to fund irrigation projects, a Government owned Irrigation and Water Resource Finance Company is being operationalised. The Company would start its operations in 2012-13 by focusing on financing sub-sectors like micro-irrigation, contract farming, waste water management and sanitation.

86. A flood management project for Kandi sub-division of Murshidabad District has been approved by the Ganga Flood Control Commission at a cost of ` 439 crore, to be taken up for funding under the Flood Management Programme.

National Mission on Food Processing

87. The food processing sector has been growing at an average rate of over 8 per cent over the past 5 years. In order to have a better outreach and to provide more flexibility to suit local needs, it has been decided that a new centrally sponsored scheme titled “National Mission on Food Processing” would be started, in cooperation with the State Governments in 2012-13.

88. The Government has taken steps to create additional foodgrain storage capacity in the country. Creation of 2 million tonnes of storage capacity in the form of modern silos has already been approved. Nearly 15 million tonnes capacity is being created under the Private Entrepreneur’s Guarantee Scheme, of which 3 million tonnes of storage capacity will be added by the end of 2011-12 and 5 million would be added next year.
V. Inclusion
Let me now take up proposals for inclusive development.

Scheduled Castes and Tribal Sub Plans

89. From the year 2011-12, allocations are being made for Scheduled Castes Sub Plan (SCSP) and Tribal Sub Plan (TSP) under separate minor heads as part of the Plan allocations. In 2012-13, the allocation for SCSP is `37,113 crore which represents an increase of 18 per cent over 2011-12. The allocation for TSP in 2012-13 is `21,710 crore representing an increase of 17.6 per cent over 2011-12.

Food Security

90. Our Government has taken definite steps to create food security at the household level by making food a legal entitlement for all targeted people, especially for the poor and vulnerable segments of our population. The National Food Security Bill, 2011 is before the Parliamentary Standing Committee.

91. To ensure that the objectives of the National Food Security Bill are effectively realised, a Public Distribution System Network is being created using the Aadhaar platform. A National Information Utility for the computerisation of PDS is being created. It will become operational by December 2012.

Multi-sectoral Nutrition Augmentation Programme

92. Following the decision taken in the Prime Minister’s National Council on India’s Nutritional Challenges, a multi-sectoral programme to address maternal and child malnutrition in selected 200 high burden districts is being rolled out during 2012-13. It will harness synergies across nutrition, sanitation, drinking water, primary health care, women education, food security and consumer protection schemes.

93. In this context, Integrated Child Development Services (ICDS) scheme is being strengthened and re-structured. For 2012-13, an allocation of `15,850 crore has been made as against `10,000 crore in 2011-12. This amounts to an increase of over 58 per cent.

94. National Programme of Mid Day Meals in Schools has enhanced enrolment, retention, attendance, and also helped in improving nutrition levels among children. In 2012-13, I propose to allocate `11,937 crore for this scheme as against `10,380 crore in 2011-12.

95. Rajiv Gandhi Scheme for Empowerment of Adolescent Girls, SABLA, has been introduced last year with a view to address the nutritional needs and other educational and skill development initiatives for self development of adolescent girls in the age group of 11 to 18 years. For 2012-13, an allocation of `750 crore has been proposed for the scheme.

Rural Development and Panchayati Raj

96. Along with water quality, poor sanitation is one of the factors contributing to malnourishment. Hon’ble Members will be happy to know that I propose to increase the budgetary allocation for rural drinking water and sanitation from `11,000 crore in 2011-12 to `14,000 crore in 2012-13. This is an increase of over 27 per cent.

97. Pradhan Mantri Gram Sadak Yojana (PMGSY) has been a successful programme. In 2012-13, I propose to raise the allocation by 20 per cent to this scheme by providing `24,000 crore. It will accelerate connectivity in the States.

98. A major initiative has been proposed to strengthen Panchayats across the country through the Rajiv Gandhi Panchayat Sashaktikaran Abhiyan (RGPSA). This programme will expand on the existing schemes for Panchayat capacity building.

99. In my Budget Speech last year, I had referred to our focus on the development of backward regions. We have decided to carry the Backward Regions Grant Fund scheme into the Twelfth Plan with an enhanced allocation of `12,040 crore in 2012-13, an increase of about 22 per cent over BE of
2011-12. This includes the State component which covers projects in backward areas in Bihar, West Bengal and the Kalahandi-Bolangir-Koraput region of Odisha, development projects for drought mitigation in the Bundelkhand region and projects under the Integrated Action Plan to accelerate the pace of development in selected tribal and backward districts.

Rural Infrastructure Development Fund

100. This year, I propose to enhance the allocation under Rural Infrastructure Development Fund (RIDF) to ` 20,000 crore. Further in view of the warehousing shortage in the country, I propose to earmark an amount of ` 5,000 crore from the above allocation exclusively for creating warehousing facilities under RIDF.

Education

101. The Right to Education (RTE) Act is being implemented with effect from April 1, 2010 through the Sarva Shiksha Abhiyan (SSA). For 2012-13, I have provided `25,555 crore for RTE-SSA. This is an increase of 21.7 per cent over 2011-12.

102. In the Twelfth Plan, 6,000 schools have been proposed to be set up at block level as model schools to benchmark excellence. Of these, 2500 will be set up under Public Private Partnership.

103. The Rashtriya Madhyamik Shiksha Abhiyan (RMSA) was launched in March, 2009 to enhance access to quality secondary education. In 2012-13,
I have allocated `3,124 crore for RMSA which is nearly 29 per cent higher than the allocation in 2011-12.

104. A scheme for education loans is being implemented by banks. To ensure better flow of credit to deserving students, I propose to set up a Credit Guarantee Fund for this purpose.

Health

105. They say persistence pays. I am happy to inform Hon’ble Members that no new case of polio was reported in the last one year. By modernising existing units and setting up a new integrated vaccine unit near Chennai, the Government will achieve vaccine security and keep the pressure on disease eradication and prevention.

106. National Rural Health Mission (NRHM) is being implemented through ‘Accredited Social Health Activist’- ‘ASHA’. The scope of ASHA’s activities is being enlarged to include prevention of Iodine Deficiency Disorders, ensure 100 per cent immunisation and better spacing of children. At the community level, a more active role is envisaged for ASHA as the convenor of the Village Health and Sanitation Committee, as also to support the initiative on malnutrition. Since ASHAs receive activity-wise, performance-based payments, this will also enhance their remuneration. I propose to increase the allocation to NRHM from `18,115 crore in 2011-12 to `20,822 crore in 2012-13.

107. National Urban Health Mission is being launched to encompass the primary healthcare needs of people in the urban areas. The Pradhan Mantri Swasthya Suraksha Yojana (PMSSY) aimed at setting up of AIIMS-like institutions and upgradation of existing Government medical colleges is being expanded to cover upgradation of 7 more Government medical colleges. It will enhance the availability of affordable tertiary health care.

Employment and Skill Development

108. The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) has had a positive impact on livelihood security. For the first time, there is an effective floor wage rate for rural workers. Distress migration has come down. Community assets have been created. Productivity of barren and fallow lands has gone up. The need for improving quality of assets and bringing about greater synergy between MG-NREGA and agriculture and allied rural livelihoods is being addressed.

109. The Swarnjayanti Gram Swarozgar Yojana (SGSY) has been restructured into National Rural Livelihood Mission (NRLM) to provide self-employment opportunities. A sub-component, Mahila Kisan Sashaktikaran Pariyojana, under NRLM seeks to provide better targeting of women farmers. For NRLM, I propose to increase the allocation by over 34 per cent from `2,914 crore in 2011-12 to `3,915 crore in 2012-13.

110. In last year’s Budget I had announced creation of a ‘Women’s SHG’s Development Fund’. This has been set up in NABARD. In 2012-13, I propose to provide ` 200 crore to enlarge the corpus to ` 300 crore. This Fund will also support the objectives of Aajeevika i.e. the National Rural Livelihood Mission. It will empower women SHGs to access bank credit. I propose to provide interest subvention to Women SHGs to avail loans up to `3 lakh at 7 per cent per annum. Women SHGs that repay loans in time will get additional 3 per cent subvention, reducing the effective rate to 4 per cent. The initiative, in the first phase, would focus on selected 600 Blocks of 150 districts, including the Left Wing Extremism affected districts.

111. It is proposed to establish a Bharat Livelihoods Foundation of India through Aajeevika. The Foundation would support and scale up civil society initiatives and interventions particularly in the tribal regions covering around 170 districts. Private trusts and philanthropic organisations would be encouraged to partner with the autonomous body that will be managed professionally.

112. To encourage micro enterprises, a credit linked subsidy programme namely Prime Minister’s Employment Generation Programme (PMEGP) is being implemented through KVIC. The allocation for this programme has been increased by 23 per cent from `1,037 crore in 2011-12 to `1,276 crore in 2012-13.

Skill Development

113. In 2011-12 National Skill Development Corporation (NSDC) approved 26 new projects, thereby doubling the number of projects sanctioned since 2009 to 52, with a total funding commitment of ` 1,205 crore. At the end of 10 years, these projects are expected to train 6.2 crore persons and augment vocational training capacity by 1.25 crore per year in the private sector.

114. The NSDC partners have opened 496 permanent and 2429 mobile centres in 220 districts across 24 states. More than 89,500 persons have been trained and almost 80 per cent employed. Under NSDC, 10 Sector Skill Councils have been sanctioned. Of these, 3 Skill Councils for Automobile, Security and Retail sectors have become operational. For 2012-13, I propose to allocate ` 1000 crore to National Skill Development Fund (NSDF).

115. In order to improve the flow of institutional credit for skill development, I propose to set up separate Credit Guarantee Fund. This will benefit youth in acquiring market oriented skills.

116. A new scheme titled “Himayat” was introduced in Jammu and Kashmir from 2011-12. It aims to provide skill training to one lakh youth in the next five years. The entire cost of this programme is being borne by the Centre.

Social security and the needs of weaker sections

117. I am raising the allocation under the National Social Assistance Programme (NSAP) by 37 per cent from ` 6,158 crore in 2011-12 to ` 8,447 crore in 2012-13. Under the ongoing Indira Gandhi National Widow Pension Scheme and Indira Gandhi National Disability Pension Scheme for BPL beneficiaries, the monthly pension amount per person is being raised from ` 200 to ` 300.

118. On the death of the primary breadwinner of a BPL family, in the age group 18 to 64 years, a lumpsum grant of `10,000 is presently provided under the National Family Benefit scheme. I propose to double this amount to ` 20,000 and expect a matching contribution by the State Governments.

119. In order to promote voluntary savings towards pensions, a co-contributory scheme SWAVALAMBAN was started in September, 2010. Over 5 lakh subscribers have been enrolled by February 2012. In order to enhance access to this scheme, LIC has been appointed as an Aggregator and all Public Sector Banks have also been appointed as Points of Presence (PoP) and Aggregators.

Institutions that are being given grants

120. The driving force of a modern nation is research and the creation of new knowledge. With this in mind I propose to provide:
• ` 25 crore to the Institute of Rural Management, Anand;
• ` 50 crore to establish a world-class centre for water quality with focus on arsenic contamination in Kolkata;
• ` 100 crore to Kerala Agricultural University;
• ` 50 crore for University of Agricultural Sciences Dharwad, Karnataka;
• ` 50 crore to Chaudhary Charan Singh Haryana Agricultural University, Hissar;
• ` 50 crore to Orissa University of Agriculture and Technology;
• ` 100 crore to Acharya N. G. Ranga Agricultural University in Hyderabad;
• ` 15 crore to National Council for Applied Economic Research;
• ` 10 crore to Rajiv Gandhi University, Department of Economics, Itanagar; and
• ` 10 crore to Siddharth Vihar Trust Gulbarga, to establish a Pali language Research Centre.

Security

121. In the Budget for 2012-13, a provision of ` 1,93,407 crore has been made for Defence Services which include `79,579 crore for capital expenditure. As always, this allocation is based on present needs and any further requirement would be met.

122. Government is making efforts to increase the availability of residential quarters to forces. In 2012-13, it is envisaged to construct nearly 4,000 residential quarters for Central Armed Police Forces for which ` 1,185 crore is proposed to be allocated. A provision of ` 3,280 crore for 2012-13 has also been made for construction of office buildings including land acquisition and barracks to accommodate 27,000 personnel.

123. The scheme to create the National Population Register (NPR) is progressing well. It is likely to be completed within the next two years. The Government is also considering a proposal of issuing Resident Identity Cards bearing the Aadhaar numbers to all residents who are of age 18 years and above to help in the e-governance initiatives.

VI. Governance 
I now address some concerns in governance.

UID-Aadhaar

124. The enrolments into the Aadhaar system have crossed 20 crore and the Aadhaar numbers generated upto date have crossed 14 crore. I propose to allocate adequate funds to complete another 40 crore enrolments starting from April 1, 2012. The Aadhaar platform is now ready to support the payments of MG-NREGA; old age, widow and disability pensions; and scholarships directly to the beneficiary accounts in selected areas.

Black Money

125. Last year I had outlined a five pronged strategy to tackle the malaise of generation and circulation of black money and its illegitimate transfer outside India. Government has taken a number of proactive steps to implement this strategy. As a result:
• 82 Double Taxation Avoidance Agreements (DTAA) and 17 Tax Information Exchange Agreements (TIEA) have been finalised and information regarding bank accounts and assets held by Indians abroad has started flowing in. In some cases prosecution will be initiated;
• Dedicated exchange of information cell for speedy exchange of tax information with treaty countries is fully functional in CBDT;
• India became the 33rd signatory of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters; and
• Directorate of Income Tax Criminal Investigation has been established in CBDT.

126. I propose to lay on the table of the House a white paper on Black Money in the current session of Parliament.

Public Procurement Legislation

127. Government is committed to the enactment of a Public Procurement legislation to enhance confidence in public procurement and to ensure transparency and efficiency in the process. The Bill in this regard is to be introduced in the Budget session of the Parliament.

128. The following legislative measures for strengthening anti-corruption framework are in various stages of enactment:
• Prevention of Money Laundering (Amendment) Bill, 2011 introduced in Parliament with a view to bring certain provisions of the Act in line with global standards;
• Benami Transactions (Prohibition) Bill, 2011 is currently being examined by the Standing Committee on Finance. It would replace the ‘Benami Transactions (Prohibition) Act, 1988’; and
• National Drugs and Psychotropic Substances (Amendment) Bill, 2011 introduced in Parliament with a view to strengthen legal provisions for implementation of the national policy on Narcotic Drugs and Psychotropic Substances.

VII. Budget Estimates 2012-13
I now turn to the Budget Estimates for 2012-13.

129. The Gross Tax Receipts are estimated at ` 10,77,612 crore which is an increase of 15.6 per cent over the Budget Estimates and 19.5 per cent over the Revised Estimates for 2011-12. As a percentage of GDP, gross taxes are estimated at 10.6 per cent in BE 2012-13 as against 10.4 per cent in BE 2011-12. After devolution to States, the net tax to Centre in 2012-13 is estimated at ` 7,71,071 crore. The Non Tax Revenue Receipts for 2012-13 are estimated at ` 1,64,614 crore and Non-debt Capital Receipts at ` 41,650 crore. The temporary arrangement to use disinvestment proceeds for capital expenditure in social sector schemes is being extended for one more year to 2012-13.

130. The total expenditure for 2012-13 is budgeted at ` 14,90,925 crore. Of this, the Plan Expenditure for 2012-13 is ` 5,21,025 crore, which is 18 per cent higher than the Budget Estimates of 2011-12. This is higher than the 15 per cent increase projected in the Approach to the Twelfth Plan for 2012-13. I am happy to inform the Hon’ble Members that in the Eleventh Plan, we have been able to meet 99 per cent of the total plan outlay.

131. The Non Plan Expenditure for 2012-13 is budgeted at ` 9,69,900 crore which is 8.7 per cent higher than the Revised Estimates for 2011-12 and 18.8 per cent higher than the Budget Estimates for 2011-12. This increase is mainly on account of higher provision for major subsidies. While making adequate provisions for funding the desirable subsidies, as indicated earlier, I am determined to contain the increasing subsidy burden through measures including improved targeting.

132. The Plan and Non Plan resources transferred to States and Union Territories including direct transfers to State and district level implementing agencies are ` 3,65,216 crore in BE 2012-13. This includes ` 18,655 crore of grant to local bodies as per the recommendations of Thirteenth Finance Commission.

133. The year 2011-12 was one of challenges for fiscal management. Due to the slower economic growth, direct tax collection fell short by ` 32,000 crore of the Budget Estimates. At the same time, the Government absorbed duty reduction in petroleum sector with annual revenue loss of ` 49,000 crore. The Government had to incur higher expenditure on petroleum and fertiliser subsidy to insulate the people from the rising prices. While the outgo on account of subsidies increased, I have ensured that the entire amount is given in cash and not as bonds in lieu of subsidies. This is in line with the approach that I outlined in my Budget Speech for 2010-11.

134. The combined effect of lower tax and disinvestment receipts and higher expenditure, mainly on account of subsidies, has pushed the fiscal deficit to 5.9 per cent of GDP in the Revised Estimates for 2011-12. However, I have made a determined attempt to come back to the path of fiscal consolidation in the Budget for 2012-13 by pegging the fiscal deficit at ` 5,13,590 crore which is 5.1 per cent of GDP. After taking into account other items of financing, the net market borrowings through dated securities to finance this deficit is ` 4.79 lakh crore. With this, the total Debt stock at the end of 2012-13 would work out at 45.5 per cent of GDP as compared to the Thirteenth Finance Commission target of 50.5 per cent of GDP. The Effective Revenue Deficit in BE 2012-13 works out to ` 1,85,752 crore which is 1.8 per cent of GDP.

Part B
VIII. Tax Proposals
Madam Speaker,
I now come to Part B of my proposals.

135. The life of a Finance Minister is not easy. Various players, including policy makers, politicians, agriculturists and business houses, participate in the making of the economy. When everything goes well with the economy, we all share in the joy. However, when things go wrong, it is the Finance Minister who is called upon to administer the medicine. Economic policy, as in medical treatment, often requires us to do something, which, in the short run, may be painful, but is good for us in the long run. As Hamlet, the Prince of Denmark, had said in Shakespeare’s immortal words, “I must be cruel only to be kind.”

With this reminder, let me now turn to the tax proposals.

136. Last year, I had set the compass for movement towards the DTC in Direct Taxes and GST in Indirect Taxes. My tax proposals for fiscal year 2012-13 mark further progress in that direction.

Direct Taxes
I shall now deal with direct taxes.

137. Last year I provided relief to individual taxpayers by enhancing the exemption limit as a move towards DTC rates. Although DTC will not be effective from this year, I propose to introduce the DTC rates for personal income tax. I propose to enhance the exemption limit for the general category of individual taxpayers from `1,80,000 to `2,00,000. This measure will provide tax relief upto `2,000 to every taxpayer of this category. I also propose to raise the upper limit of the 20 per cent tax slab from `8 lakh to `10 lakh. The proposed personal income tax slabs are:

Income upto `2 lakh Nil
Income above `2 lakh and upto `5 lakh 10 per cent
Income above `5 lakh and upto `10 lakh 20 per cent
Income above `10 lakh 30 per cent
These changes will provide substantial relief to taxpayers.

138. I propose to allow individual taxpayers, a deduction of upto `10,000 for interest from savings bank accounts. This would help a large number of small taxpayers with salary incomes upto `5 lakh and interest from savings bank accounts up to ` 10,000, as they would not be required to file income tax returns.

139. Within the existing limit for deduction allowed for health insurance,
I propose to allow a deduction of upto `5,000 for preventive health check-up.

140. Senior citizens who do not have any income from business are proposed to be exempted from the payment of advance tax. This will reduce their compliance burden.

141. In the case of corporates, I am not proposing any change in the tax rates. However, I propose certain measures to allow corporates to access lower cost funds and to promote higher level of investments in several sectors.

142. In order to provide low cost funds to some stressed infrastructure sectors, the rate of withholding tax on interest payments on external commercial borrowings is proposed to be reduced from 20 per cent to 5 per cent for three years. These sectors are:

• power;
• airlines;
• roads and bridges;
• ports and shipyards;
• affordable housing;
• fertilizer; and
• dams

143. The restriction on Venture Capital Funds to invest only in nine specified sectors is proposed to be removed. It is further proposed to remove the cascading effect of Dividend Distribution Tax (DDT) in a multi-tier corporate structure. I also propose to continue to allow repatriation of dividends from foreign subsidiaries of Indian companies to India at a lower tax rate of 15 per cent as against the tax rate of 30 per cent for one more year i.e. upto March 31, 2013.

144. Investment linked deduction of capital expenditure incurred in the following businesses is proposed to be provided at the enhanced rate of 150 per cent, as against the current rate of 100 per cent.

• Cold chain facility
• Warehouses for storage of food grains
• Hospitals
• Fertilisers
• Affordable housing

145. The following new sectors are proposed to be added for the purposes of investment linked deduction:
• bee keeping and production of honey and beeswax
• container freight station and inland container depots
• warehousing for storage of sugar

146. To promote investment in research and development, it is proposed to extend the weighted deduction of 200 per cent for R&D expenditure in an
in-house facility beyond March 31, 2012 for a further period of five years.

147. I also propose to provide weighted deduction of 150 per cent on expenditure incurred for agri-extension services in order to facilitate growth in the agriculture sector.

148. For the power sector, besides access to low cost funds as outlined above, I also propose extension of the sunset date by one year for power sector undertakings so that they can be set up on or before March 31, 2013 for claiming 100 per cent deduction of profits for 10 years. Additional depreciation of 20 per cent in the initial year is proposed to be extended to new assets acquired by power generation companies.

149. For SMEs, the turnover limit for compulsory tax audit of accounts as well as for presumptive taxation is proposed to be raised from `60 lakh to
` 1 crore.

150. In order to augment funds for SMEs, I propose to exempt capital gains tax on sale of a residential property, if the sale consideration is used for subscription in equity of a manufacturing SME company for purchase of new plant and machinery.

151. Considering the shortage of skilled manpower in the manufacturing sector and to generate employment, I propose to provide weighted deduction at the rate of 150 per cent of expenditure incurred on skill development in manufacturing sector in accordance with specified guidelines.

152. In order to reduce transaction costs in the capital markets, I propose reduction in Securities Transaction Tax (STT) by 20 per cent (from 0.125 per cent to 0.1 per cent) on cash delivery transactions.

153. In order to moderate the outgo on profit linked deductions, I propose to extend the levy of Alternate Minimum Tax (AMT) on all persons other than companies, claiming profit linked deductions.

154. I propose to introduce a General Anti Avoidance Rule (GAAR) in order to counter aggressive tax avoidance schemes, while ensuring that it is used only in appropriate cases, by enabling a review by a GAAR panel.

155. I propose a series of measures to deter the generation and use of unaccounted money. To this end, I propose
• Introduction of compulsory reporting requirement in case of assets held abroad.
• Allowing for reopening of assessment upto 16 years in relation to assets held abroad.
• Tax collection at source on purchase in cash of bullion or jewellery in excess of ` 2 lakh.
• Tax deduction at source on transfer of immovable property (other than agricultural land) above a specified threshold.
• Tax collection at source on trading in coal, lignite and iron ore.
• Increasing the onus of proof on closely held companies for funds received from shareholders as well as taxing share premium in excess of fair market value.
• Taxation of unexplained money, credits, investments, expenditures etc., at the highest rate of 30 per cent irrespective of the slab of income.

156. My proposals on Direct Taxes are estimated to result in a net revenue loss of ` 4500 crore for the year.

Indirect Taxes

157. I shall now turn to indirect taxes. In a slight departure from the previous years, I shall begin with Service Tax.

Service Tax
158. At the end of June this year, this tax will attain adulthood by completing 18 years. It is therefore time to shift gears and accelerate ahead. However, service tax needs to confront two important challenges to sustain the journey. These are:
• The share of services in taxes remains far below its potential. There is a need to widen the tax base and strengthen its enforcement;
• Service Tax law is complex and sometimes avoidably different from Central Excise. We need to bring the two as close as possible in the light of our eventual goal of transition to GST.
I have attempted to address both these issues this year.

159. Last year, I had initiated a public debate on the desirability of moving towards taxation of services based on a negative list. In the debate that continued for the better part of the year, we received overwhelming support for this new concept. It has been perceived both as sound economics and prudent fiscal management.

160. Thus, I propose to tax all services except those in the negative list. The list comprises 17 heads and has been carefully drawn up, keeping in view the federal nature of our polity, the best international practices and our socio-economic requirements.

161. The important inclusions in the negative list comprise all services provided by the government or local authorities, except a few specified services where they compete with private sector. The list also includes pre-school and school education, recognised education at higher levels and approved vocational education, renting of residential dwellings, entertainment and amusement services and a large part of public transportation including inland waterways, urban railways and metered cabs.

162. Agriculture and animal husbandry enjoy a very important place in our lives. Practically all services required for cultivation, breeding, production, processing or marketing up to the stage the produce is sold in the primary markets are covered by the list.

163. In addition to the negative list, there is a list of exemptions which include health care, services provided by charities, religious persons, sportspersons, performing artists in folk and classical arts, individual advocates providing services to non-business entities, independent journalists, and services by way of animal care or car parking.

164. To take financial services to the door steps in rural areas, I have also exempted the services of business facilitators and correspondents to banks and insurance companies.

165. Construction services relating to specified infrastructure, canals, irrigation works, post-harvest infrastructure, residential dwelling, and low-cost mass housing up to an area of 60 sq. mtr. under the Scheme of Affordable Housing in Partnership are also included in the exemptions. To make the life of those who already own an apartment a little easier, I propose to raise the exemption for the monthly charges payable by a member to a housing society from ` 3,000 to `5,000.

166. The Year 2012 marks the beginning of the centenary year of Indian cinema. Despite the change in titles from Dada Saheb Phalke’s “Raja Harishchandra” to “Ra. One” in recent times, the industry has played a pivotal role in unifying our country in the wake of her considerable diversity. To add to their spirit of celebration, I propose to exempt the industry from service tax on copyrights relating to recording of cinematographic films.

167. Movement towards the negative list will result in reducing nearly 290 definitions and descriptions in the Act to 54, and the exemptions from the existing 88 to 10, of course merging some of the existing exemptions into a revised notification. In terms of number of pages, the law will be shorter by nearly 40 per cent.

168. As a measure of harmonisation between Central Excise and Service Tax, a number of alignments have been made. These include a common simplified registration form and a common return for Central Excise and Service Tax, to be named EST-1. This common return will comprise only one page, which will be a significant reduction from the 15 pages of the two returns at present.

169. Revision Application Authority and Settlement Commission are being introduced in Service Tax to help resolve disputes with far greater ease.

170. Cascading of taxes has been significantly reduced by permitting utilisation of input tax credits in a number of services such as catering, restaurants, hotel accommodation, pandal and shamiana and transport sectors.

171. Place of Supply Rules, that will determine the location where a service shall be deemed to be provided, are being placed in public domain for stakeholders’ comments and shall be notified when the negative list is put into effect. These rules will also provide a possible backdrop to initiate an informed debate to assess all the issues that may arise in the taxation of inter-state services for the eventual launch of GST.

172. I propose to set up a Study Team to examine the possibility of a common tax code for service tax and central excise which could be adopted to harmonise the two legislations as much as possible at the right time.

173. While the problems faced by exporters of goods with respect to taxes on input services was addressed earlier this year, disbursement of taxes that go into the export of services has been an irritant for long. I now announce a new scheme that will simplify refunds without resorting to voluminous documentation or verification. As an added incentive, such refunds will also be admissible for taxes on taxable services that have been exempted.

174. Rules pertaining to the Point of Taxation are also being rationalised, providing greater clarity and removing the irritants. Cenvat credits in a number of areas are being restored. There are a number of other proposals both for the facilitation of business and to check malpractices. I do not wish to take the valuable time of this House for discussing all these proposals.

175. You will notice that most of these measures are guided by the need to move towards a system that is simple, equitable and progressive but are unlikely to make the exchequer richer in any significant way. Looking at our vast commitments and to maintain a healthy fiscal situation, I propose to raise the service tax rate from 10 per cent to 12 per cent, with consequential changes in rates for services that have individual tax rates.

176. My proposals from service tax are expected to yield an additional revenue of ` 18,660 crore. Keeping in mind that the share of services in GDP is 59 per cent, you would agree that the proposed increase is not too harsh.

I shall now deal with proposals relating to the other indirect taxes.

177. In the wake of the global financial crisis in 2008-09, the standard rate of excise duty for non-petroleum goods was reduced from 14 per cent to 8 per cent in a phased manner. This rate was raised from 8 per cent to 10 per cent in Budget 2010-11. Given the imperative for fiscal correction, I propose to now raise the standard rate from 10 per cent to 12 per cent, the merit rate from 5 per cent to 6 per cent, and the lower merit rate from 1 per cent to 2 per cent. However, the lower merit rate for coal, fertilisers, mobile phones and precious metal jewellery is being retained at 1 per cent.

178. Large cars currently attract excise duty depending on their engine capacity and length. In keeping with the increase proposed in the standard rate, I propose to enhance the duty from 22 per cent to 24 per cent. In the case of cars that attract a mixed rate of duty of 22 per cent + `15000 per vehicle, I propose to increase the duty and switch over to an ad valorem rate of 27 per cent.

179. No change is proposed in the peak rate of customs duty of 10 per cent on non-agricultural goods. Barring a few individual items, the rates below the peak are also being retained.

180. I shall now take up relief proposals for specific sectors – especially those under stress. These have been formulated to stimulate investment and manufacturing growth.

Agriculture & Related Sectors

181. Carrying forward the initiatives taken for agriculture and agro-processing in the previous Budgets, I propose:
• to reduce basic customs duty from 7.5 per cent to 2.5 per cent on:
? sugarcane planter, root or tuber crop harvesting machine and rotary tiller and weeder;
? parts for the manufacture of these;
• to reduce basic customs duty from 7.5 per cent to 5 per cent on specified coffee plantation and processing machinery;
• to extend project import benefit to green house and protected cultivation for horticulture and floriculture at concessional basic customs duty of 5 per cent;
• to reduce basic customs duty on some water soluble fertilisers and liquid fertilisers, other than urea, from 7.5 per cent to 5 per cent and from 5 per cent to 2.5 per cent;
• to extend concessional import duty available for installation of Mechanised Handling Systems and Pallet Racking Systems in mandis or warehouses for horticultural produce.

182. Imports of equipment for initial setting up or substantial expansion of fertiliser projects are being fully exempted from basic customs duty of 5 per cent for a period of three years up to March 31, 2015.

Infrastructure

183. In the realm of infrastructure my proposals address some weaknesses in the troika of power, coal and railways.

184. Domestic producers of thermal power have been under stress because of high prices of coal. I propose to ease the situation by providing full exemption from basic customs duty and a concessional CVD of 1 per cent to Steam coal for a period of two years till March 31, 2014. Full exemption from basic duty is also being provided to the following fuels for power generation:
• Natural Gas and Liquified Natural Gas; and
• Uranium concentrate, Sintered Uranium Dioxide in natural and pellet form.

Mining

185. Better surveying and prospecting for minerals are essential for improving the productivity and efficiency of our mining sector. I propose to reduce basic customs duty on machinery and instruments for surveying and prospecting from 10 per cent or 7.5 per cent to 2.5 per cent. In addition, full exemption from basic customs duty is being provided to coal mining projects.

Railways

186. Over the next five years, Indian Railways are undertaking two major projects for passenger safety and better service delivery. These are – the installation of Train Protection and Warning System and upgradation of track structure for high speed trains. I propose to reduce basic customs duty on equipment required for their implementation from 10 per cent to 7.5 per cent.

Roads

187. Full exemption from import duty on specified equipment imported for road construction by contractors of Ministry of Road Transport and Highways, NHAI and State Governments is being extended to contracts awarded by Metropolitan Development Authorities.

188. Tunnel boring machines and parts for their assembly are covered by this exemption. I propose to allow their import free of duty without end-use condition.

Civil Aviation

189. India has potential for establishing itself as a hub for third-party Maintenance, Repair and Overhaul (MRO) of civilian aircraft. To actualize this potential, I propose to fully exempt from basic customs duty parts of aircraft and testing equipment imported for this purpose. As a measure of support to the airline industry, it is also proposed to fully exempt both new and retreaded aircraft tyres from basic customs duty and excise duty.

Manufacturing

190. My proposals for the manufacturing sector that needs support at this juncture, seek to provide relief through cost reduction of raw materials, inputs, components and capital goods.

191. To encourage enrichment of low-grade iron ore, of which we have huge reserves, I propose to reduce basic customs duty on plant and machinery imported for setting up or substantial expansion of iron ore pellet plants or iron ore beneficiation plants from 7.5 per cent to 2.5 per cent. My other proposals relating to the steel sector are as under:

• to reduce basic customs duty on:
? coating material for manufacture of electrical steel from 7.5 per cent to 5 per cent
? nickel ore and concentrate and nickel oxide/ hydroxide from 2.5 per cent or 7.5 per cent to Nil
• to enhance export duty on chromium ore from `3000 per tonne to 30 per cent ad valorem
• to enhance basic customs duty on non-alloy, flat-rolled steel from 5 per cent to 7.5 per cent.

192. Our textile industry, especially the weaving sector, urgently needs to modernise. I propose to fully exempt automatic shuttle-less looms from basic customs duty of 5 per cent. Similarly, full exemption from basic duty is being accorded to automatic silk reeling and processing machinery as well as its parts. It is also proposed to restrict these exemptions and the existing concessional rate of basic customs duty of 5 per cent only to new textile machinery. Second-hand machinery would now attract basic duty of 7.5 per cent. Other proposals on textiles are:
• to reduce basic customs duty on wool waste and wool tops from 15 per cent to 5 per cent
• to reduce basic customs duty on Titanium dioxide from 10 per cent to 7.5 per cent
• to extend full exemption from basic customs duty to aramid yarn and fabric used for the manufacture of bullet proof helmets

193. Excise duty of 10 per cent is applicable to branded ready-made garments with abatement of 55 per cent from the Retail Sale Price. Along with increase in duty to 12 per cent, I propose to enhance the abatement to 70 per cent. As a result, the incidence of duty as a percentage of the Retail Sale Price would come down from 4.5 per cent to 3.6 per cent.

194. Our MSME sector is fertile ground for the production of low-cost medical devices. In order to provide impetus to this sector, I propose to reduce basic customs duty to 2.5 per cent with concessional CVD of 6 per cent on specified parts, components and raw materials for the manufacture of some disposables and instruments. Full exemption from basic customs duty and CVD is also being extended to specified raw materials for the manufacture of coronary stents and heart valves. These concessions would be subject to actual user condition.

195. My other proposals to support the manufacturing sector include:

• Full exemption from basic customs duty on
? waste paper,
? LCD and LED TV panels, and parts of memory card for mobile phones
• Reduction of basic customs duty on specified raw materials for the manufacture of adult diapers from 10 per cent or 7.5 per cent to 5 per cent with CVD of 6 per cent and nil special CVD.

196. My attention has been drawn to the plight of a few sectors that are highly labour-intensive and produce items of mass consumption. As a measure of support, I propose to enhance basic customs duty on bicycles from 10 per cent to 30 per cent and on bicycle parts from 10 per cent to 20 per cent.

197. Full exemption from excise duty is currently available to hand-made matches while others attract the standard rate. It is proposed to reduce excise duty on matches manufactured by semi-mechanised units from 10 per cent to 6 per cent.

Health and Nutrition

198. It is proposed to extend concessional basic customs duty of 5 per cent with full exemption from excise duty/CVD to six specified life-saving drugs/ vaccines. These are used for the treatment or prevention of ailments such as HIV-AIDS, renal cancer, etc.

199. Protein deficiency among women and children is one of the most common sources of malnutrition in India. I propose to reduce basic customs duty on Soya protein concentrate and isolated soya protein from 30 per cent or 15 per cent respectively to 10 per cent. Simultaneously, excise duty on all processed soya food products is being reduced to the merit rate of 6 per cent.

200. Consumption of iodised salt prevents iodine deficiency and related diseases. I propose to provide a concessional basic customs duty of 2.5 per cent along with reduced excise duty of 6 per cent on iodine.

201. Probiotics are a cost-effective means of combating bacterial infections. It is proposed to reduce the basic customs duty on this item from 10 per cent to 5 per cent.

Environment

202. In order to fully realise our potential in the realm of solar energy, solar thermal projects need encouragement. I propose to fully exempt plant and equipment etc. for the initial setting up of such projects from special CVD.

203. Concessions have already been provided for encouraging the consumption of energy-saving devices. I propose to fully exempt a coating chemical used for compact fluorescent lamps, from basic customs duty. Excise duty on LED lamps is also being reduced to 6 per cent.

204. Specified parts required for the manufacture of hybrid vehicles enjoy full exemption from basic customs duty and special CVD with concessional excise duty/ CVD of 6 per cent. This concession is being extended to specified additional items and lithium ion batteries imported for the manufacture of battery packs for supply to electric or hybrid vehicle manufacturers.

205. One of the primary drivers of the current account deficit has been the growth of almost 50 per cent in imports of gold and other precious metals in the first three quarters of this year. I have been advised to strengthen the steps already taken to check this trend for better results. I propose to increase basic customs duty on standard gold bars; gold coins of purity exceeding 99.5 per cent and platinum from 2 per cent to 4 per cent and on non-standard gold from 5 per cent to 10 per cent. In sync with these, basic duty on gold ore, concentrate and dore bars for refining is being enhanced from 1 per cent to 2 per cent. On the excise side, duty on refined gold is being increased in the same proportion from 1.5 per cent to 3 per cent.

206. In order to prevent round-tripping, it is proposed to impose basic customs duty of 2 per cent on cut and polished, coloured gem stones at par with diamonds.

Additional Resource Mobilisation

207. I shall now take up my proposals on “demerit” goods. I propose to increase basic excise duty on cigarettes of more than 65mm length by adding an ad valorem component of 10 per cent to the existing specific rates. The ad valorem duty would be chargeable on 50 per cent of the Retail Sale Price declared on the pack.

208. I also propose to carry out a nominal increase in basic excise duty on hand-rolled bidis from `8 to `10 per thousand and on machine-rolled bidis from `19 to `21 per thousand. The existing exemption available to hand-rolled bidis for clearances up to 20 lakh bidis per annum is being retained.

209. Pan masala, gutkha, chewing tobacco, unmanufactured tobacco and zarda scented tobacco in pouches are leviable to excise duty under the compounded levy scheme. The rates of duty specified per packing machine for these items are being stepped up taking into account improvements in the efficiency of machines used by this industry.

210. Crude petroleum oil produced in India attracts a cess of `2,500 per metric tonne under the Oil Industries Development Act. This rate was last revised in Budget 2006-07. As a measure of indexation, I propose to increase the rate of cess to `4,500 per metric tonne.

211. Completely Built Units of large cars/ MUVs/ SUVs having engine capacity above a prescribed threshold and whose value exceeds US dollar 40,000 per vehicle are permitted for import without type approval. Basic customs duty on such vehicles is being enhanced from 60 per cent to 75 per cent ad valorem.

Rationalisation Measures

212. Packaged cement, whether manufactured by mini-cement plants or others, attracts differential excise duty depending on the Retail Sale Price per bag. It is proposed to prescribe a unified rate of 12 per cent + `120 PMT for non-mini cement plants and 6 per cent + `120 PMT for mini-cement plants. It is proposed to charge this duty on the Retail Sale Price less abatement of 30 per cent.

213. The House would recall that I had re-introduced a levy of excise duty of 1 per cent on branded precious metal jewellery in the last Budget. As a measure of rationalisation, I propose to include jewellery, not bearing a brand name, under its ambit. However, to simplify its operation and minimise its impact on small artisans and goldsmiths, I propose:

• to charge this duty on tariff value equal to 30 per cent of the transaction value;
• to extend small-scale exemption up to annual turnover not exceeding `1.5 crore for units having a turnover below ` 4 crore in the previous year;
• to compute turnover on the basis of tariff value; and
• to place the onus of registration and payment on the person who gets jewellery manufactured on job-work.

214. I propose to fully exempt branded silver jewellery from excise duty.

215. Building of commercial vehicle bodies is currently exempt from excise duty. In lieu of this duty, a specific rate of `10,000 is being charged on chassis in addition to the applicable ad valorem duty. This duty structure is regressive. It is proposed to convert the specific component of duty to an ad valorem rate of 3 per cent.

216. In the last Budget, excise duty exemption on ships and vessels including dredgers was withdrawn. Accordingly, CVD of 5 per cent became leviable on their imports. As the intention was not to levy this duty on the import of foreign-going vessels, I propose to exempt such vessels from CVD retrospectively. However, to ensure that ships, vessels and dredgers manufactured in India do not face disability vis-à-vis foreign-going ships converting into coastal vessels, necessary safeguard is being provided.

Baggage Allowance

217. Baggage allowance for Indians travelling abroad was last revised in 2004. I propose to increase the duty-free allowance for eligible passengers of Indian origin from `25,000 to `35,000 and for children of up to 10 years from `12,000 to `15,000.

218. My proposals relating to Customs and Central excise are estimated to result in a net revenue gain of ` 27,280 crore for a full year.

219. My proposals on Direct Taxes are estimated to result in a net revenue loss of `4500 crore for the year. Proposals relating to Indirect Taxes are estimated to result in a net revenue gain of `45,940 crore, leaving a net gain of `41,440 crore in the Budget.

220. For the Indian economy, this was a challenging year. A number of global and domestic factors militated against the growth that had revived in the last two years. But India has thrived under challenges and India will do so now. In the middle of every crisis, there is also an opportunity. It is an opportunity to re-think, re-assess and make way for new ideas and policies. It is in this spirit that I approached the Budget of this year. The aim is to create an enabling atmosphere for corporates, farmers, entrepreneurs and workers to take initiatives for robust growth. The aim is also to ensure that the benefits of growth reach all sections of population. India stands on the brink of a major resurgence. Whether or not today’s announcements make tomorrow morning’s headlines matters little, as long as they help in shaping the headlines that describe India a decade from now.

Madam Speaker, with these words, I commend the Budget to the House.

 Friday, March 16, 2012
Previous Budgets

Madhu Dandwante- 1990 Budget

Finance Minister :Madhu Dandwante
Budget Year : 1990

BACK

Madhu Dandwante

Sir, 1. I deem it a great privilege to have the opportunity to present the first Budget of the new Government.

2. Over a hundred days ago winds of political change swept the country. The new Government, which secured a massive vote of confidence of this Honourable House, transcending political affiliations, made a tryst with the nation to respect and implement the mandate it received from the people.

3. Let me, at the outset, deal with the economic situation that we inherited from the pevious Government. I do so not in a spirit of acrimony but with a view to revealing to the House the ground realities. The Central Government’s budgetary deficit was Rs.13,790 crores as on Ist December, 1989, a level nearly double the deficit projected for the whole year in the 1989-90 budget. Wholesale prices had risen by 6.6 per cent since the beginning of the financial year. The balance of payment was under strain and foreign exchange reserves (excluding gold and SDRs) were down to around Rs.5000 crores. Stocks of foodgrains had fallen to 11 million tonnes.

4. On a broader scale, the Economic Survey which was placed on the Table of the House only a few days ago deals with the current economic situation. I will not go into details but only highlight a few key points.

5. There has been some slowing down of growth in 1989-90. GDP is expected to rise by 4 to 4.5 per cent, industrial output by about 6 per cent and agricultural output by 1 per cent or so on the peak level reached in the previous year.

6. The price rise this year affects several commodity groups and the pressure of inflation is clearly linked to the fiscal imbalance. The budget deficit and money supply growth have been running well above target. The Revised Estimates for 1989- 90, which I will present a little later, indicate that the budget deficit is expected to be substantially higher than Rs.7337 crores projected in the budget estimates for 1989- 90. The growth rate of aggregate monetary resources was 16.5 per cent from the beginning of the financial year to 23rd February, 1990.

7. As regards the trade performance this year, exports have grown at the rate of 38 per cent and imports at 21 per cent in rupee terms in the first nine months of the year. But the pressure on reserves continues as the improvement on trade account is not sufficient to counter-balance the increase in debt-service obligations.

8. I have drawn attention to these features in order to highlight the constraints within which the new Government has to look for ways of fulfilling its mandate.

9. The first task of the new Government was to contain the rise in prices. A Cabinet Committee on Prices was formed and effective steps were taken to increase the supply of essential commodities, break the inflationary psychology and contain inflation. The price situation, however, remains a matter for concern and the management of inflation is one of the priority areas for this Government.

10. Adequate stocks of foodgrains are essential for maintaining price stability and our economic security. The Government has given a high priority to stepping up procurement efforts and to rebuilding of stocks. As a result, the procurement of rice has touched a new high of about 10 million tonnes already. Foodgrains stocks in the central pool have been augmented and stand at 11.67 million tonnes at the beginning of February compared to 8.34 million tonnes at the same time last year. Special attention has been given to increasing supplies of essential commodities and streamlining the Public Distribution System. Market intervention operations are being undertaken to stabilise open market prices of some sensitive commodities.

11. Another major problem before the country is the strain on our balance of payments position. In the last few years, large trade and current account deficits have been financed through depletion of foreign exchange reserves and growing recourse to foreign borrowings. To combat the pressures on the balance of payments and to ensure a viable situation over the Eighth Plan period, exports must command the highest priority. The alternative of higher foreign borrowing to finance our essential import requirements runs the risk of mortgaging our hard won economic independence. This is clearly unacceptable. Therefore, the new Import Export Policy 1990-93, to be announced on 1.4.1990, will accord top priority to exports and will give special encouragement for exports which earn high net foreign exchange. The priority for exports will also be reflected in our industrial policy and later I will outline some fiscal measures to promote export production.

12. Our import bill for bulk items is increasing rapidly. The oil consumption, for example, has been rising at the rate of around 8 per cent in the recent past. There has been a huge outflow of foreign exchange on this account. India’s foreign debt has been doubled in the last five years. This has added to our vulnerability. The trend has to be reversed. I am convinced that our people will make any sacrifice and meet any challenge in order to preserve our economic independence and spirit of self-reliance. We are ready to go through a period of austerity and hardship in order to avoid excessive foreign borrowings.

13. The fiscal imbalance is the root cause of the twin problems of inflation and the difficult balance of payments position. One of the targets of the Seventh Five Year Plan which was over achieved was deficit financing. While the projected deficit in the 7th Plan period was Rs.14000 crores, in reality it was more than double.

14. The management of the deficit will require the containment of expenditure growth. 1 can assure the House that we will spare no effort to reduce the burden of administrative expenditure. * But the restraint of expenditure also requires careful consideration of other areas of public spending which involve implicit or explicit subsidies. We have to ask ourselves whether these subsidies are really reaching the people they are meant to serve or whether there is a better way of providing the same benefit.

15. On the revenue side, the real issue is of tax compliance. Tax evasion is rampant. This generates black money and has other serious adverse effects on the economy, such as fuelling inflation and conspicuous consumption. Black money is also generated by shortages, artificially pegged prices and detailed physical controls. The “leakages” from public expenditure programmes also cause serious distortions in the economic and social structure of our society.

16. We will launch a sustained and multi-pronged drive against proliferation of black money which is a social sin and an economic evil. To improve tax compliance, we shall combine reasonable tax rates and simpler tax laws with effective tax administration and strong deterrents against evasion. The Revenue Department is being instructed to pay special attention to vulgar display of ill-gotten wealth, particularly on occasions, such as wedding receptions. We will come down with a heavy hand on those who give vent to their pomp and money power, by circumventing our laws and frittering away the scarce resources of the nation. The Economic Intelligence Bureau is being revamped to coordinate action against tax evaders and black money operators. The Act on “benarni” transactions will be recast to make it more difficult for economic offenders to hold wealth in “benami” forms.

17. Administrative curbs against black money must be backed by economic measures. We must reduce the scope of discretionary powers which provide sustenance to black money. Our economic policies will place greater reliance on general, nondiscretionary, fiscal and financial instruments and will reduce the role of ad hoc discretionary physical controls.

18. I have also received some suggestions from Honourable Members and fiscal experts on incentive scheme for “unearthing” of black money and channelling it into desired directions. The advantage claimed for such schemes is that, instead of being used for conspicuous consumption or unproductive investment, the unaccounted money can be diverted to create jobs or to serve some other socially useful purpose. The disadvantage is that these schemes generally provide for a more concessional tax treatment of the black money than the rates normally applicable. The different schemes tried out in the past did not yield much and were open to misuse. Human ingenuity manifests itself in strange ways. In the past, it found expression in converting the bearer bonds, issued with the laudable objective of bringing out black money, into alternate currency that exchanged hands at a premium. Thus the instrument to render 4 black money white was itself used with vengeance to reconvert white money into black!

19. Nevertheless, in the present situation, when our needs are large and resources are tight, there is perhaps a case for introducing a time-bound scheme which would permit undeclared incomes and hidden wealth to be used for one or more social purposes, such as, slum clearance, building of houses for lower and middle income groups, and setting up of specified agro-based industries in rural/backward areas. Subject to certain conditions, the source of monies declared under this scheme need not be questioned. There could be a suitable flat rate of tax on such income.

20. The Government would like to have a thorough debate in the Parliament before introducing a scheme of this type. I would very much welcome the views of the Honourable Members during the budget debate. In the light of these discussions the Government will take the final decision.

21. Domestic trade in gold is regulated under the Gold Control Act which was introduced in 1963 with the broad objective of curbing the demand for gold. The Act has been largely ineffective. It has also caused hardship and harassment to small goldsmiths. There is not much point in continuing with such an ineffective legislation. The Government, therefore, proposes to abolish the Gold Control Act. This step would benefit many artisans and small goldsmiths all over the country. At the same time, we will use the Customs Act more vigorously to prevent smuggling of gold.

22. Let me now turn to some issues of long-term development.

23. In the traditional growth pattern, while the poor at the grass root level suffered in silence without much benefit of growth trickling down to them, the affluent at the. top lived in splendid isolation and monopolised most of the gains of economic growth. The new Government rejects this trickle down theory of development. Instead, it would work for growth with equity ensured through employment oriented planning in which the decentralised institutions, of the four pillars state, aptly described by Dr. Ram Manohar Lohia as the ‘Choukhamba Raj’ will play a pivotal role.

24. Our first priority is employment In the eighties, our economy grew at around 5 per cent or more. But, according to a recent report of the National Sample Survey the number of persons who are chronically unemployed increased from 8 million in 1983 to 12 million in 1987-88. In addition, there are a vast number who are underemployed and whose earnings from work fall well short of a decent minimum. We believe that “every citizen has the right to productive and gainful work in order to live meaningfully and with dignity”. We would like to introduce an Employment Guarantee Scheme. However, the cost of doing so in all parts of the country are huge, and we do not have the necessary resources at this juncture. Nevertheless, it is proposed to make a beginning on an Employment Guarantee Scheme for the drought prone areas and areas with an acute problem of rural unemployment The allocation for the 5 employment schemes of the Department of Rural Development will be supplemented, to the extent feasible, during the course of the year.

25. Faster growth of agriculture must be an important part of this strategy. We have achieved impressive growth in yields in the areas of good irrigation but yields remain very low in large harts of the country which are rainfed or semi-arid. Our strategy for agricultural development must focus on increasing output in these areas through greater investment in irrigation, land development, and soil and moisture conservation. These investments will increase production. They will also generate greater absorption of labour in agriculture. Parallel to this effort, regions of high productivity should aim at diversification of agriculture and development of agrobased processing industries. This will provide the economic linkages between the rural economy and growing markets in urban areas, as well as potential markets abroad.

26. The country had adopted an Industrial Policy Resolution in 1956, which through the years, has governed our broad strategy for industrial development. It is surprising that there is no similar Agricultural Policy Resolution. Ibis Government will remove this lacuna. We will lay the basic foundations of agricultural development through the adoption of an Agricultural Policy Resolution. This will represent our national commitment in respect of a sector which is the hub of our economy. We invite all sections of the people to interact with the Government on the formulation of this Policy Resolution.

27. We are committed to ensuring that 50 per cent of the investible resources are deployed for the development of agriculture and rural development We have made a beginning, in this year’s Central Plan in which the share of the rural sector in budgetary support for the Central Plan will go up from 44 per cent in 1989-90 to 49 per cent in 1990-91. In addition, on the non-Plan side we are providing Rs.1000 crores for debt relief, and Rs.4000 crores for the fertilizer subsidy, which also go to benefit rural areas.

28. The steps for the inclusion of the land reforms legislation in the Ninth Schedule of the Constitution have already been initiated and the necessary constitutional amendment will be introduced. Simultaneously, various measures for the restructuring of the land relations are being worked out and we hope to initiate steps in this direction after due consultation with the State Governments.

29. Over the years, poor farmers, artisans and weavers have accumulated debt which they are unable to repay. They have been caught up in a vicious circle of indebtedness and low incomes which keeps them in perennial poverty. In order to relieve our farmers from the burden of debt, an assurance was given in the National Front’s manifesto that relief will be provided to farmers with loans upto Rs.10,000 as on 2nd October, 1989. I am glad to inform the House that we are now ‘ ready with the scheme of implementation of debt relief to fulfil the promise, and redeem the pledge given to the kisans and artisans.

30. It is proposed to introduce a scheme for providing debt relief which will have the following features. The relief will be available to borrowers who have taken loans upto Rs.10,000 from public sector banks and Regional Rural Banks. The relief will cover all overdues as on 2nd October, 1989 including short-term as well as term loans. There will be no limit on the size of the borrower’s land holdings. However, wilful defaulters, who in the past did not repay loans despite their capacity to do so, will be excluded. The Central Government will compensate the public sector banks and Regional Rural Banks suitably for the debts which are thus written off. Many of those who filed insolvency petitions and had taken loans below Rs.10,000 which were overdue as of 2nd October, 1989 will also be covered under the scheme.

31. The State Governments may also wish to introduce a scheme on the same lines in respect of cooperative banks within their purview. Subject to the constraint of resources, the Central Government will consider suggestions for helping State Governments in implementing a debt relief scheme on the same pattern in respect of cooperative credit institutions under their control.

32. I consider the debt relief measure as a positive step which will enable our farmers, artisans and weavers to increase their productivity. It is at the same time necessary to ensure that there is no erosion of the credibility of the banking system. Once the past over-dues are cleared, it is reasonable to expect that loans taken for current operations will be serviced promptly. The Scheme should contribute to better agricultural recoveries and better identification of wilful defaulters, who do not deserve any sympathy. Banks are being asked to set up a system of maintaining a proper credit history of their borrowers covered under the Scheme. The Government would also like to make it clear that the Scheme will not be extended nor will it be repeated.

33. The Government proposes to introduce changes in the formula for computing costs of production of agricultural crops for price fixation so as to take full account of all costs. In particular the formula will take into account (1) valuation of labour (including family labour) on the basis of statutory minimum wage, or actual wage, whichever is higher, (2) the remuneration for the managerial and entrepreneurial efforts of the farmer, (3) adjustment of procurement/support prices for the escalation in input costs between the announcement of the prices and the arrival of the crop in the market. The new formula will be reflected in the procurement support prices to be announced for the next kharif season. As procurement prices are revised in line with costs, the revision of issue prices is also unavoidable. In future, the Government will announce revision in procurement and issue prices at the same time even though these may take effect on different dates.

34. The threat to our environment can no more be ignored. It has been estimated that around 130 million hectares of land is degraded through soil erosion, salinity, total loss of tree cover, etc. Our forests are under pressure from a variety of sources. In urban areas, air and water pollution from industry, transport and other sources is widespread. A healthy environment is part of the quality of life and a productive environment is the basis for development. Our emphasis on rural development and decentralisation will allow us to integrate environmental considerations into the design of development.

35. Let me now turn to another area of great concern-that of unemployed youth. All of us who travel in our constituencies have seen the plight of young people able and willing to work, but unable to find employment. A long-term solution to this problem has to come from a shift to a more employment-oriented growth strategy. But as an immediate step we have decided to give a boost to measures which will assist the youth of this country to acquire the skills that will improve their prospects for gainful employment. A comprehensive Vocational Training Project has been taken up covering 28 States and Union Territories. The Project will improve the quality of craftsmen training, apprenticeship training and advanced training of industrial workers. We also propose to link training and the provision of credit support for self-employment.

36. Under the leadership of Dr. B.R. Ambedkar thousands belonging to the Scheduled Castes had embraced Buddhist religion in 1956 to seek liberation from caste oppression to which they were subjected for centuries. However, in the eyes of the orthodoxy the social stigma on the Scheduled Castes was not erased even after their conversion to Buddhism. It has, therefore, been decided by the Union Government that all the facilities and privileges that were available to the Scheduled Castes will be available to them from the Union Government even after their conversion to Buddhism.

37. A strategy for greater absorption of labour in agriculture has to go hand in hand with faster growth of industry and balanced development of infrastructure, specially power and transport. It is self evident that higher investment and faster growth in incomes in agriculture can be sustained only if industrial production increases to meet the rising demand for inputs and wage goods in particular. This Government will give priority to accelerating industrial growth in a competitive and non-monopolistic environment. The Government will review and simplify the Industrial Licensing Policy to ensure that licensing does not become an instrument for preventing competition and perpetuating monopolies.

38. The Khadi, Village and Small scale sector has a special role to play in any strategy for employment-oriented industrial development. We will work for the harmonious development of cottage, small and large industries and give protection against encroachment of large scale on small scale and small scale against cottage wherever necessary.

39. The withdrawal of the 15 per cent Central Investment Subsidy for Backward Areas has affected the growth of small scale industries. We must take industry to the people and not people to the industry. We propose to reintroduce a Central Investment Subsidy for small scale units in rural areas and backward regions.

40. A major problem faced by small industries is delay in the settlement of bills by large units. The provision of factoring services in which the task of realisation of the bill is taken on by an intermediary is one way of mitigating this. The House will be glad to know that some steps towards this end have already been taken by the Reserve Bank of India.

41. The problems of women entrepreneurs in the cottage and small sector are of particular concern to us. The provisions regarding margin money and seed capital for women entrepreneurs will be reexamined and liberalised.

42. There is a single window scheme for grant of working capital along with term assistance to new projects in the small scale sector by State Financial Corporations. This arrangement facilitates setting up of small scale units without waiting for finalisation of working capital limits from banks. The present limits of project cost for determining eligibility for such composite loans is being raised from Rs.5 lakhs to Rs.10 lakhs.

43. Reserve Bank has issued guidelines for provision of credit and rehabilitation of viable small scale units. These guidelines, are intended to assist the small scale sector and not create hurdles in its path. Banks are being asked to implement them faithfully.

44. The public sector is vital to our country’s development. It has played a major role in broadening the base for industrial and technological development in this country. The overall working results for the first six months of this financial year show a significant improvement in net profit from Rs.694 crores last year to Rs.1103 crores this year. In 1990-91, Central sector enterprises will finance 46 per cent of their plan investment from internal resources. We are committed to making the public sector more efficient and result-oriented so that it can generate more surpluses which can be ploughed back for development.

45. The health of the public enterprises depends crucially on the commitment of its employees and their full participation in management. It has been suggested that one way of securing this is to give workers a share in ownership either through stock option schemes or sale of shares to workers or to trusts owned by workers. Since the equity of public enterprises is not quoted in the market, arrangements will have to be worked out to determine the sale and purchase price of such worker’s shares. I invite suggestions from Honourable Members on the merits of this idea and how it could be implemented.

46. We are also firmly committed to the healthy development of capital markets, and to strengthen the role of public financial institutions. The institutions will be given functional autonomy. However they must also be accountable for their actions. The institutions will not be party to corporate battles and clandestine takeovers. The government would like to create an atmosphere and a culture where financial institutions can function objectively without fear or favour.

47. There has been some concern about the role of financial institutions in relation to their intervention in the capital market. I have asked these institutions to frame suitable guidelines so that their actions are not only objective but seen to be so. Each financial institution is expected to operate in the interest of its depositors and investors consistent with national priorities. There may be occasions when there is an abnormal and persistent upward or downward movement in share prices because of concerted bull or bear pressures. In such situations, the financial institutions will play a stabilising role in the capital market.

48. The growth of banking since nationalisation has been phenomenal. The banking system has been extended to the remotest part of our country. Banks are now playing a vital role in mobilising peoples’ savings and channelling them into productive areas. At the time of nationalisation, only 14 per cent of the bank credit was provided for the priority sector covering sections, such as, agriculture, rural development and small industries and businesses. Today, this proportion is nearly 45 per cent. This is the measure of the success of nationalisation.

49. There is one aspect of banking operations which is of concern to me. This is the low credit deposit ratio in some regions. A variety of factors determine this ratio. I have asked the Reserve Bank of India to pay special attention to this problem and further improve credit delivery in such areas consistent with financial discipline.

50. Our bank managers and employees are, as a group, the most qualified, dedicated and hard working. But it is also a fact that the level of public satisfaction with the banking services is not as high as it should be. Over the years, perhaps some structural rigidities have crept in. These need to be removed. There is need for greater competition and greater operational flexibility in respect of banking services. The banking culture has to be made more responsive to the needs of the public. I am requesting the Reserve Bank of India to set up a Committee of Bankers, bank employees, depositors and borrowers to consider these aspects and make recommendations to the Government.

51. The previous Government had announced the formation of the Securities Exchange Board of India (SEBI) in 1987. Three years have passed and the legislation for giving statutory authority to SEBI has not been introduced. We will ensure that this is done in this budget session.

52. Science and technology is the mainspring of development. We are proud of the capabilities that we have built up in critical areas like agriculture, space research, 10 atomic energy and defence. We will aim at utilising the talent of our scientists and engineers towards two basic ends: , – the development of appropriate technologies for agriculture, nonconventional and renewable energy and other employment intensive activities, – the establishment of a strong base of self reliance in critical areas of modern technology. Public spending on R & D, incentives for the use of indigenous technologies and policies to guide private research efforts will be oriented towards these objectives.

53. There is a large community of Indians settled abroad. They have achieved tremendous success in their chosen professions and occupations. True to the rich tradition of our ancient culture, their physical location has not weakened the strong intellectual, philosophical and social links that they have with the country of their origin. The Government will continue to provide special facilities for them to invest their savings in this country. The procedures will be simplified so that they can function with a sense of confidence and in line with declared national policy.

54. Let me now turn to the Revised Estimates for 1989-90 and the Budget Estimates for 1990-91. Revised Estimates for 1989-90 55. Revised Estimates of Expenditure for the current year show an increase of Rs.5620 crores over the Budget Estimates. Of this, Rs.4958 crores are on non-Plan account and Rs.662 crores on Plan account.

56. Honourable Members are aware of the strains on our security environment which unfortunately coincide with the strains on our economy. Hence, on the non- Plan side, Defence Services are being provided additional Rs.1500 crores to meet their essential requirements and committed expenditure. The provision for fertilizer subsidy will be Rs.950 brores more, mainly due to larger imports and clearance of arrear claims. There is an increase of Rs.276 crores in food subsidy, mainly for clearing arrears due to Food Corporation of India. An additional provision of Rs.468 crores has been made for export promotion and market development. Interest payments will be Rs.710 crores higher. The Government is of the view that the amount of compensation to be paid to the victims of the Bhopal Gas tragedy under Court order is too meagre for the magnitude of sufferings of these innocent people. The matter is under review in Court and in the meantime Government have decided to pay interim relief for the victims for which a provision of Rs.320 crores has been made which, inclusive of bank interest over a period of 3 years, will amount to Rs.360 crores. The increases are partly offset by savings in some areas notably in the lump sum provision made for dearness allowance consequent on transfer of liability on this account to the budget of the Ministries/Departments.

57. On the Receipt side, while collection from Corporation Tax and Customs duties are expected to more or less reach Budget estimates, the receipts from Union excise duties are estimated to be Rs.599 crores less than the budget. Income-tax collections, on the other hand, are expected to be more by Rs.755 crores. States’ share of taxes including the sums payable to States on the basis of collection figures certified by the C&AG for the earlier years are placed at Rs.13232 crores against Rs.12438 crores at the budget stage, i.e. Rs.794 crores more. The shortfall in net revenue receipts is expected to be more than off set by larger receipts from small savings, provident fund collections and special deposits of non-government provident funds, etc.

58. The overall deficit for the current year is now estimated at Rs.11750 crores against the budget estimate of Rs.7337 crores. Budget Estimates for 1990-91

59. The next financial year is the beginning of the Eighth Five Year Plan. This Government is irrevocably committed to planned economic development, and to making the plan more meaningful to the people. As a part of the new strategy, in the next year’s Plan, we have provided more for those programmes and schemes which benefit the people directly. We have favoured those programmes that create more jobs, generate self-employment opportunities, improve the living environment in our villages and strengthen our agriculture. This is the surest route to overcome poverty. An increase of 31.7 per cent on last year’s budget estimate is being provided for Agriculture and Allied Services, without taking into account the budget provision of Rs.1000 crores for the debt relief for farmers, weavers and artisans. The allocation for anti-poverty programmes, which are spread over different budget heads is being increased by about 23 per cent over last year’s budget estimate. This includes the outlay for employment programmes in rural and urban areas which is being increased by 30 per cent on last year’s budget estimate.

60. We have a firm commitment to accord highest priority to agriculture and rural development and our thrust and actions are in conformity with that commitment.

61. For the Central Plan 1990-91, I propose an outlay of Rs.39,329 crores – an increase of Rs.4,883 crores or 14.2 per cent over the current year’s outlay. Of this, Rs.17,344 crores will be provided as budgetary support and the balance of Rs.21,985 crores will be mobilised by the public sector enterprises through their internal resources as well as borrowings.

62. For the year 1990-91, an outlay of Rs.905 crores is proposed for the Department of Agriculture and Cooperation which represents an increase of 17.5 per cent over the budget estimates for the current year. In addition, I am also proposing an outlay of Rs.155 crores for agricultural Research and Education compared to the provision of Rs.110 crores in 1989-90 – an increase of 41 per cent.

63. I have already referred to the intention of the Government to make a beginning in respect of an Employment Guarantee Scheme. The Annual Plan outlay proposed for the Department of Rural Development is Rs.3,115 crores. It is my intention to provide some additional funds, within the constraint of resources, to enable an Employment Guarantee Scheme to be introduced in selected areas.

64. The Government is pledged to securing a fair deal for the most oppressed, exploited and deprived sectors of the society, namely, the Scheduled Castes and Scheduled Tribes. It is proposed to make a provision of Rs.320 crores for the schemes for Scheduled Castes and Scheduled Tribes in the Annual Plan 1990-91 as against Rs.269 crores in 1989-90 BE. The Special Central Assistance to Special Component Plans and Tribal Sub-Plans of States has also been increased.

65. The Government would intensify the efforts for eradication of illiteracy. The very fact that millions of voters in the country have to identify the names of candidates on the ballot papers only from the election symbols is itself a symbol of the extent of illiteracy. We have made 25 per cent increase in allocation for National Literacy Mission. Special attention to vocational programmes at all levels will be given. The process of modernisation of technical education, and support to thrust and frontier areas in science and technology will be maintained. I am proposing an outlay of Rs.865 crores for the Department of Education during 1990-91.

66. In all the programmes of health and family welfare services, special attention will be paid to the needs of the rural people. I am proposing an outlay of Rs.950 crores for the Ministry of Health and Family Welfare for 1990-91

67. The Government attaches great significance to the welfare of the weak, the poor and the deprived living in the urban areas. Major initiatives for employment, low cost sanitation for liberation of scavengers and provision for night shelters are proposed to be launched. The plan outlay of the Urban Development Sector is being increased to Rs.272 crores in 1990-91 from Rs.89 crores in 1989-90BE for this purpose.

68. The Annual Plan outlays for 1990-91 for the infrastructure sectors are proposed to be stepped up. The outlays for Petroleum and Natural Gas is proposed to be increased by 18.6 per cent, Railways by 12.4 per tent and Power by about 10 percent. 69. The details regarding Central Plan outlays for these and other sectors are in the Budget documents. I do not wish to take the time of the House in making my speech a substitute for the-voluminous budget documents, and thus deprive the Members of the excitement of reading these documents’.

70. Honourable Members will be happy to know that the Central assistance for State and UT Plans next year will be Rs.12,848 crores, including the Plan revenue grants recommended by the Finance Commission as against Rs.10,450 crores excluding drought assistance provided in Budget Estimates for the current year. Ibis represents a substantial step up of 22.9 per cent.

71. Budget Estimates for the next year provide Rs.64,515 crores for non-Plan expenditure as against Rs.59,220 crores in Revised Estimates for the current year. The main increase next year is under interest payments provision for which goes up from Rs.17,710 crores this year to Rs.20,850 crores next year.

72. The Government have appointed a Committee to consider the issue of One Rank One Pension in all its aspects. The Report of the Committee is expected by end of March, 1990 and government will take further action thereafter.

73. For Defence Services, a provision of Rs.15,750 crores has been made in the Budget Estimates. This increase in the defence expenditure is not of our choice. It is the direct result of the situation on our borders.

74. Freedom struggle is indivisible and therefore it has been decided that those who fought for Goa’s liberation from the Portugese rule will be eligible for Union Government’s pension and all other benefits available to other freedom fighters.

75. The Ninth Finance Commission has submitted its second report covering the period 1990-95, a copy of which was laid on the Table of the House last week along with a statement of decisions of Government on the recommendations. These have been taken into account while framing the Budget for next year. The recommendations of the Finance Commission accepted by Government will cast an additional burden of the order of Rs.773 crores on the Central Budget in 1990-91.

76. Government are alive to the important issue of checking proliferation of Government expenditure especially in non-priority and non-developmental areas. I am requesting all the Ministries and Departments to absorb the liabilites on account of additional instalments of D.A. which will be payable next year from within the budget provisions made for them by effecting economics and eliminating non-essential expenditure. I am, therefore, including only a nominal provision of Rs.100 crores in the next year’s budget as lump sum provision for D.A. This is mainly to meet the possible requirements of small Departments with limited budgets who may not find it possible to absorb D.A. increases to the full extent.

77. On the Receipts side, Gross Tax Revenue at the 1989-90 rate of taxation is estimated at Rs.57988 crores and the net tax revenue after payment to States of their share of taxes is placed at Rs.43507 compared to Rs.37798 crores in the Revised Estimates for die current year.

78. I have taken a credit of Rs.8000 crores on account of market borrowings as against Rs.7,400 crores in the current year. External assistance net of repayment is expected to be of the order of Rs.4327 crores in the next year as against Rs.3901 crores in the current year. Taking into account the other variations in receipts and expenditure the overall deficit for next year at the 1989-90 rate of taxation is estimated at Rs.9165 crores.

PART B

79. Having taxed your patience so far, now let me turn to other areas of taxation and reliefs for which you must have been waiting impatiently. Let me begin with my proposals in respect of direct taxes. I am introducing certain major changes in the rate structure for personal income-tax with a view to providing relief to low and middle income groups, and to make the savings linked incentives more equitable for taxpayers in different income slabs. My first proposal to raise the exemption limit is in fulfilment of a promise made in the National Front manifesto. I am raising the exemption limit for personal income taxation from Rs.18,000 to Rs.22,000. Roughly, one million persons will go out of the tax net as a result of this change. In deciding the new limit, I have had to balance two conflicting considerations. On the one hand, it is a fact that the lower income groups have been affected the most by price rise, and there is a case to raise the exemption limit. On the other hand, an increase in the limit narrows the tax base and involves substantial loss of revenue as the benefit of the increase is spread over all taxpayers, and is not confined to the lower end of the income levels. Experts have often argued that keeping in view our per capita income, raising of the exemption limit is not justified. However, as I temperamentally prefer to avoid taking extreme positions, I have chosen the middle course which I believe is fair and reasonable.

80. As further measure of relief to the lower and middle income groups, I am extending the lowest rate of 20% from the present limit of Rs.25,000 to Rs.30,000.

81. Last year, a surcharge at the rate of 8 per cent was introduced for financing employment programmes. Dropping this employment surcharge would have brought into question my irrevocable commitment to employment oriented planning. I, therefore, have no choice but to continue this surcharge. This will now be applicable beyond taxable income of Rs.75,000 as against the present limit of Rs.50,000.

82. As the Honourable Members are aware, the existing schemes of tax incentive to promote savings are based on deductions from income. A person gets tax relief at the highest marginal rate of tax applicable to him. Accordingly, it confers higher amount of tax benefit to a person with higher income vis-a-vis a person with a lower income. With a view to removing this inequity, I propose to introduce a system of tax rebate on the gross amount of savings under section 80C. Under the new system, a person contributing to provident fund, life insurance, National Savings Certificates, etc. as earlier, will now be entitled to a tax rebate calculated at the rate of 20%, on such savings. The maximum tax rebate allowable will be Rs.10,000 generally and Rs.14,000 in the case of authors, playwrights, artists, musicians, actors, sportsmen and athletes. This is broadly equivalent to she maximum relief available now. All persons will get the same amount of tax benefit on a given amount of savings, irrespective of their levels of income. The low income taxpayer will benefit.

83. Let me illustrate the impact of the above proposals. A person with a salary income of Rs.3,500 per month, i.e. Rs.42,000 per year, who saves Rs.8,000 per year in provident fund and insurance presently pays Rs.1,000 per year as tax. Under the new dispensation, he will not have to pay any tax at all. The upper income group will have to save Rs.50,000 to get the full relief of Rs.10,000. Under the old system they would have got the same relief by saving only Rs.39,500. I may mention in passing, that the new system of a uniform tax rebate will also lead to a substantial simplification in tax deduction at source by employers.

84. As a further incentive to save, I propose to increase the limit available for the savings incentives under section 80CCA from Rs.30,000 to Rs.40,000. Since the savings under this are on a ‘netting’ principle and are added back to income when withdrawn, the present system of deduction from taxable income will continue.

85. In addition to this, the Equity Linked Savings Scheme (ELSS) announced last year has how been finalised on a ‘netting’ principle. Investment in units under the Scheme, will be eligible for deduction upto a maximum of Rs.10,000 from the total income. The annual return on the investment in the units will be eligible for tax concession under section 80L. On repurchase of the units by the Mutual Funds, the capital amount representing the cost of the units win be taxed as income in the year of repurchase and the excess will be liable to tax as capital gains. The Equity Linked Savings Scheme will eventually replace the present deduction under section 80CC. Meanwhile, this provision is being extended for investments made upto 31st March, 1991.

86. In an effort to mitigate in some small measure, the hardship of parents or guardians of physically handicapped or mentally retarded persons with incomes upto Rupees sixty thousand per annum, I propose allowing a deduction of Rs.6,000 from the parent’s or guardian’s total income to cover expenses on medical treatment, training and rehabilitation of such persons.

87. I propose to increase the deduction in respect of professional income from foreign sources, available to authors, playwrights, artists, musicians, actors and sportsmen including athletes, from the existing rate of 25% to 50% of the income, or 75% of the foreign exchange brought into India, whichever is higher. In the case of professors, teachers and research workers also, the present provision has been liberalised to allow deduction of 75% of the foreign exchange brought into India.

88. I will now make my proposals in regard to corporate taxation. The corporate sector has often claimed that the rate of Corporate Tax is high and that this inhibits growth as well as tax compliance. On closer scrutiny, I find that the rate is only seemingly high, because the system provides too many exemptions. After all the admissible exemptions and deductions, the effective rate falls drastically. Many large and high profit making companies had been able to escape the tax net and were paying zero tax for a long time. That is why the contribution of the corporate sector to tax 16 revenue was not commensurate with the profits they earned; nor with the needs of national development. The tax system also tilted the balance in favour of capital intensive production.

89. To ensure better tax compliance, I propose a twin strategy. I am abolishing major incentives like Investment Allowance and Investment Deposit Account with a view to closing the escape route for the corporate sector to go out of the tax net; and having closed that route, I propose to fix the tax rate for widely held domestic companies at 40% with corresponding changes in rates for other domestic companies. This twin strategy will raise the effective tax rate and will also give substantial additional revenue of Rs.800 crores.

90. The only major deductions that will now be permitted are those relating to foreign exchange earnings and for setting up new industrial undertakings. The deduction for setting up new industries is being raised from 25 per cent to 30 per cent in the case of companies and from 20 per cent to 25 per cent for others. The period during which the benefit can be availed of is being extended from 8 to 10 yew.

91. With the abolition of the major exemptions, there is a case for also removing the special provision regarding tax on minimum profits contained in section 115 of the Income-tax Act. Accordingly, I propose to discontinue that provision with effect from the assessment year 1991-92.

92. I am also introducing an important change in the taxation of inter-corporate dividends. At present 60% of the dividend income received by a domestic company from another is exempt from tax. There is a tendency towards holding of personal wealth in the form of companies which are in effect closely-held. In order to encourage genuine investment activity while at the same time discouraging the use of corporate framework for holding personal wealth, I propose to exempt dividends received by domestic companies from other domestic companies to the full extent to which they themselves declare dividends during the relevant period. However, scheduled banks and public financial institutions would, in substance, continue to be governed by the provisions of section 80M as they presently stand.

93. The result of the reform of the corporate tax system proposed by me will be to increase the buoyancy, simplify the tax structure and make it neutral as between small and large companies. At the same time, it will provide strong incentive for export and for investment in new industrial undertakings.

94. Many small scale industries are organised as partnerships. I propose to raise their exemption limit from Rs.10,000 to Rs.15,000 and to lower the tax rates suitably.

95. Restoration of ecologically degraded areas fulfils the objectives of employment generation, enhances the supply of fuel wood and fodder and also contributes to the overall social, economic and environmental stability of the rural 17 areas. In order to promote afforestation, I propose to extend the provisions of section 35CCB and section 80GGA to taxpayers who contribute to a fund or programme for afforestation approved by the prescribed authority.

96. As in the case of personal income tax. I propose to continue the existing surcharge of 8% on corporate taxpayers also on all incomes above Rs.75,000.

97. I also propose to make a major change in the taxation of gifts. At present, gifts are taxed in the hands of the donor, but there is no limit on the amount which a donee can show as having been received by way of gifts. Because of this, the mechanism of gifts is used to split up capital and launder black money. Some instances have also come to notice recently where attempts have been made to explain away wasteful and ostentatious expenditure on marriage receptions and other functions as having been financed out of gifts. With a view to curbing such practices, I have decided to substitute the present gift-tax on donors with a donee based gift-tax. Any person, who claims his assets or his expenditures as having been financed from gifts, will now be liable to a gift-tax on a graduated scale. Thus he will have the pleasure of transferring a part of his bounty as a gift to the exchequer.

98. The primary purpose of the donee-based gift-tax is not to raise revenue but to check tax evasion and conspicuous consumption. In order to take care of legitimate gifts, there will be a basic exemption limit of Rs.20,000 per year. In the case of total gifts exceeding Rs.20,000 but not exceeding Rs.50,000, gift-tax will be levied at 20 per cent; for total gifts exceeding Rs.50,000 but not exceeding Rs.2,00,000 at 30 per cent; and for total gifts exceeding Rs.2,00,000 at 40 per cent. In addition, I also propose to allow for a substantially higher limit of rupees one lakh for gifts received from all sources by an individual at the time of marriage. Further, gifts received in foreign exchange through official channels will also be exempt.

99. I propose to make the new system applicable in respect of gifts made on or after 20th March, 1990. Consequently, the existing Gift-Tax Act taxing the gifts in the hands of donors will cease to be operative in respect of gifts made on or after that date.

100. Legislation to give effect to this new scheme is proposed to be introduced during the current session of Parliament.

101. I do not propose to take up the time of the House with other minor changes in the Direct Tax Laws.

102. As I mentioned earlier, there will be a gain in revenue from corporate tax to the extent of Rs.800 crores. The loss in revenue from income-tax other than corporate tax after providing for better compliance is expected to be Rs.250 crores. There will, therefore, be an additional accrual of Rs.550 crores in respect of direct taxes.

103. Sir, I shall now deal with my proposals relating to indirect taxes. The main thrust of the proposals is on simplification and rationalisation. Simultaneously, I have also attempted to mobilise some resources in a manner dud does not hurt the common man and at the same time helps to curb elitist consumption. A major emphasis has been on strengthening impulses for growth and exports. Significant changes in duty structure are also proposed to develop a quality culture in our industry. I have also not failed to give relief to the deserving sectors, particularly small scale industry, agriculture and environmental protection. All these measures have been described in some detail in the Explanatory Memorandum to the Finance Bill and I shall deal briefly with the more important of these proposals.

104. Presently, the import duty rates are widely dispersed. With a view to rationalising the rates and bringing down their multiplicity, the total of the basic and auxiliary duty rates of customs are being placed in a limited number of slots in the range of zero to 125% in respect of most items. Further, as a step towards rationalisation and simplification of the Central Excise Tariff, the duty rates are proposed to be recast for a large number of goods. Though as a result of the rationalisation, the duty rates on certain commodities may marginally go up or down, the proposals on the whole are intended to be broadly revenue neutral. The reduction in 6e number of rates in each Chapter of the Tariff will simplify assessment. It will be our endeavour to ensure a measure of stability for the ad valorem rates.

105. First, I shall take up the proposals which are in the nature of concessions in customs and excise duties.

106. Agriculture is a priority area in our framework of development and tax rates are already kept low on most of the inputs used in this sector. Specified pesticides and pesticide intermediates enjoy concessional rates of import duty of 70% and 60% respectively. I propose to reduce the import duty on a few more specified bulk pesticides and pesticide intermediates to these levels. The proposal involves a revenue loss of about Rs.16 crores.

107. In order to encourage the use of rape-seed oil and mustard oil, of which there is an abundant production in the country, I propose to completely exempt refined rape-seed oil and mustard oil which are currently attracting excise duty of Rs.750 per tonne. The revenue loss on account of this proposal is estimated to be Rs.8 crores.

108. I propose to remove excise duty on pickles altogether in the hope that this will lend some flavour and spice to my budget.

109. Excise duty on coffee is presently levied at the rates of Rs.78 and Rs.105 per quintal depending upon the variety. As a measure of relief to the coffee growers, I propose to reduce the duty to a uniform level of Rs.50 per quintal. This concession involves a revenue loss of Rs.4 crores.

110. Marine products constitute a major thrust area of the country’s exports. In order to make imported prawn feed more economical, I propose to reduce the duty on this item to 25%. In order to help modernisation of food processing and sea food industries, I propose to extend the concessional rate of import duty of 40% now available to certain specified machinery, to a few more items.

111. With a view to reducing the cost of cattle feed, I propose to completely exempt molasses used in its manufacture from the whole of excise duty. I also propose to prescribe concessional import duty of 40% in respect of certain items of equipment required in cattle breeding and dairying.

112. I propose to exempt fully foot-valves of certain specifications from excise duty in order to promote efficiency of agricultural pumps.

113. Presently, kraft paper and kraft paper-board used for apple packaging in Himachal Pradesh, Jammu and Kashmir and Uttar Pradesh are exempted from excise duty, as a measure to conserve forest wealth. I propose to extend this concession to packaging of all horticulture produce all over the country. This is expected to result in a revenue loss of Rs.5 crores.

114. I propose to extend M11 exemption from excise duty to hand made paper and paper board manufactured by units of Khadi and Village Industries Commission even when power is used in the process of sheet forming. I also propose to enhance the value limit for the purposes of excise duty exemption on footwear from Rs.75 to Rs.100 per pair in respect of such footwear made by units under KVIC as well as those run with the assistance of IRDP.

115. In addition to the measures outlined in the earlier part of my speech for the promotion of small scale sector, I also propose to extend some more fiscal concessions to this sector. Presently, small scale units are allowed complete exemption from excise duty in respect of clearance of goods upto a value of Rs.15 lakhs in case such goods fall under only one Chapter of the Central Excise Tariff. I propose to increase this value limit to Rs.20 lakhs. The total exemption available to goods cleared upto a value limit of Rs.30 lakhs, when such goods fall under more than one Chapter of the Tariff, will remain unchanged. The increase in exemption limit for small scale units involves a revenue loss of Rs.67 crores. The scheme of notional credit of 5% in the case of inputs manufactured in the small scale sector is also being continued for one more year from the Ist April, 1990. Further, the limit of value of clearance of goods in a financial year for the purpose of obtaining a central excise licence is being increased from the existing level of Rs.10 lakhs to Rs.15 lakhs. It has also been decided that the licensed small scale units having value of clearances upto Rs.20 lakhs in a year will henceforth be required to furnish only quarterly returns of production, clearance and duty payment. These changes are proposed to take effect from the lst April, 1990.

116. In order to reduce the prices of life saving drugs, I propose to exempt certain finished formulations containing Rifampicin, which is an anti-TB drug, from central excise duty. Specified bulk drugs which are required for the manufacture of certain fife saving medicines are also being exempted from customs duty. I propose to reduce the import duty on certain specified drug intermediates to 90%. These proposals involve a loss of revenue of nearly Rs.17 crores.

117. We are all aware of some recent tragedies involving unhygenically packed intravenous fluids. In order that the pharmaceutical industry is encouraged to employ latest techniques of aseptic packaging, I propose to reduce the import duty on aseptic form fill seal machines for use by that industry from the present level of 147.25% to 40%.

118. Certain life saving equipments are eligible for complete exemption from import duty. I propose to extend this benefit to certain specified instruments and implants for physically handicapped persons. I also propose to give some concessions in customs duty to components of hearing aids.

119. I propose to reduce the import duty on homeopathic medicines as well as on certain inputs for the manufacture of such medicines. This involves a revenue loss of about Rs.5 crores.

120. With a view to giving an impetus to industrial production and to boost exports, I propose to grant some concessions to capital goods and machinery.

121. There has been a feeling-that our exports are not able to face international competition due to high cost of imported capital equipment. A scheme is being worked out for making available to registered manufacturer-exporters the facility of import of capital goods at concessional rate of duty against suitable export obligation. Broadly, capital goods upto a specified value limit imported under the scheme would be eligible to a concessional import duty of 25%. This will be subject to the condition that goods of a minimum of three times the value of the imported capital goods are exported within four years from the date of importation., The details of this scheme will be announced in the new Import and Export Policy.

122. Concessional import duties have been prescribed from time to time on machinery required for various export thrust sectors. I propose to extend the concession to specified items of machinery for rubber belting industry and forged hand tool industry. The concession involves a revenue loss of Rs.8 crores.

123. In order to promote investment and strengthen indigenous capital goods sector, I propose to reduce the excise duty on such machinery on a selective basis by 5 percentage points. This concession will lead to loss of revenue to the extent of Rs.60 crores. I am one of those who believe that the indigenous capital goods sector is integral to our search for self-reliance. 1 hope, the reduction in excise duty will make our capital equipment more competitive and spur modernisation.

124. With a view to encouraging industrial units to invest in quality upgradation and strengthen quality control, I propose to prescribe a concessional import duty of 40% on specified instruments and equipments. The proposal involves a revenue loss of Rs.30 crores. Ibis substantial revenue loss is worthwhile in the interest of improving the quality of indigenous products.

125. In the interest of better environmental protection and pollution control. I propose to extend the present concessional customs duty of 40% to some more specified air and water pollution control equipments. At the same time, I propose to reduce the excise duty on certain specified pollution control equipments from 15% to 5%.

126. Heavy investments are required for the upgradation of the facilities available at the airports. I propose, as a measure of relief, to reduce the import duty on navigational, communication, air traffic control and landing equipments imported by the National Airports Authority of India to a level of 25%. The proposal involves a revenue loss of Rs.7.5 crores.

127. In order, to promote establishment of telecommunication network in rural areas, I propose to reduce the excise duty on specified telecommunication equipment from the existing rate of 20% to 15%. This will lead to a revenue loss of Rs.15 crores.

128. I propose to reduce the excise duty on dry cell batteries from 35% to 30%. The relief will involve a revenue loss of Rs.10 crores.

129. It has been represented that film industry is facing difficulties on account of video piracy. In order to help combat this menace by simultaneous release of prints in a number of cinema houses, I propose to fully exempt feature films from excise duty. The proposal would involve a revenue loss of Rs.8 crores. I hope, with this incentive, the films which had gone into slow motion will regain their lost momentum.

130. In order to give relief to the newspaper industry, I propose to reduce the import duty on standard newsprint by Rs.100 per tonne.

131. As a matter of administrative simplification, I propose to shift the incidence of excise duty from truck body building activity, which is mostly in the unorganised sector, to motor vehicle chassis.

132. Now I move on to a package of proposals relating to the textile industry. These aim mainly at simplifying and rationalising the tariff structure, minimising the scope for evasion and ensuring a lower rate of duty for most varieties of cheaper fabrics. There are essentially two sets of proposals. The first relates to duty rationalisation at the fabric stage and the second, to changes in excise and import duties on man-made fibres and yarns as well as the intermediates used to produce them.

133. There is a growing concern about the plight of the handloom weaver. It is widely believed that one of the main causes of the distress is the neutralisation of the 22 tax concessions given to this sector by wide-spread tax evasion at the processing stage. There is thus a near unanimous view in favour of transferring the excise duty from fabrics to yam, which I share. However, in the case of man-made fabric, the entire duty is by way of additional excise duty in lieu of sales tax. Therefore, any change in the duty structure can be made only in consultation with the States. I propose to consult the Chief Ministers shortly in this regard.

134. A part of the duty on cotton fabrics is, however, in the shape of basic excise duty. As a first step, I propose to transfer the whole of the basic duty on cotton fabrics to yarn. As the hank yarn used by handlooms will continue to be exempted, the price differential between hank yarn and cone yarn would be widened and this should greatly improve the competitiveness of the handloom sector.

135. Since at present the additional excise duty at the processing stage cannot be shifted to yarn without consultation with the States, I have attempted to rationalise the duty structure on fabrics. The number of slabs in the case of manmade fabrics is being reduced in a manner that the duty on fabrics becomes more equitable and the administration of tax laws more efficient. The rationalisation will also, I believe, greatly reduce evasion and consequently improve realisation.

136. Let me turn to man-made fibres, yams and the intermediates used to produce them. Honourable members will recall that duties were reduced substantially on manmade textiles in 1985 and 1988. While the incidence of taxes was lowered, there have been complaints that the consumer did not get the corresponding benefit I have thus tried to revise die duty structure keeping in mind the ability of different sectors to bear the additional burden. This will also help the competitiveness of the handloom sector where the dominant fibre is cotton. The major changes I am proposing are: – imposition of a basic excise duty of Rs.4.40 per kg. on PTA and Rs.3.60 per kg. on DMT which will yield Rs.80 crores, – increase in the basic excise duty on polyester filament yarn from around Rs.50 to Rs.55 per kg. and on nylon filament yam from around Rs.37 to Rs.50 per kg. yielding additional revenue of Rs.156 crores, – increase in the basic excise duty on viscose staple fibre from around Rs.7 to Rs.8.50 per kg. leading to a revenue gain of Rs.15 crores, – reduction in the basic duty on polyester staple fibre from around Rs.14 to Rs.8.50 per kg. involving a revenue loss of Rs.65 crores and – some reduction in the basic duties on various polyester blended yams.

137. In order to ensure a measure of price discipline in this industry, I propose to reduce import duties, – on DMT and PTA from 195% to 150%, 23 – on NFY from 130% to 100%, – on PFY from 205% to 180% and – on VSF from 55% to 40%. The revenue loss from these duty reductions will be marginal since actual imports am not expected to be significant.

138. Keeping in view the sharp decline in the international price of MEG, I propose to raise the import duty on this item from 90% to 150%. This will result in an additional revenue of nearly Rs.48 crores.

139. Honourable Members may recall that for providing cheap cloth to the weaker sections of the society and to encourage the development of the handloom sector, additional excise duty under Textiles and Textile Articles Act was levied in 1978. The present rate of this duty is generally 13.64% of the basic excise duty. In addition to this duty, a cess at the rate of 2.5 paise per square metre is levied on fabrics for the purpose of developing khadi and other handloom industries. I propose to merge both these levies by raising the additional duty from 13.64% to 15% of the basic excise duty.

140. There are certain other rationalisation measures relating to textiles including marginal adjustment of duty rates on acrylic fibre, polypropylene staple fibre and filament yarn etc., without significant revenue implications.

141. The jute industry needs encouragement for diversification of its products. I propose to fully exempt jute blankets, floor coverings, mattings and bleached, printed and dyed jute fabrics from excise duty. Full exemption available to jute yam supplied to KVIC units is also being extended to the handicraft sector.

142. I hope, having relished so far the liberal reliefs, the Honourable Members will not now grudge some revenue earning measures.

143. The family members of my smoker friends would, I am sure, be expecting an increase in the rates of excise duty on cigarettes in the interest of the health of the smokers. I will not disappoint them. The increase in duty will be 15 paise for the cheaper cigarettes and 75 paise in the case of costlier cigarettes per packet of ten. There will be no change in the duty rate on non-filter cigarettes of length upto 60 mm. 1 would hasten to add that I do not propose any change in the excise levy on biris. This measure is estimated to yield additional excise revenue of Rs.131 crores. I shall be more than happy if my actual collections are much less due to fall in cigarette consumption.

144. Some sympathetic increase in the excise duty rates on pan masala is also being made to yield additional revenue of Rs.6 crores.

145. I propose to increase the excise duty on cocoa and cocoa preparations from 10% to 15%, on jams, marmalades etc. from 5% to 10% and on ice cream from nil to 10%. The revenue gain from these measures will be of the order of Rs.26 crores.

146. The House will agree that items used by the affluent sections of the society must bear a higher burden of levies. I propose to increase the excise duty on certain items like microwave oven, washing machine, certain sophisticated varieties of audio systems, video cassette recorder and player, electronic games and relatively high priced cooking ranges.

147. I propose to increase the excise duty on motor cars from 35% to 40%. This measure will yield additional revenue to the tune of Rs.79 crores. I do not propose to make any change in the excise duty on two wheelers and tractors.

148. The specific duty rates of excise on refrigerators, air-conditioners of capacity upto 1.5 tonnes and automotive gas compressors are being increased. I propose to enhance the excise duty on car air-conditioning parts including those forming the kit from 40% to 65%. These proposals involve a revenue gain of Rs.14 crores.

149. Tyres and tubes, except for a few varieties, are currently subject to central excise levy at specific rates. On these items, owing to recurring increase in prices, the duty incidence in ad valorem terms has come down. As a corrective measure, I propose to raise the existing specific rates on tyres and tubes. However, I do not propose any increase of duty on tractor, trailer and two wheeler tyres and tubes. This, along with certain other rationalisation measures, is likely to yield a revenue gain of about Rs.40 crores.

150. I propose to raise the specific rates of basic duties of excise on iron and steel. The increase will generally be Rs.500 per tonne in the case of stainless steel items and Rs.100 per tonne in the case of other items. In the case of downstream dutiable products, MODVAT credit would continue to be available. The revenue gain from this proposal is of the order of Rs.104 crores.

151. Presently, the total rate of import duty on most of the stainless steel and articles thereof is 345%. I propose to bring down the rate to the level of 200%. The proposals in regard to customs duties on these and other steel items are expected to result in the loss of revenue to the tune of Rs.10 crores.

152. At present, the country has a surplus production of aluminium. In order to discourage imports, I propose to increase the basic customs duty on aluminium ingots by Rs.3500 per tonne. 153. Major plastic raw materials attract excise duty ranging from 30% to 65%. However, the rate of duty on polystyrene is only 20%. As a measure of rationalisation, I propose to increase this rate to 30%. The proposal is expected to yield additional revenue of Rs.5 crores.

154. I propose to increase the basic excise duty on paste grade PVC used in the manufacture of leather cloth from Rs.15000 to Rs.20000 per tonne as an anti-evasion measure. The excise duty rates on PVC coated textiles are also proposed to be revised upwards. These measures are expected to yield Rs.17.5 crores.

155. At present, various categories of paints and varnishes are liable to excise duty at different rates ranging between 15% and 35%. I propose to rationalise the rates by keeping only two levels of duty at 15% and 30% as against the present five rates. The proposal involves prescribing a uniform excise duty of 15% on insulating varnishes and water based paints and 30% on oil based and plastic based decorative paints. The proposal would yield a revenue of Rs.9 crores.

156. Currently special excise duty at the rate of 1/20th of the basic duty of excise is being levied on indigenously produced goods. However, for the computation of countervailing duty of customs on imported goods, special excise duty is not taken into account. I do not think such a distinction is warranted. I propose to subject the imported goods to countervailing duty on the basis of the excise duty inclusive of special excise duty. This proposal is expected to yield customs revenue of Rs.60 crores.

157. The Baggage Rules relating to free allowance admissible to passengers arriving from foreign countries are being modified. The general free allowance is being increased from the existing level of Rs.1250 to Rs.2000 per passenger. There will be a uniform duty rate of 250% for baggage in excess of this limit as against the existing 175% and 245%. 1 also propose to prescribe a uniform duty rate of 25% on specified articles brought by passengers coming from abroad after a period of stay of more than one year, subject to certain conditions. The revised measures will take effect from the 1st April, 1990.

158. Provision is being made for continuance of auxiliary duty of customs and special excise duty at the existing rates.

159. As the Honourable Members are aware, Inland Air Travel Tax was introduced in the Budget of last year. The tax is leviable at 10% of one component of the total air fare, namely, basic fare. I propose to levy the tax at the existing rate on the full air fare. The estimated revenue gain from the proposal will be Rs.15 crores.

160. As I mentioned in the earlier part of my speech, in recent years our consumption of petroleum products has risen sharply. Honourable Members are also aware that petroleum prices abroad have been hardening. The greater dependence on import has led to a large outflow of foreign exchange and higher overall foreign borrowing. It has now become necessary to review the domestic prices of petroleum products. Keeping in view the interests of the common man, there will be no increase, I repeat, no increase in prices of kerosene and LPG cylinders. There will also be no increase in prices of naphtha for fertilizers and other uses. natural gas, furnace oil for  industry, bitumen for roads and low speed diesel oil for farmers. Among the selected items whose prices are being revised with effect from this midnight are motor spirit, high speed diesel oil and aviation turbine fuel for domestic users. While the price of motor spirit is being raised by Rs.1.25 per litre ex-storage, the price of high speed diesel oil will go up by 54 paise per litre. The price of aviation turbine fuel will increase by Rs.1320.45 per kilolitre. The increase in retail prices will vary from State to State depending on transportation charges and the incidence of local taxes and levies. I propose to mop up a part of the gain accruing to the oil companies as a result of price revision. The import duty on crude oil is being increased from Rs.1060 to Rs.1500 per tonne. This will yield a revenue of Rs.836 crores.

161. The government is compelled to perform this painful duty of increasing the prices of some petroleum products. But these are the hard options forced on us by the grave fiscal situation, rising external debts, and the difficult balance of payments position. We could have postponed these options only at the peril of our economic independence and self-reliance.

162. I have also proposed certain amendments in the Finance Bill seeking to effect changes in the excise and customs tariffs. These amendments are generally enabling provisions and have no revenue significance. Besides, there are proposals for amendment of some of the existing notifications. In order to save the time of the House, I do not propose to recount them.

163. The proposals in regard to changes in die excise duties outlined above are likely to yield additional revenue of Rs.778.63.crores. The concessions and reliefs announced aggregate to Rs.388.44 crores. Out of the net additional shareable revenue from excise duties of Rs.390.19 crores, the centre’s share would be Rs.217.12 crores and the States share is Rs.173.07 crores.

164. My tax effort in respect of customs duties will bring in Rs.979.79 crores. Net of reliefs amounting to Rs.144.76 crores, the additional revenue from customs duties accruing to the Centre will be Rs.835.03 crores. Besides, the changes in the Inland Air Travel Tax would yield Rs.15 crores.

165. Copies of notifications giving effect to the changes in customs and excise duties effective from the 20th March, 1990 will be laid on the Table of the House in due course.

166. I now have something to say on behalf of my Honourable colleague, the Minister of Communications. Postal Service is highly employment intensive and salary and allowances constitute a major part of the operating expenses of the Postal Department. The grant of additional instalments of Dearness Allowance and increases in other operational expenses add significantly to these costs. The postal rates do not meet even the direct cost of most of the services. A revision of tariff for some postal services has, therefore, become unavoidable. However, in the interest of the common 27 man and cheap and wider dissemination of information, there will be no change in the tariff for ordinary postcards and registered newspapers. The rate of printed postcard, which is used mainly for business purposes, is being raised from 40 paise to 60 paise, of inland letter card from 50 paise, inclusive of the stationery charge, to a consolidated amount of 75 paise, and of envelopes to a uniform rate of Re. one for every 20 grains without any stationery charge. There are also certain other changes which are explained in the memorandum circulated alongwith the Budget documents. The changes would take effect from a date to be notified after the Finance Bill is passed. The revisions proposed are estimated to yield an additional revenue of about Rs.207 crores in a full year and about Rs.172 crores in 1990-91.

167. Honourable Members will recall that the 46th Constitution Amendment Act, 1982 gave enabling powers to the Parliament to levy a tax on consignment of goods where such consignment takes place in the course of inter-state trade or commerce. However, there have been differences of opinion on the modalities of implementation of this law and the matter has been discussed in various meetings of the Chief Ministers. The broad parameters have now been settled and a Committee of Chief Ministers was appointed to work out the guidelines for granting exemptions from this tax, both by the Centre and the States. I propose to consult the Chief Ministers shortly to take a final view in the matter.

168. I had earlier mentioned that the budget deficit at the existing rates of taxes would be Rs.9165 crows. Taking into account the net additional yield from the modifications proposed in direct and indirect taxes and the revised postal tariff, the deficit for the next year is estimated at Rs.7206 crores. Honourable Members will note that this deficit is substantially lower than the deficit of Rs.11750 crores in the revised estimates of 1989-90. In order to give the right signal and contain inflationary pressure, I have also tried to keep next year’s deficit even lower than the budget estimate of Rs.7337 crores for the current year.

169. It is my firm determination that the deficit provided for in the budget should not be exceeded. A half-yearly review of the actual developments in the budgetary situation will be made, and the people and the Parliament kept informed about the performance in relation to the deficit.

170. We need to make our fiscal and tax system more stable and predictable. The system of making a large number of changes in the tax rates and tax laws every year, apart from introducing uncertainty, casts a severe burden on the administrative system. It also affects compliance and increases litigation. While some changes in tax rates and laws are inevitable, it is desirable to keep the basic structure stable at least for some time. With this end in view, the Government will present a document on the Long Term Fiscal Policy to Parliament.

171. With this, I have come to the end of my labours. We faced a fiscal situation which constituted a threat to the economic strength and stability of our country. The 28 choice before us was to let things drift, borrow more and consume more or to take the corrective action now, however difficult. We have made our choice. We have taken some resources from the rich and used them to give some relief to the poor and the common man.. We have begun a process to restrain the budgetary deficit and contain the inflationary pressure. We have tilted the balance of planning and investment towards the rural areas and in favour of employment.

172. As a man of science, wedded to non-doctrinaire socialism, I consider experimentation and its results the touchstone on which can be tested the relevance of all social and economic perceptions and policies.

173. This is the essence of pragmatism and the quintessence of the unending quest of socio-economic experimenters like Gandhiji, Jaya Prakash and Acharya Narendra Dev.

174. Mr. Speaker, with my irrevocable commitment to such a pragmatic approach, I present this Budget to this august House as a short term device to move steadily, and yet resolutely, towards the long term objective of ensuring growth with equity and self-reliance. In this endeavour, I seek the wholehearted support of the people through their chosen democratic instrument – this honourable Parliament.

175. Sir, I commend the Budget to the House. [19th March, 1990]

Previous Budgets

Manmohan Singh – 1993 Budget

Finance Minister : Manmohan Singh
Budget Year : 1993

BACK

Manmohan Singh

PART A

Sir,  I rise to present the budget for 1993-94.

2 . It is now twenty months since our government took office: twenty eventful  months in which we have worked ceaselessly to overcome the very difficult economic  situation we inherited. In June, 1991, the economy was in the throes of an  unprecedented balance of payments crisis. A savage squeeze had been imposed on  imports; international confidence had collapsed; industrial production was falling;  and inflation was on the rise.

3 . The sense of crisis is now behind us. We have restored a measure of  normalcy to our external payments. The annual rate of inflation has been reduced  from the peak of 17% in August, 1991 to below 7%. International confidence has  been restored. Agriculture has performed well in the current year and industrial  production is beginning to recover. The growth of the economy, which had declined  to 1.2% in 1991-92, is expected to be around 4% in 1992-93. The economic strategy  we have followed, resting on the twin pillars of fiscal discipline and structural  reform, has been vindicated by the decisive upturn.

4 . Fiscal discipline was necessary because the government had lived for too  long beyond its means. The rising fiscal deficits of the Central Government were  the root cause of our balance of payments problem, rising prices and high rates of  interest. We have made good progress by reducing the fiscal deficit from 8.4% of  GDP in 1990-91 to about 5% in the current year.

5 . Policies of structural reform aimed at increasing efficiency in resource  use and improving our international competitiveness were crucial for providing a  lasting solution to the payments crisis. It was necessary to restructure our trade  and industrial policies, encourage efficiency through greater domestic competition,  allow our producers to have access to imports at reasonable rates of duty, encourage  foreign investment and upgradation of technology, and progressively integrate the  Indian economy with the world economy. Without these reforms, India would face  the certain prospect of entering the 21st century as just about the poorest country   in Asia. I am convinced that the Indian people would never tolerate such an outcome.  India’s natural and human resources entitle us to think in terms of becoming a  major powerhouse of the world economy. Our reforms are inspired precisely by this  vision.

6 . The policy initiatives we have taken do not in any way reduce our  commitment to take care of the poor and the disadvantaged. On the contrary, we  have taken steps to minimise the burden of adjustment on the poor and working  classes. We have disproved those professional prophets of gloom who were predicting  millions of people becoming unemployed.

7 . When we embarked on this path, we knew that the benefit of our policies  would only be seen after three to four years. Patience is therefore essential.  Nevertheless, Honourable Members can take comfort that the early results are  certainly encouraging. Inflation is down and production is beginning to recover.  Fears of being swamped by imports as a consequence of liberalisation have proved  to be grossly exaggerated. Despite the virtual removal of import licensing in 1992-  93, total imports in 1992-93 in US dollars are likely to be lower than in 1990-91.  Although the rupee has been floated for most current account transactions, the  market exchange rate has remained relatively stable. The investment climate has  improved considerably. Corporate capital issues by non-Government public limited  companies in April-October, 1992 were 67 percent higher than in the same period  of the previous year. Loans sanctioned by financial institutions in the first ten  months of 1992-93 were 49% higher than in the same period of the previous year.  Foreign investors are showing active interest in investment in many sectors, including  critical infrastructure sectors such as power and petroleum. Since August 1991  the approvals given for foreign investment proposals upto the end of January amount  to an equity investment of $ 2.3 billion. These are of course only approvals at this  stage and actual flows will take time to materialise, but they certainly indicate a  substantial potential for larger investment inflows in the future.

8 . Nevertheless, there is no room for complacency. Fiscal imbalances are  still large. The efficiency and resource generating capacity of public sector enterprises  are still very inadequate. Inflationary expectations have not yet been purged from  the system and inflationary pressure could easily build up again if fiscal discipline  is relaxed. The economy is still vulnerable to external shocks and loss of confidence.  The riots and disturbances in December and January have also taken their toll, by  disrupting domestic production and exports and by casting doubts about the stability  of our polity and society and our determination to persevere with the difficult task  of economic reform. We can ill afford such doubts.

9 . The priorities for economic policy, at this critical stage of our economic  restructuring, are very clear:  · We must continue with the fiscal correction to ensure that inflationary  expectations are effectively curbed; to this end, the fiscal deficit both at  the Centre and in the States must be further reduced as a percentage of  GDP.  · The room for fiscal maneuver gained by restraining expenditure over the  past two years must be used to give a strong fillip to development  expenditure in 1993-94, especially for programmes of poverty alleviation,  3  rural development and the vital social services such as education and  health.  · The hesitant industrial recovery must be converted into a strong revival in  1993-94, which can then be followed by a vigorous boom in the last three  years of the Eighth Plan.  · We must make further progress with our announced strategy of tax reform,  moving to a simpler tax system, with moderate rates and much greater  focus on compliance.  · We must ensure that our economic strategy gives full support to agriculture  on which the livelihood and well being of the majority of our people depend,  and also to agro-processing industries, which have a tremendous potential  for increasing employment and income in rural areas.  · Finally, exports must be made a truly high priority national endeavour so  that we can move as quickly as possible to managing the balance of  payments without the need for continued exceptional financing from  abroad. This is the only meaningful route to self-reliance.

1 0 . The expenditure and tax proposals for 1993-94, which I will be presenting  shortly, have been tailored to meet these objectives.

1 1 . Adequate availability of credit at reasonable rates of interest will be critical  in converting this year’s weak industrial recovery into a strong revival next year.  One factor behind the inadequacy of credit for the commercial sector is the  preemption of a large proportion of banks’ resources by the government at belowmarket  rates of interest through the Statutory Liquidity Ratio (SLR). In 1992-93 we  began the process of reducing the SLR in order to release a larger volume of resources  for commercial lending. Our objective is to reduce the SLR further from an effective  average level of about 36 percent at present to about 25% over the next 3 years.  The precise phasing of the reduction will be announced by Reserve Bank of India,  taking into account the emerging aggregate monetary and credit situation.

1 2 . The reduction in inflation achieved thus far justifies a reduction in interest  rates. Accordingly, the Reserve Bank of India is separately notifying a reduction in  the maximum interest rate on bank deposits from 12% to 11%. Simultaneously,  the minimum lending rate of 18% on commercial advances is being lowered to  17%. It is my expectation that the lowering of interest rates will help the economic  recovery in the coming year. As inflation abates, there will be scope for further  reduction in interest rates.

1 3 . No economic strategy can succeed in our country which does not recognise  the central role of agriculture in supporting broad-based and equitable development.  The government is firmly committed to ensuring that agriculture, agro-processing  and rural development are given top priority in the design of economic policy.

1 4 . A major instrument for encouraging agricultural production and making  it profitable is the assurance of remunerative prices to the farmers. Procurement  prices for the last kharif crop and the forthcoming rabi have been handsomely  raised to ensure that farmers are compensated for increases in the cost of inputs.  It is also the policy of the Government not to place administrative restrictions on   movements of agricultural products within the country. Our farmers must have  the full benefit of prices available in the domestic market.

1 5 . Agricultural credit is another critical input for agricultural, and more  broadly, rural development. The flow of rural credit from institutional sources is  expected to jump from Rs.13,800 crore during 1992-93 to Rs.16,500 crore during  1993-94, an increase of 20%. NABARD’s investment refinance support to banks  will increase by 22% from Rs.2,300 crore in the current year to Rs.2,800 crore in  1993-94. Within this total, NABARD has evolved an innovative package of measures  to ensure special attention to priority areas. Term loans for minor irrigation will  support the sinking of 3.75 lakh wells and installation of 6 lakh pump sets. The  rate of NABARD refinance of bank loans is being increased to 90% in the case of  North Eastern States and also of investments in 100% export oriented units in  agriculture and allied activities. NABARD will also take up pilot projects for intensive  development of rural industries in five selected districts with an outlay of Rs.125  crore. NABARD is setting up a Venture Capital Fund, with an initial corpus of Rs.5  crore, to assist new and innovative investments in farm and non-farm sectors, and  a Cooperative Development Fund with an initial corpus of Rs.10 crore to help  improve management systems and skills in cooperative banks. In 1993-94, we  shall pay special attention to revitalising the agricultural credit system so that it  becomes a more effective instrument for increasing capital formation and productivity  of agriculture.

1 6 . Our strategy of gradually reducing the high levels of protection to Indian  industry, and integrating our economy with the world economy, will clearly help  Indian agriculture. It will moderate the high industrial prices which the farmer has  to pay. It will also ensure a more competitive exchange rate, at which our agricultural  and agro-based exports will be much more profitable. I venture to suggest to  Honourable Members that in the medium run, these changes will be far more  significant in favouring agricultural producers than any programme of special  subsidies could ever be.

1 7 . In my Budget speech last year I had indicated that the Government  intended to implement the recommendations of the Narasimham Committee on  financial sector reform in stages. The securities scam which was discovered in  April 1992 has revealed certain weaknesses which add urgency to the need for  financial sector reform. A major reform initiated last year was the introduction of  new norms for income recognition, and provisioning for bad debts and the  prescription of new capital adequacy requirements in line with internationally  accepted Basle Committee norms. The new norms will ensure that the books of the  banks will reflect their financial position more accurately and in accordance with  internationally accepted accounting practices. These changes will improve our ability  to evaluate the performance of the banks and will also make for more effective  bank supervision.

1 8 . Because of the new norms, however, banks will have to make large  provisions amounting to over Rs.10,000 crore for bad and doubtful advances in  their portfolios. As the provisioning norms are being introduced in two stages, the  first impact will be felt in the year ending 31 March 1993, with a further impact  next year. The resulting losses will eat into the capital of the banks, which is  already inadequate given the new capital adequacy norms. In order to protect the  5  viability and financial health of the Indian banking system I am making provision  for a large capital contribution of Rs.5,700 crore to the nationalised banks in 1993-  94 to meet the gap created by the application of the first stage of the provisioning  norms. There will be no immediate net outgo from the budget, as the Government’s  contribution is in the form of Government bonds; but the interest payment on  these bonds, and their ultimate redemption will be a real burden on the budget in  future. This is the price we have to pay for having long tolerated management  practices in the banks and types of lending which paid inadequate attention to  portfolio quality and recoveries. I may add that while undertaking such a large  injection of capital into the banks, specific commitments will be required from each  bank to ensure that their future management practices ensure a high level of  portfolio quality so that the earlier problem does not recur.

1 9 . Even this large injection of capital will only solve the immediate problem.  Additional losses will arise because of the second stage of provisioning next year.  Besides, the capital adequacy requirements are also being introduced in a phased  manner and there will be additional capital needs on this account in 1994-95 and  1995-96. This burden cannot be borne entirely by the budget without eating into  scarce resources which are desperately needed for development, especially in the  rural areas. Government has, therefore, decided that the State Bank of India, as  well as other nationalised banks which are in a position to do so, will be allowed to  access the capital markets to raise fresh equity to meet their shortfall in capital  requirements over the next three years. The additional capital thus moblised will  help our banks to expand their lending which would otherwise be constrained by  capital inadequacy. Government will, continue to retain majority ownership, and  therefore effective control, in the public sector banks. Necessary legislation to give  effect to this decision will be introduced later in the year.

2 0 . If banks are to make provisions for bad debts, they must also be able to  realise the security on their bad debts. At present the legal process for realising  bank dues is tortuous, and cases take several years in the courts. Government  has, therefore, decided to set up Special Tribunals to expedite legal action by the  banks to enforce recoveries. Legislation to this effect will be introduced in the  course of the year.

2 1 . The securities scam has also revealed weaknesses in the existing system  of supervision of banks. Following the recommendations of the Narasimham  Committee, Reserve Bank of India has decided to strengthen its supervisory  arrangements by setting up a separate Board for Financial Supervision within the  Reserve Bank.

2 2 . Parallel with reforms in the banking system we are vigorously pursuing  reforms in the capital markets. We must ensure that trading and settlement take  place with speed and transparency under appropriate rules and regulations designed  to ensure investor protection. The Securities and Exchange Board of India, which  was given statutory status and powers twelve months ago, has been entrusted with  the task of bringing about this transition. As promised in my last Budget speech,  the office of the Controller of Capital Issues in the Ministry of Finance has been  abolished, and almost all powers under the Securities Contract (Regulations) Act  have been delegated or transferred to SEBI.

2 3 . Several important steps have been taken in the current year to reform the  capital market. Rules and regulations have been notified to deal with insider trading,  the operation of mutual funds, registration of brokers, merchant bankers and other  intermediaries. The scheme for allowing Foreign Institutional Investors to invest in  the capital markets announced in my last Budget speech has been implemented  and a number of approvals given. Several private sector mutual funds have recently  been given clearances by SEBI. A company has been incorporated for the  establishment of a National Stock Exchange which is expected to operate as a  model stock exchange with member brokers all over the country trading in the  exchange through modern telecommunication facilities. Proposals are also being  considered for the establishment of a centralised depository with a National Clearance  and Settlement System.

2 4 . We are determined to ensure that further reforms of the capital market  are implemented in the course of 1993-94 so that the capital market can mobilise  large funds for investment. On the basis of experience gained, the Government has  decided to amend the Securities and Exchange Board of India Act to give SEBI  additional powers in order to increase its effectiveness.

2 5 . With reforms underway in the banking sector and in the capital markets,  it is necessary to address the need for similar reforms in the insurance industry  aimed at introducing a more competitive environment subject to suitable regulation  and supervision. I propose to appoint a High Powered Committee to go into these  issues in depth and submit its recommendations within six months.

2 6 . In my Budget speech last year, I announced the introduction of a new  system of exchange rate management under which a dual exchange rate regime  was introduced, and import licensing was eliminated on most items of capital  goods, raw materials, intermediates and components. These items became freely  importable against foreign exchange purchased in the market. The system has  worked fairly well and the market exchange rate has been remarkably stable. The  existence of a dual rate, however, hurts exporters and other foreign exchange earners  who have to surrender 40% of their earnings at the official rate, getting the benefit  of the higher market rate on only 60 percent. Many exporters have said that this  amounts to a tax on exporters of goods and services whose continuation cannot be  justified at a time when exports must receive our fullest support. There is merit in  this point of view, and the experience of the past year gives ground for confidence  that we can unify the exchange rate and still manage the balance of payments with  a reasonable degree of stability in the exchange rate. The Government has therefore  decided to eliminate the dual rate arrangement. All exporters, as well as other  foreign exchange earners such as our workers abroad, will henceforth be allowed  to convert 100% of their earnings at the market rate. All imports will also henceforth  have to be paid for at the market rate. The details of the new system are being  notified separately by Reserve Bank of India. I expect that this will give a major  boost to exports, and will further encourage foreign exchange flows into official  channels.

2 7 . Several other steps are also being taken to stimulate exports. The Commerce  Ministry is reviewing the list of items whose exports are subject to one or other  restriction with a view to removing as many restrictions as possible. Reserve Bank  of India is taking steps to ensure that adequate credit will be available for exports.  Banks have already been asked to ensure that export credit amounts to at least  7  10% of their total advances. The interest rate on rupee export credit is being reduced  by one percentage point. As a further measure of support for exports, the interest  tax will be waived in the case of export credit from banks. I will have more to say  on incentives for exporters when I come to the tax proposals in the Budget.

2 8 . A new policy towards foreign investment has been an integral part of our  strategy of modernising the economy, and establishing global linkages which will  be of critical importance in the emerging world economy. I have already mentioned  that the initiatives taken in this area thus far have yielded encouraging results. I  have no doubt that as our reforms proceed and gain momentum, we can expect to  attract a substantial share of the private investment that is presently flowing to  many developing countries in Asia. The Government has signed the Multilateral  Investment Guarantee Agency (MIGA) convention and we expect to join MIGA formally  as soon as membership procedures are completed. Several countries, including the  UK, Germany and the United States, have expressed an interest in signing bilateral  investment treaties. The Government has indicated a willingness to enter into  bilateral negotiations on this issue.

2 9 . Industrial modernisation, and especially the creation of internationally  competitive industries, requires a massive expansion of and qualitative improvement  in infrastructure. This is especially true of power generation, telecommunications  and roads. Traditionally, these areas have been the preserve of the public sector.  Substantial expansion of public investment in these areas is certainly necessary.  However, the needs of the country are far beyond the capacity of the public sector  to deliver in a reasonable time frame. The Government has, therefore, adopted a  policy of encouraging private sector involvement and participation in these areas to  supplement the efforts being made by the public sector. In order to attract such  investment it will be necessary to make changes in policies, procedures and the  regulatory framework in these sectors. The Government proposes to make such  changes as the need arises.

3 0 . Over the past two years, we have taken several steps to remove unnecessary  bureaucratic interference in economic activity in order to create an environment in  which the energies of our people can be harnessed to maximise innovation,  production and growth. However, I am constantly told that despite liberalisation at  the policy level, our procedures in many areas remain archaic and cumbersome.  Many of our laws also need thorough review to bring them in line with the emerging  economic environment. The Government has therefore decided that a special review  group will be constituted in each Ministry to make a review of existing laws and  procedures to identify changes needed in the light of the new policies. I hope the  State Governments which have a crucial role to play in promoting development and  investment in the new environment will also take similar steps at their end.

3 1 . Let me now turn to the revised estimates for 1992-93.

3 2 . We have tried to maintain strict control over expenditure, but certain  increases over the Budget estimates were unavoidable. An additional provision of  Rs.1,500 crore has to be made for food, fertiliser and export subsidies. The additional  requirement of food subsidy is because of the delay in increasing issue prices to  absorb the impact of higher procurement prices. The higher provision for export  subsidy is because of settlement of claims in the pipeline for cash compensatory  support and continuance of benefits for deemed exports. In respect of fertilisers the  8  increase is due to the reduction in prices of urea and higher input costs. In addition,  I have provided Rs.340 crore as one-time assistance to farmers for purchase of  fertilisers whose prices were decontrolled. Ministry of Home Affairs has to be provided  additional funds for meeting security-related expenditure in the wake of disturbed  conditions in certain parts of the country. While an assessment of the actual  requirements is being made, I have for the present included in the Revised Estimates  an additional provision of Rs.285 crore. If a further provision becomes inescapable,  we shall come to the House for the necessary Supplementary Grants. These and  other increases have been offset by a reduction of Rs.1,300 crore in the requirements  for loans to States against small savings collections. The decline in small savings  collections has been a matter of concern and Government has taken measures to  improve the rate of return to the investors. As a consequence, the collections have  shown an up-trend in recent months. As a result of all these developments, total  non-plan expenditure is higher by Rs.3,278 crore as compared with the budget  estimates.

3 3 . On the plan side, there is an increase in budgetary support for the Central  Plan for certain sectors. An additional provision of Rs.630 crore is being made for  the National Renewal Fund, which is a key element in our strategy for economic  reforms. Similarly an additional provision of Rs.250 crore has been made for  strengthening schemes in the social sectors such as Health and Family Welfare.  The provision for Rural Development is being augmented by Rs.500 crore.

3 4 . Central assistance to State and Union Territory Plans is being augmented  by Rs.1,228 crore mainly for externally aided projects where the pace of  implementation justifies an allocation larger than in the Budget Estimates.

3 5 . Taking Plan and non-Plan expenditures together, the total provision in  the Revised Estimates is Rs.1,24,726 crore against Rs.1,19,087 crore in the Budget  Estimates.

3 6 . Against these additional expenditures, revenue receipts have also been  higher because of better collections and higher royalty on offshore crude oil. Capital  receipts under market loans and small savings receipts are lower than in the  Budget Estimates; but this is offset by the higher receipts from 364-days treasury  bills, which is a new instrument designed to develop a market for Government  securities.

3 7 . The total receipts in the Revised Estimates are Rs.1,17,524 crore compared  to Rs.1,13,698 crore in the Budget Estimates. The Budget deficit is estimated at  Rs.7,202 crore and the fiscal deficit for the year is now placed at Rs.36,722 crore.  These figures are somewhat higher than envisaged in the Budget Estimates but  within tolerable limits for macro-economic stability.

3 8 . I now turn to the Budget Estimates for 1993-94.

3 9 . The resource constraints facing us last year imposed a tight leash on the  development programmes we could finance in 1992-93. The total size of the Central  Plan in 1992-93 (BE) was only 12.6% higher than in the previous year. With the  improvement in the fiscal situation achieved in the course of 1992-93, and the  moderation in inflation, we are now in a position to give a boost to the Plan, while  ensuring continued improvement in the fiscal deficit. Accordingly, the Central Plan  outlay for 1993-94 has been fixed at Rs.63,936 crore which is almost 32% higher  than the figure of Rs.48,407 crore in 1992-93.

4 0 . The Central Plan will be financed to the extent of Rs.23,241 crore from  budget support which is almost 26 per cent higher than the budget support of  Rs.18,501 crore in 1992-93. The balance of the Central Plan outlay of Rs.40,695  crore will be met from internal and extra-budgetary resources compared with  Rs.29,906 crore in 1992-93, representing a step-up of 36%. I am providing Rs.18,010  crore for Central assistance for States and UT Plans in 1993-94 compared to  Rs.16,111 crore in 1992-93. The total budgetary support from the Central  Government Budget to the Central and State Plans increases by almost 19% from  Rs.34,612 crore in 1992-93 to Rs.41,251 crore in 1993-94.

4 1 . The large increase in budget support for the Plan has enabled a substantial  step-up in Central Plan programmes in the social sectors and rural development  which depend upon budgetary resources. The outlay for the Department of Rural  Development next year has been enhanced by a massive 62% to Rs.5,010 crore.  Both employment generation and capital formation in rural areas will receive a  major boost. The allocation for the Jawahar Rojgar Yojana is being increased to  Rs.3,306 crore compared with the current year’s level of Rs.2,046 crore. This is  aimed at creating 1100 million mandays of employment. It is proposed to train 3.5  lakh young persons in rural areas under the Training of Rural Youth for Self  Employment (TRYSEM) programme. For the rural water supply programme, the  provision has been increased substantially from Rs.460 crore in 1992-93 to Rs.740  crore next year. Higher allocations have also been provided for the Integrated Rural  Development Programme. The programmes of decentralised planning and  development will receive a massive stimulus as a result of the strengthening of  Panchayati Raj institutions as envisaged in the Constitution (72nd Amendment)  Bill, 1991.

4 2 . The development of human resources is given high priority in the Eighth  Plan; Hon’ble Members are also aware that education is an area which is very close  to my heart. I am, therefore, particularly happy to announce that the outlay for  education is being increased from Rs.952 crore to Rs.1,310 crore, which is a step  up of 37.6%. Universal provision of primary education and adult literacy of  satisfactory quality, particularly for girls and women, is a pre-requisite for the  modernisation of the economy and the society. I am happy to inform Honourable  Members that our total literacy campaigns are breaking new grounds, and are now  being implemented in 182 districts covering approximately 430 lakh adult learners.  A new scheme is being launched for the improvement of primary education in  educationally backward districts and in districts where the total literacy campaigns  have been successful, leading to an enhanced demand for primary education. In  these districts, districts specific and population specific plans for achieving  universalisation of elementary education are being prepared. Twenty to twenty-five  districts out of about 200 educationally backward districts where female literacy is  below national average, will be taken up for preparation of districts plans in 1993-  94. In the sphere of higher and technical education, modernisation and upgradation  would receive high priority. Keeping in view the aspirations of the North Eastern  region, the government has decided to set-up a university in Nagaland and an  Indian Institute of Technology in Assam

4 3 . For Health, the provision is Rs.483 crore, which is 60% higher than the  level of Rs.302 crore in the current year’s Budget. A major part of the provision will  be for national programmes for control of communicable and other diseases. The  Family Welfare programme is of overriding national importance; the provision under  10  this head is being stepped up from Rs.1,000 crore for the current year to Rs.1,270  crore for the next year. A programme to improve the quality of family planning  services in Uttar Pradesh is being launched at a cost of US $ 325 million, with  assistance from USAID. In addition, with the aim of reducing maternal mortality,  under the Social Safety Net Scheme, assistance will be provided for improvement of  infrastructure at Primary Health Centres in 90 demographically backward districts.

4 4 . The National Commission for Women set up last year is looking into various  important issues relating to women. For the integrated child development services  the provision is Rs.474 crore compared to Rs.360 crore in the current year. This  will enable us to strengthen the infrastructure set up of the scheme. The provision  for the Ministry of Welfare has been increased from Rs.530 crore to Rs.630 crore.  This includes Rs.73 crore for the liberation and rehabilitation of Safai Karmcharis.  A provision of Rs.247 crore has been made for special Central assistance for  Scheduled Castes component plan. The operations of the National Scheduled Castes  Finance and Development Corporation and the National Backward Classes Finance  and Development Corporation will be further expanded.

4 5 . The Government regards agriculture as a sector of prime importance for  the national economy. The budgetary allocation for the plan schemes of the Ministry  of Agriculture including Animal Husbandry and Dairying is being increased by  36% from Rs.1,408 crore to Rs.1,918 crore. In addition, the bulk of the outlay on  agriculture is in the State Plans.

4 6 . The requirements of the infrastructure sectors such as Petroleum and  Natural Gas, Power, Telecommunications, Railways and Transport have also not  been neglected. Investment programmes in these sectors are implemented through  public enterprises or departmentally run commercial undertakings and these  organisations are expected to finance their plan outlay through their internal and  extra budgetary resources. The plan outlay for Petroleum and Natural Gas has  been nearly doubled to Rs.12,114 crore from the current year’s level of Rs.6,208  crore. The outlay for Power has been increased by 22% from Rs.5,167 crore in the  current year to Rs.6,269 crore. The outlay for Roads has been stepped up from  Rs.464 crore to Rs.593 crore. The outlay for Chemicals and Petrochemicals has  also been stepped up from Rs.763 crore to Rs.1,206 crore. The Plan outlay for the  Railways has been increased from Rs.5,700 crore to Rs.6,900 crore including  Rs.400 crore for the Konkan Railway Corporation Ltd.

4 7 . Turning to non-Plan expenditure, I would like to draw the attention of the  House to the tremendous burden of interest payments. The provision for 1993-94  is Rs.38,000 crore compared with Rs.32,500 crore in the current year. The high  interest burden is due to the rising volume of government debt, which itself reflects  the large fiscal deficits, incurred year after year. However, with the reduction in the  fiscal deficit and hence in the Government’s borrowings, the growth of this item is  expected to decelerate sharply by 1995-96.

4 8 . For Defence expenditure the provision has been increased from Rs.17,500  crore in the current year to Rs.19,180 crore next year. The requirements on account  of fertilisers and export subsidies will be significantly lower reflecting the impact of  the measures already taken to rationalise these subsidies. The expenditure on the  Farm Loan Waiver scheme will be Rs.500 crore; with this, the Government’s  commitment for payment under the scheme will be fulfilled. I am providing Rs.3,000  11  crore for food subsidy as against Rs.2,800 crore in the current year. It will be the  endeavour of Government to keep the burden of food subsidy at a reasonable level  and to ensure at the same time that the vulnerable sections of society are fully  protected. Excluding the expenditure on interest, the provision for other non-plan  expenditure in 1993-94 is about Rs.3,180 crore lower than the Revised Estimates  for the current year. As in previous years, no separate provision is being made for  additional dearness allowance which may become payable next year. The additional  expenditure on this account will have to be absorbed by all Ministries within the  approved budget provision.

4 9 . Coming to receipts, gross tax revenues at the existing level of taxation are  estimated at Rs. 89,389 crore compared to Rs. 78,782 crore in the current year.  States’ share of taxes next year is estimated at Rs.22,590 crore as against Rs.  20,525 crore in the current year’s Revised Estimates. I am taking a credit of Rs.  3,700 crore for market borrowings as against the current year’s level of Rs. 3,670  crore. External assistance, net of repayments, is estimated at Rs. 6,819 crore as  against Rs.5,374 crore in the current year. Net small savings collections next year  are estimated to reach the current year’s level of Rs. 5,500 crore despite heavy  maturities falling due next year. As in the current year’s Revised Estimates, I am  taking credit of Rs. 3,500 crore for receipts from disinvestment of equity in public  enterprises. Total receipts at the existing levels of taxation are estimated at  Rs.130,990 crore and total expenditure at Rs.131,323 crore leaving a gap of Rs.  333 crore.

PART B

5 0 . I now turn to the tax proposals for 1993-94.

5 1 . In framing these proposals I have been acutely conscious of the conflicting  requirements of comprehensive reform of the tax structure on the one hand, and  the need to protect revenues to finance the large increase in the Plan, on the other.  Last year significant reforms were made in personal income taxation based on the  recommendations of the Chelliah Committee. Reform of corporate taxation was  deferred until the detailed recommendations of the Chelliah Committee were received.  These have since been received. The Committee has also recently submitted its  final report on indirect taxes, recommending significant reduction in customs duties  as well as rationalisation and simplification of excise duties.

5 2 . I accept the broad thrust of the Chelliah Committee’s recommendations  on both direct and indirect taxes. We must move as rapidly as possible to a regime  of moderate tax rates in direct taxation, which will encourage better compliance  especially if supplemented by efforts at broadening of the tax base. We must also  move to a regime of low to moderate customs duties which is essential for efficient  and competitive industrialisation. Our excise duties should also be simplified with  fewer rates and our long-term aim should be to move to a Value Added Tax System.  However, a nationwide value added tax system cannot be introduced overnight.  There has to be a broad agreement among the Centre and the States on the design  of such a system. In order to promote informed discussion and debate, I am  requesting the National Institute of Public Finance and Policy to prepare the design  of a possible value added tax system.

5 3 . Although all the major recommendations of the Chelliah Committee are  important, they cannot be implemented immediately for the simple reason that tax  reform, which typically involves lower tax rates collected on a broader base, often  involves a loss of revenue in the short run. Fiscal experts tell us that the loss of  revenue will be made up in the medium term, but there is no guarantee that this  will happen immediately, and Finance Ministers have to look after the short term  if they want to survive in the medium term. I hope the House will agree with me  that a phased transition is needed.

5 4 . A key issue in phasing the transition is whether to do a little on all fronts  or to make decisive changes in certain areas, with a clear declaration of progress  to be made in other areas in future. I have thought over this matter carefully and  I feel that decisive action in critical areas is more important than marginal  improvements on all fronts. The most critical area for action at present is customs  duties. Despite the adjustments in customs duties in the last two budgets, our  duties are still much higher than in most of our competitor countries, especially on  capital goods. With these duties, and the resulting high capital costs, our producers  will never be able to compete in world markets. Nor can we expect new investment,  both domestic and foreign, to flow into areas with export markets in view, if high  customs duties make them uncompetitive. Yet it is such investments that we need  most at present if we want to reduce our dependence on external assistance. We  cannot and must not continue with the approach of setting up industries aimed  solely at the domestic market in the belief that replacing imports ipso facto  contributes to self reliance, without considering at what cost we are effecting the  replacement. In fact, replacement at unduly high cost contributes to inefficient  industrialisation, an inability to export and a permanent dependence on external  assistance. We must take a bold initiative in this area while taking due care to  protect the legitimate concerns of our industry. Normally, the revenue loss from  customs duty reduction could have been made up through higher excise duties.  However, there are compelling reasons for rationalising and reducing excise duties  over a wide range of industries because many of our duties are too high and parts  of industry are also suffering from recessionary conditions.

5 5 . In these circumstances, Hon’ble Members will appreciate that I have limited  room for maneuver in the area of direct taxes. Major reform of the corporate tax  structure, along the lines recommended by the Chelliah Committee is undoubtedly  desirable. However, for the reasons indicated, it will have to be postponed to the  next year.

5 6 . I would like, however, to give a stimulus to new investment in those States  in which all the districts are industrially backward. Accordingly, I propose to give  a five-year tax holiday, commencing from the year of production, for new industrial  undertakings located in all the North-Eastern States, Jammu & Kashmir, Himachal  Pradesh, Sikkim, Goa and Union Territories of the Andaman and Nicobar Islands,  Dadra and Nagar Haveli, Daman and Diu, Lakshadweep and Pondicherry.

5 7 . Electricity is a critical input for the future growth of our economy. I therefore  propose to introduce a five-year tax holiday in respect of profits and gains of new  industrial undertakings set up anywhere in India for either generation or generation  and distribution of power. The five-year tax holiday will begin from the year of  generation of power.

5 8 . The five-year tax holiday, in both these cases, will be part of section 80-  13  IA of the Income-tax Act. At the end of the five-year period, these units will be  entitled to the existing deduction under section 80-IA for the remaining period.

5 9 . To promote a cleaner and healthier environment, I propose to allow  depreciation admissible on plant and machinery relating to environment protection  and pollution control at 100 per cent instead of the existing 40 per cent. of capital  cost under the Income-tax Rules.

6 0 . Hitherto, our institutions of higher learning have been almost entirely  dependent on Government funds. As government funds are limited, we must find  ways of funding these institutions from industry. This will also bring them closer  to industry and more responsive to its needs. I, therefore, propose to raise the  income tax deduction given to contributions to approved universities, institutes of  technology, institutes of management and equivalent institutions from 50 per cent.  at present to 100 per cent.

6 1 . A strong science and technology base is an essential prerequisite for a  modern, progressive economy. Indian scientists and technologists have proved,  time and again, that they are second to none in the world, given the right work  atmosphere, proper motivation and adequate facilities. Indian industry needs to  spend a lot more on research and development. In doing so, I would encourage  industry to make use of the facilities offered by our national laboratories and  research institutes. To that end, I propose to introduce a weighted deduction of  125 per cent. of the contribution out of income from business or profession for  research programmes in approved national laboratories and institutions carrying  out research and development in natural and applied sciences. This weighted  deduction will be available only for research programmes determined by the users  and the producers of research, and approved by the prescribed authority.

6 2 . I propose to extend the five-year tax holiday under section 10A of the  Income-tax Act, at present available to units set up in the Free Trade Zones, to  units set up in Software Technology Parks and Electronic Hardware Technology  Parks. In July 1991, I had introduced a 100 per cent deduction for three years in  respect of income derived from export of software. Software exports have done well  and I propose to extend the concession for one more year i.e. for assessment year  1994-95.

6 3 . Under the scheme for permitting Foreign Institutional Investors in our  capital market, we had indicated that such investors would be liable to tax at 20  per cent. on investment income and 10 per cent on long term capital gains. I also  propose to extend a concessional rate of tax of 30 per cent in respect of short-term  capital gains for such investors.

6 4 . As I have already mentioned, a substantial reform of personal taxation  was carried out last year based on the recommendations of the Chelliah Committee.  I propose to leave the rate structure and exemption limit unchanged and make  only a few modifications.

6 5 . Last year, because of severe resource constraints, I was compelled to  retain the surcharge on personal income above Rs.1 lakh at 12 per cent. I had  hoped to be able to remove the surcharge in the current year but I am constrained  to continue with it for one more year. However, I propose to raise the standard  deduction from salary income from Rs.12,000 to Rs.15,000 and the standard  deduction for working women with incomes upto Rs.75,000 from Rs.15,000 to  Rs.18,000.

6 6 . In recognition of the hardship to old people in these days of inflation, I  had given a tax rebate of 10 per cent last year to senior citizens whose gross total  income is below Rs.50,000. I propose to raise the tax rebate to 20 per cent and  further increase the income limit from Rs.50,000 to Rs.75,000.

6 7 . Last year, I had announced that a scheme for giving Advance Rulings in  respect of transactions involving non-residents would be worked out. The scheme  has been drawn up and I am bringing forward legislative proposals for the creation  of a statutory authority, headed by a retired Judge of the Supreme Court. I do hope  that the scheme will be welcomed by non-residents.

6 8 . I propose to extend the simplified scheme of presumptive taxation  introduced last year to small road transport operators operating, hiring or leasing  one transport vehicle.

6 9 . Payments made under Voluntary Retirement Schemes to public sector  employees were fully exempt from income tax; last year I extended this exemption  to private sector employees. I propose now to extend this facility to employees of  statutory authorities and local authorities.

7 0 . Recognising the trauma of bringing up a handicapped child, I had, last  year increased the deduction permissible for guardians of handicapped dependants  under the income-tax law from Rs 6000 to Rs.12000. I now propose to further raise  this deduction to Rs.15000. I also propose to allow a deduction in respect of income  of handicapped minors clubbed with the income of their parent to the full extent of  the child’s income upto a maximum of Rs.20,000.

7 1 . In my first Budget Speech in July 1991, I had proposed the setting up of  the National Foundation for Communal Harmony to provide assistance to the  children of families affected by communal riots. The Foundation has since been  established under the aegis of the Home Ministry. I now propose to extend the  benefit of 100 per cent. deduction under section 80G of the Income-tax Act in  respect of donations made to the Foundation. I also propose to exempt the income  of the National Foundation for Communal Harmony fully from income tax.

7 2 . At present, charitable trusts and institutions have to seek approval every  three years from the Commissioner of Income tax in order that donations to them  are eligible for tax exemption. To reduce paper work and simplify the procedure, I  propose to increase the maximum period of approval by the Commissioner to five  assessment years.

7 3 . I would like to see India gain prominence, not only in the global economy,  but also in the world of sports. There are provisions in the Income-tax Act to allow  exemption in respect of income of approved sports associations or institutions and  to grant 50 per cent. deduction in respect of donations made to them. I propose to  amend the Rules relating to eligible projects or schemes under section 35AC of the  Act to include promotion of sports in such activities. This would provide 100 per  cent. deduction in respect of spending on approved sports projects and schemes.

7 4 . Last year, I had proposed the setting up of a National Court of Direct  Taxes for expeditious settlement of litigation in direct tax matters. The proposal  has been examined in detail and I hope soon to bring forward legislation in this  regard. In regard to a Direct Taxes Code, the Government will take a final view,  taking into account the recommendations of the Chelliah Committee on the subject.

7 5 . The Wealth-tax Act was considerably recast last year and the basis of  taxation was shifted from wealth to unproductive assets. There has been persistent  demand that a residential dwelling is a universal necessity and should not be  subjected to wealth-tax. Hence, I propose to exempt the value of one residential  house or part thereof from the levy of wealth-tax.

7 6 . Last year, I had exempted residential houses, motor cars, etc. held as stock-intrade  from the levy of wealth-tax. I now propose to exempt urban land held as  stock-in-trade. However, to discourage speculation in the guise of stock-holding, I  propose to restrict the exemption to three years beginning from the year in which  the land is acquired.  7 7 . The exemption limit for purposes of gift-tax was fixed at Rs.20,000 some  years ago. I agree with the recommendations of the Tax Reforms Committee that  this limit needs to be revised and, therefore, propose to raise it to Rs.30,000.

7 8 . Gifts made by a person to any dependant relative in respect of marriage  of the relative is exempt from gift-tax only up to Rs.10,000, whereas vast expenditures  on ostentatious marriages go scot-free. In order to encourage savings and productive  investment, I propose to raise the exemption limit at the time of the marriage of a  dependant relative from Rs.10,000 to Rs. 30,000.

7 9 . As an incentive to the export drive which has to be kept up at all costs, I  propose to exempt all banking companies from the levy of Interest-tax on export  credit provided by them.

8 0 . The various changes that I have proposed would result in a loss of Rs.300  crore of which the States’ share would be Rs. 194 crore. The amount involved is  very small – less than 2 per cent of the gross direct tax collections. I am ignoring  it in the expectation that better tax collection would cover this loss.

8 1 . I now turn to the proposals relating to indirect taxes.

8 2 . Since 1973, we have been levying a separate auxiliary duty in addition to  the basic customs duty. In order to simplify the tariff structure and the assessment  process, I propose to do away with the separate auxiliary duty and merge it with  the basic duty.

8 3 . Our first priority in restructuring customs duty should be in the area of  capital goods and project imports since these duties affect the incentives for new  investment. Last year the duty on projects and general machinery was brought  down from 80% to 55%. This is still too high compared with rates in competitor  countries and a further reduction is necessary. I, therefore, propose to lower the  import duty on projects and general machinery to 35%. Projects in certain priority  sectors such as, power, coal mining and petroleum refining currently attract a duty  rate of 30%. I propose to reduce the rate to 25% in the case of coal mining and  petroleum refining. In view of the special importance of the power sector, the duty  on power projects is being reduced to 20% and this rate is also being extended to  machinery required for modernisation and renovation of power plants.

8 4 . The House can rest assured that in restructuring duties on capital goods,  I have made every effort to protect the legitimate interests of domestic capital goods  industry. We have had extensive discussions with various Ministries as well as  representatives of concerned industries. In order to ensure that lower duties on    imported machinery do not hurt the domestic capital goods industry, it is necessary  to lower the import duty on components, to enable our manufacturers to compete  effectively. I therefore, propose to reduce to 25% the duty on components of general  machinery which presently is either 40% or 35%. In order, however, to ensure that  domestic industries producing such components are not adversely affected, I propose  to impose countervailing duty on such components at 10% with full facility of setoff  under MODVAT.

8 5 . At present there are a number of other capital goods, including various  types of machine tools, which attract different rates of duty in the range of 60% to  110%. There are also instruments which attract duties varying from 40% to 110%.  I propose to rationalise this structure into three duty rate slots, viz., 40%, 60% and  80%. The rationalisation involves generally a duty reduction between 20 to 30  percentage points. Consequential reduction is being made in the rates of duty on  specified parts and components.

8 6 . Hand-operated tools are capital goods for artisans and skilled workers  and currently attract duties varying from 40% to 110%. I propose to prescribe a  uniform rate of 40% for all these tools.

8 7 . The logic of reducing duties on capital goods requires lowering of duties  on metals and metal goods as well, as these are the basic raw materials of the  domestic capital goods industry. Accordingly, to help domestic producers, I propose  to lower the customs duty rates on ferrous metals by 10 to 20 percentage points in  most cases. In line with these changes the import duty on steel scrap is being refixed  at 15%. The import duty on specified refractory raw materials is being reduced  to 30%. Turning to non-ferrous metals, I propose to reduce the duty rates by 10 to  55 percentage points in most cases. The resulting rates on unwrought and unalloyed  forms will vary from 25% to 50% and on wrought forms from 70% to 80%.

8 8 . The duty structure for chemicals is characterised by a multiplicity of rates  and many irrationalities. Input duties are often out of line with duties on finished  products. I, therefore, propose to restructure the duty rates on chemicals with a  view to significantly lowering duty rates at the upper end and also ensuring that  the duty rates on inputs are not generally higher than the duty on end products.  The present duty rates on basic feed stocks such as, ethylene, propylene, butadiene,  benzene, styrene and ethylene dichloride vary between 25% and 80%. These rates  are being replaced by a uniform low duty rate of 15%. The duties on xylenes,  paraxylene, toluene, acrylonitrile and cumene are being reduced to 40%. The duties  on DMT, PTA and MEG which represent a higher stage of production, are being  reduced and unified at 70%. In the case of caprolactum, however, the duty is being  increased from 50% to 60%, in order to adequately protect the interests of the  domestic units.

8 9 . The electronics industry has the potential of becoming a world class  industry contributing to our export effort and to employment generation. I propose  to take up this challenge. The rates of duty on project imports and on specified  capital goods for electronics attract duty at either 30% or 50% at present. I propose  to reduce these rates to a uniform rate of 25%. The import duties on raw materials,  piece-parts and components at present are levied at 40%, 60% and 80%. These  rates are being reduced to 20%, 35% and 50%, respectively. The import duty on  specified raw materials for the manufacture of optical fibre cables is being drastically    reduced from 90% to 20% in recognition of the urgency of extending and modernising  the telecom sector.

9 0 . In order to strengthen our export capability in existing export-thrust areas  such as textiles, leather, marine products, gems and jewelry, etc. where we have a  comparative advantage, I propose to reduce the import duty on specified capital  goods for these sectors from 40% to 25%. In addition, certain recommendations  have been made by the Groups on Extreme Focus items for export for augmenting  the export potential of certain sectors such as food processing, horticulture and  floricultural industries. Accordingly, the import duty on specified items for these  sectors is being reduced to 25%.

9 1 . The ship-breaking industry is employment intensive and an important  source of raw materials for the secondary sector of our steel industry. In order to  encourage the growth of this industry, I propose to prescribe a lower merged duty  of customs at 5% ad valorem. The ferrous materials obtained from breaking up of  such ships etc. which are presently subject to excise duty are being fully exempted.

9 2 . Our film industry is one of the largest in the world in terms of the  footage of films produced. Although it has achieved this status without much  need for incentives, it is now facing greater competition from the electronic media,  and deserves some special encouragement. I, therefore, propose to reduce the  duties on jumbo rolls of cine positive films from 55% to 25% and on finished cine  film rolls from about 65% to 40%. I also propose to reduce the duty on negative  cine films from about 35% to 25%.

9 3 . In order to encourage the development of non-conventional energy sources,  especially solar energy, the import duty on specified raw materials and items of  this industry is being reduced by 15 to 20 percentage points. In respect of windoperated  electricity generators I propose to reduce the import duty from 40% to  25%.

9 4 . As a gesture of goodwill towards Bangladesh, I propose to fully exempt the  famous Jamdanee saris from payment of import duties. Small-scale units, eligible  for excise duty exemption for clearances to domestic area are at present required  to pay excise duty on goods exported by them to Nepal and Bhutan. I propose to  exempt these from this levy. I hope these steps will make a contribution towards  improving trade with SAARC countries.

9 5 . At present, accredited press cameramen have the facility of importing  photographic equipment free of duty upto a limit of Rs.60,000 but no such facility  is available to other journalists to import specialised equipment such as, laptop  computers, personal computers, fax machines and typewriters. I have often wondered  whether this explains why my photographs in the Press are better than the editorial  comments! As a measure of my commitment to encourage modern technology in  Indian journalism, and in recognition of the sterling role played by our Pressmen  in creating a wider appreciation of issues of economic reform in the country, I  propose to allow accredited journalists also a one time facility to import such  equipment duty free upto a value of Rs.60,000.

9 6 . The duty rate on certain specified items of baggage was recently reduced  from 255% to 150%. As a measure of simplification, I propose to reduce the general  baggage rate itself from 255% to 150%.

9 7 . In line with these reductions in import duties for individual sectors, and  keeping in mind the present exchange rate, there is scope for reduction in the  maximum rate of duty on all goods. Accordingly I propose to reduce the maximum  rate from 110% to 85% except for a few items including passenger baggage and  alcoholic beverages.

9 8 . I am aware that Honourable Members will be concerned that lowering of  import duties and import liberalisation may put too much pressure on our industry  and make it vulnerable to unfair competition and dumping. I would like to assure  Honourable Members that these issues have been carefully considered and the  proposed changes will not put undue pressure on industry. The change in the  exchange rate over the past two years has created considerable room for duty  reduction without hurting domestic industry. Besides, I am also reducing duties on  raw materials and inputs which will help to reduce cost for our producers, enabling  them to compete more effectively. Even with these changes, duties on finished  products will be well above the long term structure recommended by the Chelliah  Committee. We can move to that goal in phases over the next few years. As for  unfair competition through dumping, our anti-dumping laws are already operational  and action under these laws will be taken expeditiously whenever it is needed. I  may mention that provisional action has recently been taken in one case.

9 9 . In last year’s Budget export duties had been imposed on iron ore and  unpolished granite. Certain difficulties faced by these sectors have since been brought  to my notice. I, therefore, propose to withdraw the export duty on iron ore and  unpolished granite.

100.I turn now to my proposals relating to excise duties. These are guided by  the need to simplify the rate structure, to give some relief on articles of mass  consumption, help the domestic capital goods industry so as to increase its  competitiveness and also reduce capital costs, assist industries suffering .c.from  depressed demand conditions, and to provide relief to small-scale industry.

101.A surcharge by way of special excise duty has been levied since 1988, and  the rate is currently 15% of the basic excise duty. As a measure of simplification,  I propose to merge the special excise duty with the basic excise duty rates while  also rationalising the resulting duty rates.

102.I propose to give some relief from taxation on a large number of articles of  mass consumption as a measure of protection to the common people, who have  been hard hit by inflation. Coffee, tea and instant tea are being fully exempted from  excise duty. I also propose to reduce excise duty on vanaspati from Rs.1900 to  Rs.1500 per metric ton. I propose to fully exempt footwear made by units under  KVIC as well as those run with cash assistance received under the Integrated Rural  Development Programme, irrespective of the value limit. In respect of footwear  manufactured by other units, I propose to enhance the present value limit for the  purpose of exemption from Rs.75 to Rs.125 per pair. I also propose to reduce the  excise duty:  – on evaporative coolers from 23% to 10%;  – on electric fans from 17.25% to 10%;  – on specified domestic electrical appliances from 23% to 15%;   – on dry cell batteries from 34.5% to 25%;  – on printing and writing ink from 17.25% to 10%;  – on radio sets from 23% to 10%;  – on tooth powder from 17.25% to 10%;  – on noodles and roasted cereals from 17.25% to 10%;  – on biscuits from 11.5% to 7.5%;  – on plastic moulded luggage from 34.5% to 25%;  – on mattresses and bedding articles of cellular rubber from 69% to 30%.

103.At present the excise duty on capital goods and instruments varies from  11.5% to 23%. In order to lower capital costs and stimulate investment, I propose  to reduce the excise duty on a large number of capital goods and instruments to a  uniform rate of 10%. For the power sector, I am proposing an even lower rate of  5%.

104.Revival of industrial growth is a key element in the strategy for 1993-94.  Sectors such as the automotive sector, television and the refrigeration and airconditioning  industries are currently suffering from recession. Workers employed  in these industries face an uncertain future. Revenue prospects will also suffer if  the present trend is not reversed. I, therefore, propose to provide a significant relief  to these industries by way of reduced incidence of excise duties. I expect them to  respond positively to this stimulus.

105. In order to encourage the public transport sector, I propose to reduce  excise duty from 23% to 15% on non-petrol driven commercial vehicles for carrying  goods and passengers. Correspondingly, the excise duty on the chassis of such  vehicles will also stand reduced to 15%. I also propose to fully exempt excise duty  on body building on chassis of buses and similar passenger vehicles. The excise  duty on three-wheelers is being reduced from 23% to 15%. I also propose to reduce  the excise duty on motor cars from 55% to 40%.

106.I propose to reduce the specific excise duty on colour television sets from  rates at present varying from Rs.1925 to Rs.4785 per set to rates varying from  Rs.1250 to Rs.2200 per set.

107.The rates of excise duty on refrigerators presently vary from Rs.575 to  Rs.5750 per refrigerator depending on their capacity. I propose to reduce the rates  to Rs.400 to Rs.3500 per refrigerator. Other refrigerating appliances, including  those used for cold storage in the agriculture sector currently attract an ad valorem  duty of 69%. This is far too high as it affects the growth of food processing and  preservation industries. I, therefore, propose to reduce the duty to 20%. I propose  to reduce excise duty on air-conditioners from rates varying from Rs.13800 to  Rs.85100 per unit at present to rates varying from Rs.7000 to Rs.70000 per unit  depending on its capacity. In respect of compressors for air-conditioner of capacity  not exceeding 7.5 tonnes, I propose to reduce the excise duty from Rs.6900 to  Rs.5500 per compressor.

108.I propose to reduce the excise duty on bulk plastic resins such as low and  high-density polyethylene, polyvinyl chloride, polystyrene, etc. from 46% to 35%.  This measure will benefit small-scale units manufacturing plastic products.

109.Metals are the basic raw materials of industry and the Tax Reforms  Committee has suggested reduction of excise duty in this category. I, therefore,  propose to rationalise the existing duty structure on metals. On ferrous metals, the  ad valorem rates generally vary between 11.5% and 23%. I propose to rationalise  the structure into two slabs, 12.5% and 15%. Aluminium has duty rates ranging  from 23% to 40.25%. I propose to replace these rates by a uniform rate of 25%.  Other non ferrous metals like copper, zinc, lead etc. attract duty rates varying from  11.5% to 34.5%. I am proposing a uniform duty of 15% for these. Certain ferrous  materials are still subjected to specific rates of duty. I have proposed some upward  adjustment in these rates taking into account the price increase since last year.

110.As a measure of environment protection, and in order to save wood, I  propose to reduce the excise duty on plywood from 34.5% to 20%. I also propose  to include pulp made from rice and wheat straws in the scheme of full excise duty  exemption for production of writing and printing paper and uncoated craft paper  containing not less than 75% of pulp made from bagasse, jute, etc. This will widen  the scope for using non-conventional raw materials in the manufacture of paper.

111.Currently, excise duty is being levied on mechanised, semi-mechanised,  non-mechanised and cottage sectors of the match industry at Rs.3.15, Rs.2.10,  Rs.1.75 and Re.0.75 per hundred boxes respectively. The Government of Tamil  Nadu has brought to my notice certain difficulties faced by this industry and also  certain anomalies in the structure. Accepting this suggestion, I propose to reduce  the rates to Rs.2.40, Rs.1.25, Re.1.00 and Re.0.50 respectively and also to restrict  the existing concessions in the cottage sector only to units which are registered cooperative  societies or recognised by KVIC or the State KVIB.

112.The excise duty on cosmetics and everyday toilet preparations such as,  talcum powder, shampoos, face creams, shaving creams, etc. is very high at 120.75%.  These items are now being increasingly used by a wide section of the people for  personal care. I have received several representations from the trade, consumers  and women’s organisations for reduction of excise duty. I have also received  complaints regarding the growth of spurious products and other abuses related to  the evasion of this very high duty. I, therefore, propose to reduce the excise duty on  cosmetics and toilet preparations from 120.75% to 70%.

113.I propose a marginal upward revision in the specific rates of excise duties  levied on tyres, tubes and flaps.

114.I also propose to revise upwards the specific rates of excise duty on  molasses from Rs.172.50 to Rs.200 per tonne.

115.The small-scale sector has been a source of strength to Indian industry  and a nursery for new entrepreneurship. The central excise duty exemption scheme  for this sector has contributed significantly to its development along with other  measures taken by the Central and State Governments. I propose to simplify the  scheme and restructure it to give additional incentives to the smaller units and at  the same time respond to certain recommendations of the Estimates Committee  and the Public Accounts Committee.

116.I propose to enhance the limit for exemption from registration from Rs.7.5  lakh at present to Rs.10 lakh. This will free a large number of the smaller units  from the necessity of registration, and at the same time enable the tax authorities  to devote greater attention to the comparatively larger units. At present, excise  duty is completely exempted from the first Rs.20 lakh of turnover for units producing  goods under one chapter of the excise tariff, and the limit is Rs.30 lakh if the goods  produced are under more than one chapter of the tariff. I propose to enhance the  duty exemption limit to Rs.30 lakh for all units. This should benefit a large number  of units in the lower segment of the small-scale sector.

117.As part of the restructuring, I feel that the larger units in this sector can  contribute a little more to the exchequer. At present, the excise duty payable above  the zero duty limit and upto Rs.75 lakh is normal duty minus 10 percentage  points, subject to a minimum of 5% ad valorem. I propose to retain this for clearances  upto Rs.50 lakh in a financial year. For clearances beyond Rs.50 lakh and upto  Rs.75 lakh, the concessional rate will be normal duty minus 5 percentage points,  subject to a minimum of 5% ad valorem.

118.At present, buyers of goods from small-scale manufacturers, get a notional  credit under MODVAT which is 5 percentage points more than the central excise  duty actually paid by the latter. The Public Accounts Committee has found certain  irregularities in the operation of this facility. The Tax Reforms Committee has also  not favoured continuance of this special dispensation, which essentially helps the  large-scale user industry. I, therefore, propose to withdraw the higher notional  credit which the buyers of goods produced by the small-scale units are getting at  present. They will receive MODVAT credit only on the basis of duty actually paid.

119.In respect of cosmetics and refrigerators and air-conditioning appliances,  I propose to liberalise the excise duty concessions for the small-scale sector having  regard to price escalation over the years. I propose to extend full exemption in  respect of clearances from Rs.5 lakh at present to Rs.15 lakh. Thereafter, clearances  upto Rs.30 lakh in a financial year would attract 50% of the normal duty. Clearances  above Rs.30 lakh in a financial year will attract normal duty. The liberalised scheme  of exemption will be available only to those units whose value of clearances does  not exceed Rs.50 lakh in a financial year.

120.All the proposed changes in the small-scale sector will take effect from 1st  April, 1993.

121.I now turn to certain proposals relating to agriculture, textiles and health  sectors, covering both customs and excise duties.

122.Agriculture is the key to our economic growth, and deserves special fiscal  incentives aimed at modernisation and diversification of this sector. I propose to  reduce the import duty on various items of machinery used for agriculture,  horticulture, forestry, poultry keeping, etc. from 55% to 25%. I propose to reduce  the import duty on rice transplanters from 40% to 15%. I also propose to reduce  the import duty on grand parent poultry stocks from 105% to 40%. The import  duty on certain amino acids is proposed to be reduced from 65% to 15%.

123.In respect of out-board motors used for fishing, I propose to reduce the  import duty from 40% to 15%.

124.I propose to reduce the import duty on specified pesticides from 110% to  22  75%. The import duty on certain pesticide intermediates is being reduced from  rates ranging between 65% and 110% to 50%.

125.I propose to reduce the import duty on specified goods for horticulture  and green houses to 25%.

126.At present, tractors of engine capacity above 1800cc and trailers attract a  total excise duty of 17.25% and 23% respectively. I propose to reduce the excise  duty on them to 10% and 15% respectively.

127.I have a package of excise duty concessions for the textile industry. Next to  agriculture, it is the largest employer in the country. The present excise duty rates  on polyester and nylon filament yarn are higher as compared to other types of yarn.  Substantial capacities have been set up in the synthetic sector of fibre and yarn. As  part of a long-term policy of bringing synthetic fabrics within the reach of the common  man, I feel there is a need to reduce the excise duty rates in this sector. Hence, I  propose to reduce the excise duty on polyester filament yarn from Rs.80.60 to Rs.69  per kg. and on nylon filament yarn from Rs.71.50 to Rs.57.50 per kg. I also propose  to reduce excise duty on polyester staple fibre from Rs.13.65 to Rs.12.65 per kg. and  on viscose staple fibre from Rs.15.60 to Rs.14.95 per kg. On polypropylene filament  yarn, I propose to reduce the excise duty from Rs.32.50 to Rs.28.75 per kg. I further  propose to reduce excise duty on acrylic staple fibre from Rs.15.60 to Rs.14.95 per  kg.

128.Health-care deserves special treatment. I propose to reduce import duty  on specified bulk drugs at 110% or 80% to 25%. I also propose to fix a uniform rate  of 50% on specified drug intermediates which currently attract import duties varying  from 60% to 110%. In respect of homoeopathic medicines, I propose to reduce  import duty from 40% to 25%.

129.Indigenous manufacture of medical equipment deserves all encouragement.  At present, full exemption from import duty is available to certain parts of specified  life saving electronic medical equipments. To help in accelerating the indigenisation  process, I propose to extend full exemption to such parts for the manufacture of  specified non-electronic life-saving medical equipments also. In respect of  components for the manufacture of certain other medical equipments, I propose to  reduce import duty from 45% and 25% at present to 15%. Further, for the same  reason, I propose to fully exempt specified sight-saving equipments from excise  duty and to lower excise duty on some medical equipments to 10%.

130.I propose to reduce the import duty on aseptic form-fill-seal machines for  packing intravenous fluids by the pharmaceutical industry from 40% to 15%.

131.I have also proposed certain amendments in the Finance Bill seeking to  effect changes in the excise and customs tariffs which are generally in the nature  of enabling provisions and have no revenue significance. Besides, there are proposals  for amendment of some of the existing notifications. In order to save the time of the  House, I do not propose to recount them.

132.The proposal in regard to changes in the excise duties outlined above are  likely to result in a revenue loss of Rs.2249 crore as conventionally calculated.  However, I expect that as a result of the many steps that the Government is taking,  including the duty reductions, the production of excisable goods will go up, and the  23  loss will therefore be partially offset by a gain of about Rs.1000 crore on this  account. Out of the net loss of revenue in excise duties the Centre’s share will be  Rs.708 crore and that of States Rs.541 crore.

133.The proposed restructuring of customs duties results in a net loss of  Rs.3273 crore. This revenue loss will be entirely borne by the Centre.

134.The net impact of my proposals on customs and excise duties taken together  amount to a revenue loss of Rs.4522 crore on indirect taxes. The impact on the  Centre’s revenue is a loss of Rs.3981 crore and that on States’ is Rs.541 crore. I  believe this is a temporary loss and is necessary to impart a new dynamism to  India’s economy. In the medium term, this loss will be more than made up by  increased efficiency, competitiveness and faster growth of the economy.

135.Copies of notifications giving effect to the changes in customs and excise  duties effective from the 28th February, 1993 will be laid on the Table of the House  in due course.

136.Taking into account the revenue loss arising from my proposals relating  to indirect taxes the budget deficit for 1993-94 is estimated at Rs.4314 crore and  the fiscal deficit at Rs.36,959 crore.

137.Mr. Speaker, Sir, the world around us is changing very rapidly, becoming  more integrated as a marketplace and also more competitive. Other developing  countries are successfully transforming themselves to meet these challenges. We  cannot afford to stay out of this process, appearing to be absorbed with obscurantist  preoccupations and sectarian divisions. The solution lies precisely in harnessing  the considerable energies of our people, especially the young, to the exciting task  of economic rejuvenation. I have used this Budget as an opportunity to put economic  and social development firmly back on the national agenda. This is the only way to  show the world that India is a nation on the move and is determined to succeed.

138.It is India’s destiny to be a major player on the global economic and  political scene. For that we need a vibrant and rapidly expanding economy with  deep and abiding concern for the poor and the under-privileged. Politics has to be  a purposeful instrument for realising our cherished goals. There is no scope for  confrontation or cold war tactics when it comes to dealing with the nation’s social  and economic objectives. We need wisdom, sobriety, firmness of purpose and above  all national unity.

139.As Swami Vivekananda used to say there is an element of divinity in each  human being. We have to create an environment in which this divine potentiality  can be mobilised for building a strong economy and a just society. This is the  challenge that our political system must face squarely. I venture to think that this  budget focusses the nation’s attention on this imperative task.

140.Sir, I commend the Budget to this august House.  [27th February, 1993]

Previous Budgets

Manmohan Singh – 1991 Budget

Finance Minister : Manmohan Singh
Budget Year : 1991

BACK

Manmohan Singh

PART A
Sir,  I rise to present the budget for 1991-92. As I rise, I am overpowered by a  strange feeling of loneliness. I miss a handsome, smiling, face listening intently to  the Budget Speech. Shri Rajiv Gandhi is no more. But his dream lives on; his  dream of ushering India into the twenty-first century; his dream of a strong, united,  technologically sophisticated but humane India. I dedicate this budget to his inspiring  memory.
2 . The new Government, which assumed office barely a month ago, inherited  an economy in deep crisis. The balance of payments situation is precarious.  International confidence in our economy was strong until November 1989 when  our Party was in office. However, due to the combined impact of political instability  witnessed thereafter, the accentuation of fiscal imbalances and the Gulf crisis,  there was a great weakening of international confidence. There has been a sharp  decline in capital inflows through commercial borrowing and non-resident deposits.  As a result, despite large borrowings from the International Monetary Fund in July  1990 and January 1991, there was a sharp reduction in our foreign exchange  reserves. We have been at the edge of a precipice since December 1990 and more  so since April 1991. The foreign exchange crisis constitutes a serious threat to the  sustainability of growth processes and orderly implementation of our development  programmes. Due to the combination of unfavourable internal and external factors,  the inflationary pressures on the price level have increased very substantially since  mid-1990. The people of India have to face double digit inflation which hurts most  the poorer sections of our society. In sum, the crisis in the economy is both acute  and deep. We have not experienced anything similar in the history of independent  India.
3 . The origins of the problem are directly traceable to large and persistent  macro-economic imbalances and the low productivity of investment, in particular  the poor rates of return on past investments. There has been an unsustainable  increase in Government expenditure. Budgetary subsidies, with questionable social  1  2  and economic impact, have been allowed to grow to an alarming extent. The tax  system still has many loopholes. It lacks transparency so that it is not easy to  assess the social and economic impact of various concessions built into its structure.  The public sector has not been managed in a manner so as to generate large  investible surpluses. The excessive and often indiscriminate protection provided to  industry has weakened the incentive to develop a vibrant export sector. It has also  accentuated disparities in income and wealth. It has worked to the disadvantage of  the rural economy. The increasing difference between the income and expenditure  of the Government has led to a widening of the gap between the income and  expenditure of the economy as a whole. This is reflected in growing current account  deficits in the balance of payments.
4 . The crisis of the fiscal system is a cause for serious concern. The fiscal  deficit of the Central Government, which measures the difference between revenue  receipts and total expenditure, is estimated at more than 8 per cent of GDP in  1990-91, as compared with 6 per cent at the beginning of the 1980s and 4 per cent  in the mid-1970s. This fiscal deficit had to be met by borrowing. As a result,  internal public debt of the Central Government has accumulated to about 55 per  cent of Gross Domestic Product (GDP). The burden of servicing this debt has now  become onerous. Interest payments alone are about 4 per cent of GDP and constitute  almost 20 per cent of the total expenditure of the Central Government. Without  decisive action now, the situation will move beyond the possibility of corrective  action.
5 . The balance of payments situation is most difficult. The current account  deficit, which was about 2 per cent of GDP for several years, is estimated to be  more than 2.5 per cent of GDP in 1990-91. These persistent deficits, which were  inevitably financed by borrowings from abroad, have led to a continuous increase  in external debt which, including non-resident Indian (NRI) deposits, is estimated  at 23 per cent of GDP at the end of 1990-91. Consequently, the debt service burden  is estimated at about 21 per cent of current account receipts in 1990-91. These  strains were stretched to a breaking point on account of the Gulf crisis last year.  The balance of payments has lurched from one liquidity crisis to another since  December 1990. The current level of foreign exchange reserves, in the range of  Rs.2500 crores, would suffice to finance imports for a mere fortnight.
6 . The price situation, which is of immediate concern to the vast mass of our  people, poses a serious problem as inflation has reached a double digit level. During  the fiscal year ending 31st March 1991 the wholesale price index registered an  increase of 12.1 per cent, while the consumer price index registered an increase of  13.6 per cent. The major worrisome feature of the inflation in 1990-91 was that it  was concentrated in essential commodities. The prices of these commodities rose  inspite of the three good monsoons in a row and hence the three successive bumper  harvests. Inflation hurts everybody, more so the poorer segments of our population  whose incomes are not indexed.
7 . There is no time to lose. Neither the Government nor the economy can live  beyond its means year after year. The room for maneuver, to live on borrowed  money or time, does not exist any more. Any further postponement of macroeconomic  adjustment, long overdue, would mean that the balance of payments  situation, now exceedingly difficult, would become unmanageable and inflation,   already high, would exceed limits of tolerance. For improving the management of  the economy, the starting point, and indeed the centre-piece of our strategy, should  be a credible fiscal adjustment and macro-economic stabilisation during the current  financial year, to be followed by continued fiscal consolidation thereafter. This process  would, inevitably, need at least three years, if not longer, to complete. But there  can be no adjustment without pain. The people must be prepared to make necessary  sacrifices to preserve our economic independence and restore the health of our  economy.
8 . In the macro-management of the economy, over the medium-term, it should  be our objective to progressively reduce the fiscal deficit of the Central Government,  to move towards a significant reduction of the revenue deficit, and to reduce the  current account deficit in the balance of payments. It is only such prudent  management that would enable us to curb the exponential growth in internal and  external debt and limit the burden on debt servicing, for the Government and the  country, to manageable levels. Indeed, we must make a conscious effort to reduce  the internal debt of the Government and the external debt of the nation, so that we  rely more and more on our own resources to finance the process of development.  During the period of transition, it shall be our endeavour to minimise the burden  of adjustment on the poor. We are committed to adjustment with a human face. It  will also be our endeavour that the adjustment process does not adversely affect  the underlying growth impulses in our economy. We do not have time to postpone  adjustment and stabilisation. We must act fast and act boldly. If we do not introduce  the needed correctives, the existing situation can only retard growth, induce recession  and fuel inflation, which would hurt the economy further and impose a far greater  burden on the poor.
9 . Macro-economic stabilisation and fiscal adjustment alone cannot suffice.  They must be supported by essential reforms in economic policy and economic  management, as an integral part of the adjustment process, reforms which would  help to eliminate waste and inefficiency and impart a new element of dynamism to  growth processes in our economy. The thrust of the reform process would be to  increase the efficiency and international competitiveness of industrial production,  to utilise for this purpose foreign investment and foreign technology to a much  greater degree than we have done in the past, to increase the productivity of  investment, to ensure that India’s financial sector is rapidly modernised, and to  improve the performance of the public sector, so that the key sectors of our economy  are enabled to attain an adequate technological and competitive edge in a fast  changing global economy. I am confident that, after a successful implementation of  stabilisation measures and the essential structural and policy reforms, our economy  would return to a path of a high sustained growth with reasonable price stability  and greater social equity.
1 0 . Thanks to the efforts of Pandit Jawaharlal Nehru, Indira Gandhi and Rajiv  Gandhi, we have developed a well diversified industrial structure. This constitutes  a great asset as we begin to implement various structural reforms. However, barriers  to entry and limits on growth in the size of firms, have often led to a proliferation  of licensing and an increase in the degree of monopoly. This has put shackles on  segments of Indian industry and made them serve the interests of producers but  not pay adequate attention to the interests of consumers. There has been inadequate  emphasis on reduction of costs, upgradation of technology and improvement of   quality standards. It is essential to increase the degree of competition between  firms in the domestic market so that there are adequate incentives for raising  productivity, improving efficiency and reducing costs. In the pursuit of this objective,  we have announced important changes in industrial policy which will bring about  a significant measure of deregulation in the domestic sector, consistent with our  social objectives and the binding constraints on the balance of payments.
1 1 . The policies for industrial development are intimately related to policies  for trade. There can be no doubt that protection was essential in the initial phase  of our industrial development, so that we could go through the learning period  without disruption. The past four decades have witnessed import substitution which  has not always been efficient and has some times been indiscriminate. The time  has come to expose Indian industry to competition from abroad in a phased manner.  As a first step in this direction, the Government has introduced changes in importexport  policy, aimed at a reduction of import licensing, vigorous export promotion  and optimal import compression. The exchange rate adjustments on 1st and 3rd  July 1991 and the enlargement and liberalisation of the replenishment licence  system constitute the two major initial steps in the direction of trade policy reform.  They represent the beginning of a transition from a regime of quantitative restrictions  to a price based mechanism.
1 2 . After four decades of planning for industrialisation, we have now reached  a stage of development where we should welcome, rather than fear, foreign  investment. Our entrepreneurs are second to none. Our industry has come of age.  Direct foreign investment would provide access to capital, technology and markets.  It would expose our industrial sector to competition from abroad in a phased  manner. Cost, efficiency, and quality would begin to receive the attention they  deserve. We have, therefore, decided to liberalise the policy regime for direct foreign  investment in the following manner. First, direct foreign investment in specified  high priority industries, with a raised limit for foreign equity at 51 per cent, would  be given prompt approval, if equity inflows are sufficient to finance the import of  capital goods at the stage of investment and if dividends are balanced by export  earnings over a period of time. Second, foreign equity upto 51 per cent would be  allowed for trading companies primarily engaged in export activities. Third, a special  board would be constituted to negotiate with a number of large international firms  and approve direct foreign investment in selected areas; this would be a special  regime to attract substantial investment that would provide access to high technology  and to world markets.
1 3 . For the founding fathers of our Republic, a public sector that would be  vibrant, modern, competitive and capable of generating large surpluses was a vital  element in the strategy of development. The public sector has made an important  contribution to the diversification of our industrial economy. But there have been  a number of shortcomings. In particular, the public sector has not been able to  generate internal surpluses on a large enough scale. At this critical juncture, it has  therefore become necessary to take effective measures so as to make the public  sector an engine of growth rather than an absorber of national savings without  adequate return. This has been widely accepted, but thought and action in this  regard are still far apart. To bridge this gap, the portfolio of public sector investments  would be reviewed so as to concentrate the future operations of the public sector  in areas that are strategic for the nation, require high technology for the economy,  5  and are essential for the infrastructure. In order to raise resources, encourage  wider public participation and promote greater accountability, upto 20 per cent of  government equity in selected public sector undertakings would be offered to mutual  funds and investment institutions in the public sector, as also to workers in these  firms. Public enterprises which are chronically sick and which cannot be turned  around, will be referred to the Board for Industrial and Financial Reconstruction  (BIFR), or to a similar high-powered body to be set up, for the formulation of revival  or rehabilitation schemes; a social security mechanism will be created to fully  protect the interests of the workers likely to be affected by the rehabilitation packages  of the BIFR. Autonomy in management, and corresponding accountability, would  be provided through a system of memorandums of understanding between the  Government and public sector enterprises.
1 4 . Our banking system and financial institutions are at the very core of the  financial infrastructure in the economy. The widening and deepening of our financial  system have helped the spread of institutional finance over a vast area and have  contributed significantly to the augmentation of our savings rate, particularly  financial savings. This has been a most commendable achievement, but our financial  system has developed certain rigidities and some weaknesses which we must address  now . The objective of reform in the financial sector would be to preserve its basic  role as an essential adjunct to economic growth and competitive efficiency, while  improving the health of its institutions. In this task, it is essential to ensure capital  adequacy, introduce prudential norms and improve profitability of our commercial  banks and financial institutions. There are no magic solutions. These are complex  issues which need careful consideration. Therefore, I propose to appoint a high  level committee to consider all relevant aspects of structure, organisation, functions  and procedures of the financial system. This committee would advise the Government  on appropriate measures that would be needed to enhance the viability and health  of our financial sector so that it can better serve the needs of the economy without  any sacrifice of the canons and principles of a sound financial system.
1 5 . Interest rates are a crucial dimension of the financial sector. In the formative  stages of the development of credit markets, administrative intervention in interest  rates is both necessary and desirable. At the present stage of our development,  however, we can begin to relax the degree of intervention and impart a greater  flexibility to the structure of interest rates. The Reserve Bank of India has already  taken an important step in this direction, by stipulating a floor rate of interest and  providing freedom to commercial banks to charge interest rates above the floor  level based on their perceptions of risk. The Government proposes to extend a  similar freedom to term-lending financial institutions, where the minimum interest  rate would be 15 per cent, and these institutions would be free to charge an  interest rate in accordance with their perception of the creditworthiness of borrowers.  With the exception of tax free bonds for the public sector, it is also proposed to  remove all restrictions on interest rates for debentures, both convertible and nonconvertible,  floated in the capital market. The interest rate on such debt instruments  will hereafter be governed by market forces, and the credit rating of such debt  instruments will become an integral part of the capital market process. In  consultation with the Reserve Bank of India, the Government would continue to  watch the structure of interest rates. Recently, interest rates payable on bank  deposits have been increased. I now propose to do a similar thing with regard to   interest rates payable under the small savings schemes. Our ultimate objective is  to achieve a significant reduction both in the nominal and the real interest rates.  This would be possible if the rate of inflation is reduced significantly over the next  three years.
1 6 . While presenting the budget for 1987-88, our former Prime Minister the  late Shri Rajiv Gandhi had assured this House that for a healthy growth of capital  markets, for protecting the rights of investors and for preventing trading malpractices  the Government would set up a separate Board for the regulation and orderly  functioning of the Stock Exchanges and the securities industry. Although the Board  was set up, legislation to give the Board adequate powers was unfortunately not  enacted. This shall now be done forthwith and full statutory powers will be given to  the Securities and Exchange Board of India for administering the relevant provisions  of the Securities Contracts (Regulation) Act and the Companies Act. Transferring  these powers from the Controller of Capital Issues and the Government to an  independent body would enable it to effectively regulate, promote and monitor the  working of the Stock Exchanges in the country. A comprehensive package of reforms  relating to trading on the Stock Exchanges, including a system of national clearing  and settlement and setting up of a central depository, is also under active  consideration.
1 7 . In regard to Mutual Funds, some progress towards evolving a competitive  structure has been made in the last few years with encouraging results. For many  investors, mutual funds are a more suitable investment vehicle than direct ownership  of shares. The Government is already giving tax incentives for equity-linked savings  schemes offered through mutual funds. The Government has now decided to further  promote the development of mutual funds by throwing the field open to the private  sector and joint sector mutual funds. In order to safeguard the interests of the  investing public, and to encourage a healthy growth of the capital markets, a  comprehensive set of guidelines is being evolved for the operation of all mutual  funds. Consideration will also be given to enactment of legislation for this purpose.
1 8 . A comprehensive review of policies and procedures bearing on Non-resident  Indian investments shall be carried out and further relaxations made in order to  remove all procedural difficulties and impediments to the setting up of industrial  and other ventures by Non-resident Indians. New sectors shall be made available  to NRIs for investment on a non-repatriation basis, including housing, infrastructure  and real estate development. For example, at present, NRIs of foreign nationality  are required to obtain specific permission under section 31 of the Foreign Exchange  Regulation Act (FERA) to acquire residential property. It is now proposed to provide  general exemption from this provision to such persons. However, rental income  and proceeds from the sale of such housing will be non-repatriable. For facilitating  interaction with the Central Government, to serve as a focal point for NRIs,  Government proposes to establish a Chief Commissioner for Non-resident Indians.  I would urge State Governments, also, to establish an office of a Commissioner for  Non-Resident Indians.
1 9 . I believe that the time has come to evolve a more transparent institutional  mechanism for fixing tariffs and domestic prices in sectors where there might still  be need for protecting Indian industry against foreign competition and for the  determination of administered prices, particularly in the area of public utilities. For   this purpose, we propose to restructure the Bureau of Industrial Costs and Prices  and to transform it into a Tariff Commission.
2 0 . As we enter the last decade of the twentieth century, India stands at the  cross-roads. The decisions we take and do not take, at this juncture, will determine  the shape of things to come for quite some time. It should come as no surprise,  therefore, that an intense debate rages throughout the country as to the path we  should adopt. In a democratic society it could not be otherwise. What can we learn  from this debate? The most important thing that comes out clearly is that we  cannot realise our goal of establishing a just society, if we abandon the planning  process. But India’s future development depends crucially on how well the planning  process is adapted to the needs of a fast changing situation. I believe that without  an intelligent and systematic coordinated resource use in some major sectors of  our economy, development will be lopsided. It will violate deeply cherished values  of equity and it will keep India well below its social, intellectual and moral potential.  But our planning processes must be sensitive to the needs of a dynamic economy.  Over centralisation and excessive bureaucratisation of economic processes have  proved to be counter productive. We need to expand the scope and the area for the  operation of market forces. A reformed price system can be a superior instrument  of resource allocation than quantitative controls. But markets can only serve those  who are part of the market system. A vast number of people in our country live on  the edges of a subsistence economy. We need credible programmes of direct  government intervention focussing on the needs of these people. We have the  responsibility to provide them with quality social services such as education, health,  safe drinking water and roads. In the same way, the development of capital and  technology intensive sectors, characterised by long gestation periods, such as  transport and communications and energy will need to be planned with much  greater care than ever before. The control of land and water degradation, which  threatens the livelihood of millions of poor people in this country, will also require  effective Government leadership and action.  2 1 . The challenge that we are facing is without precedent. In its initial stages,  the Industrial Revolution in the western world concentrated on the creation of  wealth, unmindful of the social misery and inequity which characterised this process.  The democratisation of the polity came much later. The socialist experiment in  charting a new path for accelerated industrial transformation of an underdeveloped  economy and polity did achieve considerable success in developing technological  and military capabilities, accumulation of capital for rapid industrial growth and  human resources development, in countries such as the USSR. But recent  developments have shown that this approach too suffered from major weaknesses,  particularly in its allocative efficiency, in the management of technical change,  control of environmental degradation and in harnessing the vast latent energy and  talents of individuals. In India, we launched an experiment under the leadership of  Pandit Jawaharlal Nehru, an experiment which sought to unite the strengths and  merits of different approaches to accelerated development of our backward economy.  We have achieved considerable success in the field of development, modernisation  and greater social equity. However, we are yet far from realising our full potential  in all these areas. We have to accomplish the unfinished task, while remaining  steadfast in our allegiance to the values of a democratic system.
2 2 . At the same time, we must restore to the creation of wealth its proper  8  place in the development process. For, without it, we cannot remove the stigma of  abject poverty, ignorance and disease. But we cannot accept social misery and  inequity as unavoidable in the process of creation of wealth. The basic challenge of  our times is to ensure that wealth creation is not only tempered by equity and  justice but is harnessed to the goal of removal of poverty and development for all.
2 3 . For the creation of wealth, we must encourage accumulation of capital.  This will inevitably mean a regime of austerity. We have also to remove the stumbling  blocks from the path of those who are creating wealth. At the same time, we have  to develop a new attitude towards wealth. In the ultimate analysis, all wealth is a  social product. Those who create it and own it, have to hold it as a trust and use  it in the interest of the society, and particularly of those who are under-privileged  and without means. Years ago, Gandhiji expounded the philosophy of trusteeship.  This philosophy should be our guiding star. The austerity that Gandhiji practised  and preached is a necessary condition for accelerated economic development in the  framework of a democratic polity. The trusteeship that he prescribed for the owners  of wealth captured the idea of social responsibility.
2 4 . In highlighting the significance of reform, my purpose is not to give a fillip  to mindless and heartless consumerism we have borrowed from the affluent societies  of the West. My objection to the consumerist phenomenon is two-fold. First, we  cannot afford it. In a society where we lack drinking water, education, health,  shelter and other basic necessities, it would be tragic if our productive resources  were to be devoted largely to the satisfaction of the needs of a small minority. The  country’s needs for water, for drinking and for irrigation, rural roads, good urban  infrastructure, and massive investments in primary education and basic health  services for the poor are so great as to effectively preclude encouragement to  consumerist behaviour imitative of advanced industrial societies. Our approach to  development has to combine efficiency with austerity. Austerity not in the sense of  negation of life or a dry, arid creed that casts a baleful eye on joy and laughter. To  my mind, austerity is a way of holding our society together in pursuit of the noble  goal of banishing poverty, hunger and disease from this ancient land of ours.
2 5 . Let me now turn to fiscal adjustment during the current financial year.  The beginning of any attempt to correct the fiscal imbalance in the economy must  be directed at a reduction in expenditure and an increase in income of the  Government, so as to reduce the fiscal deficit. In the medium-term, however, our  fiscal regime would be sustainable only if revenue receipts not only meet revenue  expenditure but also provide a sufficient surplus to finance capital expenditure  that does not yield direct economic returns as such, as in defence or in social  sectors. Even this would not suffice if investment expenditures in the budget do  not earn an adequate return. The elimination of structural imbalances in our fiscal  system would require a reduction both in the fiscal deficit and in the revenue  deficit as a proportion of GDP. The Union Budget for 1991-92 is an essential first  step in this direction.
2 6 . It must be recognised that the necessary reduction in the fiscal deficit,  during 1991-92, is a stupendous task. The interim budget presented to Parliament  in March 1991 estimated the fiscal deficit at Rs.38475 crores. But this estimate  was based on assumptions about certain decisions that have not been implemented.  The postponement of the regular budget has made a formidable task even more  difficult because almost four months of the financial year have now elapsed without  9  any effort at fiscal correction. Indeed, past trends in revenue and expenditure  suggest that, without any corrective action on our part, the fiscal deficit during  1991-92 could well reach a level of more than Rs.52000 crores. The difference  between the two sets of figures provides the real measure of the fiscal correction  needed during the current financial year.
2 7 . According to provisional data available, the more narrowly defined budget  deficit, as measured by borrowing through short term Treasury bills, for 1990-91  at Rs.11430 crores was significantly higher than the revised estimate of Rs.10722  crores, largely due to a substantial revenue shortfall, particularly in corporation  tax revenues. This highlights the handicap with which we begin. Let me now present  the scenario for 1991-92.
2 8 . The increasing levels of non-plan expenditure, financed through borrowing,  have led to an exponential increase in interest payments by the Government. The  revised estimates for interest payments during 1990-91, at Rs.21850 crores,  accounted for as much as 38 per cent of the net revenue receipts of the Central  Government. Interest payments during 1991-92, estimated at Rs.27450 crores,  constitute 42 per cent of the net revenue receipts of the Central Government at  existing rates of taxation. If the present trends continue without any correction,  then interest payments could well account for more than 50 per cent of the net  revenue receipts of the Central Government by 1994-95. These magnitudes and  proportions only serve to highlight the gravity of the situation and the acute need  for a substantial adjustment in non-plan expenditure over the next three years.
  2 9 . The revised estimate for total non-plan expenditure in 1990-91 was  Rs.76761 crores. In the normal course, even with the strictest scrutiny but in the  absence of specific measures for reducing expenditure, this non-plan expenditure  would have increased to a level of Rs.89000 crores in 1991-92. Any attempt at  fiscal correction during the current financial year can be meaningful only if nonplan  expenditure is reduced by at least 10 per cent from the level it would otherwise  reach.
3 0 . The single largest component of non-plan expenditure is interest payments.  Even if there is a drastic reduction in Government borrowing during this year,  interest payments would still be in the range of Rs.35000 crores in the next financial  year. The exponential increase in interest payments can be brought under some  measure of control, by 1994-95, only through a strict discipline on government  borrowing for a period of three years.
3 1 . The second largest component of non-plan expenditure is the allocation  for the defence sector, where the provision in the revised estimates for 1990-91 was  Rs.15750 crores. No attempt at containing non-plan expenditure can succeed if  defence is to be excluded. At the same time, it is absolutely essential to ensure that  a quest for economy in expenditure does not in any way compromise national  security. We must, therefore, seek to limit expenditure without diluting the efficiency  and effectiveness of our defence services. Keeping in view all these considerations,  it has been decided to provide an outlay of Rs.16350 crores for defence in the  current year.
3 2 . Honourable Members are aware that export subsidies have been abolished  with effect from 3 July 1991. The export sector is being adequately compensated  through the adjustments in the exchange rate and the expansion of the  Replenishment Licensing System which were implemented at the beginning of July.  10  Consequently, it is now necessary to provide only Rs.1224 crores for export subsidies  in the budget estimates for 1991-92, as compared with the earlier estimated  requirement of Rs.4200 crores, yielding a saving of as much as Rs.3000 crores  during the remainder of this year.
3 3 . In so far as fertiliser subsidies are concerned, with effect from this evening,  low analysis fertilisers such as calcium ammonium nitrate, ammonium chloride,  ammonium sulphate and sulphate of potash will be free from price and movement  controls. There will be an increase of 40 per cent, on an average, in the price of all  other fertilisers. In addition, in respect of single super phosphate, there shall also  be a ceiling on the subsidy per tonne payable to producers so as to move towards  total deregulation in the next few years; this should act as an incentive for all high  cost units to reduce costs and improve efficiency. The necessary notifications in  this regard are being issued separately, today, by the Ministry of Agriculture.
3 4 . The economic rationale for an increase in the price of fertilisers is so  obvious that it does not need to be stated. Nevertheless, I would like to draw the  attention of the House to the fact that there has been no increase in fertiliser prices  since July 1981. In these ten years, there has been a continuous increase in the  procurement prices of paddy and wheat, as also in the market prices of other  crops, received by the agricultural sector. Farmers will be compensated for the  proposed increase in the price of fertilisers through suitable increases in procurement  prices.
3 5 . We would continue to ensure that 50 per cent of the plan resources are  invested in the agricultural and rural sector. The provision for the continuing schemes  for assistance to small and marginal farmers for dug wells and shallow tubewells  would be doubled. The ceilings on assistance in difficult areas, where the watertable  is very low, would be removed. Similarly, the provision for assistance for fresh  water and brackish water aqua-culture and for oilseeds and pulses production  would be substantially stepped up. New schemes are being drawn up to popularise  small tractors and matching implements, drip and sprinkler irrigation in areas  where water is scarce, and quality seeds in low yield areas. Another new scheme  that would be implemented from this kharif season is for providing assistance to  State Governments, cooperative societies, and farmers’ groups to provide blanket  plant protection cover on payment of a small fee in large identified areas under  cotton or pulses. It would also be possible to demonstrate the advantages of  integrated pest management in these areas. In order to safeguard any possible loss  in production because of increase in fertiliser prices, and any decline in consumption,  the credit structure would be strengthened to ensure adequate availability of credit  particularly to the small and marginal farmers. Simultaneously, soil testing  laboratories and farm advisory services all over the country would be strengthened  to ensure efficient use of fertilisers and popularise the use of bio-fertilisers. We  would also identify a few irrigation projects that can be completed in this very year  and ensure that these are provided the necessary funds. The other new initiatives,  also, would not be starved of funds. As far as possible our emphasis will be on  provision of quality services to our farmers and not on hand outs and subsidies.
  3 6 . The sugar subsidy which is costing the exchequer about Rs.350 crores  per annum is indeed an aberration, which crept into the system from January  1990, when the increase in the levy price paid to producers was not matched by a  simultaneous increase in the issue price for consumers in the public distribution  system. Small quantities of sugar are made available, mostly in metropolitan and  11  urban areas, under the public distribution system at Rs.5.25 per kg. whereas the  price that most people pay in the market is around Rs.10 per kg. Government has  decided that this subsidy should be abolished forthwith. Consequently, the issue  price of sugar under the public distribution system will be increased by 85 paise  per kg. to Rs.6.10 per kg. with effect from this evening. At the same time, the  public distribution system is being strengthened to serve more effectively the weaker  sections of our population, particularly the rural poor, having special regard to  their basic needs for foodgrains such as rice and wheat. The provision for food  subsidies in the current year is being stepped up to Rs.2600 crores, as compared  with only Rs.1800 crores provided in the interim budget and Rs.2450 crores provided  in the revised estimates for 1990-91.
3 7 . As a result of the exchange rate adjustments, at the beginning of July  1991, there would be an increase in the rupee value of the import bill for crude oil  and petroleum products. It is, therefore, necessary to raise the prices of petroleum  products for domestic consumers. This would also help to restrain the growth in  consumption of petroleum products. The price of motor spirit, domestic LPG and  aviation turbine fuel for domestic use would be raised by 20 per cent. The prices of  other petroleum products, excluding diesel and kerosene for non-industrial  use,would be raised by 10 per cent. The price of kerosene, for non-industrial use,  would be reduced by 10 per cent which means a 50 per cent roll-back in relation  to the increase in the price that came into effect on 15 October 1990. Even in a  most difficult financial situation, this is being done to protect the poor for whom  kerosene is an essential source of light and fuel. While there will be no increase in  the price of diesel, I would endeavour to protect the interests of the farmers who  use diesel. For this purpose, I shall hold discussions with State Governments. The  proposed increases in the prices of petroleum products will come into effect from  this evening, and the necessary notification in this regard is being separately issued  by the Ministry of Petroleum and Natural Gas.
3 8 . For non-plan expenditure, excluding interest payments, defence, and major  subsidies, the total provision in the budget estimates for 1991-92 is Rs. 28,073  crores, reflecting a reduction of Rs. 1538 crores compared with the provision in the  revised estimates for 1990-91. If we take into account the fact that no separate  provision has been made for the payment of additional installments of dearness  allowance by Ministries and Departments in the current year, the total reduction in  such other non-plan expenditure will exceed Rs. 2000 crores. In recent years, it  has been the usual practice to issue instructions to Ministries that such additional  requirements should be accommodated within the approved budget estimates. This  has invariably resulted in some programmes on the plan side being deprived of  adequate resources. It is my intention to effect maximum possible economies in the  non-plan administrative expenditure. Therefore, all Ministries have been requested  to prioritise their activities so that those which figure at the bottom of the list can  be abridged, while those which have outlived their utility can be abandoned  altogether. This exercise has already been initiated by all Ministries and is expected  to be completed by the end of August 1991. With this approach, the proposed  reduction in other non-plan expenditure, which I am promising to the House,  would be brought about in a more meaningful manner without leading to a reduction  in the provision for plan programmes.
3 9 . There is one large component of non-plan expenditure that is a burden on  12  the exchequer. I refer to the Government’s obligation under the Rural Debt Relief  Scheme. Unfortunately, there was a gross under-estimation of the total fiscal liability  under this scheme which was introduced last year. In addition to the sum of Rs.  1500 crores provided in the revised estimates for last year, we have to provide Rs.  1500 crores in the current year. But this is not all. We may need a similar provision  in the next year.
4 0 . As a result of the major adjustments in the sphere of expenditure, which  I have outlined in my speech, the budget estimate for total non-plan expenditure in  1991-92 stands at Rs. 79,697 crores. It is simply not possible to reduce interest  payments in the short term. The provision for non-plan expenditure, excluding  interest payments, in the current year represents a reduction of 4.9 per cent  compared with the provisions in the revised estimates for 1990-91, and a reduction  of almost 15 per cent in relation to what we would have had to provide this year,  but for the specific correctives that are being introduced. We have, thus, more than  fulfilled our commitment to reduce non-plan expenditure by 10 per cent, which  was stated in our Party’s election manifesto.
  4 1 . The election manifesto of the Congress Party identifies areas for special  emphasis in our strategy of development. These include a substantial augmentation  of employment programmes, the construction of dwelling units for the weaker  sections of our society, an expansion of the programme for irrigation wells and so  on. This would need a change in, and some reorientation of, plan priorities, with a  shift towards investment in rural areas and expenditure on programmes designed  for the benefit of the poor. Our strategy would, of course, be reflected in the Eighth  Five Year Plan, which would now commence on 1 April 1992. It shall be our  endeavour to finalise the Eighth Plan document by the end of this calendar year, so  that the annual plans for 1992-93, as well as the budgets of the Centre and the  States for that year, reflect the changed priorities.
4 2 . As the Vote on Account had earlier been taken only to cover the expenditure  in the first four months, this budget has had to be presented before the end of  July, 1991. We have, thus, not had the time to re-orient the Annual Plan for 1991-  92 to reflect fully our various concerns. Moreover, this year’s annual plan has had  to be situated in the context of the massive fiscal correction that we have to put  through. In fact, it was first felt that it would be necessary to effect a substantial  reduction in budget support for the Central Plan and Central Plan assistance for  the States. I am, however, happy to inform the House that with the substantial  cuts proposed in non-plan expenditure, it is now possible to protect the flow of  Central Plan assistance to States and Union Territories at the level of Rs. 14710  crores, as reflected in the interim budget for 1991-92. The Central plan outlay  would, however, show a modest increase at Rs. 42969 crores with a budget support  of Rs. 19015 crores.
4 3 . I am aware that in basic infrastructure areas such as power, coal,  communications and petroleum, we will have to set our sights much higher. In the  present situation, characterised by an acute shortage of foreign exchange, it is, in  particular, imperative to augment substantially the domestic production of coal,  crude oil, natural gas and electrical energy. Efforts will also have to be made on a  crash basis for promoting utmost economy in use of energy through more efficient  technologies in industry, agriculture, transport and domestic sectors. The  13  transmission and distribution line losses would also have to be brought down  drastically from the present high level of 22 per cent. We shall address ourselves to  all these tasks once we are through with taking stock of the situation. It is my  earnest hope that, by then, thanks to the fiscal corrections now being put through,  the resources position would improve, giving us the necessary flexibility. For the  present, it has been my endeavour to maintain essential investment through  appropriate support for the Central Plan despite binding constraints on the  exchequer.
4 4 . In preparing this budget, I have sought to ensure that the burden of fiscal  adjustment does not fall on State Governments. It is my belief that the Central  Government must set an example by introducing fiscal correctives, and it is my  hope that the State Governments would move in this direction as soon as possible.  In particular, I would urge them to ensure prompt payment of dues owed by the  State Electricity Boards to the National Thermal Power Corporation, Coal India and  the Indian Railways. We cannot allow State level enterprises to become an instrument  of unplanned and unauthorised transfer of resources from the Centre to the States.  That is neither fair nor equitable. This practice must, therefore, stop forthwith.  Simultaneously, State Governments must take effective steps to improve their fiscal  performance and streamline the working of their public enterprises. They should  not expect me to reward fiscal laxity by permitting them to have recourse to  unauthorised overdrafts from the Reserve Bank of India. I want them to be an  active partner in the accomplishment of the difficult task of restoring the fiscal  health of the country.
4 5 . The process of macro-economic adjustment, which is being initiated with  this budget, would take at least three years to complete. This adjustment must  have a human face. Therefore, during the period of transition, we shall do everything  that is possible to minimise the burden of adjustment on the poor. To some extent,  the poor would be protected as the rate of inflation comes down. We shall make  determined efforts to control inflation and the price rise. The fiscal strategy of this  budget will make a major contribution in this regard. In addition, it will be our  endeavour to provide protection to the poor in the form of enhanced outlays in the  social sectors. Employment creation and poverty eradication in rural India will  continue to receive the highest priority. At the same time, Government is committed  to the uplift of the weakest and the most vulnerable sections of our society.
4 6 . The plan outlay for the Ministry of Rural Development is being stepped up  from Rs.3115 crores last year to Rs. 3508 crores this year. Within this, the outlay  for employment programmes alone is Rs.2100 crores. The various employment  oriented programmes should make it possible to provide nearly 900 million mandays  of employment. If, this year, we are not aiming at the target of 1000 million  man-days mentioned in our manifesto it is because the season when there is  maximum need for such employment is already over. The Eighth Plan now under  formulation will spell out a comprehensive strategy and programmes to achieve the  long term employment objectives, and targets such as those relating to the  construction of irrigation wells, urban night shelters and Sulabh Shauchalayas,  dwelling units for poor backward classes, scheduled castes and scheduled tribes in  the villages, mentioned in our Party’s election manifesto.
4 7 . The provision for the rural water supply scheme is being stepped up to  Rs.758 crores, so as to make it possible to set aside Rs. 250 crores for ensuring  14  complete coverage of ‘no-source problem villages’ by the end of 1992-93. The earlier  expectation was that these villages would be covered only by the end of the Eighth  Plan period. The late Shri Rajiv Gandhi had attached great priority to this programme  and had set up a Technology Mission for this purpose. The programme, which is  now being named after Shri Rajiv Gandhi, will be accelerated. We will ensure that  resource constraints do not stand in the way of achieving the target.
4 8 . It is a matter of deep concern that we have still not been able to put an  end to the dehumanising practice of manual removal of night-soil. The allocation  for this programme has in the past been less than adequate. It has now been  decided not only to accelerate the programme for the conversion of dry-latrines  but also to step up the allocation for the rehabilitation and retraining of scavengers.  Towards this end, the allocation for the programme has been increased by Rs. 25  crores and more funds, to the extent necessary, would be provided during the  course of the year. Inclusive of the increased provision for this programme, the  total outlay for the programmes of the Ministry of Welfare, which is concerned  with the welfare of scheduled castes, scheduled tribes and other weaker sections  of our society, is being stepped up from Rs. 364 crores in 1990-91 to Rs. 479  crores in 1991-92. The outlay for the Department of Women and Child  Development, dealing with perhaps the two most disadvantaged segments of our  population among the poor, is being enhanced from Rs. 330 crores last year to  Rs. 400 crores this year. For Health and Family Welfare, I am providing a plan  outlay of Rs. 1051 crores in 1991-92 as compared with Rs. 950 crores in 1990-  9 1 .
4 9 . The allocation of resources for investment in social sectors is of utmost  importance for the development of human resources. In this context, there is no  need for me to emphasise the importance of education, in particular, elementary  education. Our efforts to restructure and revitalise the economy can succeed only  if we invest in our people. Particular attention has to be paid to the provision of  quality education to children belonging to the scheduled castes, the scheduled  tribes and other economically and socially backward classes. Children who belong  to the category of first generation learners need special care and attention. If the  equality of opportunity is to acquire its true significance, quality education must  not remain the exclusive privilege of the children of the rich. The Government is  committed to ensure that, whatever be our constraints, the programmes of education  will not be allowed to suffer for want of financial support. Every effort will be made  to ensure that the constitutional directive of providing free and compulsory education  upto the age of 14 years becomes a reality before we enter the twenty first century.  In the sphere of higher education and technical education, more resources are  needed for modernisation and diversification, but, at the same time, an effort must  be made to secure optimum results from the existing investments in these  institutions. The requirements of education are vast and we shall have to seek  innovative ways of finding resources. Budget support provided by the Central  Government and the State Governments are an important source, but cannot  continue to remain the only source. I am raising the allocation for education from  Rs.865 crores in 1990-91 to Rs.977 crores in 1991-92. This allocation is not  commensurate with my deep commitment to education and the priority that is  attached by the Government to the education sector. I would have liked to do more  but we must learn to live with the constraints on the exchequer.
5 0 . We have the third largest number of scientists and technologists in the  world. Yet, technology development in our country has not been commensurate  either with this number or the investments that we have been making in the  science and technology sectors in our successive Five Year Plans. This gap would  have to be bridged through a suitable reorientation of the Science and Technology  Policy and the way paved for relating science and technology more intimately to the  requirements of our development, as well as for better upgradation, absorption,  adaptation and assimilation of new technologies. This task has become imperative  as we prepare ourselves to be an internationally competitive economy.
5 1 . Government has also decided on five new initiatives. The first of these is  the establishment of a Corporation for the welfare of the backward classes, a task  that the Congress manifesto has included for completion within the first 100 days.  The details of the structure and duties of this Corporation are being finalised by  the Ministry of Welfare and will be announced before the end of this session.
  5 2 . Government will establish a National Renewal Fund, with a substantial  corpus. The main objective of this fund will be to ensure that the cost of technical  change and modernisation of the productive apparatus does not devolve on the  workers. This fund will provide a social safety net which will protect the workers  from the adverse consequences of the technological transformation. I visualise that  this fund will grow in size and State governments will also contribute to its corpus  in due course. The fund will not merely provide ameliorative measures for the  workers affected in the course of technical change but, more importantly, provide  retraining to them, so that they are in a position to remain active productive partners  in the process of modernisation.
5 3 . The third programme relates to the care of children of families affected by  communal riots. These riots are a blot on the fair name of our Republic. Our  Government is deeply committed to the protection and advancement of all religious  and cultural minorities. Effective steps will be taken to prevent recurrence of  communal violence. At present there are arrangements to provide compensation of  varying amounts to the riot affected families. But experience shows that such  compensation does not always protect the interests of children of the riot affected  families. These children then grow up into disgruntled and disorganised adulthood.  They become an easy prey to the propaganda of anti-social elements and the  obscurantist, fundamentalist forces of reaction. To protect the interests of such  children, look after their welfare and in particular their education, the Government  proposes to set up a National Foundation for Communal Harmony as an autonomous  non- government organisation. The Central Government will make a significant  contribution to this Foundation in 1991-92. I invite State Governments as well as  industry and trade to make liberal contributions for this noble cause.
5 4 . The fourth programme is to promote national integration through a scheme  for enabling the youth of each part of the country to go in large numbers and work  for short periods in other parts of the country, giving them an opportunity to  mingle with people of different regions and languages. A similar step in this direction  has already been taken in the Navodaya Vidyalaya Programme. This will now be  strengthened and extended on a national basis.
5 5 . The fifth programme relates to promotion of South-South cooperation. We  16  as a nation are committed to close cooperation and sharing our development  experience, knowledge and expertise with non-aligned and other developing countries.  There is immense scope for Indian scientists, technicians, engineers, teachers,  social workers and farmers to contribute to the development process in the third  world. Our experience in various fields can be of great relevance and assistance to  many developing countries particularly in Asia and Africa. It is our hope to arrange  for participation of at least 500 volunteers in different nation building tasks, in  selected developing countries, in the coming year. The details of the programmes  will be worked out and announced before the end of the session.
5 6 . The House will also be pleased to learn that in acceptance of a  recommendation of the South Commission presided over by Dr. Julius K. Nyerere,  the former President of Tanzania, we propose to set up a National Committee under  the chairmanship of the Prime Minister for mobilising public opinion in support of  South-South cooperation and for advising our Government for devising concrete  action programmes in this regard. This committee will consist of representatives of  Government, trade and industry, trade unions and members of learned professions.
5 7 . The Rajiv Gandhi Foundation has been established to perpetuate the  memory of the great leader and to promote the ideals and objectives for which he  lived and laid down his life. This Foundation, among other things, will lay particular  emphasis on research and action programmes relating to the application of science  and technology for development, propagation of literacy, the protection of the  environment, the promotion of communal harmony and national integration, the  uplift of the under-privileged, women and handicapped persons, administrative  reforms and India’s role in the global economy. As a homage to the late Shri Rajiv  Gandhi and in support of the laudable objectives of the Foundation, Government  has decided to contribute Rs.100 crores to the Foundation at the rate of Rs.20  crores per annum for a period of five years beginning from the current year.
5 8 . Pending determination of the exact amounts that will be necessary for  each of these new initiatives, a lump sum provision of Rs.250 crores has been  included in the plan outlay of the Ministry of Finance.
5 9 . The budget provision for total expenditure in 1991-92 is Rs.113422 crores,  of which Rs.79697 crores is non-plan expenditure and Rs.33725 crores is plan  expenditure.
  6 0 . In the sphere of revenue receipts, at the existing rates of taxation, gross  tax revenues are estimated at Rs.66218 crores during the current financial year,  compared to Rs.58916 crores in the revised estimates of last year. The payment to  States of their share of taxes is placed at Rs.15643 crores in 1991-92 as against  Rs.14535 crores in the revised estimates for 1990-91. Thus, the net revenue receipts  of the Centre, including non-tax revenue, are estimated to increase from Rs.57381  crores in 1990-91 to Rs.65524 crores in 1991-92.
6 1 . In the sphere of capital receipts, market borrowings are placed at Rs.7500  crores this year, which is lower than Rs.8000 crores last year; this is part of a  conscious effort to reduce the borrowing of the Central Government which would,  in keeping with the past trends, have gone up by about 10 per cent. The net  collections on account of small savings are estimated at Rs.8000 crores, which are  at the same level as the revised estimates for last year. In addition, the Government  17  has decided to disinvest upto 20 per cent of its equity in selected public sector  undertakings in favour of mutual funds and investment institutions in the public  sector, which is expected to yield Rs.2500 crores to the exchequer during the  current financial year. This disinvestment would broad-base the equity, improve  the management and enhance the availability of resources in these enterprises.
6 2 . The net receipts on account of external assistance, excluding grants, are  placed at Rs.3510 crores compared to Rs.3984 crores in the revised estimates of  1990-91. While the increase in the loan repayment and interest payment liabilities,  as a consequence of the recent exchange rate adjustments, is fully reflected in the  budget estimates, the likely increase in the rupee value of external assistance  following the exchange rate adjustments is still under assessment. To the extent  that these receipts increase, there will also be a corresponding increase in  expenditure when the assistance is passed on to the concerned projects or schemes  for which such assistance is received. These changes, which will thus be budget  deficit neutral, will be incorporated at the stage of revised estimates.
  6 3 . Taking into account other changes in receipts and expenditure, total  receipts at the existing rates of taxation are estimated at Rs.103698 crores, while  total expenditure is estimated at Rs.113422 crores. Therefore, without additional  resource mobilisation, the budget deficit is estimated at Rs.9724 crores, the revenue  deficit at Rs.15859 crores, and the fiscal deficit at Rs.39732 crores.
PART B
  6 4 . Honourable Members would have observed that expenditure adjustment  constitutes the core of the proposed fiscal correction during the current financial  year. But the process of fiscal adjustment cannot be complete without revenue  measures to increase the income of the Government. I now seek the indulgence of  the House to present the reliefs, the incentives and the levies in the sphere of direct  taxes.
6 5 . The revenue from direct taxes, both as a proportion of GDP and as a  percentage of total tax revenues, has registered a steady decline over time. This  trend has to be reversed, so as to restore equity in, and balance to our fiscal  system. Resources for development must be raised from those who have the capacity  to pay. For this purpose, we must place greater emphasis on direct taxes. This calls  for increased rates wherever necessary and a better tax compliance. At the same  time, rationalisation of the system, which reduces the maximum marginal rate of  tax, simplifies the procedures, reduces the plethora of concessions, and brings the  average rates of income tax at various levels of income to more appropriate levels,  is necessary. The time available before presenting the budget was simply not enough  to formulate basic structural changes. Yet, I have made a conscious effort to move  one step forward in this direction.
6 6 . Nobody can deny the existence of large scale tax evasion, both in terms of  income and in terms of wealth. Unless I find substantial improvement in tax  compliance in the next few months, Government will have no choice but to take  strong measures to make the tax evader pay a sufficiently high price for such  delinquency. Before coming down heavily on tax evaders, I would like to give them   a last opportunity to come clean. The black money so mobilised will be utilised for  the achievement of social objectives such as slum clearance and low cost housing  for the rural poor.
6 7 . I propose to institute a scheme, under which any person would be allowed  to make a deposit with the National Housing Bank on or before close of business  on 30th November, 1991. Thereupon, forty per cent of such deposit would be  deducted and set apart as a special levy, which would form the corpus of a fund in  the National Housing Bank. This fund will be utilised for financing slum clearance  and low cost housing for the poor, in accordance with guidelines and priorities laid  down by the Government. The depositor would be allowed to draw the balance  amount in one or more installments through account payee cheques for any stated  purpose of his choice. There will be no lock-in period for this deposit. Persons  making such deposits will not be required to disclose the source of funds from  which the deposits are made. In other words, the monies deposited would be provided  complete immunity from enquiry and investigation. The provisions of Direct Tax  Laws would, however, apply to the net deposits after deduction of the special levy,  from the date of the deposit. The levy itself would not be an allowable deduction in  the computation of income of the person concerned. Necessary legislation in this  regard will be introduced shortly, in this session of Parliament. The details of the  scheme and its date of commencement will also be announced soon.
6 8 . The Income-tax Act contains a provision under which tax payers can avail  of the facility of waiver of penalty and interest on the amount disclosed once in a  life-time. To those who have already availed of this facility, I propose to give just  one more opportunity to disclose their unaccounted incomes. The Finance Bill  contains a proposal for making suitable amendments to section 273A of the Incometax  Act for this purpose.
6 9 . The Settlement Commission was set up to provide an opportunity to  assessees to declare their undisclosed income and wealth. Under the existing  procedures, the Commissioner of Income Tax can, on certain grounds, object to  admission of an application by the Settlement Commission. This results in  unnecessary delay. This provision is, therefore, being deleted. The Settlement  Commission will, however, continue to call for and take into account the  Commissioner’s report, provided it is furnished within a period of six months.
7 0 . Our election manifesto has promised that we will promote reinvestment of  profits, by suitable tax exemptions, in areas where there is crying need for massive  investment such as low and middle income group housing, highways, roads and  bridges, non-conventional energy, school buildings and supply of drinking water. I,  therefore, propose to make a provision in the Income-tax Act to provide deduction,  in computing taxable profits of a taxpayer carrying on a business or profession, of  the entire amount paid for financing projects or schemes promoting social and  economic welfare. To ensure optimum use of scarce resources, I propose to set up  a National Committee of eminent persons to identify areas requiring support and  for recommending specific projects and schemes. A similar deduction will be allowed  also in the case of taxpayers not carrying on any business or profession.
  7 1 . As a token of my commitment to education and research and in recognition  of the significant role they have to play in our development process, I propose to  19  extend certain tax concessions that will help in the funding of social science research  and provide some incentive to authors and publishers.
7 2 . At present, only taxpayers carrying on a business or profession get  deduction for sums paid to any approved university, college or other institutions  for research in social sciences related to the class of business carried on by them.  I consider that there is a case for providing more tax incentives for social science  research. I, therefore, propose to allow the same100 per cent deduction in respect  of sums paid for research in these areas whether related to business or not. I also  propose to allow this deduction to taxpayers not carrying on any business or  profession.
7 3 . The role of books, particularly in the context of our National Literacy  Mission as well as the National Education Policy cannot be overemphasized. To  encourage publication of better and less expensive books and to give a fillip to the  publishing industry, I propose to revive, with effect from the current accounting  period, the deduction of twenty per cent of profits from publication of books for a  period of 5 years. To encourage the publication of quality text books in various  Indian languages I also propose to revive the 25 per cent deduction from professional  income of authors of text books in Indian languages. This will also be available for  a period of five years, beginning with the current income-earning period.
7 4 . Offshore country funds are emerging as important channels for attracting  foreign institutional investment particularly from non resident Indians. India made  a beginning in this direction in 1989. Of late, however, there are signs of diminishing  interest of foreign institutional investors in off-shore India country funds. The  comparative national tax structure is one of the key factors affecting the direction  of international financial flow. I, therefore, propose to substantially reduce the rate  of tax on dividend income received by the off-shore funds from the units of UTI or  other mutual funds and on long-term capital gains from such units. On dividend  income the proposed rate of tax will be 10 percent as against the existing rate of 25  percent. On long-term capital gains, I propose to have the same rate of 10 percent  as against the effective rate of about 45 percent at present.
7 5 . In the light of our deep emotional involvement with the struggle of the  Black majority in South Africa and as a further affirmation of our commitment to  South-South cooperation, I propose that donations to the AFRICA FUND be entitled  to 100 per cent deduction under section 80G of the Income-tax Act.
7 6 . The Government is committed to the welfare of our unfortunate  handicapped citizens. In an effort to mitigate in some small measure their hardship,  I propose to increase the deduction available under Section 80 U of the Income-tax  Act in respect of totally blind or physically handicapped persons, from fifteen  thousand rupees to twenty thousand rupees. The benefit of this tax concession is  also proposed to be extended to partially blind persons.
7 7 . Promotion of housing activity ranks high in Government’s socioeconomic  priorities. Towards this objective, I propose to extend the benefit of tax rebate  under section 88 of the Income-tax Act also to contractual schemes floated by  public housing corporations like HUDCO and State Housing Boards along the lines  of the Home Loan Account Scheme of the National Housing Bank. Further, the tax  rebate under section 88 will also be available in relation to installment/repayment  20  of loans towards cost of land and also in cases where the house was purchased or  constructed before 1st April, 1987.
7 8 . Our software industry has made considerable progress in recent years.  However, there is still a vast unexploited potential for growth. It is time we make  all-out efforts to capture the overseas software market. With this objective, I propose  to extend the tax concession under section 80HHC of the Income-tax Act to export  of software. With this concession, the exports of this industry should register rapid  growth.
7 9 . I also propose to extend the concession under section 80HHC to the export  of processed minerals.
8 0 . I consider that scientific, technical and professional skills, knowledge and  experience possessed by our professionals in various fields like architecture,  accounting etc. have an increasing capacity to earn foreign exchange for the country.  Many of them carry on their professions as individuals or partnership firms. To  enable them to benefit from the tax concession available under section 80-O, I  propose to extend, to the non-corporate assessees, the concession presently available  only to the corporate sector.
8 1 . In order to encourage development of tourist infrastructure in regions  where such facilities are almost non-existent today, I propose to exempt from  Expenditure Tax for a period of ten years expenditure incurred in new approved  hotels set up in hilly and other remote areas. I also propose to allow to such hotels  a deduction of 50 per cent from their profits instead of the normal 30 per cent  under section 80-I, subject to certain conditions.
8 2 . As a token of my appreciation of the role of a healthy capital market in the  development of our economy, I propose to raise the basic deduction of Rs 10,000  now available under section 48 of the Income-tax Act in respect of long-term capital  gains to Rs 15,000.
8 3 . As indicated earlier, I wish to take some positive steps to reverse the trend  of decline in the proportion of direct tax revenues to total revenues. I therefore  propose to raise additional resources this year through a greater reliance on direct  taxes. I now turn to my proposals for ensuring better tax compliance and moblising  revenues through the imposition of additional taxes.
8 4 . To enable the Government to identify income earners, most of whom would  not otherwise declare their income or would not declare their full income, I propose  to extend the scheme of tax deduction at source to cover new areas of payments in  the nature of commissions, interest paid by banks on time deposits and withdrawals  from the National Savings Scheme. To minimise the inconvenience for small  depositors, tax will be deducted at source only in respect of payments in excess of  Rs.2500 per year. Those receiving payments in excess of the limit but not having  taxable income will have the facility of collecting payment with no tax deduction by  filing a declaration in the prescribed manner.
8 5 . The present provision for offsetting short-term capital losses against income  leads to tax avoidance. I, therefore, propose that any loss on transfer of a capital  asset will be set off only against gain from transfer of another capital asset. This is  21  only logical. It should also stop the practice of buying short-term capital losses  being resorted to by some unscrupulous tax payers.
  8 6 . Over the years, those with an instinct for gambling have increasingly  patronised the races. I propose to withdraw the income-tax exemption of Rs.5000  in respect of earnings from races, including horse races. I am sure that persons  who place bets will now also have the added pleasure of sharing their earnings  from races with the Government.
8 7 . Professor Kaldor once observed that no civilised society should have a  maximum marginal rate of income tax higher than 45 per cent. We are firmly  committed to a tax system which is simple, credible, yet progressive, in which  people realise that honesty is the best policy. I expect to make a beginning in this  direction as soon as we can overcome the present fiscal difficulties. I am confident  that this process can be completed before the end of the five year term of our  Government. Tax payers can help to accelerate the process of tax reform if all of  them resolve to pay their income-tax dues fully and promptly. In the midst of a  fiscal crisis however, such a change is not feasible. We must wait for better times.  The best I can do under the circumstances, is what I propose to do this year : keep  the personal income-tax rate structure including the surcharge unchanged. That I  have not added to the burden of the taxpayer is, in itself, a relief.
  8 8 . I have received several representations that wealth-tax rates need to be  rationalised. I see considerable merit in these representations. However, taking into  account the needs of revenue and also for want of time, I propose to make no  change in the rates of wealth-tax.
8 9 . For the purposes of levy of wealth-tax, the rules of valuation of assets aim  at capturing their market value, or near about, as on the valuation date. I find that  a distortion has crept into these rules. When an individual holds any asset in his  name its valuation is at the market value. However, if a group of persons holds its  assets through an investment company the taxable value of these assets gets reduced  considerably because it is based on the book value and not on the market value. I,  therefore, propose to remove this anomaly by providing that in valuing unquoted  shares of an investment company, the break-up value of the share will be determined  after revaluing the assets of the company at their market value.
9 0 . I feel disappointed that the phenomenal growth in the output, value added  and profits of the corporate sector, in recent years, has not been appropriately  reflected in corporate tax collections. The experience of the preceding financial  year, in particular, is a matter of serious concern. I am, therefore, raising the  corporate tax rate for widely held companies, from 40 to 45 per cent. A corresponding  increase of 5 percentage points from 45 to 50 per cent is being made in the corporate  tax rate for closely held companies. I also propose to continue the existing surcharge  of 15 per cent.
  9 1 . The traditional distinction in corporate tax rates between trading companies  and industrial companies has outlived its utility. I therefore propose to remove this  distinction.
9 2 . I recognise that in the medium term the rates and structure of corporate  taxation have to be consistent with the needs of an economy aiming to become  internationally competitive. I shall attend to this task as soon as we have overcome  the present fiscal crisis.
  9 3 . In our economy, labour is abundant and capital is scarce. These economic  realities have to be reflected in our fiscal policy. Yet, over the years, the Indian  economy has witnessed a disturbing shift towards greater capital intensity in  production. This has led to distortion and avoidable hardship in cases where labour  is replaced, or employment potential reduced, by resort to capital intensive methods  of production, even in cases where such a shift is not justified on other economic  and technical considerations. Fiscal incentives have been conducive to such a  shift. While there can be no compromise with the imperatives of technological  upgradation and continuous modernisation, the tendency towards excessive capital  intensity in our industry must be checked.
9 4 . The rates for depreciation prescribed in 1987, in relation to plant and  machinery, are far too generous and provide much more than is needed to  compensate for wear and tear. These rates of depreciation do not reflect the true  economic life of business assets. An asset would be almost fully written off in six  years at the present rate of 33.33 per cent applicable to the bulk of plant and  machinery. I think an eight year period would be more reasonable taking into  account the pace of technological change in India, the true economic life of the  business assets, and the need to discourage tax induced replacement of assets.  Therefore, I propose to reduce the general rate of depreciation for machinery and  plant from 33.33 per cent to 25 per cent. I also propose to reduce the rate of  depreciation for aeroplanes, motor buses, motor taxis and some other equipments  from 50 per cent to 40 per cent, which would mean almost complete recoupment  of cost in six, instead of five years. However, to encourage use of energy saving  devices and renewable energy devices, I propose to continue to provide 100 per  cent depreciation on such items of plant and machinery as also some others.  Further, I also propose to restrict the rates of depreciation to 50 per cent of the  normal rates of depreciation in cases where the asset is used for less than 6  months in a year.
9 5 . Tax support to special institutions may be necessary in their nascent  stage. However, it should not be extended in perpetuity. Such institutions must  strive to become self-reliant. The Industrial Development Bank of India (IDBI) has  been enjoying complete tax exemption in respect of its income since its inception,  unlike other public financial institutions. I propose to withdraw this tax exemption,  which is no longer necessary.
9 6 . In 1987, the Government had introduced a tax on ostentatious expenditure.  It is in the form of a tax of 20 per cent of expenditure incurred in hotels where the  room rent exceeds Rs.400 per day. I propose to extend the coverage of this tax to  the expenditure incurred in restaurants providing superior facilities like airconditioning.  This tax will be levied at the rate of 15 per cent of such expenditure.
9 7 . In view of the binding fiscal constraints and the need to mobilise resources,  I propose to revive the interest-tax which was first introduced in 1974 and withdrawn  in 1978, re-introduced in a modified form in 1980 and finally withdrawn in 1985.  I am enlarging, slightly, the coverage of this tax. The new tax will be levied on the  gross amount of interest received by all banks, financial institutions and nonbanking  financial companies in the corporate sector on loans and advances made  in India. These institutions would reimburse themselves by making necessary  adjustments in the interest rates charged from borrowers. The proposed tax is   expected to raise the cost of borrowing and yield revenue to the Government. It  should, therefore, have both monetary and fiscal impact.
9 8 . The proposed tax will be levied at the rate of 3 per cent of the gross  amount of interest earned by banks, financial institutions and financial companies  on loans and advances made in India. Interest received on transactions between  the various credit institutions will be exempted from the proposed tax. The proposed  tax will operate prospectively and interest accruing before 1st October, 1991 will  not be taxed. The proposed tax will be allowed as a deduction in computing taxable  income under the Income-tax Act.
9 9 . I do not propose to take up the time of the House with other minor changes  in the Direct Tax Laws.
100.My proposals on direct taxes are estimated to yield a net revenue gain of  Rs.2139 crores. Of this amount, Rs.97 crores will accrue to the States.
101.Honourable Members of the House are aware that the balance of payments  situation is exceedingly difficult. In order to attract larger inflows of foreign exchange,  I propose to introduce two schemes.
102.Under the first scheme, I propose that remittances in foreign exchange  can be made to any person in India. Even if the remittance is received as a gift by  the donee in India, it would not be subjected to gift tax. The source of funds out of  which the remittances are made would not be subject to scrutiny under the Direct  Tax Laws and Exchange Control Regulations. In other words, I propose to provide  immunity for such remittances under these laws. The provisions of Direct Tax  Laws will apply in the normal manner to the rupee proceeds of these remittances.  The scheme will come into immediate effect and will be open until close of business  on 30th November 1991. The details of the scheme will be announced by the  Reserve Bank of India. I also propose to introduce the necessary legislation in this  regard as early as possible before this House.
103.Under the second scheme, the State Bank of India would issue India  Development Bonds to be denominated in US dollars. These bonds will be available  for purchase by non-resident Indians and their overseas corporate bodies. There  will be no ceiling for investment in these bonds which will have a maturity period  of five years. The bonds will be fully transferable among non-resident Indians.  Interest from the bonds will be exempt from income tax. The bond itself would also  be exempt from wealth tax until maturity. For the non-resident holder, the face  value of the bond and the interest thereon would be repatriable with exchange rate  protection. The bonds can also be gifted to residents, who would be provided with  amnesty and immunity, as in the first scheme for inward remittances. Such amnesty  and immunity will be available only to the first resident donee. The gift would be  exempt from gift tax. The resident donee bond holder would also be entitled to  exchange rate protection, and the same exemption from income tax and wealth tax,  until maturity, but the proceeds will be paid only in rupees in India and would not  be remittable abroad. The bonds will be available for sale at all important branches  of the State Bank of India abroad until close of business on 30th November 1991.  The details of the scheme will be announced by the Reserve Bank of India. I would  also bring before this House the necessary legislation at the earliest.
  104.In formulating my proposals on indirect taxes, I have kept in mind the  wider context. In keeping with the promises made in the election manifesto of our  24  party, we have also to ensure that prices of essential commodities and goods used  by the common man are kept well under check. Conspicuous consumption must  be curbed and the burden of taxation should be borne by the more affluent sections  of the society. In the light of these imperatives, I have attempted to structure the  proposals for customs and excise levies in a manner that indigenous industries are  encouraged, and, at the same time, imports of items required for export production  are not thwarted. In the long term, if revenues are buoyant and tax compliance  improves, I expect to bring down the rates of customs and excise levies. Even now,  some moderation in import duties is being attempted and a more broad-based  effort may be attempted to streamline the structure and reduce the rates in the  next budget. I have also tried to ensure that the proposed changes improve  competitiveness of the industrial sector, particularly the export oriented industries.
105.It is my intention to rationalise and simplify the procedures, rules and  regulations pertaining to indirect taxes, so that the delays in the system are  eliminated, and the interface between the tax collector and the tax payer is reduced  to the minimum. Given the paucity of time, it has not been possible to undertake  such an exercise in this budget, but we should be able to formulate concrete  measures soon as a part of structural reforms in the tax system.
106.Recent years have witnessed an excessive reliance on indirect taxes for  additional resource mobilisation. This escalates costs, fuels inflation and is regressive  in its impact. Therefore, I have not relied on indirect taxes as the major source of  resource mobilisation. Indeed, the overall impact of my proposals for customs and  excise levies is revenue negative in so far as the Central Government is concerned.
107.In the sphere of customs duties, over time, the objective of protection for  infant industries and the need to raise revenues have led to a situation where  import duties prescribed for certain items are inordinately high and, in several  cases, more than 300 percent. As a measure of reform, I propose to reduce the ad  valorem rate of basic plus auxiliary duties of customs to a maximum of 150 per  cent where it is more than that at present, thereby eliminating the tariff peaks  above 150 per cent. The only exceptions that would remain hereafter are imported  alcoholic beverages and passenger baggage. The revenue loss on this account would  be Rs.132 crores in a full year.
  108.In view of the deterioration in the fiscal situation last year, auxiliary duty  of customs was increased across-the-board, with effect from 15th December, 1990,  so as to mobilise additional resources. The increase was not quite rational and was  asymmetric in its incidence. In some cases, the auxiliary duty went up by 20  percentage points – from 5 per cent to 25 per cent and from 30 per cent to 50 per  cent, while in some others, by just 5 percentage points i. e., from 45 per cent to 50  per cent. This steep and uneven increase imposed a very high burden of duties on  certain items, and also led to distortions in the overall rate structure. In order to  remove the anomalies which had been created and rationalise rates of duties, I  propose to give a duty relief of 10 percentage points to almost every item which  suffered an increase of 20 percentage points. Moreover, on certain items, which are  important from the point of view of environmental protection, export promotion,  saving of foreign exchange and so on, I propose to roll back the rates to levels  prevailing before 15th December, 1990. These items include waste paper, wood in  the rough, jigat used in the manufacture of Agarbattis, ethylene, machinery for fuel  injection equipment and certain items of machinery for printing and the newspaper    industry. These proposals will result in a revenue loss of Rs.472 crores in a full  year.
109.The prevailing rates of import duty on capital goods for general projects  and machinery are, in general, high. While I cannot make a substantial reduction  at this stage because of the revenue implications, which are considerable, I propose  to reduce the level of duties from 85 per cent to 80 per cent. In tandem, the rate  of duty on their components is also being reduced by 5 percentage points, from the  existing levels of 65 or 70 percent. This proposal would mean a revenue loss of Rs.  167 crores in a full year.
110.A technology upgradation scheme was launched in 1987 by the late Shri  Rajiv Gandhi. Under this scheme, fiscal relief was provided on import of capital  equipment for the manufacture of power generation equipment, paper machinery,  textile machinery and many others to promote domestic production of such  machinery. The scheme has been instrumental in bringing about considerable  improvement in the quality of machines produced in India. In order to give a  further thrust to the scheme, I propose to expand the list of machinery items which  will now attract a concessional duty of 50 per cent. The revenue loss on this  account is estimated at Rs. 5 crores in a full year.
111.We have recently taken several innovative steps to give an impetus to our  exports. I would now like to outline some fiscal measures which will give a further  boost to the export effort.
112.At present 100 per cent export oriented undertakings or units in a free  trade zone are allowed to divert a certain proportion of their production to the  domestic market. However, the present stipulation, that excise duty payable must  be equal to the import duty, has proved to be a deterrent. These units have to be  fostered if they are to compete effectively in the international market; for this  purpose they should not be prevented from creating a niche in the domestic market.  Accordingly, I propose to reduce the excise duty on the goods, permitted to be sold  in the domestic market under the scheme, to a level which would be equivalent to  half the import duty leviable on such goods subject, inter alia, to the condition that  the duty would not be less than the excise duty levied on similar items produced  in the domestic tariff area.
113.To promote the growth of the marine products industry, fiscal relief has  been given by way of customs duty concession on specified machinery items required  by this industry. I propose to extend the duty concession to a few more items of  such machinery. Out of my concern for the welfare of our fishermen, I also propose  to fully exempt from excise duty specified yarns which are generally used for making  fish-nets.
114.In order to encourage the growth of the finished leather industry and also  as a measure of export promotion, I propose to reduce the basic and auxiliary  duties of customs on polyurethane film and foil, as well as polyols from 150 per  cent to 40 per cent. The duty on isocyanates is being reduced from 120 per cent to  40 per cent. The import duty on two important leather preservatives, namely TCMTB  and PCMC, is being reduced from over 150 per cent to 50 per cent. These  preservatives will replace certain other chemicals which are suspected to have  carcinogenic effects. I also propose to extend the concessional duty, available at  26  present to specified capital goods required by the leather industry to a few more  items of such machinery.
115.Synthetic cubic zirconium, which is the closest imitation of natural  diamonds, has the potential to provide job opportunities for a large number of  artisans. The jewelry made therefrom also has a significant export potential. In  order to encourage indigenous manufacture of cubic zirconium, I propose to reduce  the import duty on the raw materials viz. zirconium oxide and yttrium oxide to the  level of 40 per cent from the present level of over 150 per cent.
116.Our Government attaches the highest priority to agriculture. One of the  promises made in our election manifesto is to provide a massive thrust to food  processing and other agro-based industries, in an endeavour to increase the income  of farmers, create employment opportunities, diversify the rural economy and foster  rural industrialisation. As an important step in this direction, I propose to exempt  agro-based products such as sauces, ketchup, butter, cheese, skimmed milk powder,  vegetable oils, jams, jellies and juices, canned fruits and dried vegetables, certain  soya products, starches and preparations of meat and fish from excise duties  altogether. I am doing so to promote the diversification of our agricultural economy,  to increase the farmers’ share of the consumer’s income spent on processed  agricultural products, to promote rural industrialisation based on agricultural  produce and to encourage the adoption of modern post-harvest technologies. The  measures I have proposed, I expect, will also lead to some reduction in consumer  prices of such products, providing relief to the harassed consumers in a period of  rising prices. The revenue loss will be Rs.84 crores but I am convinced that the  overall gain to the economy will more than offset the loss to the exchequer.
117.As a relief to the agro-based jute industry, which has been beset with  chronic problems, I propose to reduce the excise duty on products which contain  a minimum of 35 per cent of jute fibre from Rs.660 to Rs.330 per metric ton.
118.At present a number of specified bulk pesticides and pesticide intermediates  enjoy concessional import and excise duties. I propose to extend the duty concession  to a few more bulk pesticides and pesticide intermediates. The proposals involve a  revenue loss of about Rs.11 crores in a full year.
  119.There is a money credit scheme in vogue to encourage the use of minor  oils for the manufacture of soaps. I propose to increase the money credit of Rs.640  per metric ton that is currently available in respect of rice bran oil used in the  manufacture of soap to Rs. 1000 per metric ton. In addition, I propose to include  some more non-conventional oils and solvent extracted oils in the scheme. This  would also help in generating more employment for our tribal women. These  proposals involve a revenue sacrifice of about Rs 10 crores in a full year.
120.The MODVAT scheme was introduced in 1986 to minimise the cascading  effect of indirect taxes. The scheme has been well received by the industry, and  there have been persistent demands for its extension to other areas. I propose to  reintroduce the scheme in respect of aerated waters, and also to extend it to cover  man-made fibres and filament yarns in respect of their inputs. While extending the  scheme to fibres and yarns, I do not propose to raise the duty on those fibres and  yarns on which the duty was increased as recently as December, 1990. On other  fibres and yarns, the duty rates have been adjusted with a view to retaining the  collection of excise duties at the earlier level. But duties on polypropylene  27  monofilament and multifilament yarns are being increased to raise additional  revenue. In respect of aerated waters also, I do not propose any increase in duty.  The proposals involve a revenue loss of about Rs.230 crores in a full year. I expect  that the benefit would be passed on to the consumers in the form of reduced  prices.
121.I propose to rationalise the existing excise duty rates on polyester blended  yarns. As an anti-evasion measure, I also propose to charge additional excise duty  on cotton fabrics containing 40 per cent or less of polyester at the same rates as  applicable to cotton fabrics containing more than 40 per cent of polyester. The  proposals involve a revenue gain of about Rs. 23 crores in a full year.
122.In our effort to make essential drugs available to the people at affordable  prices, I propose to fully exempt five specified anti-epileptic formulations from  excise duty. At present, some drug intermediates and bulk drugs carry a concessional  rate of import duty. I wish to extend the concession to a few more drug intermediates  and bulk drugs, and grant concessions in excise duties to a few more drug  intermediates.
  123.In keeping with our commitment to give special priority to cottage, khadi  and village industries, I propose to give some excise duty concessions to this sector.  At present, footwear of value not exceeding Rs.100 per pair manufactured in rural  areas by registered co-operative societies, women’s societies or by institutions  recognised by KVIC, are fully exempted. I propose to raise the value limit of exemption  to Rs. 150 per pair. Further, I propose to extend to synthetic detergents the benefit  of full exemption from excise duty that is presently available to specified products  when manufactured in rural areas by registered co-operative societies, women’s  societies, institutions recognised by KVIC etc.
  124.I would now like to outline some of the steps that I propose for the protection  of our environment and for ecological security. In view of our dwindling forest  cover, we must conserve our scarce resources. Therefore, as I have stated earlier,  the import duty on waste paper and wood in the rough is proposed to be rolled  back to the rates that were prevailing before 15th December, 1990. I also propose  to fully exempt from excise duty aluminium doors, windows and their frames so as  to encourage the use of aluminium in the place of wood in construction activities.  Fly ash is a pollutant. It can, however, be put to productive use in the manufacture  of bricks and other construction materials. In order to encourage such use, I propose  to fully exempt from excise duty various building components containing more  than 25 per cent of fly ash or phosphogypsum. I also propose to exempt  phosphogypsum which is one of the bye-products of the fertilizer industry from  excise duty to encourage its use by farmers.
125.Few would disagree that I am one of the most harassed Finance Ministers  in recent times. To perform the onerous task before me, I need support from the  Press. As a gesture of goodwill, I propose to exempt standard newsprint from import  duty which is, at present, Rs. 450 per metric ton. I have already proposed to bring  down the rates of import duty on certain specified machinery and equipment required  by the printing and newspaper industry to the levels that were obtaining before  15th December 1990. The monetary limit of duty free import of photographic goods  by accredited cameramen of the Press is being raised from the present level of Rs.  30,000 to Rs. 60,000. These proposals involve a revenue loss of over Rs. 9 crores  in a full year.
  12 6.Ever since my appointment as Finance Minister, I have had to spend long  hours in office. This has quite naturally made my wife very unhappy. The House  will agree that it is not good for the health of our economy if the Finance Minister  of the country has strained relations with his own finance minister at home. I  propose that the total exemption from payment of excise duty currently available to  utensils made of aluminium, copper and stainless steel be extended to certain  other household items particularly tiffin boxes.
127.The same consideration has induced me to propose a reduction in the  excise duty on specified tableware produced by semi-automatic process from the  present level of 20 per cent to 15 per cent. Mindful of the need for peace at home  and also taking into account the labour intensive nature of the manufacture of  glassware by the mouth blown process, I propose to reduce the excise duty on such  glassware to 15 per cent uniformly. Some people may not applaud my action. But  I am sure most housewives harassed by the ever rising price level will appreciate  my action.
128.In keeping with the commitment in our election manifesto, I shall make  every effort to ensure that indirect taxes do not unduly add to the prices of essential  commodities. Of the items listed in the manifesto, at present, there is no excise  duty on salt, cycles, newsprint, post cards, inland letters and envelopes, and certain  varieties of stoves. Cotton sarees and dhoties attract only additional excise duty in  lieu of sales tax which accrues wholly to the State Governments. I have earlier  proposed to fully exempt edible oils from excise duty. Electric bulbs of upto 60  watts, are already exempt from excise duty. I now propose to fully exempt electric  bulbs, of higher wattage, which presently attract a duty of Re. 1 per bulb, from the  payment of excise duty. Energy efficient chulhas, too, would be exempted from  excise duty. I also propose to reduce the excise duty on two wheelers of engine  capacity exceeding 50 cc but not exceeding 75 cc from 20 per cent to 15 per cent.
129.I recognise that the tax reliefs I have given, by themselves, constitute only  a small step towards the realisation of the objective mentioned in our manifesto in  regard to prices of essential commodities. In pursuit of this objective, I propose to  invite the representatives of industry and trade to sit together with our Government  to work out modalities as to how best we can contribute to the realisation of the  price objectives listed in our election manifesto, for the benefit of the common man.
130.In order to promote tourism which is an important means of earning  foreign exchange, I propose to reduce the import duty on adventure sports equipment  from rates ranging from about 100 to 300 percent to 40 per cent.
  131.In keeping with the recent exchange rate adjustments of the rupee, I  propose to raise the baggage allowances including duty free limits for bona fide  gifts suitably; for instance the general duty free allowance for personal baggage is  being raised from Rs.2000 to Rs.2400.
132.Let me now turn to the major proposals for additional revenue mobilisation.
133.At present special excise duty is being levied at the rate of 5 per cent of  the basic excise duty. I propose to raise it to 10 per cent. Since the increase is only  a percentage of the basic excise duty, the impact of the additional levy would be  minimal on prices. For instance, in respect of any article on which the basic excise   duty is say, 20 percent, the increase would be only 1 percent of the value. Tea,  coffee, sugar, kerosene, matches, and vanaspati, being items of mass consumption,  would remain exempt from special excise duty. In addition, I am ensuring that the  increase in special excise duty will not apply to diesel and two wheelers. The proposal  involves a revenue gain of Rs. 1010 crores in a full year, a substantial portion of  which will accrue to the States.
134.One of the promises made in our election manifesto is to evolve policies  and measures to curb conspicuous consumption. In pursuance of this, I propose  to increase the excise duty rates on refrigerators, air-conditioners including  compressors, motor cars, audio and video cassette tapes, video cassettes, picture  tubes, colour television sets, VCRs and VCPs.
135.I propose to increase the excise duty on refrigerators by amounts varying  from Rs.200 to Rs.800 depending upon the capacity, and in the case of airconditioners,  by amounts varying from Rs.2000 to Rs.30000. I also propose to  raise the excise duty on compressors for air conditioners of a capacity not exceeding  7.5 metric ton by Rs. 1800. The expected additional revenue from these proposals  is about Rs.91 crores in a full year.
136.Motor cars at present attract excise duty at the rate of 50 per cent. I  propose to increase the excise duty to 60 per cent. The duty on taxis at 30 per cent  will, however, remain unchanged. The proposal will yield an additional revenue of  Rs.150 crores per year.
137.I propose to increase the excise duty on audio cassette tapes from Rs 3 to  Rs 5 per sq. metre and on video cassette tapes from Rs 10.50 to Rs 15 per sq.  metre. The estimated revenue gain from the proposal will be Rs.29 crores in a full  year.
138.As regards colour television sets, I propose to increase the excise duty by  Rs.500 and Rs.750 per set, depending on the screen sizes. I propose to raise the  excise duty on colour picture tubes as well. I am exempting all black and white  television sets from excise duty and shifting the burden to picture tubes. I also  propose to increase excise duty on VHS type VCRs and VCPs by Rs.400 per set and  Rs. 250 per set, respectively, and on other types of VCRs and VCPs, from 25 per  cent to 30 per cent. The revenue gain on this account is Rs. 66 crores in a full year.
139.Every Finance Minister has to do his bit to curb smoking, which is injurious  to health. I must also fall in line and add to the tax on cigarettes. In respect of nonfilter  cigarettes, I propose to raise the duties by Rs.10 to Rs.25 per thousand  cigarettes depending upon the length. In respect of filter cigarettes, the increase  will be between Rs.35 and Rs.125 per thousand cigarettes. However, filter cigarettes  exceeding 85 mm will attract the ceiling rate prescribed in the excise tariff. This  will give us additional revenue to the extent of Rs. 300 crores in a full year.
  140.The excise duty on hand-made branded biris is Rs 3.75 per thousand.  Although the duties on cigarettes have been increased almost every year, excise  duties on biris have remained unchanged since 1986. I feel that biri smokers  should not be denied the opportunity of increasing their share of contribution to  the national exchequer. I accordingly propose to increase the duty on hand-made  branded biris, other than paper rolled biris to Rs 4.50 per thousand. Paper rolled  biris will attract a duty of Rs.10 per thousand. The present exemption on other  30  hand made biris would, however, continue. The expected additional revenue is  Rs.33 crores in a full year.
141.Pan masala not containing tobacco attracts a specific rate of excise duty.  I propose to raise the excise duty on the same by Rs.5 and Rs.10 per kg. depending  on its value. This involves a revenue gain of Rs.4 crores in a full year.
142.The excise duty on sugar, which is levied on a specific basis, has remained  unchanged since 1983, with the result that the ad-valorem incidence has come  down as the price of sugar has increased considerably over this period. In ad  valorem terms, the present incidence of excise duty on levy sugar is more than the  incidence on free sale sugar. In order to correct the situation, I propose to increase  the excise duty on free sale sugar from the present level of Rs.50 to Rs.71 per  quintal. This would mean an additional tax burden of 21 paise per kilogram of free  sale sugar which costs about Rs.10 per kg in the market place. This proposal is  expected to yield an additional revenue of Rs.122 crores in a full year. I would like  to make it clear that I am not proposing any increase in excise duty on levy sugar  which is sold through the public distribution system.
143.I propose to exclude khandsari sugar from the list of items chargeable to  additional excise duty. The State Governments will be free to levy sales tax on  khandsari sugar, if they so desire.
144.Molasses which is a bye-product of the sugar industry is presently subject  to excise duty at the rate of Rs.120 per metric ton. A substantial portion of molasses  is used in the manufacture of liquor. In the circumstances, it can bear a higher  rate of duty. Accordingly, I propose to increase the excise duty on molasses to  Rs.150 per metric ton. The estimated revenue gain from the proposal is Rs.13  crores in a year.
145.The details of the revenue implications of the measures announced are  given in the Explanatory Memorandum to the Finance Bill.
146.I have also proposed certain amendments in the Finance Bill seeking to  effect changes in the Customs Act, and excise and customs tariffs. These include  certain consequential amendments to the customs tariff based on the amendments  to the Harmonised Commodity Description and Coding System which has been  adopted by our country in terms of the International Convention on the Harmonised  System. The amendments are merely enabling provisions and do not have significant  revenue implications. Besides, there are proposals for amendment of some of the  existing notifications. In order to save the time of the House, I do not propose to  recount them.
147.The increases in excise duties will lead to a revenue gain of Rs.1799.00  crores while the reliefs will amount to Rs. 358.06 crores in a full year. The net  revenue gain from excise duties is thus Rs.1440.94 crores in a full year, of which  the States will get Rs.750.04 crores leaving the balance of Rs.690.90 crores for the  Centre. The proposals in regard to changes in the customs duties imply a revenue  loss of Rs.822.52 crores and a revenue gain of Rs.78.00 crores in a full year. The  net impact of the proposals relating to customs duties is a loss of Rs.744.52 crores  in a full year. Thus, as compared with the additional net revenue of Rs.696.42  crores from customs and excise duties, the States would gain Rs.750.04 crores,  while the Centre would lose Rs. 53.62 crores in a full year.
148.Copies of notifications giving effect to the changes in customs and excise  duties effective from 25th July 1991, will be laid on the Table of the House in due  course.
149.The proposals I have made in regard to direct taxes will yield Rs.2139  crores of which Rs. 97 crores will accrue to the States and Rs.2042 crores to the  Centre. My proposals in regard to customs duties will involve a net revenue loss of  Rs.510 crores in the current year while those relating to Union excise duties are  estimated to yield a net additional revenue of Rs. 988 crores in the remaining part  of the current year of which Rs. 515 crores will be the share of States and Rs. 473  crores will be retained by the Centre. Taking both direct and indirect taxes into  account, the net gain to the Centre in the current year is estimated at Rs. 2005  crores and with this, the budgetary deficit of the Centre for the current year is  estimated at Rs. 7719 crores, the revenue deficit at Rs. 13854 crores and the fiscal  deficit at Rs. 37727 crores.
150.Sir, I have now nearly come to the end of my labour. Before I conclude, let  me end on a personal note. Years ago, in a letter which Jawaharlal Nehru wrote to  the young Indira Gandhi, he advised her that in dealing with the affairs of the State  one should be full of sentiment but never be sentimental. But the House will forgive  me if on an occasion like this I cannot avoid being somewhat sentimental.
151.I was born in a poor family in a chronically drought prone village which  is now part of Pakistan. University scholarships and grants made it possible for me  to go to college in India as well as in England. This country has honoured me by  appointing me to some of the most important public offices of our sovereign Republic.  This is a debt which I can never be able to fully repay. The best I can do is to pledge  myself to serve our country with utmost sincerity and dedication. This I promise to  the House. A Finance Minister has to be hard headed. This I shall endeavour to be.  I shall be firm when it comes to defending the interests of this nation. But I  promise that in dealing with the people of India I shall be soft hearted. I shall not  in any way renege on our nation’s firm and irrevocable commitment to the pursuit  of equity and social justice. I shall never forget that ultimately all economic processes  are meant to serve the interests of our people. It is only through a commitment to  social justice and the pursuit of excellence that we can mobilise the collective will  of our people for development, to give it a high moral purpose and to keep alive the  spirit of national solidarity. The massive social and economic reforms needed to  remove the scourge of poverty, ignorance and disease can succeed only if backed  by a spirit of high idealism, self sacrifice and dedication.
152.The grave economic crisis now facing our country requires determined  action on the part of Government. We are fully prepared for that role. Our party will  provide an effective Government to our country. Our people are our masters. We  see the role of our Government as one of empowering our people to realize their full  potential. This budget constitutes a vital component of a comprehensive vision, a  well thought out strategy and an effective action programme designed to get India  moving once again.
153.Sir, I do not minimise the difficulties that lie ahead on the long and  arduous journey on which we have embarked. But as Victor Hugo once said, “no  power on earth can stop an idea whose time has come.” I suggest to this august  House that the emergence of India as a major economic power in the world happens  to be one such idea. Let the whole world hear it loud and clear. India is now wide  awake. We shall prevail. We shall overcome.
  154.With these words, I commend the budget to this august House.  [24th July, 1991]
Previous Budgets

Narayan Datt Tiwari – 1988 Budget

Finance Minister : ND Tiwari
Budget Year :1988

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ND Tiwari

1  SPEECH OF SHRI NARAYAN DATT TIWARI MINISTER OF FINANCE  INTRODUCING THE BUDGET FOR THE YEAR 1988-89
  PART A  Sir,  I rise to present the Budget for the year 1988-89.
  2. The Economic Survey for 1987-88 was placed before the House a few  days ago and contains a detailed review of trends in the Indian economy over the past  year. Economic performance and management during the year have been dominated  by natural calamities of drought and floods. The drought this year has been one of the  worst in this century, with 21 out of 35 meteorological sub-divisions receiving deficient  or scanty rainfall during the monsoon months. In most of the Eastern states the problem  was not too little but, rather, too much rainfall, leading to devastating floods. What is  worse, this year of drought and floods followed three successive years of poor monsoon.
3. Despite the very severe strains and distress, the economy has demonstrated  remarkable resilience. It has done so for two good reasons. First, sustained development  and diversification of our economy, over the years, has created a capacity to withstand  temporary shocks. Second, Government has responded with timely interventions across  a wide front to contain the economic and social costs of the drought.
4. The buffer stock policy pursued by the Government enabled us to build  large food stocks, which stood at 23 million tonnes on 1st July, 1987. With the help of  these stocks, a massive and sustained effort was launched to ensure adequate supply  of foodgrains throughout the country, particularly in drought affected areas. Other  important Government programmes to combat the drought included massive expansion  of relief and employment generating works, strengthening of the public distribution  system, special efforts to compensate for shortages of drinking water, fodder and  power supply, action plans to grow contingency crops in the kharif season and to  boost rabi production, measures for livestock protection and large scale imports of  essential commodities such as edible oils and pulses. These supply measures were  buttressed by careful fiscal and monetary policies to make available adequate resources  for relief expenditures, without cutting back on the public investment programme.
5. Thanks to these sustained efforts the overall indicators of economic  performance have been better than in any previous year of severe drought. Thus,  despite the decline in agricultural production, GNP growth in 1987-88 is expected to  be in the range of 1 to 2 per cent, in contrast to a decline of 4.7 per cent in 1979-80.    Available data show that industrial production in April-November 1987 rose by 10.2  per cent over the corresponding period of the previous year. In contrast, in the drought  year 1979-80, there was an absolute decline of 1.7 per cent in industrial production.  The overall rate of inflation in the current financial year, as measured by the Wholesale  Price Index, stood at 9.8 per cent as on February 6, 1988 as compared with inflation  in excess of 21 per cent recorded in 1979-80. Price movements in respect of essential  commodities are being monitored closely at Central and State levels and I would like  to thank State Governments for setting up control rooms at the district level also. We  have to keep continuous vigilance on the price front at all levels.
6. The strains imposed by the drought and floods have highlighted some of  the underlying strengths as well as problem areas of our economy. In the face of  successive monsoon failures, our agriculture has demonstrated its basic strength. We  are proud of our farmers. By their hard work and unflinching determination through  the years, they produced enough to enable us to build substantial food stocks. This  helped us to withstand the impact of the current drought without acute food scarcity  and widespread economic dislocation.
7. Industrial production will show an increase of more than 8 per cent for  four successive years since 1984-85. The infrastructure has performed well. Generation  of thermal power has made up the deficiency in generation of hydel power and, overall,  there was a growth of 7.6 per cent in power generation in the first nine months of the  current year. Productivity in the Railways has shown significant improvement. Coal  production has increased by 10.2 per cent in April-December,1987. The improvement  shown by the public sector in these areas is a matter of considerable satisfaction, and  bears testimony to the successful implementation of policies initiated by this  Government. Our workers have worked hard to make this possible, and the nation is  grateful to them. Government attaches the highest importance to building a strong and  vibrant public sector.
8. Exports have recorded strong growth over the last two years. After growing  by over 15 per cent in 1986-87, exports rose by nearly 25 per cent in the first nine  months of the current year as compared to the corresponding period of the previous  year. Over the same period, the growth of imports was less than 14 per cent. The trade  deficit has been declining over the past two years.
9. However, we must not be complacent. As we look ahead, we must move  decisively to overcome some of the problems that have emerged on the economic  scene. The four successive years of poor monsoons have caused considerable hardship  in our rural areas, reduced agricultural output, and affected the momentum of growth.  We, therefore, have to give a major thrust to agriculture in the remaining years of the  Seventh Plan.
10. We have done well in agriculture. But the drought and floods have  highlighted certain areas which require our urgent attention. The Prime Minister has   directed that an Action Plan should be formulated quickly by the Planning Commission,  which would identify the areas where further measures can lead to early gains in  production. In 1987-88, an additional allocation of Rs.236 crores has been made for  completion of irrigation projects in drought affected States. In the coming year, Plan  outlays for Centre and States in respect of agriculture and irrigation are being increased  by 40 per cent. If necessary, the Government will make re-allocations within the  overall Plan outlay for 1988-89 and provide more resources for achieving agricultural  targets.
11. We have seen rapid growth in industry, reflecting the success of  Government policies in stimulating investment and production, and promoting  technological upgradation. We must ensure that this momentum is maintained. Costs  and prices need to be reduced. Indian Industry must be made more competitive. Sickness  in industry has been a major problem. We have to take further steps to combat sickness.  We must also upgrade skills, train workers and improve management. Industrial  development must make the best use of our most abundant resource, namely, the skills  of our people. Rapid growth of industry is essential for generating employment  opportunities.
12. Small, village and khadi industries have a special place in our economic  development. These industries make use of locally available resources and are  instrumental in creating job opportunities in smaller towns and rural areas where the  bulk of our people live. Speaking in this house, thirty five years ago, Pandit Jawahar  Lal Nehru had told the nation, and I quote,  “I have no doubt that we cannot raise the people’s level of existence  without the development of major industries in this country; in fact, I will  go further and say that we cannot even remain a free country without  them. But we must always remember that the development of heavy  industry does not by itself solve the problem of the millions in this country.  We have to develop the village and cottage industry in a big way, at the  same time making sure that in trying to develop industry, big and small,  we do not forget the human factor.”  This overall approach continues to guide us.  . Government has been taking several measures to increase revenue, improve  tax compliance and enforce economic laws. These have yielded dividends and growth  of revenue in the past three years has been quite satisfactory. The faster growth of  expenditure has, however, exerted substantial pressures on the fiscal situation. We  face unavoidable compulsions of higher expenditure, for example, on defence,  development, social services, relief programmes and food and fertilizer subsidies. As  a nation, we must deal earnestly with the problem of mounting expenditure.
14. As anticipated, the balance of payments situation has been under strain  because of several factors. These include higher imports of edible oils and pulses,    increase in imports of crude oil and petroleum products, increasing protectionist  tendencies abroad, and unfavourable climate for official development assistance. The  environment for developing countries has also been badly affected by upheavals in the  international economy, volatility of exchange rates, and slow growth of world trade.  In order to reduce the impact of these unfavourable developments, we took vigorous  measures to increase exports and reduce the growth of imports. These measures would  need to be further strengthened.
  15. India has followed a prudent policy in debt management and has avoided  problems of the kind faced by several other developing countries. We remain committed  to ensuring long-term viability in our balance of payments.
16. The challenges before us are many and it is only through hard work, thrift  and sacrifice that we can build a self-reliant, strong and socialist economy. As a humble  political worker, I am conscious that while we have made tremendous progress, there  is a great deal that remains to be done to improve the condition of our people,  particularly in rural areas.
17. Within the limitation imposed by our overall resource situation, I propose  to take a number of steps to benefit farmers, promote small and village industries,  provide relief to the poor, protect and create more jobs, and generate self employment  opportunities for our people. In addition to augmenting the anti-poverty programmes,  such as IRDP, NREP and RLEGP, Government has decided to initiate a number of  measures to increase the flow of agricultural credit, strengthen the institutional  framework, enhance social security to the weaker and vulnerable sections of the society,  particularly Scheduled Castes and Scheduled Tribes, and promote better housing for  the rural poor. While some of these programmes call for additional outlays, it is proposed  to reorient and redirect several of the existing programmes and institutions to serve  our social objectives better.
18. In working out the package of measures for agriculture, we have kept in  view the guidelines given by the Prime Minister when he addressed the kisans the  other day:    [In the next two-three years we must give a strong thrust to agriculture.  Special attention must be given to small and marginal farmers, landless  labourers and village artisans. It shall also be our endeavour that our  schemes for rual development benefit not only all the regions of the country  but also all the sections of the society. This will strengthen and benefit the  entire community and help us march forward.]
19. The financial condition of our farming community has been affected by  the drought. A number of measures have already been taken such as reschedulement  of loans, conversion of short term loans into term loans and lowering of rate of interest  in some cases. As an important step forward, I am happy to inform the House that  today the Reserve Bank of India is issuing instructions to bring down the cost of  agricultural credit. The rate of interest on crop loans upto Rs.7,500 is being reduced  by one and half per cent to two and half per cent. The interest rate will, henceforth, be  reduced to 10 per cent for loans upto Rs.7,500 from the prevailing levels of 11.5 per  cent and 12.5 per cent. Similarly, for crop loans above Rs.7,500 and upto Rs.15,000,  interest rate will be reduced to 11.5 per cent from 12.5 per cent to 14 per cent. This  reduction in interest rates will benefit crores of agricultural borrowers from cooperative  sector, Regional Rural Banks and commercial banks, and provide much needed relief  to them.
20. In order to increase the flow of credit at reduced cost, it has also been  decided that the target for direct finance to agriculture by public sector banks should  be raised to 17 per cent of their total outstanding advances by the end of 1988-89.  Together with added efforts by regional rural banks and cooperative banks, the target  for availability of direct credit by banks to agriculture will increase by over Rs.3,000  crores in 1988-89.
21. In order to further reduce the cost of inputs, Government is asking the  fertilizer companies, in both public and private sectors, to give a discount of 7.5 per  cent over notified prices for coming Kharif and Rabi sowings. This will reduce the  price of a bag of urea by around eight rupees and eighty paise. The companies should  be able to absorb the cost of this discount through better inventory management. I am  sure our enterprising farmers will take advantage of this discount and increase  agricultural production.
22. Timely use of pesticides and weedicides has an important role in preventing  crop damage and improving productivity on our farms. In order to lower their cost, I  will be announcing later in my speech, reduction in import duties on selected pesticides/  weedicides as well as intermediates. At the same time, selected pesticide items,  considered important for agriculture, will be allowed to be imported freely by designated  state and cooperative agencies. This will ensure that the existing manufacturers do not  indulge in monopolistic practices. This measure will help our farmers.
23. In consultation with the Reserve Bank of India, NABARD, the State Bank  of India and the Commercial banks, I am happy to announce a new strategy on rural  credit designed to serve every village of the country. The commercial banks and the  Regional Rural banks together have over 40,000 branches in the rural and semi urban  areas of the country. The number of villages exceeds five lakhs and seventy six  thousand. Under the proposed dispensation, each bank branch in the country will have  a designated service area of about 15 to 25 villages, as required, in the neighbourhood  6  of the branch. The branch will be primarily responsible for meeting the appropriate  credit needs of its service area. This country-wide arrangement, supervised by the  District Lead Bank Scheme already operational, and further supplemented by the rural  cooperatives, will go a long way to serve the credit needs of the village community.
24. To help farmers affected by drought, we have given a number of reliefs  and concessions by way of rescheduling of loans, postponement of all recoveries, and  reduction in interest rates. It has been a long standing demand of farmers and the  cooperative movement that a separate National Agricultural Credit Relief Fund should  be established to provide relief on a systematic basis. I am happy to announce that it  has now been decided to set up such a Fund. The corpus of the Fund will be provided  by the Central and State Governments on an agreed basis. The criteria for releasing  money from the Fund will be worked out by the Reserve Bank of India.
  25. Before I turn to other matters, I would like to refer to a subject which has  been close to our hearts. I have a feeling that the cooperative credit system, which  played such a pioneering role in the early years of our Independence, has not grown  as fast as it could have. Cooperatives are the best instruments for reaching our farmers;  they are also a symbol of self-reliance at the village level. I believe that we must now  devote special attention to revitalising the entire cooperative sector. I would invite the  Hon’ble Members to give this matter their personal attention and also request them to  send me suggestions regarding the role that the Reserve Bank of India, NABARD and  the nationalised banking sector, should play in promoting the growth of the cooperative  movement. I shall also be writing to State Governments, who have a major responsibility  in this area.
26. The programme of rural electrification has enabled countrywide utilisation  of ground water for irrigation with the help of electric pump sets. However, some of  the poorer farmers have often been unable to afford the one time cost of pump set  installation. A special programme to be called JALDHARA will be launched to assist  marginal farmers in drought prone areas. This scheme will provide them the benefits  of pump sets for irrigation on nominal rental / lease charges. It is proposed that during  1988-89 the benefits of this scheme will be provided to about fifty thousand farming  families.
27. To improve the quality of life of rural families below the poverty line,  including Harijans and Adivasis families, I propose a massive programme to be called  KUTIRJYOTI for extending single point light connections to households of their  families. The programme will meet the one time cost of internal wiring and service  connection charges. In 1988-89, five lakh households are proposed to be covered by  this programme. The cost of both the JALDHARA and KUTIRJYOTI will be met  through a combination of grants and loans to the State Electricity Boards by the Rural  Electrification Corporation.
28. People living in hill areas have to bear the burden of higher transport  costs in the supply of Kerosene and LPG. Today, freight subsidy is given on Kerosene  to North Eastern States and Jammu & Kashmir. It has now been decided to extend this  concession to all hill areas. Similarly, it has been decided that LPG cylinders would be  supplied to the customers in all hill areas at the same price as for the customers in the  nearest point in the plains. This will also, to a large extent, help in conserving the  forest resources used for purposes of light and fuel.
29. In his budget speech last year, the Prime Minister emphasized the high  priority of the housing sector and had announced the decision to set up a National  Housing Bank with an initial capital of Rs.100 crores. Necessary legislation has been  passed, and the Bank will become operational shortly. In order to give a special thrust  to rural housing, the Reserve Bank of India, along with some financial institutions,  will make a special additional contribution of Rs.100 crores to the National Housing  Bank. This entire additional amount will be used for promotion of rural housing in  several ways, including setting up of specialised rural housing savings and loan  institutions,if necessary.
30. In this context, it is also proposed to extend the role of the Land  Development Banks to cover the field of housing finance for farmers. These banks  exist in most districts, have strong apex bodies and deal directly with the rural  population. They can also mobilise resources for housing finance. The State  Governments will be requested to carry out necessary legislative measures to permit  Land Development Banks to undertake housing finance.
31. A new programme of housing for small and marginal farmers with monthly  income of upto Rs.700, is being launched by Housing and Urban Development  Corporation. Under this programme, HUDCO will provide assistance, upto specified  amounts, at low rate of 7 per cent interest repayable in 22 years for building or  improving a house. Assistance will also be given for improvement of old homes, for  example, change of roof from thatch to tile.
32. A new scheme, called the “Village Abadi Environmental Improvement  Scheme” will be launched by HUDCO this year. Projects involving expenditure upto  Rs.2,000 per family in villages with population not exceeding 5,000, for improving  rural abadi infrastructure like drainage, sanitation etc., will be supported. The equity  base of HUDCO will be suitably strengthened to help finance these programmes.
  33. Commercial Banks have also been providing help for rural housing, both  directly as well as through HUDCO. With their vast branch network in rural areas,  their role should be further enhanced. Hon’ble Members will be happy to know that,  it has been decided that commercial banks will increase their lending for the housing  sector to an annual level of Rs.300 crores by the end of the Seventh Plan.
34. There is great scope for using local low-cost materials in housing. Our  scientists and engineers have also developed considerable expertise in low-cost housing  8  technology. It has been decided to set up a national network of Nirman or Nirmithi  Kendras which will provide easy access to low-cost housing materials and techniques.  It is proposed to set up one Kendra in each district. In the coming year, 100 Kendras  will be set up.
35. Landless labourers, artisans and other very poor families in rural areas  face acute financial distress when their huts and belongings are destroyed by fire. I am  glad to inform the House that it is proposed to launch a new scheme to provide fire  insurance protection to them. The Government of India will bear the entire premium  cost. The scheme will be implemented by the General Insurance Coporation of India  and its four subsidiaries. The GIC will separately announce the details of the scheme.
36. I also propose to take a major new initiative for extending the system of  social security to the weaker sections of our society. The Life Insurance Corporation  of India, which has done so much to spread insurance culture throughout the length  and breadth of our country, will be setting up a separate “Social Security Fund” with  a corpus of Rs.100 crores. Certain changes are being made in the Income tax payable  by the Life Insurance Corporation of India to make this possible. The Fund will be  used for financing life insurance schemes for weaker and vulnerable sections of the  population at subsidised rates. The House will agree with me that the creation of such  a fund will provide a solid foundation for extending insurance cover to the toiling  sections of our society, for example, landless labourers, handloom workers, rickshawpullers,  drivers etc. who work on daily wages or whose employment is casual. In  respect of these group insurance schemes, 50 per cent of the premium will be adjusted  from the newly created Social Security Fund, the balance 50 per cent of the premium  being payable by the beneficiaries concerned.
37. Group insurance schemes will also be introduced for groups with regular  incomes like primary school teachers, cooperative milk producers, and workers in  shops and commercial establishments. Schemes will also be formulated for the benefit  of artisans, tailors, barbers, masons, carpenters and other similar groups.
38. While IRDP extends benefits to the families of the poor, these families  face hardship in the event of sudden death of the head of the family. To give greater  security to the family, a group insurance scheme of the LIC is proposed to be introduced  to cover around 3 to 4 million families under IRDP assistance every year with effect  from 1.4.1988. The insurance cover will be Rs.3,000, with double benefit in case of  accidental death.
39. I would now like to propose some measures specifically for the benefit of  Scheduled Castes and Scheduled Tribes. Many State-level Scheduled Castes and  Scheduled Tribes Finance/Development Corporations are doing a good job in looking  after the special requirements of the Scheduled Castes and Scheduled Tribes. I now  propose setting up a National Scheduled Castes and Scheduled Tribes Finance and  Development Corporation. This corporation will play a catalytic role in developing    schemes for employment generation and financing pilot programmes which can then  be taken up by the State level Corporations and other agencies active in this field. This  Corporation will also work with nationalised banks and NABARD in improving the  flow of financial assistance to the Scheduled Castes and Scheduled Tribes. The objective  would be to innovate, experiment and promote rather than replicate the work of the  existing agencies. I am making a provision of Rs.50 crores in the next year’s budget  for this Corporation.
40. Hon’ble Members will be happy to know that we propose to initiate a  project for one million wells under the National Rural Employment Programme and  Rural Landless Employment Guarantee Programme by raising the percentage of  allocation of funds for the exclusive benefit of Scheduled Castes and Scheduled Tribes  from 10 per cent to 20 per cent. It is fitting that in the year of Fortieth Anniversary of  Independence, we initiate this massive programme of construction of wells which will  benefit millions of small and marginal farmers belonging to Scheduled Castes and  Scheduled Tribes.
  41. I would now like to announce some measures for promotion of employment  opportunities in the decentralised sector. The handloom sector provides employment  to about 10 million weavers and others. This important sector has been affected by  high prices of cotton and other yarns. I propose to increase the subsidy on Janata cloth  from Rs.2 per sq.metre to Rs.2.75 per sq. metre. The impact of this relief will be Rs.40  crores. Later, in my speech, I shall be announcing a package of measures which will  benefit the handloom sector by reducing the cost of certain types of yarns. At present,  a standard rebate of 10 per cent is being provided for Khadi. I propose to extend this  rebate to Kambals and Kambalis.
42. It has been a long standing demand of the tiny and small industries that  there should be a separate apex bank for them. Hon’ble Members will be happy to  know that it has now been decided to establish a Small Industries Development Bank  of India. The new bank will be a subsidiary of the Industrial Development Bank of  India. The equity of the new bank will be Rs.250 crores, and it will have its own  separate Board of Directors, including representatives from the small scale sector.The  new Bank will also administer both the Small Industries Development Fund established  in May, 1986 and the National Equity Fund for providing equity support to projects in  tiny and small scale sector.
  43. New small scale units often experience problems and delays in securing  working capital finance. In order to overcome this difficulty, it has been decided that  requirements of working capital upto Rs.2.5 lakhs for new tiny and small scale units,  whose project cost does not exceed Rs.5 lakhs, will be provided through a single  window. Thus, both term loans and working capital will be made available by the  same bank or institution. The details of this scheme will be announced by Industrial  Development Bank of India shortly.
  44. A healthy capital goods sector is a pre-requisite for self-reliance. Last  year, while presenting the Budget, the Prime Minister announced a package of measures  to revitalise the machine building industries. Later in my speech, I shall be announcing  certain measures which will carry this process further for revitalising industries such  as paper, cement, and textiles. These measures will help to stimulate demand, lower  costs and improve efficiency.
45. The Capital market is an important source for mobilisation of savings for  industry and Government has taken several steps to strengthen it. Last year, the Prime  Minister announced the decision to set up a separate Board for the regulation and  development of the Stock Exchanges. Necessary legislation in this regard is under  preparation and the Board is expected to become operational soon. Measures have  also been taken to set up Mutual Funds, lay down ground rules for orderly operations  of the Stock Exchanges, improve their infrastructure, facilitate share transfers and  enforce better discipline on companies entering the market. Later in my speech, I shall  be announcing certain further measures which will help to boost investment in new  industries and generate more employment and economic activity.
46. We have one of the largest pools of scientific and technical manpower.  Yet, many of our young and new entrepreneurs find it difficult to raise equity capital  because of the risk involved. This problem can be solved by allowing Venture Capital  Companies or Funds to invest in new companies in anticipation of future capital  gains. However, such companies at present are not eligible for the concessional  treatment of capital gains available to non-corporate entities. In order to overcome  this problem, it has been decided to formulate a scheme under which approved Venture  Capital Companies/Funds will be enabled to invest in new companies and be eligible  for the concessional treatment of capital gains available to non-corporate entities.  Necessary legislative measures will be taken to bring this into effect.
47. At present, a tax concession is available for investment in the equity shares  of new industrial undertakings. Small investors generally find it difficult to take  advantage of these concessions because of absence of sufficient information about the  prospects of new companies. It has been decided that concession now available for  direct investment in equity shares of new industrial undertakings will also be available  for investment in special units of mutual funds where the resources are earmarked for  investment in new projects. This will help new companies to raise capital more easily.
48. I also propose to provide a seperate exemption upto Rs.3,000 for income  from dividends under Section 80L of the Income tax Act. This will be in addition to  the existing concessions available for certain types of incomes, including dividends  upto Rs.7,000 and a further Rs.3,000 for income from investments in Unit Trust of  India and certain other specified investments which I am including in the Finance Bill.
49. Sharp fluctuations in international exchange rates have posed problems  for exporters as well as for Indian industry. In order to provide some protection to  11  individual projects from exchange rate fluctuations, financial institutions will introduce  a new scheme whereby promoters of such projects can have their foreign currency  loans designated in rupees. The interest rate on such loans will be variable and will  include an exchange premium. The details of the scheme will be announced by the  Industrial Development Bank of India separately.
50. It has been the policy of this Government to encourage workers’  participation in management in industry. It is only through interaction and involvement  of workers in management that we can improve the overall performance, increase  productivity, and prevent sickness. Government has already announced a scheme to  facilitate such participation. I am happy to inform the House that complete exemption  from Income tax will be given in respect of all expenditure incurred by companies in  connection with introducing schemes for workers’ participation. Government has also  introduced a scheme whereby 5 per cent of the capital issues are reserved for employees.  In order to facilitate purchase of shares by workers in their own companies, banks are  being asked to provide loans liberally for this purpose. Reserve Bank of India will be  issuing necessary instructions shortly.
51. Working journalists have contributed a lot to the country by their  intellectual toil, and suggestions have been received that a Bill should be considered  by the Parliament to provide a reasonable pension scheme for them. Government will  be taking appropriate steps in this direction after consulting all concerned.
52. Government attaches considerable importance to strengthening economic  and cultural ties with Indian nationals settled abroad. A number of facilities, including  fiscal concessions, have been extended to Non-Resident Indians for facilitating  investments. In response to representations received, Government have now decided  to introduce a new scheme of Foreign Currency denominated Bonds/Deposit Certificates  for Non-Resident Indians on a non-repatriable basis. The maturity period of these  Bonds/Deposit Certificates will be 7 years and these will carry an interest rate higher  than that applicable to the repatriable foreign currency non-Resident deposits. These  Bonds/Deposits will be free from Income tax, Wealth tax and Gift tax.
53. The fiscal regime for investments and deposits by Non-Resident Indians  in our country has been made quite liberal. It is the Government’s intention to maintain  fiscal stability. No changes willl be made in the tax treatment which might adversely  affect investments already made by Non-Resident Indians.
54. The success of Non-Resident Indians in many fields of scientific, economic  and cultural endeavour has been a matter of great satisfaction to us. We cherish our  continued association with them.
55. I also propose to introduce certain measures for boosting small savings  collections. I am particularly keen to mobilise untapped rural savings. A new scheme  without tax concession, but with flexibility of encashment after two and half years of  12  deposit, is being introduced. The rate of interest will progressively increase for longer  durations. The deposit will double in value after five and half years. This instrument  will attract new investments as it can be encashed as and when funds are needed. The  instrument will be called KISAN VIKAS PATRA.
56. Last year a new savings scheme based on the net savings principle, was  announced by the Prime Minister. Under this scheme, 50 per cent of deposits upto a  maximum of Rs.20,000 are eligible for deduction under Section 80CCA of Income tax  Act. However, in the year of withdrawal, 50 per cent of the amount withdrawn is  added to the taxable income. The interest rate on deposits was 9 per cent. It has been  decided to raise the interest rate to 11 per cent. The new rate will be applicable to  existing deposits also with effect from 1st April of last year. Further, the rate of  deduction at the time of deposit will be raised from 50 per cent to 100 per cent with  corresponding increase in the amount subject to tax at the time of withdrawal. The  amount eligible for deposit is also being increased to Rs.30,000 per annum with effect  from next financial year.
57. The doubling period for Indira Vikas Patra sold from 1st March, 1988  will be reduced to five years.
58. It is also proposed to continue the sale of Rahat Patra beyond 29th February,  1988. With the continuance of Rahat Patra, sale of Capital Investment Bonds is proposed  to be discontinued from 1st April, 1988.
59. Sir, I have taken this opportunity to announce certain measures for the  welfare of the weaker and vulnerable sections of our society, for generating greater  employment opportunities, particularly in the rural areas and for strengthening our  productive base. I am sure these measures will contribute to fulfilling the aspirations  of our people.
60. Let me now turn to the Revised Estimates for 1987-88 and Budget  Estimates for 1988-89.  Revised Estimates 1987-88
61. The Revised Estimates of total expenditure in the Budget for 1987-88 are  placed at Rs.66161 crores against Rs.62942 crores in the Budget Estimates. As the  gravity of the drought became clear, the first task of the Government was to ensure  that sufficient resources were available with State Governments in order to start relief  works and take other measures for alleviating the distress caused by the drought.  Central Teams were despatched to States and decisions announced in record time in  respect of ceilings of expenditure for States affected by drought and floods. Expenditure  from the Central Budget on account of drought, floods and other natural calamities is  now estimated at nearly Rs.2,000 crores. This includes Centre’s share of margin money,  advance Plan assistance for drought, non-Plan assistance for floods and hailstorm,  supply of subsidised foodgrains in drought affected areas, subsidised supply of seeds,   provision of rigs for drinking water and assistance for Accelerated Rural Water Supply  Programme.
62. There have been certain other inevitable increases in expenditure. The  subsidy on indigenous fertilizers will go up by Rs.300 crores. Food subsidy will also  be Rs.200 crores higher. I am sure Hon’ble Members will agree with me that, under  the circumstances prevailing in the current year, the increases are fully justified. The  liberalisation of pensionary benefits of Government employees, particularly the Defence  Services personnel, is expected to add Rs.374 crores to the pension bill in the current  year. Financial relief granted to certain public sector enterprises are expected to cost  additional Rs.417 crores by way of subsidy, write off of loans etc. Interest charges are  likely to be Rs.800 crores higher than the original Budget provision. Taking into  account the other variations, the total non-Plan expenditure during the current year is  estimated to be Rs.1,971 crores higher than the original Budget provision of Rs.39,265  crores.
  63. Central assistance for State and U.T.Plans is expected to be Rs.1,127 crores  higher mainly due to larger advance Plan assistance to States affected by drought.  Budgetary support for Central Plan is estimated to be Rs.121 crores higher – this being  the net effect of increases in sectors like agriculture, rural development, fertilizers,  agricultural financial institutions, subsidy for setting up industries in backward areas,  etc. offset by savings in certain other sectors.
64. Taking the Plan and non-Plan together, there is an increase of Rs.3,219  crores. As a result of a series of measures undertaken by Government during the year,  economy consciousness has been created and expenditure contained particularly in  low priority areas.
65. Gross Tax Revenue is estimated to yield Rs. 1,028 crores more than the  Budget Estimates mainly under Income and Corporation taxes and Customs duties.  The share of States in taxes will be higher by Rs.392 crores. Non-tax Receipts will be  higher by Rs.2,201 crores. Of this, non-tax revenue receipts are expected to fetch  Rs.765 crores more and capital receipts Rs.1,436 crores more. Rs.700 crores of the  increase in capital receipts will be from market loans.
66. Taking the variations in expenditure and receipts into account, the current  year is expected to end with an overall deficit of Rs.6080 crores. Notwithstanding the  severe strain the events of the year have cast on the Budget, this is close to the original  estimate of Rs.5,688 crores.  Budget Estimates for 1988-89
67. The Hon’ble Members will agree that Budget Estimates for the year 1988-  89 are being presented in a rather difficult environment. We have to ensure that,  despite pressures on the Budget, there is no cut-back in public investments, as that  would have an adverse effect on economic activity and employment. Accordingly, in  14  framing the Budget for next year, highest priority has been given to maintaining the  tempo of Plan investment.
68. The Central Plan for 1988-89 has been fixed at Rs.28,715 crores against  the approved outlay of Rs.24,622 crores in the crurrent year, a step up of 16.6 per  cent. Even compared to the revised Central Plan outlay of Rs.25,701 crores, the next  year’s outlay represents a step up of 11.7 per cent. Central Plan for the next year will  be financed to the extent of Rs.16,000 crores from budgetary resources and Rs.12,715  crores from Internal and Extra Budgetary Resources of public enterprises. With the  proposed outlay for 1988-89, we would have achieved in four years more than 86 per  cent of the Seventh Plan outlay in real terms.
69. In addition, Central Budget for the next year provides Rs.9,714 crores for  assitance for State and UT Plans. The total Plan expenditure in the Budget for the next  year is thus, Rs.25,714 crores compared to Rs.24,925 crores in the Revised Estimates  for the current year.
70. I am glad to inform the House that the total transfers from Centre to  States in 1987-88, including their share in taxes, were Rs.24,870 crores. In 1988-89  such transfers are estimated at Rs.26,348 crores, an increase of Rs.1478 crores.
71. Several States have represented that their liquidity position has been  affected by the drought and have requested for some relaxation in the Ways and  Means limits. The Hon’ble Members will be happy to know that Reserve Bank of  India is raising from tomorrow the Ways and Means limits by 40 per cent over the  limits prevailing prior to October, 1986. These were stepped up by 30 per cent and 20  per cent for different periods of the year in October,1986.
72. As mentioned earlier, it has been decided to increase the outlays of the  Departments of Agriculture and Cooperation and Water Resources by 40 per cent  above the current year’s outlay. I also propose to provide Rs.671 crores for fertilizer  projects in 1988-89. During the current year, four new fertilizer plants, two each in  public and private sectors, are likely to go into poduction. Fertilizer production is  expected to attain a level of 7.1 million tonnes this year, an increase of nearly 40 per  cent over the output at the commencement of the Seventh Plan.
73. The major anti-poverty programmes, namely, Integrated Rural  Development Programme (IRDP), National Rural Employment Programme (NREP)  and Rural Landless Employment Guarantee Programme (RLEGP) will continue to be  the main instruments for generating employment and increasing the earning  opportunities for those below the poverty-line. Thus far, about 254 lakh families have  been assisted with a total investment of Rs.8,413 crores under IRDP. Forty per cent of  these beneficiaries belong to Scheduled Castes and Scheduled Tribes. Under NREP  and RLEGP, 7,006 lakh man-days were generated in 1986-87 which was substantially  higher than the target of 5,115 lakh man-days. The target is likely to be exceeded this  year also.
  74. These programmes have proved highly successful in generating  employment in our rural areas. Suggestions have been received for expansion of these  programmes as well as for their reorganisation. The merger of some important  programmes, like the National Rural Employment Programme, Accelerated Rural Water  Supply Programme, Rural Landless Employment Guarantee Programme and Desert  Development Programme, and various other Anti Poverty Programmes has also been  suggested so that available resources can be more effectively deployed to meet the  twin objectives of employment and creation of assets to meet village needs. There is  also need to provide flexibility at the operational level. In the light of these suggestions,  it is proposed to undertake a thorough review of the employment programmes in the  coming year to examine the possibility of having a comprehensive programme.
75. Rural water supply continues to receive high priority. The technology  mission for drinking water in villages and related water management is being pursued  vigorously. In 1988-89, I propose to provide Rs.2,200 crores for the Department of  Rural Development, inclusive of Rs.430 crores for rural water supply and sanitation.  As Hon’ble Members are aware, the outlay on water supply is in addition to the  Minimum Needs Programme outlay in the State Sector.
76. Welfare programmes for the tribal people have to be based on respect and  understanding of their culture and tradition, and appreciation of their social,  psychological and economic problems. The main instrument for the development of  tribal people and tribal areas is the Tribal sub-Plan. As the Hon’ble Members know,  the Tribal sub-Plans are financed by the State Governments, Special Central Assistance,  Centrally Sponsored Programmes and financial institutions. The Special Central  Assistance for Tribal sub-Plan for 1988-89 is Rs.185 crores. For Scheduled Castes,  Special Component Plans are being formulated with the primary objective of providing  occupational mobility and economic strength. In the current year, over 20 lakh  Scheduled Caste families are likely to be benifited by these programmes. An amount  of Rs.180 crores has been provided as Special Central Additive to Special Component  Plans for 1988-89.
77. Our human resources are the most important resource of all. The quality  of manpower developed today will be decisive in determining the pace and direction  of economic and social progress in the future. In 1986, a new Education Policy was  introduced after extensive discussion in Parliament and outside. In order to give a  good start to the new Policy, last year, while presenting the Budget, the Prime Minister  raised the allocation for education sharply to Rs.800 crores from Rs.352 crores in  1986-87. The actual expenditure is likely to be of the order of Rs.700 crores. Next  year’s Plan makes an allocation of Rs.800 crores. Together with the non-Plan provision,  the total allocation for the Department of Education in 1988-89 will be Rs.1,550  crores against the Revised Estimate of Rs.1,185 crores for 1987-88.
78. Improvement in the health status of the population is an essential  component of the human resource development. To achieve this, special emphasis is  16  being laid on establishing primary health facilities, particularly in rural areas, launching  control programmes for major communicable and non-communicable diseases,  augmenting facilities for medical and para-medical education and training and providing  family welfare, maternity and child health, immunization and related services. Under  the National Leprosy Eradication Programme, multi-drug treatment has been extended  to nearly 2.2 million cases out of the estimated 4 million cases. The Universal  Immunization Programme is being extended to 120 districts, besides 182 districts  already covered. Health Contingency Plans have been prepared for drought affected  States. I propose an outlay of Rs.228 crores for medical and public health programmes  and Rs.600 crores for family welfare programmes for 1988-89.
79. Government have initiated a number of measures to ameliorate the  conditions of working women. These include programmes for raising skills and  economic development, supportive services for working women and shelter and  rehabilitation for women in adverse circumstances. For children, a nation-wide  programme of Integrated Child Development Services has been in operation. An  important objective of these ICDS Programmes is to reduce childhood mortality,  morbidity and malnutrition. I am happy to inform the Hon’ble Members that 1,738  Integrated Child Development Services Projects have been sanctioned for the most  backward rural areas, tribal areas and urban slums in the country. During the remaining  period of the Seventh Five Year Plan, we will be covering most of the tribal blocks  with more than 30 per cent Scheduled Tribe population and also the slums in big  cities. For the next year, I propose an outlay of Rs.235 crores for the Department of  Women and Child Development.
80. Energy, Transport and Communications constitute the basic infrastructure  of the economy. A total allocation of Rs.16,588 crores is being provided for these  sectors. This outlay represents an increase of about 25 per cent over the current year’s  level, and accounts for about 58 per cent of the total Plan outlay for 1988-89.
81. Electricity generation has been increasing at an annual rate of 9 to 10 per  cent during the Seventh Plan. Though hydro-generation was adversely affected by  drought this year, thermal generation registered an improvement of 16 per cent during  the first nine months of the current year compared to the corresponding period of last  year. The plant load factor of the thermal plants has improved further and is expected  to touch 55 per cent, the highest in the last 10 years. I am providing for an outlay of  Rs.3,963 crores for the Power sector, that is, an increase of over 32 per cent over the  current year’s outlay.
82. Coal is the primary and the most abundant source of conventional energy  in our country. I am stepping up the provision for this sector by 30 per cent, to a level  of Rs.1,733 crores for 1988-89. The production of coal during the current year is  expected to reach 182 million tonnes as against the last year’s level of 166 million  tonnes.
83. As Hon’ble Members are aware, our Petroleum and Natural Gas sector  has taken great strides during this decade. The rebound in international oil prices has  underlined the urgency for finding and exploiting hydro-carbon resources. Significant  discoveries during the year in Krishna-Godavari Off-shore Region and the Bhuvanagiri  area of the Cauvery Basin constitute promising rewards to our heavy investments in  oil exploration. The year also saw the completion of the first section from Hazira to  Bijaipur of the HBJ Pipeline covering 642 kilometres. To maintain the tempo of  exploration and production of crude oil and natural gas, I propose an outlay of Rs.3,395  crores for the Petroleum sector.
84. In the field of communications I must share with the House a sense of  pride in the work of the Centre for Development of Telematics.By developing a stateof-  art electronic switching system, C-DoT has demonstrated what we can achieve  through proper organisation and marshalling of our scientific talents. I am allocating  Rs.1,873 crores for 1988-89 for the Department of Telecommunications – an increase  of 44 per cent over the outlay for the current year.
85. Government recognises the development of our scientific and technological  capabilities as a necessary pre-requisite for the economic development of the nation.  With this in view, I propose to increase the outlay of the Scientific Departments by  about 20 per cent over the current year’s level. We can take justifiable pride in the  many achievements of our scientists and technologists. While there have been many  notable developments during the year, I would like to make a special mention of one  of these. On August 26, 1987, the Prime Minister had informed the Hon’ble Members  that India was the first applicant to be allotted a mine site in the Central Indian Ocean  by the Preparatory Commission for the International Sea-bed Authority. This is a  significant step forward in development of our scientific potential. The mine site of  1,50,000 sq.kms. contains a rich deposit of polymetallic nodules.
86. Many other initiatives are envisaged in the different sectors of the economy.  However, I do not propose to take the valuable time of the House with a detailed  review of all the Plan programmes. The full details are available in the Budget  documents.
87. The allocation for Defence is Rs.13,000 crores against Rs.12,000 crores  in the current year. Our armed forces, in the face of unwarranted provocations, have  done a tremendous job of protecting our borders. Our jawans are the nation’s strength.  We shall continue to provide them the requisite support in their efforts. Food and  fertilizer subsidies are placed at Rs.5,300 crores against Rs.4,410 crores in the current  year. Interest charges next year are estimated at Rs.14,100 crores agianst Rs.11,450  crores in the current year. The allocation for export promotion and market development  is Rs.1,091 crores. The other increases relate to grants payable to States for revision  of pay scales of university and college teachers, grants and loans to foreign  Governments, strengthening of police forces and payment of Rs.100 crores to Oil   Industry Development Board. A lump sum provision of Rs.800 crores has been made for  additional D.A. instalments that may become payable to Government employees next  year. I would like to assure the Hon’ble Members that I have kept the non-Plan expenditure  to the barest minimum. Non-Plan expenditure in 1988-89 will thus be Rs.47,896 crores  against Rs.41,236 crores in the Revised Estimates for the current year.  88. Coming to receipts, Gross Tax Revenue at existing rates of taxation is  estimated at Rs.41985 crores. After payment of Rs.10682crores to States and local  bodies as their share of taxes, the net revenue to the Centre next year is estimated at  Rs.31303 crores. Receipts from market loans are placed at Rs.7,000 crores, that is, the  same level as in the current year. External assistance, net of repayments, is placed at  Rs.3,734 crores, against Rs.3,184 crores in the current year. Taking into account the  variations in other receipts and expenditure, Budget deficit for the next year at existing  rates of taxation is estimated at Rs.8120 crores.
PART B
89. I shall now turn to my revenue proposals. Every Budget has to raise some  resources for financing expenditure, and I shall not be failing in my duty to do so.  However, I do believe that it is equally, if not more, important to use fiscal policy for  achieving our wider economic and social goals while, at the same time, providing  relief where it is due. I am sure, the Hon’ble Members will find a strong link between  the proposals that I am about to make, and some of the people-oriented initiatives that  I have referred to in Part A of my speech.
90. This House is aware of the fact that in view of the exigencies of the  situation, in order to meet the formidable after-effects of the drought of 1987-88,  Government took a decision to levy a surcharge of 5% on income-tax for persons  with taxable income above Rs.50,000, a surcharge of 10% on wealth tax for the  assessment year 1988-89 and a 5% surcharge by way of auxiliary duty of customs on  imported goods excluding essential commodities like fertilizers, power equipment,  life-saving drugs and medical equipment, etc. This timely action helped the country  and the Central and State Governments to meet the requirements of a very difficult  situation created by the drought. This surcharge did not touch essential commodities.
  91. In view of the continuing pernicious effects of the drought and the natural  calamities, I propose to continue with these surcharges for one more year. In addition,  it is now proposed to levy a surcharge by way of Special Excise Duty at the rate of  1/20th of the Basic Duty of Excise. The incidence of this surcharge will generally be  small; for example, it will be only one quarter of one percent i.e. 0.25%, where the  basic duty is 5% ad valorem and one percentage point where the basic duty is 20%.
92. Essential commodities and other priority items which are presently exempt  from excise duty will continue to remain exempt. I am also exempting from this    surcharge, certain other essential goods of common consumption, namely, sugar,  matches, cotton fabrics, vanaspati, refined vegetable oil, tea, coffee and kerosene.  Direct Taxes
93. Hon’ble Members will recall that, in August, 1986, a Discussion Paper on  Direct Tax Laws was presented in Parliament. After further discussions and  consultations among experts and the public, the Government had introduced the Direct  Tax Laws (Amendment) Bill, 1987, which was passed during the last Session. Since  then, many representations have been received from experts, concerned Associations,  Chambers of Commerce and other tax-payers regarding some provisions in the Act.  The following, inter alia, are the main points made in these representations:-  (1) The proposed system of assessment of partnership firms is too harsh  particularly on partnership firms with small income, as such firms, subject  to certain deductions, will henceforth be taxed at the maximum marginal  rate. Certain other clarifications have also been sought in regard to some  other provisions relating to taxation of firms.  (2) The levy of additional tax at a flat rate of 30 per cent would be very unfair  in cases of genuine doubt regarding taxability of certain receipts and that  the levy of additional tax should itself be appealable.  (3) The provisions relating to charitable trusts, voluntary agencies and  institutions carrying on scientific research, etc. may result in unintended  hardship, particularly as regards the treatment of contributions to the corpus  of such institutions.  (4) The new Act provides for unfettered discretion regarding re-opening of  assessments merely on a change of opinion.
94. There are many positive features in the Act, which will help the taxpayers  by simplifying the law, but there is also scope for reconsideration keeping in  view the representations against some of its provisions. In a democracy, Government  should always keep itself abreast of public opinion and be flexible enough to respond  to reasonable suggestions. Government will bring a further amendment bill in the  Budget Session which will take care of genuine grievances. After the Bill is introduced,  Government will be happy to consider any further suggestions that the Hon’ble  Members may have to offer.
95. A reasonable degree of stability in the Direct Tax regime is desirable for  inspiring confidence and encouraging savings and investment. I do not, therefore,  propose any change in the rate structure for personal and corporate taxes.
96. There is, however, a case for reducing, to some extent, the brunt of the  burden borne by the fixed income groups. I, therefore, propose to raise the rate of  standard deduction from 30 per cent to 33-1/3rd per cent of salary income and the  20  ceiling from Rs.10,000/- to Rs.12,000/-. This measure will benefit about a million  tax-payers.
97. Hon’ble Members will recall that Estate Duty was abolished from March,  1985. This was done mainly because the Estate Duty law was complicated and led to  procedural harassment to large numbers of tax-payers at a time of great distress, with  negligible gain in terms of revenue. However, there is a strong case on grounds of  social justice for taxing the transfer of wealth through inheritance especially where  the volume of wealth involved is large. This matter has been under consideration of  Government for some time. Government have decided to levy a tax on the transfer of  wealth which will be applicable to all wealth-tax assessees. The tax will be levied in  respect of assets subject to wealth tax. The method for valuation of assets would be  the same as for the wealth tax. It will also be administered by the wealth tax officer.  The rate of the wealth transfer tax would be 5 times the applicable wealth tax rates.  This new tax will avoid the rigidities and procedural delays which characterised the  operation of the old Estate Duty Act. As I have mentioned, it will be applicable only  to wealth tax assessees and will not affect ordinary tax-payers. Separate legislation  in this regard will be introduced in this Session.
  98. The thrust of my other proposals in regard to Direct Taxes is to strengthen  incentives for export promotion and foreign exchange earnings, to encourage savings  and to stimulate the capital market.
99. To encourage exports, I propose to enhance the existing tax concession  under Section 80 HHC for export profits so as to exempt 100 per cent of export profits  from income-tax. It is also proposed to extend the benefit to supporting manufacturers  exporting through Trading or Export Houses. A five-year tax holiday presently available  for units in Free Trade Zones is also being extended to 100 per cent Export Oriented  Units. Replantation and rejuvenation subsidies for rubber, coffee and cardamom  plantations are also proposed to be exempted from income-tax.
  100. To promote long-term financing available for construction and purchase  of houses, I propose to enhance the existing concession available under Section 80L  in respect of interest and dividend income received from companies providing such  finance. At present, such income is included under the general exemption limit of  Rs.7,000. It is proposed to make such income also eligible under the separate limit of  Rs.3,000 for UTI under Section 80L.
101. As an anti-evasion measure, I propose to provide for assessment of income  of persons engaged in certain trades, like liquor and forest contracts, at a reasonably  fixed percentage of the amount payable by them while purchasing the goods. The tax  will be collected at source.
102. I also propose to tax under the head “capital gains”, income from transfer  of a capital asset by a holding company to its wholly-owned subsidiary company or  21  vice versa, in every case where the capital asset is taken over as stock-in-trade at the  time of transfer.
103. Hon’ble Members will recall that in Part A of my speech, I have already  referred to certain changes being made in the income-tax payable by LIC as well as  certain fiscal measures to promote the equity market. There are certain other minor  proposals regarding Direct Taxes in the Finance Bill.
104. The total effect of these proposals will be a revenue loss of Rs.201 crores,  which will be off-set by my proposal to continue with the levy of surcharge on incometax  and wealth-tax which will mean a gain of Rs.270 crores. Thus, the net increase in  revenue will be Rs.69 crores.  Indirect Taxes
105. Sir, I will now move on to the proposals relating to indirect taxes. It has  been my endeavour to see that the basic thrust provided in the field of indirect taxes  in the Budget last year is carried forward. I have proposals for providing stimuli to  cover agriculture and farming sectors, rural employment, exports, health and medical  care, housing and construction activities, technology upgradation and selected industries  such as cement, textiles, electronics, paper and plastics. There are also some important  reliefs for the common man .  Agricultural and other allied sectors
106. In Part A of my speech, I have announced several measures for the benefit  of the farmers, including reduction in interest rates and reduction in cost of inputs,  such as fertilizers. I now propose a number of fiscal reliefs for promotion of agriculture  and agro-based activities.
107. Monobloc pumpsets and submersible pumpsets are important for irrigation.  I am exempting electric motors used in these pumpsets from excise duty.
108. To bring down the cost for farmers, I propose to fully exempt from excise  duty a large number of pesticide intermediates. I am also proposing to reduce customs  duty in respect of a number of pesticides and pesticide intermediates from the existing  levels of 105 per cent and 147 per cent to 70 per cent and 60 per cent ad valorem.  These measures will reduce the cost of indigenous production and the end-prices.
109. With a view to promoting modernisation in the agricultural, horticultural,  poultry and bee-keeping sectors, I am providing for full exemption from excise duty  in respect of machinery for these sectors such as sprinkler systems, fodder mixers,  germination appliances, egg candlers, etc.
  110. Cold storages are of great importance for the marketing of agricultural  produce. I propose to reduce the excise duty on parts and accessories going into the  installation of cold storage plants from 40 per cent to 15 per cent ad valorem.
111. As the House is aware, the Government has taken up an ambitious  programme of increasing milk production through genetic improvement of cattle and  buffaloes. Certain critical equipments, hormones and drugs required for this programme  are accordingly being exempted from customs duty in excess of 25 per cent ad valorem.  Food Processing and Packaging
112. Growth of food processing and packaging industry can be of immense  help in increasing the value-added of agricultural produce and raising incomes of  farmers. In continuation of certain measures for growth of this industry, announced  by the Prime Minister last year, it is proposed to further reduce the customs duty in  respect of 34 specified items of food processing and packaging machinery from 55 per  cent to 35 per cent ad valorem. I also propose to reduce the excise duty on preparations  from vegetables, fruits, nuts or other parts of plants like jams, fruit juices, etc. from 10  per cent to 5 per cent ad valorem. Such preparations from vegetables and fruits like  jams, jellies, fruit juices, sauces, ketchups and pickles, if manufactured in rural areas  by registered cooperative societies, Khadi & Village Industries Commission and State  Khadi & Village Industries Boards are proposed to be exempted from excise duty  altogether.
113. I also propose to reduce the excise duty on aluminium foil from 25 per  cent to 15 per cent ad valorem. This will help in hygienic and scientific packaging of  processed food, drugs, condiments, etc.  Rural Employment
114. Off-farm self-employment provides a major route for enhancing income  and earnings in the rural areas. Individually, a micro-entrepreneur with low staying  power is vulnerable to adverse market forces. His success lies in cooperative ventures.  Hence, I am providing for a special scheme for generation of self- employment in the  rural areas. Under the proposed scheme, specified products, namely, radios, cassette  players and recorders in combination with radios, tape recorders, voltage stabilizers,  footwear of a value not exceeding Rs.75 per pair and a few other items will be fully  exempt from excise duty, if they are manufactured in rural areas by registered  cooperative societies, including self-employed women’s cooperatives or cooperative  societies under the Scheme of Development of Women and Children in Rural Areas or  the Khadi and Village Industries Commission or the State Khadi and Village Industries  Boards.
115. As Hon’ble Members are aware, there are a large number of self-employed  persons working as carpenters, fitters, electricians, plumbers, etc. To lend further  strength to their toiling hands and with the twin objectives of increasing their  productivity and earnings, I propose to reduce the excise duty in respect of some hand  tools like files, screwdrivers, pliers, etc. from 20% to 10% ad valorem.
116. To promote better accounting and to relieve the traders, city-based shop  keepers, small businessmen, wholesalers and small factory owners from the drudgery  23  of book-keeping at the end of the day, I propose to reduce excise duty from 20% to  10% on small electronic cash registers of assessable value of Rs.10,000 or below.  Consumer Articles
117. I am conscious of the fact that common consumers have been affected by  some price increase. I am anxious to give them some relief within the constraints in  which I am operating.
118. I propose to increase the upper value limit from Rs.25,000/- to Rs.30,000/-  for the purpose of extending the concessional rate of excise duty of 15 per cent ad  valorem in respect of a wide variety of commonly used toilet soaps. I am also proposing  to fully exempt from excise duty laundry and carbolic soaps manufactured in rural  areas by cooperatives and khadi and village industries sector.
119. So far, electric bulbs upto 60 watts have been exempted from excise duty.  With a view to facilitating a brighter luminance in houses, streets, work places, etc.,  I propose to reduce the excise duty in respect of electric bulbs exceeding 60 watts  from Rs. 1.50 per bulb to Re.1.00 per bulb.
120. As a measure of providing a little more happiness and education among  children, I propose to completely exempt from excise duty toys, like toy scooters, toy  pedal cars, dolls, toy musical instruments, scale models, recreational models, etc. and  inexpensive pencil sharpeners.
121. With a view to reducing domestic drudgery, I propose to fully exempt  from excise duty certain domestic electrical appliances from frying pans to saucepans.  I am also similarly exempting electric kettles, water-boilers, toasters and automatic  irons. I am also totally exempting stainless steel utensils from excise duty.
122. As a further component of anti-smuggling measures and to cultivate a  greater sense of time-consciousness and to instil a spirit of greater punctuality among  the school-going children, college students, office-goers, the public generally and, if I  may venture to say so, politicians like us also, I propose to reduce the excise duty on  wall clocks and quartz clocks and parts thereof from 15 per cent to 5 per cent ad  valorem. I shall be announcing some relief for indigenous watch industry later in my  speech.
123. In respect of glassware, I propose to reduce the excise duty in respect of  a number of items of tableware of common use like jugs, cups, plates, bowls, etc.  manufactured by automatic process from 40 per cent to 25 per cent ad valorem and  those manufactured by the semi-automatic or mouth-blown processes, to 20 per cent  ad valorem.
124. I also propose to exempt from excise duty all children’s films and all  films selected for the Indian panorama section for International Film Festivals.
125. There can be no better auspicious occasion than the Government’s Annual  Budget to exempt sindoor, kajal, alta and mahavar — the age-old symbols of glorious  and devout womanhood — from taxation and, accordingly, I hereby do so by proposing  to fully exempt these from excise duty.  Health and Medicare
126. Our goal is to provide cheap and efficient medicare to all our people.  Towards achieving this objective, availability of essential drugs at lower prices has to  be ensured. I, therefore, intend to align the excise tariff, as far as possible, with the  new Drug (Prices Control) Order, 1987. I propose to provide total exemption from  excise duties in respect of formulations and bulk drugs which are specified in Category  I of the Drug (Prices Control) Order. Intermediates for these drugs will also be fully  exempt from excise duty. The House would recall that the drugs specified in Category  I are required for the National Health Programmes like T.B., Leprosy, Malaria, Filaria  Eradication programmes and programmes for the control of blindness and trachoma  and prevention of dehydration.
127. A concessional excise duty of 10% ad valorem is being prescribed for  single ingredient formulations based on drugs specified in Category II of the Drug  (Prices Control) Order. I also propose to continue the existing excise duty exemptions  in respect of specified cardiac drugs and anti-TB, anti-malaria, anti-leprosy and antidiabetic  drugs. Two anti-cancer drugs and an important life-saving drug, are proposed  to be added to the list of exempted drugs. However, I propose to withdraw the existing  exemption from customs duty in respect of specified formulations for which adequate  indigenous capacity has been built up. It is hoped that these fiscal reliefs will encourage  domestic production and help better availability of these vital drugs.
128. I propose to prescribe a nominal excise levy of 5% on bulk drugs except  those covered by Category I of Drugs (Prices Control) Order . This will enable the  manufacturers to avail of MODVAT credit in respect of all dutiable inputs including  drug intermediates. I also propose to reduce the import duty on 235 specified drug  intermediates from 115% to 90% ad valorem.
129. In the related field of medical equipment, the procedure for customs dutyfree  import of hospital equipments, apparatus, appliances including spare parts and  accessories by Government and Government-controlled hospitals is being simplified.  Similarly, the procedure for import of specified sophisticated medical equipment at a  concessional duty of 40% ad valorem is also being streamlined. In respect of such  imports by Non- Resident Indians, financed out of their own foreign exchange  resources, the duty will be even lower at 20%. Import of such equipment when  financed by Government to Government assistance will be exempt from customs duty.
130. I propose to extend the concessional duty to spare parts of such specified  equipments also at 40% ad valorem. The list of medical equipments attracting  concessional customs duty at 40% ad valorem is being enlarged by addition of 83  25  dental, ophthalmological, cardiological, gynaecological, general surgical and other  medical equipments. Components of these equipments will also be charged duty at  40% as against the existing levels ranging from 80% to 130% ad valorem in order to  encourage domestic manufacture of these equipments.
131. I also propose to reduce the excise duty on these indigenously manufactured  equipments from 15% to 5% ad valorem. The excise duty on X-ray films is also  proposed to be reduced from 15% to 5% ad valorem. Excise duty on aluminium  extrusions and square and round tubes used in the manufacture of artificial limbs is  being exempted altogether.  132. I hope that our dedicated doctors throughout the country will now be able  to modernise their hospitals and clinics a little faster and patients will get better care  and treatment thereby.  Housing
133. As I mentioned earlier, in order to encourage growth of housing it is  necessary to reduce the cost of house building material. Hence, I propose to provide  a general reduction in excise duty on cement from Rs. 225 to Rs. 205 per tonne. The  existing differential in excise duty rates for certain categories of cement units will  also continue. The levy ratios for certain categories of cement units are also being  reduced.
134. In order to protect the environment and help divert demand from wood to  metals, excise duty on doors, windows and their frames and thresholds for doors,  made of aluminium is proposed to be reduced from 20% to 15% ad valorem. Similarly,  excise duty on corrugated sheets of aluminium is being reduced from 25% to 15% ad  valorem. I also propose to reduce the excise duty on steel doors, windows and their  frames and thresholds for doors from 15% to 5% ad valorem.
135. It is time that we think innovatively and use unconventional materials for  housing which would be cheap and functional. The excise duty on blocks, slabs,  lintels, etc. constituting structural intermediates and components of pre-fabricated  buildings is being reduced from 12% to 5% ad valorem. Similarly, fly ash bricks will  pay a lower duty of 5% ad valorem, and lympo, a cement substitute, will bear a zero  rate of duty.
136. To reduce fire hazards, we should promote the use of fire extinguishers.  With this end in view, I propose to exempt fire-extinguishers from excise duty.  Exports
137. To thrive in the highly competitive international market, our natural  advantages and production efforts have to be supplemented by adequate fiscal and  other measures. In this context, I propose to take some further measures to promote  exports.
138. Concessional rates of customs duty have been provided in the past in  respect of specified items of machinery for identified export thrust sectors. Eight  more machines for the garments and hosiery sector, twenty-three machines for the  leather industry, four more machines for the gem and jewellery industry and three  more items of textile machinery will now attract a concessional rate of 35% ad  valorem. Specified items of machinery for the tea, bicycle, silk and woollen industries  are being provided with a concessional customs duty of 35% ad valorem.
139. Ivory and Ivory powder are being totally exempted from customs duty.  This will help reduce poaching in our jungles as well as provide adequate raw  material for ivory handicraft industry, which is export-oriented.
140. The value-limit of duty-free import of commercial samples is being  enhanced from Rs.1000 to Rs.5000 in a year; and for duty-free import of prototypes  of engineering goods, from Rs.1000 to Rs.10,000.
141. Full rebate of excise duty will now be available for tea exported directly  from factories. The procedure for claiming rebate of excise duty on export of unblended  tea by merchant-exporters is being simplified. Green tea is being exempted from  excise duty altogether.  Capital Goods
142. In the modern industrial world, obsolescence takes place at a fast rate.  Unless one upgrades the technology continuously, one is apt to be left out in the race.  Following Prime Minister’s guideline given in last year’s Budget speech, I had  announced in August 1987, a technology upgradation scheme, under which fiscal  relief was provided in respect of import of specified items of capital equipments  required for manufacture of machinery covered by the scheme at 35% ad valorem. To  promote domestic production of such machinery, the customs duty on selected raw  materials needed for their production is being reduced to 55% from the existing level  ranging from around 100% to 180%. These include specified insulation materials,  copper conductors and special electrical steel sheets for power generation and electrical  equipment and clad steel plates for manufacture of selected industrial machinery  specified in the technology upgradation scheme. The customs duty on boiler and  presssure vessel quality steel plates, turbine blade flats and stainless steel plates  required for manufacture of machinery is also being reduced from 90% to 55%.  Scientific equipment and spares
143. There have been persistent demands from the scientific community for  further fiscal concessions in regard to consumables required for research and spares  of imported equipment. Keeping in view the importance of scientific research, the  existing duty concession schemes are being liberalised. The certification procedures,  which have been acting as hurdles in the clearance of these goods, are being simplified.
144. Some specified scientific instruments and apparatus would bear excise  duty of 5% ad valorem instead of the current rate of 15%.  27  Textiles
  145. The textile industry has a unique place in the industrial map of India. It  provides jobs to millions of our people. It is a major export earner, and is directly  linked to agriculture. Of late, the industry has suffered from widespread sickness and  haphazard growth. Availability and prices of raw cotton and cotton yarn have been  subject to considerable instability. Handloom weavers are suffering because of yarn  prices. Powerlooms have their problems too. While production of synthetic yarn,  which is used for blended fabrics preferred for their durability by the common man,  has expanded, prices of such yarn have been very high. Smuggling has been another  problem which, despite Government’s strong action, has had some adverse effects on  the economy.
146. In order to overcome these problems, in 1985, Government had announced  a new Textile Policy. Its primary objective was to increase production of cloth of  acceptable quality at reasonable prices. In line with this policy, a number of measures  have already been taken by the Government. These have yielded results as reflected  in the increase in production and availability of cloth. I now propose to provide some  fiscal support to the endeavours of the Ministry of Textiles in reviving this industry  so that, once again, it can regain its rightful place in our economy. My proposals,  which follow are based on a comprehensive review of the duty structure relating to  the various segments of the industry with a view to lowering prices, increasing the  demand for fabrics and increasing the base of production.
147. In 1985, a scheme was evolved for making available duty-free polyester  staple fibre to the handloom sector for manufacture of designated fabrics under a  scheme approved by the Government. I now propose to reduce the excise duty on  polyester filament yarn for manufacturing handloom fabrics under a scheme for supply  management and distribution of fabrics, to be announced by the Ministry of Textiles.  Similarly, viscose filament yarn will bear a concessional rate of 50 per cent of the  existing duty, when the yarn is supplied to registered handloom cooperative societies  or any approved organisation for the development of handlooms.
148. I also propose to exempt handloom woollen fabrics processed by approved  independent processors from excise duty. Raw wool imported by certain specified  handloom agencies is being exempted from customs duty. The import duty on acetate  filament yarn is being reduced from 60 per cent to 45 per cent.
  149. In order to reduce prices of cotton yarn, it is proposed to reduce the excise  duty on cotton yarn of counts not exceeding 35 by 10 per cent of the existing rates.  The excise duty on cotton yarn above 35 counts is being reduced by 3 paise per count.  This will mean a reduction of upto a maximum of 28.5 per cent, depending on the  count of yarn.
150. Considering the fact that viscose staple fibre would help substituting for  cotton, I propose to reduce the excise duty on viscose staple fibre cleared for blending  28  with cotton from the existing level of Rs. 7 per kg. to Rs. 5 per kg. Simultaneously,  I propose to increase the duty on viscose staple fibre used for other purposes to Rs. 8  per kg. to divert more VSF for cotton blending.
151. The National Textile Corporation is already manufacturing cheap fabrics  under a special scheme, for which polyester staple fibre is being supplied free of  excise duty. I propose to provide that polyester filament yarn will be available at a  concessional duty rate of Rs.10 per kg. to the National Textile Corporation for  manufacturing fabrics under a duty credit scheme. The details will be announced  separately.
  152. In line with the Textile Policy, in order to facilitate absorption of increased  domestic production, I propose to reduce fiscal levies on man-made fibres and yarn.  This would also help revitalise the powerloom sector which is facing problems of  under-utilisation of capacity and consequent problems of unemployment. The duty on  polyester staple fibre is being reduced from Rs.25 to Rs.15 per kg., and on polyester  filament yarn from Rs.83.75 to Rs.53.75 per kg. At the same time, in order to ensure  greater availability and to put pressure on the domestic producers to pass on the  reduction in excise duties fully to the consumers, import duties on these items are also  being reduced by about 25 percentage points.
153. The excise duty on nylon filament yarn is being reduced from Rs.70 to  Rs.40 per kg. and that on acrylic fibre from Rs.10 to Rs. 8 per kg. Customs duty on  these items is also being suitably reduced.
154. It is also proposed to reduce the excise duty on nylon filament yarn for  industrial purposes such as for manufacture of tyres for cycles and industrial filter  fabrics, from Rs. 70 to Rs.8.13 per kg. Nylon filament yarn of specified deniers used  for fishing nets will pay an even lower concessional duty of Rs.4.55 per kg.
155. I also propose to reduce the excise duty on certain specified textile  machinery required for modernisation of the mills from 15 per cent to 5 per cent ad  valorem. The customs duty on certain specified machinery for the garment, hosiery  and woollen industries is being reduced to 35 per cent, as indicated earlier.
156. Hon’ble Members will agree that these comprehensive fiscal measures,  supported by other measures taken by the Ministry of Textiles, should give a boost to  the textile industry and help protect jobs of lakhs of workers. These should also  improve the working of the mills of the National Textile Corporation. I fully expect  and shall insist upon the entire relief being passed on in the form of lower prices.
157. At this point, I would also like to ask manufacturers in all industries,  where I have granted excise concessions, to pass on the excise relief to consumers in  the form of lower prices. Administrative Ministries concerned are being requested to  keep a close watch on the price behaviour of these commodities. I shall not hesitate  29  to withdraw the concessions, wherever there is evidence of manufacturers taking undue  advantage of these concessions.
Electronics
158. We have been using the fiscal mechanism for some time to give a boost to  the entire electronics sector. As a result of Government policy, substantial growth has  taken place in this sector, giving employment to lakhs of young men and women. At  present, concessional rates of customs duty of 60% or 70% ad valorem are available  in respect of specified items of machinery for the electronics industry. These  concessions have been reviewed. With a view to providing a stimulus and keeping in  view the latest advances in technology, I propose to extend a uniform concessional  duty of 60% ad valorem in respect of 280 items of machinery for the electronics  sector.
159. Customs duty on moulds, tools and dies required by the electronics industry  is being reduced further from 60% to 30% ad valorem. The coverage of the graded  structure of duties for raw materials, piece parts and components for the industry is  being enlarged. Polycrystalline silicon will now bear a lower duty of 35% instead of  the existing 80%.
160. Machinery and instruments required for the manufacture of Rural  Automatic Exchanges based on indigenous technology will attract a lower rate of duty  of 30%. A uniform rate of 100% is being provided in respect of a large number of  equipments for telecommunication transmission, satellite communication, switching,  data communication terminals, television transmission, studio and sound broadcasting.  Non-electronic components of these equipments will bear a lower duty of 80%. With  a view to encouraging production of high-tech items like Large-Scale Integrated circuits,  micro-processors and other micro-electronics items, import of 22 items of machinery  will be allowed at 15% ad valorem.
161. At present, computers, computer systems and peripherals attract varying  rates of duty ranging from zero to 147.5%. As a rationalisation measure, a uniform  rate of duty of 80% ad valorem plus countervailing duty is being provided in respect  of all computers, computer systems, computer peripherals and spare parts thereof.  Software will continue to attract the existing rates of customs duty at 60% ad valorem.  As an export incentive, accompanying computer software and start-up spares imported  under the policy on computer software export, software development and training will  be allowed at the rate applicable to the hardware. Computerized Numerically Controlled  systems and their parts at present attract a customs duty of 80%. This is being lowered  to 55% ad valorem. Excise duty on Computerised Numerically Controlled systems is  being reduced to 5% ad valorem.
162. Colour TV sets of screen size exceeding 36 cms and of assessable value  exceeding Rs. 5,000 per set will now attract an excise duty of Rs.2,000 instead of  Rs.1,750. However, such sets of value not exceeding Rs.5000 will continue to attract  30  a duty of Rs.1500 per set as at present. Excise duty on audio magnetic tapes is being  enhanced to Rs. 4 per square metre. Blank audio cassettes are being exempted from  duty. Excise duty on computer software is being reduced from 25% to 10% ad valorem.
163. Certain other industries also require a boost for their further development.  My proposals now cover a number of such industries.
Plastics
164. The House would recall that the customs duties on various plastic materials,  such as LDPE, HDPE, PVC and polypropylene were lowered in September, 1987,  in the wake of the steep hike in the international prices of these materials. International  prices have since gone up even higher and there is need for further reduction in  customs duties. I, therefore, propose to reduce the basic customs duty on LDPE from  Rs.3,000 to Rs.2,000 per tonne and on HDPE from 30 per cent to 20 per cent ad  valorem.  165. The auxiliary duty of customs on PVC is proposed to be converted from  ad valorem to specific, and in the case of suspension grade PVC is being reduced to  Rs.2000 per tonne and in the case of paste grade to Rs.4000 per tonne. In the case  of polypropylene, auxiliary duty is being reduced from 45 per cent to 30 per cent ad  valorem.
Automotive Sector
166. In the automotive sector, I propose to extend the concessional rate of 55  per cent customs duty in respect of parts for certain additional components to be  manufactured by auto ancillaries for supply to fuel-efficient motor vehicles. Parts of  specified as well as additional components of fuel-efficient two-wheelers and light  commercial vehicles will now attract a lower rate of customs duty of 40 per cent ad  valorem as against the current rate of 55 per cent ad valorem. Concessional rate of  customs duty of 55 per cent ad valorem in respect of components required for the  manufacture of fuel-efficient cars upto 1000 cc under phased manufacturing programme  is proposed to be made available for a further period from 1.3.1988 to 31.3.1990.  Fuel-efficient motor cars of engine capacity exceeding 1000 cc manufactured under  approved phased manufacturing programme will, however, now attract excise duty at  the rate of 30 per cent ad valorem instead of the existing 25 per cent.
  167. I propose to reduce the excise duty from Rs. 1000 to Rs.500 per body in  respect of bodies of such three-wheeler auto-rickshaws, which are used by the general  public in major cities.  Vegetable oils
168. In order to cut down on imports of vegetable oils, the Government had  taken fiscal measures in the previous years so as to encourage domestic production of  edible oils. These measures have had encouraging results. As a follow-up of the  measures taken in the last two years, I propose to provide total exemption from excise   duty in respect of refined safflower oil. Rebate for the use of solvent-extracted cotton  seed oil in the manufacture of vanaspati is being increased from Rs.3250 to Rs.4000  per tonne. Rebate for the use of indigenous palm oil in the manufacture of vanaspati  is also being made available at the rate of Rs.3250 per tonne. Solvent-extracted  sunflower and safflower oils will, henceforth, qualify for rebate at the rate of Rs.3250  per tonne, if used in the manufacture of vanaspati. I am also proposing an increase in  the rate of rebate from Rs.320 to Rs.640 per tonne for the use of rice bran oil in the  manufacture of soaps.  Paper and Paper Board  169. I propose to reduce the excise duty on paper and paper board manufactured  by small paper mills by Rs.100 per tonne in each of the existing slabs. Paper and  paper board manufactured by mills using agricultural residues such as cereal straw,  bagasse, grasses and jute waste, etc. already attract a lower rate of excise duty of 10  per cent ad valorem plus Rs.800 per tonne. I propose to reduce this duty further by  Rs.300 per tonne. Concession of 50 per cent of the excise duty available to certain  new paper mills upto 31.3.1988 is being continued till 31.3.1990.
170. Specified items of machinery for manufacture of newsprint are being  provided with a concessional rate of customs duty of 25 per cent ad valorem.
171. I also propose to provide for import of machinery for binding and multicolour  sheet-fed off-set printing machine by registered newspaper establishments at  concessional rates of customs duty.  Rolling Bearing Industry
172. In respect of 21 items of machinery for the rolling bearing industry, a  concessional duty of customs at 35 per cent ad valorem is being provided.
Watches
173. With a view to giving a further boost to domestic watch industry, I intend  to reduce customs duty from 55 per cent to 35 per cent ad valorem in respect of  certain horological machinery and testing instruments. The list of horological raw  materials attracting concessional customs duty of 25 per cent ad valorem is being  enlarged. In addition, my detailed proposals provide for a sound package for certain  specified parts.
Glass and glassware
174. I propose to restore the concessional rate of excise duty of 30 per cent ad  valorem in respect of glass and glassware manufactured by the semi-automatic sector.  Energy conservation
175. In our industrial processes, many of us have remained rather unresponsive  to the need for energy conservation and energy recycling. The concept of energy  conservation is still in its infancy in the country and we have to provide some incentive    in that direction. Accordingly, 15 specified energy-saving equipments are being  exempted from customs duty in excess of 40 per cent ad valorem.
Hotels
176. To promote tourism in the country, certain additional equipments required  by hotels are being extended a concessional rate of customs duty of 90 per cent .
Rationalisation Measures
177. My proposals on the indirect taxes include certain rationalisation measures.  (a) Industry has found the MODVAT system beneficial. The procedural  problems faced in the initial stages have, by and large, been sorted out. I  propose to rationalize rates of excise duty in respect of a few commodities,  including paints based on synthetic polymers, trailers, furniture, phthalic  anhydride and coated textiles as a part of MODVAT corrections.  (b) The scheme of excise duty concessions applicable to small scale industry  relating to air-conditioning and refrigerating appliances and parts thereof  is being slightly modified to enable full utilisation of the MODVAT credit.  (c) I propose to align the excise tariff relating to ferrous and non-ferrous  metals and articles thereof with the corresponding chapters of the  Harmonised System which would help reduce classification disputes. Tariff  rates of excise duty in respect of items relating to iron and steel and  copper are being revised. The effective rates of excise duty would by and  large be maintained. A uniform rate of excise duty of Rs.550 per tonne is  being prescribed in respect of unmachined forgings and forged products  of steel. The basic customs duty on ships, vessels and other floating  structures imported for breaking up is being reduced from Rs.1035 to  Rs.750 per Light Displacement Tonnage.  (d) Certain proposals for rationalising and rounding off of rates of excise  duty in respect of Petroleum products are being made. These proposals  have no significant revenue implications.  (e) The scheme of excise duty concession to manufacturers of tread rubber in  the small scale sector is being revised as an anti-evasion measure.  (f) As an anti-evasion measure, I am also proposing to enhance the basic  customs duty in respect of certain compound alcoholic preparations of a  kind used for the manufacture of beverages to Rs.80 per litre or 270%,  whichever is higher.  (g) There have been some reports regarding under-invoicing in respect of  imports of galvanised steel sheets, tin plates and cold rolled steel sheets.  In order to deal with this problem, the basic customs duty in respect of  33  these goods is being converted from ad valorem-cum-specific rates into  specific rates.  (h) Specific rates of excise duty in respect of air-conditioners upto 7.5 tonnes  capacity are being revised. Specific rates are also being prescribed in  respect of air-conditioners exceeding 7.5 tonnes but not exceeding 15  tonnes.  (i) As an anti-evasion measure, excise duty on paste grade PVC is proposed  to be increased from 40% to 60% ad valorem. The duty paid on the resin  would be available as MODVAT credit. Effective rates of duty on coated  textiles are being suitably revised.  (j) In order to provide protection to the indigenous industry, I am proposing  to enhance the basic customs duty in respect of Sodium Formaldehyde  Sulphoxylate from 70% to 110% and Sodium Ferrocyanide from 70% to  100% and iron powder from 40% to 70%. The basic customs duty in  respect of palm nuts and kernels is also proposed to be raised from 60%  to 200% ad valorem.
178. Legislative changes and other changes of minor significance: Apart  from the above proposals, certain amendments have also been proposed in the Finance  Bill effecting changes in the excise and customs tariffs. These amendments are basically  enabling provisions without any major revenue significance. Besides, there are a few  minor proposals for continuing, amending or rescinding existing notifications including  one for giving retrospective effect to an amending notification. To save the precious  time of the House, I do not wish to dwell on them. I am also providing for amendment  of some of the provisions of the Customs Act, 1962, details of which are in the  Finance bill. A few amendments to the Central Sales Tax Act, 1956, are also proposed,  so as to align the definitions of certain goods of special importance with reference to  the Central Excise Tariff Act, 1985.
179. Copies of notifications giving effect to the changes in the customs and  excise duties effective from 1st March, 1988 will be laid on the Table of the House in  due course.
180. Anti-smuggling drive: Our anti-smuggling efforts yielded a seizure of  Rs.250 crores of contraband goods in 1987 which is the highest ever. I have instructed  the concerned authorities to relentlessly continue the drive against smuggling, tax  evasion and black money. I also seek the active cooperation of the State Governments,  as it is with their assistance that we can succeed in this task. I hope and trust that the  State Governments will also mount active steps against hoarding, black-marketing,  smuggling and sale of smuggled goods.
181. Revenue effect: Details of all the pluses and minuses in respect of  individual items covered in my proposals are in the Explanatory Memorandum to the  34  Finance Bill. In the aggregate, my proposals in respect of Customs and Central Excise  duties outlined above are likely to yield additional revenue of Rs.515.75 crores from  Customs duties and Rs.749.17 crores from Excise duties. The concessions and reliefs  aggregate to Rs.209.44 crores on the Customs side and Rs.509.79 crores on the Excise  side. The net additional revenue from Customs duties would, thus, be Rs.306.31 crores  and that from Excise duties Rs.239.38 crores. In Excise duties, the Centre’s share  would be Rs.117.23 crores and that of States, Rs.122.15 crores. Out of the total net  additional yield of Rs.545.69 crores, the Centre’s share would be Rs.423.54 crores  and that of the States, Rs.122.15 crores.
182. Taking into account the additional yield from the modifications proposed  in direct and indirect taxes and the revision announced a few days ago in postal tariffs,  the year end deficit for the next year is estimated at Rs.7484 crores. Government  reiterates its determination to closely monitor expenditure, maximise collection of  revenues and contain the budgetary deficit.
183. Mr. Speaker, Sir, in framing the Budget proposals, my guiding principle  has been the need to boost agriculture, help the poor and generate more employment,  investment and growth. India’s achievements since Independence are the result of the  untiring efforts of all our people. Every section of our people has contributed to build  the country’s economy. No single section or region or group can claim exclusive  credit for it. The nation’s Parliament as the supreme forum of our democracy has also  made an invaluable contribution. In all humility, may I take this opportunity to request  through you, Sir, all the Hon’ble Members of Parliament, to make this year’s debate  on the budget a participatory and constructive endeavour to evolve a nationally accepted  strategy to achieve our goals.
184. Let us be proud of what all of us together have been able to do and if  there are inadequacies or deficiencies, let us overcome them collectively. Let us all  join in the exciting task of India’s economic development and do so by making it a  common fraternal partnership of the entire Indian people. As our Prime Minister Shri  Rajiv Gandhi said a couple of months ago:  “Our socialism is our own. It is not a foreign transplant. It is not cast in  someone else’s ideological mould. It is rooted in our own history, our  culture, our realities. Gandhiji enjoined us to work for the Daridra Narayan,  to wipe every tear from every eye. This constitutes the moral imperative  of our socialism.”
185. This is also the message that this Budget seeks to convey. Sir, I now  commend this budget to the House.  [29th February, 1988]
Previous Budgets

Pranab Mukherjee – 2011 Budget

Finance Minister :Pranab Mukherjee
Budget Year : 2011

BACK

Pranab Mukherjee

Madam Speaker, I rise to present the Union Budget for 2011-12. We are reaching the end of a remarkable fiscal year. In a globalised world with its share of uncertainties and rapid changes, this year brought us some opportunities and many challenges as we moved ahead with steady steps on the chosen path of fiscal consolidation and high economic growth.

2. Our growth in 2010-11 has been swift and broad-based. The economy is back to its pre-crisis growth trajectory. While agriculture has shown a rebound, industry is regaining its earlier momentum. Services sector continues its near double digit run. Fiscal consolidation has been impressive. This year has also seen significant progress in those critical institutional reforms that would set the pace for double-digit growth in the near future.

3. While we succeeded in making good progress in addressing many areas of our concern, we could have done better in some others. The total food inflation declined from 20.2 per cent in February 2010 to less than half at 9.3 per cent in January 2011, but it still remains a concern. In the medium term perspective, our three priorities of sustaining a high growth trajectory; making development more inclusive; and improving our institutions, public delivery and governance practices, remain relevant. These would continue to engage the Indian policyplanners for some time. However, there are some manifestations of these challenges that need urgent attention in the short term.

4. Though we have regained the pre-crisis growth momentum, there is a need to effect adjustments in the composition of growth on demand and supply side. We have to ensure that along with private consumption, the revival in private investment is sustained and matches pre-crisis growth rates at the earliest. This requires a stronger fiscal consolidation to enlarge the resource space for private Budget 2011-2012 Speech of Pranab Mukherjee Minister of Finance February 28, 2011 2  enterprise and addressing some policy constraints. We also have to improve the supply response of agriculture to the expanding domestic demand. Determined measures on both these issues will help address the structural concerns on inflation management. It will also ensure a more stable macroeconomic environment for continued high growth.

5. The UPA Government has significantly scaled up the flow of resources to rural areas to give a more inclusive thrust to the development process. The impact is visible in the new dynamism of our rural economy. It has helped India navigate itself rapidly out of the quagmire of global economic slowdown. Yet, there is much that still needs to be done, especially in rural India. We have to reconcile legitimate environmental concerns with necessary developmental needs. Above all, there is the ‘challenge of growing aspiration’ of a young India.

6. To address these concerns, I do not foresee resources being a major constraint, at least not in the medium-term. However, the implementation gaps, leakages from public programmes and the quality of our outcomes are a serious challenge.

7. Certain events in the past few months may have created an impression of drift in governance and a gap in public accountability. Even as the Government is engaged in addressing specific concerns emanating from some of these events in the larger public interest and in upholding the rule of law, such an impression is misplaced. We have to seize in these developments, the opportunity to improve our regulatory standards and administrative practices. Corruption is a problem that we have to fight collectively.

8. In a complex and rapidly evolving economy, the Government can not profess to be the sole repository of all knowledge. Indeed, in a democratic polity, it stands to benefit from inputs from colleagues on both sides of the House. They must lend their voice and expertise to influence public policy in the wider national interest. In some areas, good results depend on coordinated efforts of the Centre and the State Governments and in some others, on favourable external developments.

9. I see the Budget for 2011-12 as a transition towards a more transparent and result oriented economic management system in India. We are taking major steps in simplifying and placing the administrative procedures concerning taxation, trade and tariffs and social transfers on electronic interface, free of discretion and bureaucratic delays. This will set the tone for a newer, vibrant and more efficient economy.

10. At times the biggest reforms are not the ones that make headline, but the ones concerned with the details of governance, which affect the everyday life of aam aadmi. In preparing this year’s Budget, I have been deeply conscious of this fact. I am grateful for the able guidance of the Hon’ble Prime Minister and the strong support lent by UPA Chairperson Smt. Sonia Gandhi in my endeavour. I would now begin with a brief overview of the economy.

. Overview of the Economy

11. On last Friday, I laid on the table of the House the Economic Survey 2010-11, which gives a detailed analysis of the economic situation of the country over the past 12 months. The Gross Domestic Product (GDP) of India is estimated to have grown at 8.6 per cent in 2010-11 in real terms. In 2010-11 agriculture is estimated to have grown at 5.4 per cent, industry at 8.1 per cent and services at 9.6 per cent. All three sectors are contributing to the consolidation of growth. More importantly, the economy has shown remarkable resilience to both external and domestic shocks.

12. Our principal concern this year has been the continued high food prices. Inflation surfaced in two distinct episodes. At the beginning of the year, food inflation was high for some cereals, sugar and pulses. Towards the second half, while prices of these items moderated and even recorded negative rates of inflation, there was spurt in prices of onion, milk, poultry and some vegetables. Of late prices of onion have crashed in wholesale markets and we have had to remove the ban on their exports.

13. Despite improvement in the availability of most food items, consumers were denied the benefit of seasonal fall in prices normally seen in winter months. These developments revealed shortcomings in distribution and marketing systems, which are getting accentuated due to growing demand for these food items with rising income levels. The huge differences between wholesale and retail prices and between markets in different parts of the country are just not acceptable. These are at the expense of remunerative prices for farmers and competitive prices for consumers.

14. Monetary policy stance in 2010-11, while being supportive of fiscal policy, has succeeded in keeping core-inflation in check. As the transmission lag in monetary policy tends to be long, I expect the measures already taken by the RBI to further moderate inflation in coming months.

15. The developments on India’s external sector in the current year have been encouraging. Even as the recovery in developed countries is gradually taking root, our trade performance has improved. Exports have grown at 29.4 per cent to reach US Dollar 184.6 billion, while imports at US Dollar 273.6 billion have recorded a growth of 17.6 per cent during April-January 2010-11, over the corresponding period last year. The current account deficit is around the 2009-10 level and poses some concerns because of the composition of its financing.

16. Policy making in a globalised world has to take into account the likely international developments. To realise the desired outcomes, it is important that there is convergence in expectations of our investors, entrepreneurs and consumers on the macroeconomic prospects of the economy. Against this backdrop, the Indian economy is expected to grow at 9 per cent with an outside band of +/- 0.25 per cent in 2011-12. I expect the average inflation to be lower next year and the current account deficit smaller and better managed with higher domestic savings rate and stable capital flows. While, like last year, I seek the blessings of Lord Indra to bestow on us timely and bountiful monsoons, I would pray to Goddess Lakshmi as well. I think it is a good strategy to diversify one’s risks.

.Sustaining Growth

17. In my last Budget, I had started rolling back the fiscal stimulus implemented over 2008-09 and 2009-10 to mitigate the impact of the global financial crisis on economic slowdown in India. In the course of the year, I have moved further on that path. I believe that a part of the current recovery must be stored away to build future resilience. Indeed, a counter cyclical fiscal policy is our best insurance against external shocks and localised domestic factors.

Fiscal Consolidation

18. The experience with Fiscal Responsibility and Budget Management Act, 2003 (FRBM Act) at Centre and the corresponding Acts at State level show that statutory fiscal consolidation targets have a positive effect on macroeconomic management of the economy. In the course of the year the Central Government would introduce an amendment to the FRBM Act, laying down the fiscal road map for the next five years.

19. The Thirteenth Finance Commission has worked out a fiscal consolidation road map for States requiring them to eliminate revenue deficit and achieve a fiscal deficit of 3 per cent of their respective Gross State Domestic Product latest by 2014-15. It has also recommended a combined States’ debt target of 24.3 per cent of GDP to be reached during this period. The States are required to amend or enact their FRBM Acts to conform to these recommendations.

20. The Government has been in the process of setting-up an independent Debt Management Office in the Finance Ministry. A Middle Office is already operational. As a next step, I propose to introduce the Public Debt Management Agency of India Bill in the next financial year.

Tax Reforms

21. The introduction of the Direct Taxes Code (DTC) and the proposed Goods and Services Tax (GST) will mark a watershed. These reforms will result in moderation of rates, simplification of laws and better compliance.

22. As Hon’ble Members are aware, the Direct Taxes Code Bill was introduced in Parliament in August, 2010. After receiving the report of the Standing Committee, we shall be able to finalise the Code for its enactment during 2011-12. This has been a pioneering effort in participative legislation. The Code 5  is proposed to be effective from April 1, 2012 to allow taxpayers, practitioners and administrators to fully understand the legislation and adjust to the revised procedures.

23. Unlike DTC, decisions on the GST have to be taken in concert with the States with whom our dialogue has made considerable progress in the last four years. Areas of divergence have been narrowed. As a step towards the roll-out of GST, I propose to introduce the Constitution Amendment Bill in this session of Parliament. Work is also underway on drafting of the model legislation for the Central and State GST.

24. Among the other steps that are being taken for the introduction of GST is the establishment of a strong IT infrastructure. We have made significant progress on the GST Network (GSTN). The key business processes of registration, returns and payments are in advanced stages of finalisation. The National Securities Depository Limited (NSDL) has been selected as technology partner for incubating the National Information Utility that will establish and operate the IT backbone for GST. By June 2011, NSDL will set up a Pilot portal in collaboration with eleven States prior to its roll out across the country.

Expenditure Reforms

25. The effective management of public expenditure is an integral part of the fiscal consolidation process. Expenditure has to be oriented towards the production of public goods and services. The extant classification of public expenditure between plan, non-plan, revenue and capital spending needs to be revisited. This is necessary as one recognises the importance of service sector and the knowledge economy for our development. A Committee under Dr. C. Rangarajan has been set up by the Planning Commission to look into these issues.

Subsidies

26. During the year 2010-11, the Nutrient Based Subsidy (NBS) policy was successfully implemented for all fertilisers except urea. The policy has been well received by all stakeholders, and the availability of fertilisers has improved. The extension of the NBS regime to cover urea is under active consideration of the Government.

27. The Government provides subsidies, notably on fuel and food grains, to enable the common man to have access to these basic necessities at affordable prices. A significant proportion of subsidised fuel does not reach the targeted beneficiaries and there is large scale diversion of subsidised kerosene oil. A recent tragic event has highlighted this practice. We have deliberated for long the modalities of implementing such subsidies. The debate now has to make way for decision. To ensure greater efficiency, cost effectiveness and better delivery for both kerosene and fertilisers, the Government will move towards direct transfer of cash subsidy to people living below poverty line in a phased manner.

28. A task force headed by Shri Nandan Nilekani has been set-up to work out the modalities for the proposed system of direct transfer of subsidy for kerosene, LPG and fertilisers. The interim report of the task force is expected by June 2011. The system will be in place by March 2012. People’s Ownership of PSUs

29. The Government’s programme to broadbase the ownership of Central Public Sector Undertakings (CPSUs) has received an overwhelming response. The six public issues of CPSUs in the current financial year have attracted around 50 lakh retail investors.

30. As against a target of `40,000 crore, the Government will raise about `22,144 crore from disinvestment in 2010-11. A higher than anticipated realisation in non-tax revenues has led us to reschedule some of the divestment issues planned for the current year. I intend to maintain the momentum on disinvestment in 2011-12 by raising `40,000 crore. Let me reiterate here that the Government is committed to retain at least 51 per cent ownership and management control of the CPSUs, as stated earlier in my Budget speech for 2009-10.

Investment Environment Foreign Direct Investment

31. To make the FDI policy more user-friendly, all prior regulations and guidelines have been consolidated into one comprehensive document, which is reviewed every six months. The last review has been released in September 2010. This has been done with the specific intent of enhancing clarity and predictability of our FDI policy to foreign investors. Discussions are underway to further liberalise the FDI policy. Foreign Institutional Investors

32. Currently, only FIIs and sub-accounts registered with the SEBI and NRIs are allowed to invest in mutual fund schemes. To liberalise the portfolio investment route, it has been decided to permit SEBI registered Mutual Funds to accept subscriptions from foreign investors who meet the KYC requirements for equity schemes. This would enable Indian Mutual Funds to have direct access to foreign investors and widen the class of foreign investors in Indian equity market.

33. To enhance the flow of funds to the infrastructure sector, the FII limit for investment in corporate bonds, with residual maturity of over five years issued by companies in infrastructure sector, is being raised by an additional limit of US Dollar 20 billion taking the limit to US Dollar 25 billion. This will raise the total limit available to the FIIs for investment in corporate bonds to US Dollar 40 billion. Since most of the infrastructure companies are organised in the form of SPVs, FIIs would also be permitted to invest in unlisted bonds with a minimum lock-in period of three years. However, the FIIs will be allowed to trade amongst themselves during the lock-in period.  Financial Sector legislative Initiatives

34. The financial sector reforms initiated during the early 1990s have borne good results for the Indian economy. The UPA Government is committed to take this process further. Accordingly, I propose to move the following legislations in the financial sector: (i) The Insurance Laws (Amendment) Bill, 2008; (ii) The Life Insurance Corporation (Amendment) Bill, 2009; (iii) The revised Pension Fund Regulatory and Development Authority Bill, first introduced in 2005; (iv) Banking Laws Amendment Bill, 2011; (v) Bill on Factoring and Assignment of Receivables; (vi) The State Bank of India (Subsidiary Banks Laws) Amendment Bill, 2009; and (vii) Bill to amend RDBFI Act 1993 and SARFAESI Act 2002.

35. In my last Budget speech, I had announced that Reserve Bank of India would consider giving some additional banking licences to private sector players. Accordingly, RBI issued a discussion paper in August, 2010, inviting feedback from the public. RBI has proposed some amendments in the Banking Regulation Act. I propose to bring suitable legislative amendments in this regard in this session. RBI is planning to issue the guidelines for banking licences before the close of this financial year.

Public Sector Bank Recapitalisation

36. During the year 2010-11, the Government is providing a sum of `20,157 crore for infusion in the Public Sector Banks to maintain Tier I Capital to Risk Weighted Asset Ratio (CRAR) at 8 per cent and increase government equity in some banks to 58 per cent. I propose to provide a sum of `6,000 crore for the year 2011-12 to enable Public Sector Banks to maintain a minimum Tier I CRAR at 8 per cent.

Recapitalisation of Regional Rural Banks

37. As a part of financial strengthening of Regional Rural Banks, an amount of `350 crore was given to these banks during this year. I propose to provide `500 crore during 2011-12 to enable them maintain a CRAR of at least 9 per cent as on March 31, 2012.

Micro Finance Institutions

38. The Micro Finance Institutions (MFIs) have emerged as an important means of financial inclusion. Creation of a dedicated fund for providing equity to smaller MFIs would help them maintain growth and achieve scale and efficiency in operations. I propose to create in the course of the year, “India Microfinance Equity Fund” of `100 crore with SIDBI. To empower women and promote their Self Help Groups (SHGs), I propose to create a “Women’s SHG’s Development Fund” with a corpus of `500 crore. The Committee set up by RBI to look into issues relating to micro finance sector in India has submitted its report. The Government is considering putting in place appropriate framework to protect the interests of small borrowers.

Rural Infrastructure Development Fund

39. The Rural Infrastructure Development Fund (RIDF) is an important instrument for routing bank funds for financing rural infrastructure. This is popular among State Governments. I propose to raise the corpus of RIDF XVII to `18,000 crore in 2011-12 from `16,000 crore in the current year. The additional allocation would be dedicated to creation of warehousing facilities.

Micro, Small and Medium Enterprises

40. Micro and Small enterprises play a crucial role in furthering the objective of equitable and inclusive growth. Last year, `4,000 crore was provided to SIDBI for refinancing incremental lending by banks to these enterprises. For the year 2011-12, I propose to provide `5,000 crore to SIDBI for the same purpose out of the shortfall of banks on priority sector lending targets.

41. Handloom weavers have been facing economic stress. Consequently, many of them have not been able to repay debts to handloom weaver cooperative societies which have become financially unviable. I propose to provide `3,000 crore to NABARD, in phases for these cooperative societies. The initiative would benefit 15,000 cooperative societies and about 3 lakh handloom weavers. The details of the scheme would be worked out by the Ministry of Textiles in consultation with Planning Commission.

42. I am happy to report that the outstanding loans to minority communities which stood at 13 per cent of total priority sector lending at the end of last year have increased to 13.6 per cent in the current year. I have directed the Public Sector Banks to achieve the target of 15 per cent at the earliest.

Housing Sector Finance

43. To further stimulate growth in housing sector, I am liberalising the existing scheme of interest subvention of 1 per cent on housing loans by extending it to housing loan upto `15 lakh where the cost of the house does not exceed `25 lakh from the present limit of `10 lakh and `20 lakh respectively.

44. On account of increase in prices of residential properties in urban areas, I propose to enhance the existing housing loan limit from `20 lakh to `25 lakh for dwelling units under priority sector lending.

45. To provide housing finance to targeted groups in rural areas at competitive rates, I propose to enhance the provision under Rural Housing Fund to `3,000 crore from the existing `2,000 crore.

46. Credit enablement of Economically Weaker Sections (EWS) and LIG households is a serious challenge. To address this issue, I propose to create a Mortgage Risk Guarantee Fund under Rajiv Awas Yojana. This would guarantee housing loans taken by EWS and LIG households and enhance their credit worthiness.

47. To prevent frauds in loan cases involving multiple lending from different banks on the same immovable property, the Government has facilitated setting up of Central Electronic Registry under the SARFAESI Act, 2002. This Registry will become operational by March 31, 2011.

Financial Sector Legislative Reforms Commission

48. In pursuance of the announcement made in Budget 2010-11, the Government has set up a Financial Sector Legislative Reforms Commission under the Chair of Justice B. N. Srikrishna. It would rewrite and streamline the financial sector laws, rules and regulations and bring them in harmony with the requirements of a modern financial sector. The Commission will complete its work in 24 months.

49. The Companies Bill introduced in the Parliament in 2009 has been received from the Parliamentary Standing Committee. The proposed bill will be introduced in the Lok Sabha in the current session.

Agriculture

50. Agriculture development is central to our growth strategy. Measures taken during the current year have started attracting private investment in agriculture and agro-processing activities. This process has to be deepened further.

51. In the Budget for 2010-11, I had delineated a four-pronged strategy covering agricultural production, reduction in wastage of produce, credit support to farmers and a thrust to the food processing sector. These initiatives have started showing results but there are other issues in our food economy that require attention. The recent spurt in food prices was driven by increase in the prices of items like fruits and vegetables, milk, meat, poultry and fish, which account for more than 70 per cent of the WPI basket for primary food items. Removal of production and distribution bottlenecks for these items will be the focus of my attention this year. I propose to make allocations for these schemes under the ongoing Rashtriya Krishi Vikas Yojana (RKVY) for an early take off. The total allocation of RKVY is being increased from `6,755 crore in 2010-11 to `7,860 crore in 2011-12.

Bringing Green Revolution to Eastern Region

52. The Green Revolution in Eastern Region is waiting to happen. To realize the potential of the region, last year’s initiative will be continued in 2011-12 with a further allocation of `400 crore. The program would target the improvement in the rice based cropping system of Assam, West Bengal, Orissa, Bihar, Jharkhand, Eastern Uttar Pradesh and Chhattisgarh. Integrated Development of 60,000 pulses villages in rainfed areas

53. Government’s initiative on pulses has received a positive response from the farmers. As per the second advance estimates, a record production of 165 lakh tonnes of pulses is expected this year as against 147 lakh tonnes last year.  While consolidating these gains, we must strive to attain self-sufficiency in production of pulses within next three years. I propose to provide an amount of `300 crore to promote 60,000 pulses villages in rainfed areas for increasing crop productivity and strengthening market linkages.

Promotion of Oil Palm

54. The domestic production of edible oil meets only about 50 per cent demand. The gap in supply is met through imports, which are often at high prices due to the quantum of our requirement. Our recent interventions and good rains are expected to result in a higher oilseeds production of 278 lakh tonnes in 2010-11 as against 249 lakh tonnes in 2009-10. To achieve a major breakthrough, we have to pay special attention to oil palm as it is one of the most efficient oil crops. I propose to provide an amount of `300 crore to bring 60,000 hectares under oil palm plantation, by integrating the farmers with the markets. The initiative will yield about 3 lakh metric tonnes of palm oil annually in 5 years.

Initiative on Vegetable Clusters

55. The growing demand for vegetables has to be met by a robust increase in the productivity and market linkage. An efficient supply chain, to provide quality vegetables at competitive prices will have to be established. I propose to provide an amount of `300 crore for implementation of vegetable initiative to set in motion a virtuous cycle of higher production and incomes for the farmers. To begin with, this programme will be launched near major urban centres.

Nutri-cereals

56. While we ensure food for all, we must also promote balanced nutrition. Bajra, jowar, ragi and other millets are highly nutritious and are known to possess several medicinal properties. The availability and consumption of these Nutricereals is, however, low and has been steadily declining over recent years. A provision of `300 crore is being made to promote higher production of these cereals, upgrade their processing technologies and create awareness regarding their health benefits. This initiative would provide market linked production support to ten lakh millet farmers in the arid and semi-arid regions of the country. The programme would be taken up in 1000 compact blocks covering about 25,000 villages. This will help improve nutritional security and increase feed and fodder supply for livestock.

National Mission for Protein Supplements

57. The consumption of foods rich in animal protein and other nutrients has risen of late, with demand growing faster than production. The National Mission for Protein Supplements is being launched in 2011-12 with an allocation of `300 crore. It will take up activities to promote animal based protein production through livestock development, dairy farming, piggery, goat rearing and fisheries in selected blocks.

  Accelerated Fodder Development Programme

58. Adequate availability of fodder is essential for sustained production of milk. It is necessary to accelerate the production of fodder through intensive promotion of technologies to ensure its availability throughout the year. I propose to provide `300 crore for Accelerated Fodder Development Programme which will benefit farmers in 25,000 villages.

59. Hon’ble Members may be curious as to why all these new initiatives are being launched with an allocation of `300 crore. Well, the number 3 happens to be my lucky number !

National Mission for Sustainable Agriculture

60. While the need to maximize crop yields to meet the growing demand for food grains is critical, we have to sustain agricultural productivity in the long run. There has been deterioration in soil health due to removal of crop residues and indiscriminate use of chemical fertilizers, aided by distorted prices.

61. To address these issues, the Government proposes to promote organic farming methods, combining modern technology with traditional farming practices like green manuring, biological pest control and weed management.

Agriculture Credit

62. To get the best from their land, farmers need access to affordable credit. Banks have been consistently meeting the targets set for agriculture credit flow in the past few years. For the year 2011-12, I am raising the target of credit flow to the farmers from `3,75,000 crore this year to `4,75,000 crore in 2011- 12. Banks have been asked to step up direct lending for agriculture and credit to small and marginal farmers.

63. The existing interest subvention scheme of providing short term crop loans to farmers at 7 per cent interest will be continued during 2011-12. In the last budget, I had provided an additional 2 per cent interest subvention to those farmers who repay their crop loans on time. The response to this scheme has been good. In order to provide further incentive to these farmers, I propose to enhance the additional subvention to 3 per cent in 2011-12. Thus, the effective rate of interest for such farmers will be 4 per cent per annum.

64. In view of the enhanced target for flow of agriculture credit, I propose to strengthen NABARD’s capital base by infusing `3000 crore, in a phased manner, as Government equity. This would raise its paid-up capital to `5,000 crore. To enable NABARD refinance the short-term crop loans of the cooperative credit institutions and RRBs at concessional rates, I propose a contribution of `10,000 crore to NABARD’s Short-term Rural Credit Fund for 2011-12 from the shortfall in priority sector lending by Scheduled Commercial Banks.  Mega Food Parks

65. Despite growing production of vegetables and fruits, their availability is inadequate due to bottlenecks in retailing capacity. An estimated 40 per cent of the fruit and vegetable production in India goes waste due to lack of storage, cold chain and transport infrastructure. To address these issues, the Eleventh Plan target for number of Mega Food Parks was set at 30. So far, 15 such parks have been sanctioned. During 2011-12, approval is being given to set up 15 more Mega Food Parks.

Storage Capacity and Cold Chains

66. The years 2008 to 2010 saw very high levels of foodgrain procurement. On January 1, 2011, the foodgrain stock in Central pool reached 470 lakh metric tonnes, 2.7 times higher than 174 lakh metric tonnes on January 1, 2007. The storage capacity for such large quantities requires augmentation. Process to create new storage capacity of 150 lakh metric tonnes through private entrepreneurs and warehousing corporations has been fast tracked. Decision to create 20 lakh metric tonnes of storage capacity under Public Entrepreneurs Guarantee (PEG) Scheme through modern silos has been taken. While we will be able to add about 2.6 lakh tonnes of capacity by March 2011, based on existing sanctions, the addition will reach 40 lakh tonnes by March 2012. During 2010-11, another 24 lakh metric tonnes of storage capacity has been created under the Rural Godown Scheme.

67. Investment in cold storage projects is now gaining momentum. During this year, 24 cold storage projects with a capacity of 1.4 lakh metric tonnes have been sanctioned under National Horticulture Mission. In addition, 107 cold storage projects with a capacity of over 5 lakh metric tonnes have been approved by the National Horticulture Board.

68. To attract investment in this sector, henceforth, capital investment in the creation of modern storage capacity will be eligible for viability gap funding scheme of the Finance Ministry. It is also proposed to recognize cold chains and post-harvest storage as an infrastructure sub-sector.

Agriculture Produce Marketing Act

69. The recent episode of inflation in vegetables and fruits has exposed serious flaws in our supply chains. The government regulated mandis sometimes prevent retailers from integrating their enterprises with the farmers. There is need for the State Governments to review and enforce a reformed Agriculture Produce Marketing Act urgently. Infrastructure and Industry

70. Infrastructure is critical for our development. For 2011-12, an allocation of over ` 2,14,000 crore is being made for this sector, which is 23.3 per cent higher than current year. This amounts to 48.5 per cent of the Gross Budgetary Support to plan expenditure.

71. Our experience with PPP model for creation of public sector assets in the country has been good. We have recently launched the National Capacity Building Programme to enhance capacities of public functionaries in identifying, conceptualising, structuring and managing PPPs. It is our endeavour to come up with a comprehensive policy that can be used by the Centre and the State Governments in further developing public-private partnerships.

72. Government established India Infrastructure Finance Company Limited (IIFCL) to provide long term financial assistance to infrastructure projects. It is expected to achieve a cumulative disbursement target of `20,000 crore by March 31, 2011 and `25,000 crore by March 31, 2012. The take out financing scheme announced in the Budget 2009-10 has been implemented and seven projects have been sanctioned with a debt of `1,500 crore. Another `5,000 crore will be sanctioned during 2011-12.

73. In order to give a boost to infrastructure development in railways, ports, housing and highways development, I propose to allow tax free bonds of `30,000 crore to be issued by various Government undertakings in the year 2011-12. This includes Indian Railway Finance Corporation `10,000 crore, National Highway Authority of India `10,000 crore, HUDCO `5,000 crore and Ports `5,000 crore.

74. To attract foreign funds for the infrastructure financing, I propose to create Special Vehicles in the form of notified infrastructure debt funds. I will come to the details in Part B of my speech.

National Manufacturing Policy

75. For sustained growth of GDP and productive employment for younger generation, it is imperative that the growth in manufacturing sector picks up. We expect to take the share of manufacturing in GDP from about 16 per cent to 25 per cent over a period of ten years. Government will come out with a manufacturing policy, which will bring down the compliance burden on the industry through self-regulation and help make Indian industry globally competitive.

76. To address the need for greater transparency and accountability in procurement policy and allocation, pricing and utilisation of natural resources, the Government has set up two committees. The recommendations will be available within three months.

77. A Group of Ministers has been set up to consider all issues relating to reconciliation of environmental concerns emanating from various departmental activities including those related to infrastructure and mining. This Group will also suggest changes in the existing statutes, rules, regulations and guidelines and make its recommendations in a time bound manner.

78. The Indian automobile market is the second fastest growing in the world and has shown nearly 30 per cent growth this year. World over, substantial investments are being made in the field of hybrid and electric mobility. To provide green and clean transportation for the masses, National Mission for Hybrid and Electric Vehicles will be launched in collaboration with all stakeholders.

79. The funding of 15,260 modern low floor and semi-low floor buses under JNNURM, besides adding to passenger comfort, has transformed the urban transport across India. In 2011-12, Delhi Metro Phase-III and Mumbai Metro Line III are proposed to be taken up. The ongoing Metro projects of Bengaluru, Kolkata and Chennai will be provided financial assistance for speedy implementation.

80. Investment in fertilizer sector is capital intensive and is considered high risk. It is proposed to include capital investment in fertiliser production as an infrastructure sub-sector.

Exports

81. The Task Force on Transactions Cost set up by the Department of Commerce to identify and suggest ways to achieve improvement in efficiency of our export processes, has completed its work. Twenty one suggestions made by the Task Force have already been implemented. Action on remaining two will be taken in next few months. This will mitigate transactions cost by about `2,100 crore.

82. To quicken the clearance of the cargo by Customs authorities and further modernise the Customs administration, I propose to introduce self-assessment in Customs. Under this, importers and exporters will themselves assess their duty liabilities while filing their declarations in the EDI system. The Department will verify such assessments on a selective system driven basis.

83. There have been considerable difficulties in the sanction of refunds relating to tax paid on services used for export of goods. I propose to shortly introduce a scheme for the refund of these taxes on the lines of drawback of duties in a far more simplified and expeditious manner. A new scheme is also being introduced by which units in SEZs will be able to obtain tax-free receipt of services wholly consumed within the zone and get their refunds in a much easier manner.

84. Mega clusters have large employment and export potential. I propose to extend the Mega Cluster Scheme for development of leather products. Seven mega leather clusters would be set up during the year 2011-12. I also propose to include Jodhpur for the development of a handicraft mega cluster.

Black Money

85. The generation and circulation of black money is an area of serious concern. To deal with this problem effectively, Government has put into operation a five-fold strategy which consists of Joining the global crusade against ‘black money’; Creating an appropriate legislative framework; Setting up institutions for dealing with illicit funds; Developing systems for implementation; and Imparting skills to the manpower for effective action.

86. We secured Membership of the Financial Action Task Force (FATF) in June last year. This is an important initiative of G-20 for anti-money laundering. We have also joined the Task Force on Financial Integrity and Economic Development, Eurasian Group (EAG) and Global Forum on Transparency and Exchange of Information for Tax Purposes.

87. During the year, we have concluded discussions for 11 Tax Information Exchange Agreements (TIEAs) and 13 new Double Taxation Avoidance Agreements (DTAAs) along with revision of provisions of 10 existing DTAAs. To effectively handle the increase in tax information exchange and transfer pricing issues, Foreign Tax Division of CBDT has been strengthened. A dedicated Cell for exchange of information is being set up to work on this agenda.

88. The amendment in our Money Laundering Legislation in 2009 has significantly increased its scope and application. The number of cases registered under this law has increased from 50 between 2005 to 2008 to over 1200 by January this year. The strength of the Enforcement Directorate has been increased three-fold to deal effectively with the increased workload.

89. The Ministry of Finance has commissioned a study on unaccounted income and wealth held within and outside our country. It would suggest methods to tax and repatriate this illicit money.

90. Trafficking in narcotic drugs is also a contributor to the generation of black money. To strengthen controls over prevention of trafficking and improve the management of narcotic drugs and psychotropic substances, I propose to announce a comprehensive national policy in the near future.

III. Strengthening Inclusion

91. The UPA Government has engineered a major directional change in public policy by its focus on inclusive development. Creation of legal entitlements for an individual’s right to work has added to resilience and dynamism in our rural economy. The right to information and the right to education are effective tools of empowerment for removing social imbalances. The country has carried for long enough the burden of hunger and malnutrition. After detailed consultations with all stakeholders including State Governments, we are close to the finalisation of National Food Security Bill (NFSB) which will be introduced in the Parliament during the course of this year. The proposed allocation of ` 1,60,887 crore for social sector in 2011-12 is an increase of 17 per cent over current year. It amounts to 36.4 per cent of the total plan allocation.

Bharat Nirman

92. The UPA Government’s flagship programmes have been the principal instrument for implementing its agenda for inclusive development. For the year 2011-12, Bharat Nirman, which includes Pradhan Mantri Gram Sadak Yojna (PMGSY), Accelerated Irrigation Benefit Programme, Rajiv Gandhi Grameen Vidyutikaran Yojna, Indira Awas Yojna, National Rural Drinking Water Programme and Rural telephony have together been allocated `58,000 crore. This is an increase of `10,000 crore from the current year. A plan has been finalised to provide Rural Broadband Connectivity to all 2,50,000 Panchayats in the country in three years.

MGNREGA

93. In pursuance of my earlier budget announcement to provide a real wage of `100 per day, the Government has decided to index the wage rates notified under the MGNREGA to the Consumer Price Index for Agricultural Labour. The enhanced wage rates have been notified by the Ministry of Rural Development on January 14, 2011. It has resulted in significant enhancement of wages for the beneficiaries across the country.

94. The Anganwadi workers and Anganwadi helpers are the backbone of Integrated Child Development Services Scheme. I am happy to announce an increase in the remuneration of Anganwadi workers from `1,500 per month to `3,000 per month and for Anganwadi helpers from `750 per month to `1,500 per month. This will be effective from April 1, 2011. Around 22 lakh Anganwadi workers and helpers will benefit from the increase. Scheduled Castes and Tribal Sub-plan

95. In the Budget for 2011-12, for the first time, specific allocations are being earmarked towards Scheduled Castes Sub-plan and Tribal Sub-plan. These will be shown in the Budget of the relevant Ministries and Departments under separate minor heads of account. Further, I propose to increase the Budget allocation for primitive tribal groups from `185 crore in 2010-11 to `244 crore in 2011-12.

Education

96. Our “demographic dividend” of a relatively younger population compared to developed countries is as much of an opportunity as it is a challenge. Over 70 per cent of Indians will be of working age in 2025. In this context, universalising access to secondary education, increasing the percentage of our scholars in higher education and providing skill training is necessary. For education, I propose an allocation of ` 52,057 crore, which is an increase of 24 per cent over the current year.

Sarva Shiksha Abhiyan

97. The existing operational norms of Sarva Shiksha Abhiyan have been revised to implement the right of children to free and compulsory education which has come into force with effect from April 1, 2010. For the year 2011-12, I propose to allocate `21,000 crore which is 40 per cent higher than `15,000 crore allocated in the Budget for 2010-11. A revised Centrally Sponsored Scheme “Vocationalisation of Secondary Education” will be implemented from 2011-12 to improve the employability of our youth.

98. Empowerment flows from Education. While the Scheduled Castes and Scheduled Tribes had access to post matric scholarships, there was so far a lack of pre matric scholarship scheme. In 2011-12, I propose to introduce a scholarship scheme for needy students belonging to the Scheduled Castes and Scheduled Tribes studying in classes ninth and tenth. It would benefit about 40 lakh Scheduled Caste and Scheduled Tribe students.

National Knowledge Network

99. Approved in March 2010, the National Knowledge Network (NKN) will link 1500 Institutes of Higher Learning and Research through an optical fibre backbone. During the current year, 190 Institutes will be connected to NKN. Since the core will be ready by March 2011, the connectivity to all 1500 institutions will be provided by March 2012.

Innovations

100. To move beyond the formal R&D paradigm, a National Innovation Council under Shri Sam Pitroda has been set up to prepare a roadmap for innovations in India. The process of setting up State Innovation Councils in each State and Sectoral Innovation Councils aligned to Central Ministries is underway.

101. The Government has been providing special grants to recognise excellence in universities and academic institutions. In the course of 2011-12, I propose to provide: • `50 crore each to upcoming centres of Aligarh Muslim University at Murshidabad in West Bengal and Malappuram in Kerala; • `100 crore as one-time grant to the Kerala Veterinary and Animal Sciences University at Pookode, Kerala; • `10 crore each for setting up Kolkata and Allahabad Centres of Mahatma Gandhi Antarrashtriya Hindi Vishwavidyalaya, Wardha; • `200 crore as one time grant to IIT, Kharagpur; • `20 crore for Rajiv Gandhi National Institute of Youth Development, Sriperumbudur, Tamil Nadu • `20 crore for IIM, Kolkata, to set up its Financial Research and Trading Laboratory; • `200 crore for Maulana Azad Education Foundation; • `10 crore for Centre for Development Economics and Ratan Tata Library, Delhi School of Economics, Delhi; and • `10 crore for Madras School of Economics.

Skill Development

102. I am happy to inform the House that National Skill Development Council (NSDC) is well on course to achieve its mandate of creation of 15 crore skilled workforce two years ahead of 2022, the stipulated target year. It has already sanctioned 26 projects with a total funding of `658 crore. These projects alone are expected to create more than 4 crore skilled workforce over the next ten years. In the current year, skill training has so far been provided to 20,000 persons. Of these, 75 per cent have found placements. I will provide an additional `500 crore to the National Skill Development Fund during the next year.

103. National celebrations of 150th Birth Anniversary of Gurudev Rabindranath Tagore will commence from May 7, 2011 in New Delhi. Important events will be held in several countries in Europe, America and Asia. A series of events are also proposed to be organized under the aegis of joint India-Bangladesh Celebrations Committee. An international award with prize money of `1 crore is being instituted for promoting values of Universal Brotherhood in the memory of Gurudev Rabindranath Tagore.

Health

104. For health, I propose to step up the plan allocations in 2011-12 by 20 per cent to `26,760 crore. The Rashtriya Swasthya Bima Yojana has emerged as an effective instrument for providing a basic health cover to poor and marginal workers. It is now being extended to MGNREGA beneficiaries, beedi workers and others. In 2011-12, I propose to further extend this scheme to cover unorganized sector workers in hazardous mining and associated industries like slate and slate pencil, dolomite, mica and asbestos etc.

Financial Inclusion

105. In my last budget speech I had advised Banks to provide banking facilities to habitations having a population of over 2000 by March, 2012. The Banks have identified about 73,000 such habitations for providing banking facilities using appropriate technologies. A multi-media campaign, “Swabhimaan”, has been launched to inform, educate and motivate people to open bank accounts. During this year, banks will cover 20,000 villages. Remaining will be covered during 2011-12.

Unorganised sector

106. I had announced a co-contributory pension scheme “Swavalamban” in the Budget 2010-11. This scheme has been welcomed by the workers in unorganised sector. Over 4 lakh applications have already been received. On the basis of the feedback received, I am relaxing the exit norms whereby a subscriber under Swavalamban will be allowed exit at the age of 50 years instead of 60 years, or a minimum tenure of 20 years, whichever is later. I also propose to extend the benefit of Government contribution from three to five years for all subscribers of Swavalamban who enroll during 2010-11 and 2011-12. An estimated 20 lakh beneficiaries will join the scheme by March 2012.

107. Under the on-going Indira Gandhi National Old Age Pension Scheme for BPL beneficiaries, the eligibility for pension is proposed to be reduced from 65 years at present to 60 years. Further, for those who are 80 years and above, the pension amount is being raised from ` 200 at present to ` 500 per month. Environment and Climate Change Forests

108. Protection and regeneration of forests has great ecological, economic and social value. Our Government has launched an ambitious ten-year Green India mission. I propose to allocate `200 crore from the National Clean Energy Fund to begin its implementation in 2011-12.

Environmental Management

109. Environmental pollution has emerged as a serious public health concern across the country. I propose to allocate `200 crore from the National Clean Energy Fund as Centre’s contribution in 2011-12 for launching environmental remediation programmes.

Cleaning of Rivers and Lakes

110. A number of projects under the National Ganga River Basin Authority have been approved in 2010-11. This momentum will be further stepped up. There are many rivers and lakes of cultural and historical significance that need to be cleaned. In the course of the year 2011-12, I propose to provide a special allocation of `200 crore for the clean-up of some important lakes and rivers other than the Ganga.

Some Other Initiatives

111. In order to boost development in the North Eastern Region and Special Category States, the allocation for special assistance has been almost doubled to `8,000 crore for 2011-12. Out of this, `5,400 crore has been allocated as untied Special Central Assistance.

112. The Government’s special support to Jammu & Kashmir is anchored in `28,000 crore Prime Minister’s Reconstruction Plan. In addition, for the current 20 year, about `8,000 crore has been provided for the State’s development needs. A Task Force to assess infrastructure needs that can be addressed within a time horizon of 24 months for Ladakh and Jammu regions of the State has recommended projects amounting to `416 crore and `497 crore, respectively. I am providing `100 crore for Ladakh and `150 crore for Jammu for these identified projects in 2011-12.

113. To give a boost to the development of backward regions, the allocation under the Backward Regions Grant Fund has been increased from `7,300 crore to `9,890 crore amounting to an increase of over 35 per cent.

114. To address problems related to Left Wing Extremism affected districts, an Integrated Action Plan (IAP) for 60 selected tribal and backward districts has been launched in December 2010. The scheme is being implemented with 100 per cent block grant of `25 crore and `30 crore per district during the years 2010-11 and 2011-12, respectively. The allocated funds are placed at the disposal of the district level committees who in consultation with local MPs will have the flexibility to spend the amount on development schemes as per the local needs.

115. In recognition of the sacrifices made by Central Para-military Forces engaged in tackling Left Wing Extremism, a lump sum ex-gratia compensation of `9 lakh for 100 per cent disability will now be granted to personnel of the Defence and para-military forces who are discharged from service on medical grounds on account of disability attributable to or aggravated in government service. For personnel with disability ranging from 20 to 99 per cent, a proportionate amount would be given.

116. In the Budget 2011-12, a provision of `1,64,415 crore has been made for Defence services which include `69,199 crore for capital expenditure. Needless to say, any further requirement for the country’s defence would be met.

117. In order to speed up delivery of justice, the Plan provision for Department of Justice for 2011-12 has been increased three-fold to `1,000 crore. The enhanced provision will help in building judicial infrastructure and the project on E-courts.

Census 2011

118. The 15th Census in the country is being conducted from 9th February. It is the largest administrative exercise in the country providing statistical data on different socio-economic parameters of population.

119. In response to the overwhelming demand for enumeration of castes other than Scheduled Castes and Scheduled Tribes in Census 2011, it has been decided to canvass ‘caste’ as a separate time bound exercise. This exercise will start in June 2011 and will be completed by 30th September 2011. IV. Improving Governance I now turn to some important measures being taken for improving governance.

UID Mission

120. The UID Mission has taken off and Aadhaar numbers are being generated in large numbers. So far 20 lakh Aadhaar numbers have been given and from 1st October 2011, ten lakh numbers will be generated per day. The stage is now set for realising the potential of Aadhaar for improving service delivery, accountability and transparency in governance of various schemes.

IT Initiatives

121. The backbone of an efficient tax administration is a robust IT infrastructure and its deployment for enhanced taxpayer services. Towards this objective, both the Central Boards of Direct Taxes (CBDT) and Excise and Customs (CBEC) have put in place the following measures: • The on-line preparation and e-filing of income tax returns, e-payment of taxes through 32 agency banks, ECS facility for electronic clearing of refunds directly in taxpayers’ bank accounts and electronic filing of TDS returns are now available throughout the country. These measures have empowered taxpayers to meet their tax obligations without visiting an income tax office. • The Centralized Processing Centre (CPC) at Bengaluru has increased its daily processing capacity from 20,000 to 1.5 lakh returns in 2010-11. This project has won a Gold Award for e-Governance in 2011. Two more CPCs will become operational in Manesar and Pune by May 2011 and a fourth CPC will come up in Kolkata in 2011-12. • With the completion of its IT Consolidation Project, CBEC can now centrally host its key applications in Customs, Central Excise and Service Tax. The Customs EDI system now covers 92 locations across the country. CBEC’s e-Commerce portal ICEGATE, has also been conferred a Gold Award for e-Governance. • The ‘Sevottam’ concept has been adopted by both Boards. The three pilot projects of Aaykar Seva Kendras (ASKs) under CBDT have come of age. CBDT will commission eight more such centres this year. In 2011-12, another fifty ASKs will be set up across the country. CBEC has also launched a similar initiative and four of their pilot projects have been commissioned. • The electronic filing of Tax Deduction at Source (TDS) statements has stabilized. The Board shall soon notify a category of salaried taxpayers who will not be required to file a return of income as their tax liability has been discharged by their employer through deduction at source. • CBDT will provide a separate web-based facility to enable a direct, stand-alone interface for taxpayers with the Income Tax Department so that they can report and track the resolution of their refunds and credit for prepaid taxes.

122. Mission Mode Projects for computerization of Commercial Taxes in States that I announced in my last Budget, will allow States to align with the roll out of GST. Funds have been released for 31 projects received from the States and Union Territories. Most of the States and UTs have already enabled the facility of dealers making electronic payments. A number of States have already started accepting Electronic Tax Returns and issuing forms required for inter-state trade.

123. With the development of the economy, the need to review the provisions of the Indian Stamp Act, 1899 has been felt over the years. I propose to introduce a Bill shortly to amend the Indian Stamp Act.

124. Five years ago, we took an initiative to introduce a modern and peoplefriendly e-stamping facility in the country. Only six States have introduced this system so far. I propose to launch a new scheme with an outlay of `300 crore to provide assistance to States to modernise their stamp and registration administration and roll out e-stamping in all the districts in the next three years.

125. I propose to introduce a new simplified return form ‘Sugam’ to reduce the compliance burden of small taxpayers who fall within the scope of presumptive taxation.

126. The increase in scope of cases admitted by the Settlement Commissions has provided relief to several taxpayers. This has also increased the workload of the Commission. To fast track the disposal of cases, three more Benches of the Commission are being set up.

127. Substantial amounts of revenue in both direct and indirect taxes, remain locked up in appeals at different levels. Both Boards also invest substantial effort and money in litigation with their employees. In keeping with the National Litigation Policy, several steps have been initiated in 2010-11 for reducing litigation and focusing attention on high revenue cases. Instructions have been issued raising limit of tax effects below which, tax disputes will not be pursued by Government in higher Courts of Appeal. These measures would enhance productivity of resources employed in raising revenue.

Corruption

128. A Group of Ministers has been constituted to consider measures for tackling corruption. The Group has been tasked with addressing issues relating to State funding of elections, speedier processing of corruption cases of public servants, transparency in public procurement and contracts, discretionary powers of Central ministers and competitive system for exploiting natural resources. The Group will make its recommendations in a time bound manner.

Performance Monitoring and Evaluation System

129. Pursuant to the recommendations of Second Administrative Reforms Commission, the Government has set up a Performance Monitoring and Evaluation System (PMES) to assess the effectiveness of Government departments in their mandated functions. It involves preparation of a Results Framework Document (RFD) by each department, highlighting its objectives and priorities for the financial year and achievements against pre-specified targets at the end of the year. This document would be available for public information on the departmental websites. In the first phase, 62 departments have been covered under PMES. TAGUP

130. In pursuance of the announcement made in the Budget 2010-11, I had set up a Technology Advisory Group for Unique Projects (TAGUP). The Group has submitted its report and its recommendations have been accepted in principle. The modalities of implementation are being worked out.

131. Indian Rupee now has a new symbol which has been notified for use by the Central and State Governments, business entities and the general public. A new series of coins carrying this symbol will be issued shortly. The Government has approached Unicode Standards Authority for inclusion of the symbol in international standards. V. Budget Estimates 2011-12 I now turn to the Budget Estimates for 2011-12.

132. The Gross Tax Receipts are estimated at `9,32,440 crore which is an increase of 24.9 per cent over the Budget Estimates for 2010-11. After devolution to States, the net tax to Centre in 2011-12 is `6,64,457 crore. The Non Tax Revenue Receipts for 2011-12 are estimated at `1,25,435 crore.

133. The total expenditure proposed for 2011-12 is `12,57,729 crore, which is an increase of 13.4 per cent over the Budget Estimates for 2010-11. The Plan Expenditure at `4,41,547 crore marks an increase of 18.3 per cent and the Non Plan Expenditure at `8,16,182 crore is an increase of 10.9 per cent over BE 2010-11. As 2011-12 is the last year of the Eleventh Plan, I am happy to share that Eleventh Plan expenditure in nominal terms is more than 100 per cent of the expenditure envisaged for the Plan period.

134. The total plan and non-plan transfers of `2,01,733 crore to States and UT Governments in 2011-12 have increased by 23 per cent over the Budget Estimates 2010-11. This includes grants of `13,713 crore in 2011-12 to local bodies as per the recommendation of the Thirteenth Finance Commission.

135. Hon’ble Members are aware that in the course of 2010-11, I had the opportunity to effect a further improvement in the fiscal balance, due to the higher than anticipated non-tax revenues from 3G spectrum auctions. I chose to do that and much more. While I provided additional resources of about `50,000 crore to critical infrastructure and social sectors and also to meet the expenditure on subsidies, I have brought down the fiscal deficit from 5.5 per cent to 5.1 per cent of the GDP for 2010-11. For 2011-12, I have kept it at 4.6 per cent of GDP, which improves upon my own target for 2011-12 indicated in the fiscal road map presented in the last Budget. In the Medium Term Fiscal Policy Statement being presented to the House today, the rolling targets for fiscal deficit are placed at 4.1 per cent for 2012-13, and 3.5 per cent for 2013-14.

136. There has been some concern expressed regarding the stickiness of Government’s revenue deficit in the post-global crisis phase of the economy. For 2010-11 as against a target of 4 per cent, the revenue deficit is estimated at 3.4 per cent of GDP. In the past few years the transfers to States and other developmental expenditure have grown significantly. These are classified as revenue expenditure even though a considerable part of the expenditure from these transfers is in the nature of capital expenditure. In 2010-11, `90,792 crore from such revenue expenditures were in the nature of capital expenditure. Similarly, in 2011-12 grants-in-aid for creation of capital assets, which are now shown separately in the Budget documents, are about `1.47 lakh crore. Taking these budget provisions into account, the “effective revenue deficit” is estimated at 2.3 per cent in the Revised Estimates for 2010-11 and 1.8 per cent for 2011-12.

137. In my last Budget, I had stated that Government would avoid issuing bonds in lieu of subsidies to oil and fertiliser companies. I have adhered to this decision, thereby bringing all subsidy related liabilities into our fiscal accounting.

138. The fiscal deficit of 4.6 per cent of GDP in 2011-12 works out to `4,12,817 crore. Taking into account the various other financing items for fiscal deficit, the net market borrowing of the Government in 2011-12 would be `3.43 lakh crore. In addition, `15,000 crore is proposed to be financed through Treasury Bills. Accordingly, the Central Government debt as a proportion of GDP is estimated at 44.2 per cent for 2011-12 as against 52.5 per cent recommended by the Thirteenth Finance Commission. PART – B Madam Speaker, I shall now present my tax proposals.

139. In the formulation of these proposals, my priorities are directed towards making taxes moderate, payments simple for the taxpayer and collection of taxes easy for the tax collector. VI. Direct Taxes I shall now deal with direct taxes.

140. As Government’s policy on direct taxes has been outlined in the DTC, which is before Parliament, I have limited my proposals to initiatives that require urgent attention.

141. Last year I provided relief to individual taxpayers by broadening the tax slabs. To take us closer to DTC rates, I propose to enhance the exemption limit for the general category of individual taxpayers from `1,60,000 to `1,80,000 this year. This measure will provide a uniform tax relief of `2,000 to every taxpayer of this category.

142. Senior citizens deserve our special attention. For them, I propose • to reduce the qualifying age, from 65 years to 60 years; • to enhance the exemption limit from `2,40,000 to `2,50,000; • To create a new category of Very Senior Citizens, eighty years and above, who will be eligible for a higher exemption limit of `5,00,000.

143. In the case of corporates, my initiative of phasing out the surcharge continues. I propose to reduce the current surcharge of 7.5 per cent on domestic companies to 5 per cent. Simultaneously, I propose to increase the rate of Minimum Alternate Tax (MAT) from the current rate of 18 per cent to 18.5 per cent of book profits to keep the effective rate of the MAT at the same level. As a measure to ensure equal sharing of the corporate tax liability, I propose to levy MAT on developers of Special Economic Zones as well as units operating in SEZs.

144. To attract foreign funds for financing of infrastructure, I propose to: • create special vehicles in the form of notified infrastructure debt funds; • subject interest payment on the borrowings of these funds to a reduced withholding tax rate of 5 per cent instead of the current rate of 20 per cent; • exempt the income of the fund from tax.

145. In order to promote savings and raise funds for infrastructure, an additional deduction of `20,000 for investment in long-term infrastructure bonds was notified by the Central Government in 2010-11. I propose to extend this window for one more year.

146. It has been represented that the taxation of foreign dividends in the hands of resident taxpayers at full rate is a disincentive for their repatriation to India and they continue to remain invested abroad. For the year 2011-12, I propose a lower rate of 15 per cent tax on dividends received by an Indian company from its foreign subsidiary. I do hope these funds will now flow to India.

147. In order to give a boost to production in the agriculture sector, I propose to extend the benefit of investment linked deduction to businesses engaged in the production of fertilisers.

148. Considering the importance of housing, I also propose investment linked deduction to businesses which develop affordable housing under a notified scheme.

149. In this Decade of Innovation, I enhanced the weighted deduction on payments made to National Laboratories, universities and Institutes of technology, for scientific research, to 175 per cent in the last budget. I propose to further enhance this to 200 per cent.

150. In order to strengthen our system of collection of information from foreign tax jurisdictions, I propose to provide a toolbox of counter measures to discourage transactions with entities located in non-cooperative jurisdictions as may be notified by the Government.

151. My proposals on direct taxes are estimated to result in a net revenue loss of `11,500 crore for the year. VII. Indirect Taxes I shall now turn to my indirect tax proposals.

152. In view of the healthy growth in indirect taxes in 2010-11, I had the option to roll back the Central excise duty to levels prevailing in November 2008. I have chosen not to do so for two reasons. I would like to see improved business margins translated into higher investment rates. I would also like to stay my course towards GST. I have therefore decided to maintain the standard rate of Central excise duty at 10 per cent.

153. I propose certain changes in the Central Excise rate structure to prepare the ground for the transition to GST, beginning with a reduction in the number of exemptions. At present, there are about 100 items that are exempt from Central Excise as well as State VAT. In addition, there are as many as 370 items that enjoy exemption from Central Excise duty but are chargeable to VAT. I propose to withdraw the exemption on 130 of these items that are mainly in the nature of consumer goods. The remaining 240 items would be brought into the tax net when GST is introduced.

154. A nominal Central Excise duty of 1 per cent is being imposed on the 130 items that are entering the tax net. No Cenvat credit would be available for the manufacture of these items. Basic food and fuel would continue to be exempt. This levy would also not apply to precious metals and stones. In case of jewellery and articles of gold, silver and precious metals, the levy would apply only to goods sold under a brand name.

155. Most of the States have increased their merit rate of VAT from 4 per cent to 5 per cent. In line with this, I also propose to enhance the lower rate of Central Excise duty from 4 per cent to 5 per cent.

156. Ready-made garments and made-ups of textiles are currently under an optional excise duty regime. A manufacturer is required to pay duty only if he wishes to avail of Cenvat credit. Our garment and made-ups industry has come of age and has shown handsome growth in recent years. As part of base expansion, I propose to convert the optional levy into a mandatory levy at a unified rate of 10 per cent. The levy would however, apply only to branded garments or madeups and not to those tailored or made to order for a retail customer. Credit of tax paid on inputs, capital goods and input services would be available to manufacturers of these products. Keeping in mind the fragmented nature of this industry, full SSI exemption is also being extended to these products. Export of these items would continue to be zero-rated.

157. We have a long term commitment to align our customs duty rates to those prevailing in ASEAN countries. The peak rate of customs duty has been reduced over the years and has settled at 10 per cent. In view of continued uncertainties in the global economy, I propose to hold the peak rate at its current level. However, some rationalization is being done to unify three rates namely, 2 per cent, 2.5 per cent and 3 per cent at the middle level of 2.5 per cent.

158. I now turn to proposals that are aimed at encouraging some of the thrust sectors that are in need of attention. Agriculture & Related Sectors

159. Hon’ble Members would recall that, in the last Budget, I had announced a package of measures to improve the availability of storage and warehouse facilities for agricultural produce as well as to incentivize food processing.  I have received encouraging feedback on the impact of these measures. I propose to enlarge the scope of these exemptions by: • extending full exemption from excise duty to air-conditioning equipment and refrigeration panels for cold chain infrastructure; • including conveyor belts in the full exemption from excise duty to equipment used in cold storages, mandis and warehouses.

160. A concessional rate of basic customs duty of 5 per cent was provided to specified agricultural machinery in the last budget. This duty is being reduced further to 2.5 per cent and the concession is also being extended to parts of such machinery to encourage their domestic production.

161. Micro-irrigation is an environment-friendly and efficient means of irrigation especially for dry land farming. I propose to reduce the basic customs duty on micro-irrigation equipment from 7.5 per cent to 5 per cent.

162. De-oiled rice bran cake constitutes an important ingredient of cattle feed and its improved availability would have a positive impact on milk production. I propose to provide full exemption from basic customs duty to this item. Simultaneously, an export duty of 10 per cent would be levied to discourage its export.

Manufacturing Sector

163. For the manufacturing sector, my proposals seek to encourage domestic value addition vis-a-vis imports, to remove duty inversions and anomalies and to provide a level playing field to the domestic industry. The major proposals are to: • reduce basic customs duty on raw silk (not thrown) from 30 to 5 per cent; • reduce basic customs duty from 5 per cent to 2.5 per cent on certain textile intermediates and inputs for chemicals, ferro-alloys and paper; • reduce basic customs duty on certain specified inputs for manufacture of certain technical fibre and yarn from 7.5 per cent to 5 per cent; • fully exempt stainless steel scrap from basic customs duty; • reduce import duties on specified raw material for the manufacture of syringes and needles to 5 per cent basic and 4 per cent CVD; • extend the concession available to parts, components and accessories for manufacture of mobile handsets till 31st March, 2012 and to include few more items in its ambit; • expand the raw material list for manufacture of specified electronic components that are fully exempt from basic customs duty; • reduce excise duty (and hence CVD) on parts of ink-jet and laserjet printers from 10 per cent to 5 per cent.

164. Iron ore attracts an export duty of 15 per cent in the case of lumps and 5 per cent in the case of fines. This is a natural resource which needs to be conserved. I propose to enhance the rate of export duty for all types of iron ore and unify it at 20 per cent ad valorem. Iron ore is also exported in a value-added, pelletized form. Full exemption from export duty is being provided to iron ore pellets to encourage the value addition process for fines.

165. As a measure of relief to cement industry, I propose to replace the existing excise duty rates with composite rates having an ad valorem and specific component with some rationalization. The basic customs duty on two critical raw materials of this industry viz. petcoke and gypsum is proposed to be reduced to 2.5 per cent.

166. To drive the financial inclusion agenda of the Government, I propose to fully exempt cash dispensers from basic customs duty. Full exemption is also being extended to parts of such machines to encourage their domestic production.

Environment

167. Full exemption from basic customs duty and a concessional rate of Central Excise duty of 4 per cent was provided to specified parts of electrical vehicles in the last Budget on actual-user basis. I propose to extend the concession to batteries imported by such manufacturers for the replacement market.

168. Fuel cell or Hydrogen cell technology is a promising green technology for the automobile sector. I propose to extend the concessional excise duty of 10 per cent to vehicles based on this technology.

169. Hybrid vehicles enjoy a concessional excise duty rate of 10 per cent. However, import dependence for their critical parts/ sub-assemblies is still quite high. It is proposed to grant specified parts of such vehicles full exemption from basic customs duty and special CVD. In addition, a concessional rate of excise duty of 5 per cent is being prescribed to incentivise their domestic production.

170. In response to the growing demand for green products, a technology has been developed indigenously for the conversion of fossil fuel vehicles into Hybrid vehicles through the fitment of a kit. I propose to reduce the excise duty on such kits and their parts from 10 per cent to 5 per cent.

171. In the last Budget, Central Excise duty on LED lights was reduced from 8 per cent to 4 per cent to promote their use. The basic component of these lights viz. the LED attracts an excise duty (hence, CVD) of 10 per cent and a special CVD of 4 per cent. The excise duty on LEDs is being reduced to 5 per cent and special CVD is being fully exempted.

172. The solar lantern enables our countrymen in far-flung villages to partake of developments in green technology. The basic customs duty on such lanterns is being reduced from 10 per cent to 5 per cent. Basic customs duty on a few more inputs used in the manufacture of solar modules/ cells is being reduced to Nil.

173. Environmental considerations demand promotion of laundry soaps which conserve water and are gentle on the soil. To this end, full exemption from basic customs duty is being provided to Crude Palm Stearin for use in the manufacture of laundry soap.

174. Pre-tanning or tanning processes in the leather industry use chemicals which are pollutants. To encourage use of green processes, full exemption from basic excise duty is being granted to enzyme based preparations for pre-tanning.

Infrastructure

175. Capital goods imported for the expansion of existing mega or ultra mega power projects enjoy a concessional basic customs duty of 2.5 per cent and full exemption from CVD. This creates a disability for the domestic suppliers who are required to pay Central Excise duty on supplies to such projects. I propose to correct this anomaly by providing a parallel excise duty exemption.

176. Bio-based asphalt is an emerging, green technology for the surfacing of roads. Full exemption from basic customs duty is being extended to bio-asphalt and specified machinery for its application in the construction of national highways. Tunnel-boring machines required for the construction of highways are also being included in this exemption.

Other Proposals

177. Works of art and antiquities are exempt from customs duties when imported for exhibition in a public museum or national institution. In recent years, many organisations have joined the cause of promoting and popularising both traditional and contemporary art. Some of them have been active in locating heritage works of Indian art and antiquities in foreign countries and bringing them back home. To encourage such initiatives, I propose to expand the scope of this exemption for works of art and antiquities to also apply to imports for exhibition or display, in private art galleries or similar premises that are open to the general public. Department of Culture will notify details of the scheme separately.

178. Full exemption from import duty is available to spares and capital goods required for ship-repair units. This exemption is being extended to imports by ship owners too.

179. The concessional basic customs duty of 5 per cent and CVD of 5 per cent, presently applicable to high-speed printing presses imported by newspaper establishments is being extended to mailroom equipment.

180. The Indian film industry has represented that colour, unexposed jumbo rolls of cinematographic film are not manufactured domestically and have to be imported. I propose to exempt jumbo rolls of 400 feet and 1000 feet from CVD by providing full exemption from excise duty.

181. I propose to provide outright concession to factory-built ambulances in place of the existing refund-based concession from excise duty. A refund-based concession is available to taxis having a seating capacity not exceeding 7 persons including the driver. I propose to extend this to vehicles upto a seating capacity not exceeding 13 persons including the driver.

182. Some of the other relief measures that I propose are: • Reduction in basic customs duty on raw pistachio from 30 per cent to 10 per cent; • Reduction in basic customs duty on bamboo for agarbatti from 30 per cent to 10 per cent; • Reduction in basic customs duty on lactose for the manufacture of homeopathic medicines from 25 per cent to 10 per cent; and • Reduction in central excise duty on sanitary napkins, baby and adult diapers from 10 per cent to 1 per cent.

183. My proposals relating to customs and Central excise are estimated to result in a net revenue gain of `7,300 crore for the year. VIII. Service Tax

184. The actual collections of Service Tax do not reflect the full potential of this sector. While retaining the standard rate of service tax at 10 per cent, I seek to achieve a closer fit between the present service tax regime and its GST successor by: • Bringing in a few new services into the tax net to expand the tax base while ensuring that the impact is predominantly on sections of society that have the ability to pay; • Suitably expanding or rationalizing the scope of existing service categories; • Rationalizing certain provisions relating to import of services and valuation; • Modifying provisions of the Cenvat Credit scheme to achieve a more realistic balance between input credits and output tax and harmonising the provisions of the scheme across goods and services;  • Rationalizing penal provisions to reinforce the message that honest taxpayers would be facilitated and deviants would be dealt with severely; and • Adoption of Point of Taxation rules for services which would shift the basis for tax collection from “cash” towards “accrual” basis as with Central Excise duty.

185. I propose to levy service tax on the following new services: • Hotel accommodation, in excess of declared tariff of `1,000 per day with an abatement of 50 per cent so that the effective burden is only 5 per cent of the amount charged; • Service provided by air-conditioned restaurants that have license to serve liquor, by giving an abatement of 70 per cent. Thus, the effective burden will be 3 per cent of the bill.

186. I imposed service tax in 2010-11 on health check up or treatment. This levy has resulted in differential treatment between persons who make payments themselves and others where payments are made by an insurance company or a business entity. Thus, I propose to replace it with a tax on all services provided by hospitals with 25 or more beds that have the facility of central air-conditioning. Though the tax is on high- end treatment, I propose to sweeten the pill by an abatement of 50 per cent so that the actual burden is kept at 5 per cent of the value of service. I also propose to extend the levy to diagnostic tests of all kinds with the same rate of abatement. However, all Government hospitals shall be outside this levy.

187. I propose to raise the service tax on air travel by `50 in the case of domestic air travel and `250 on international journeys by economy class. I also propose to tax travel by higher classes on domestic sector at the standard rate of 10 per cent to bring it on par with journeys by higher classes on international air travel.

188. Services provided by life insurance companies in the area of investment are also proposed to be brought into tax net on the same lines as ULIPs. I propose to expand the scope of legal services to include services provided by business entities to individuals as well as representational and arbitration services by individuals to business entities. There shall, however, be no tax on services provided by individuals to other individuals.

189. There are certain other changes mainly by way of rationalisation or expansion in the scope of certain services or by plugging existing loopholes. I do not wish to take the valuable time of the House in further elaboration here.

190. The strength of a good value-added-tax lies in the free flow of the credit of the tax paid at the previous stage. Due to complexities, there have been many legal disputes on the availability of credit on a number of inputs or input services. 33 These provisions are being rationalized by laying down clear definitions so that the scope of inputs and input services that are eligible and those that are not, is clear. Allocation of CENVAT credit to exempt and taxable goods and services is also being streamlined.

191. The number of assessees in service tax has grown manifold. I find that a large number of them comprise individuals or sole proprietors with small turnovers. Any audit at their premises tends to dislocate their activities for the duration of the audit. I therefore, propose to free all individual and sole proprietor taxpayers with a turnover upto `60 lakh from the formalities of audit. This will give relief to a large number of taxpayers. I also intend to give all assessees with turnover upto `60 lakh, the benefit of 3 percentage points in interest on delayed payment.

192. In keeping with our thrust to encourage voluntary compliance, the penal provisions for Service Tax are being rationalised. A key component of this strategy would be to treat less harshly those who have maintained truthful records but have fallen short of discharging their tax liability. Simultaneously, deliberate evaders with unrecorded business transactions will be dealt with more severely. Similar changes are being carried out in Central Excise and Customs laws. The details of the provisions are in the Finance Bill.

193. My proposals relating to service tax are estimated to result in net revenue gain of `4,000 crore for the year.

194. Many experts have argued that it will be desirable to tax services based on a small negative list, so that many untapped sectors are brought into the tax net. Such an approach will be very conducive for a nationwide GST. I propose to initiate an informed public debate on the subject to help us finalise the approach to GST.

195. Copies of notifications giving effect to the changes in Customs, Central Excise and Service Tax will be laid on the Table of the House in due course.

196. My proposals on direct taxes are estimated to result in a revenue loss of `11,500 crore for the year. Proposals relating to indirect taxes are estimated to result in a net revenue gain of `11,300 crore, leaving a net loss of `200 crore in the Budget.

197. As an emerging economy, with a voice on the global stage, India stands at the threshold of a decade which presents immense possibilities. We must not let the recent strains and tensions hold us back from converting these possibilities into realities. With oneness of heart, let us all build an India, which in not too distant a future, will enter the comity of developed nations. Madam Speaker, with these words, I commend the Budget to the House.

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