Manmohan Singh -1992 Budget

Finance Minister Manmohan Singh
Budget Year :1992

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Manmohan Singh

Sir,  I rise to present the budget for 1992-93.

2 . The fiscal year now drawing to a close has been a difficult one by any  standards. It has been a year of crisis and of crisis management. It has also been  a year of great economic challenges and bold new initiatives.

3 . Honourable Members would recall that when the new Government assumed  office eight months ago, we inherited an economy on the verge of collapse. Inflation  was accelerating rapidly. The balance of payments was in serious trouble. The  foreign exchange reserves were barely enough for two weeks of imports. Foreign  commercial banks had stopped lending to India. Non-Resident Indians were  withdrawing their deposits. Shortages of foreign exchange had forced a massive  import squeeze, which had halted the rapid industrial growth of earlier years and  had produced negative growth rates from May 1991 onwards.

4 . This is the grim legacy we inherited.

5 . Our first and immediate challenge was to arrest the slide and restore  India’s credibility both domestically and in the eyes of the world. To achieve this  objective we had to take immediate measures to avert a default in international  payments and also take steps to restore macro-economic balance in the economy  in the short run, with a view to controlling inflation and reducing the balance of  payments deficit to a manageable level. Our medium term objective was to place  the economy back on the path of high and sustainable growth.

6 . The new Government took several initiatives in pursuit of these objectives.  We took emergency measures to prevent a default in external payments, which  would have been highly disruptive. The previous Government had already decided  to use a part of the gold held by the Reserve Bank of India to mobilise temporary  liquidity abroad. We did not consider it prudent to reverse this decision. But we  promised to redeem the gold at the earliest opportunity and we have kept our word.    We began the process of restoring macro-economic balance by seeking to reduce  the fiscal deficit which had grown very large in the previous year. We also embarked  on a medium term programme of structural reform, including new initiatives in  trade policy and industrial policy aimed at improving the efficiency, productivity  and international competitiveness of Indian industry. Our longer term objective is  to evolve a pattern of production which is labour intensive and generates larger  employment opportunities in productive higher income jobs, and reduces the  disparities in income and wealth between rural and urban areas.

7 . Production was bound to suffer in a year of crisis and this has happened  in 1991-92. Agricultural production was below target in the kharif season, but  prospects for the rabi crop look good. Industrial production suffered because of  severe import compression and tight credit conditions. However, the infrastructure  sectors, which are the foundation on which future industrial growth depends, have  done well. Overall, I expect GDP growth in 1991-92 to be around 2.5%. I expect a  distinct improvement in 1992-93, and a return to high growth in 1993-94. However,  this revival can be achieved only if we persevere unflinchingly with the process of  stabilisation and economic reform begun in the current year.

8 . Stabilisation and structural adjustment are never painless or quick,  especially when we are dealing with imbalances and structural rigidities which  have built up over several years. It will take sustained effort, over at least three  years, to bring the economy back to a path of rapid and sustainable growth. A firm  commitment to austerity, the pursuit of excellence and the promotion of efficiency  and productivity for the benefit of the common people has to be an integral part of  this effort. Given our limited resources, our people cannot afford to copy the soulless  consumerism and the wasteful life styles of the affluent countries of the West.  Conspicuous consumption has to be actively discouraged. The virtues of thrift have  to be emphasised. The owners of wealth, as Gandhiji used to say, must learn to  regard themselves as trustees of society. We cannot postpone structural reform  and adjustment, but we must ensure that the burden of adjustment on the poorer  and weaker sections of our society is ameliorated to the maximum possible extent.  We are travelling through difficult and uncharted terrain, where no action is without  attendant risks, and success will not always be immediate. We need patience,  perseverance and national cohesion if we are to succeed.

9 . It has been alleged by some people that the reform programme has been  dictated by the IMF and the World Bank. We are founder members of these two  institutions and it is our right to borrow from them when we need assistance in  support of our programmes. As lenders, they are required to satisfy themselves  about our capacity to repay loans and this is where conditionality comes into the  picture. All borrowing countries hold discussions with these institutions on the  viability of the programmes for which assistance is sought. We have also held such  discussions. The extent of conditionality depends on the amount and the type of  assistance sought. However, I wish to state categorically that the conditions we  have accepted reflect no more than the implementation of the reform programme  as outlined in my letters of intent sent to the IMF and the World Bank, and are  wholly consistent with our national interests. The bulk of the reform programme is  based on the election manifesto of our Party. There is no question of the Government  ever compromising our national interests, not to speak of our sovereignty.

1 0 . Although the full fruit of our policies will take time to materialise, I am  happy to report to the House that we have made substantial progress even in this  short space of eight months. We have achieved our most immediate objective of  restoring India’s credibility and pulling the economy back from the slide into financial  chaos. Our foreign exchange reserves have been rebuilt to about Rs.11,000 crores.  Non-Resident Indians are no longer withdrawing their deposits. We have successfully  concluded arrangements with multi-lateral financing institutions such as the IMF,  the World Bank and the Asian Development Bank to obtain quick disbursing funds  to support the balance of payments in the current year.

1 1 . Inflation remains a difficult problem, and one to which we attach the  highest priority, because inflation hurts the poor and the fixed income earner most  of all. Inflation was accelerating in June 1991, when our Government came to  power, and the annual rate of inflation reached a peak of 16.7% in August 1991.  Since then, the rate of inflation has come down to about 12%, but I am painfully  conscious that this is still far too high. We are determined to bring inflation under  control. This is why the Budget for 1991-92 focussed on the need for fiscal discipline.  I am confident that as we persevere with fiscal discipline in 1992-93, and this we  must do if we want to bring prices under control, the rate of inflation will come  down substantially in the coming fiscal year.

1 2 . Our ability to fight inflation has been considerably enhanced by the  improvement in our foreign exchange reserves. This has enabled us to relax the  restrictions imposed last year on imports, thus ensuring near normal availability of  essential imports in the months ahead. This will help production and ease inflationary  pressure. The comfortable reserves position has also given the Government greater  flexibility to finance additional imports of essential items to deal with shortages  and break inflationary expectations.

1 3 . The Government will remain fully vigilant on the prices front and will use  the Public Distribution System to counter inflation and in particular to protect the  poorer sections of the population from high prices and shortages. The Prime Minister  announced on 1st January this year the launching of the revamped Public  Distribution System in about 1700 of the most backward blocks of the country. We  are determined to ensure that foodgrains and essential commodities reach the poor  and the under-privileged in adequate quantities and at affordable prices.

1 4 . Next to inflation, our major problem in the short term is the management  of the balance of payments. We have averted collapse and gained some flexibility,  but a sustained improvement in our external payments position requires much  more. Our export earnings have suffered badly this year, mainly because of the  disruption of trade with the former Soviet Union, and also because of recessionary  conditions in world markets. As a result, we have not been able to finance our  normal import requirements.

1 5 . There are some who argue that all we need to do to solve our balance of  payments problem is to compress our imports. I would like to point out that import  compression has already been carried to the extreme and any further compression  can only be at the cost of both growth and employment. Imports of non-essential  consumer goods should certainly continue to be discouraged. However, we must  recognise that the only lasting solution to our balance of payments problem lies not  in compressing imports but in a rapid expansion of exports. A growing economy    needs a growing volume of imports of fuel, and other industrial inputs and also of  capital goods embodying modern technology. This is not to deny the importance of  self-reliance, but self-reliance in today’s world of integrated global markets cannot  be achieved merely by reducing import dependence and insulating the economy  from the world. Following that path will only lead to more import controls and  promote inefficiency and corruption. It will perpetuate an environment in which  Indian entrepreneurs will not have the flexibility they need to compete with other  developing countries in world markets. The resulting inability to export will actually  make us more, rather than less, dependent on the outside world. Our vision of a  self-reliant economy should be of an economy which can meet all its import  requirements through exports, without undue dependence on artificial external  props such as foreign aid. I suggest to this august House that this is precisely the  vision of self-reliance as bequeathed to us by Jawaharlal Nehru as elaborated in  the Third Five Year Plan, and translated to the realities of today’s world.

1 6 . While introducing the new trade policy last year, Government had indicated  that it would be our objective to move towards convertibility of the rupee on the  current account. The achievement of convertibility is a sign of economic strength  and true self reliance. We are now ready to take the next important step in this  direction by introducing a new system of partial convertibility. The new system is  designed to provide a powerful boost to our exports as well as to efficient import  substitution. It will further reduce the scope for bureaucratic controls which  contribute to both inefficiency and corruption. It will also greatly reduce the incentive  for illegal transactions in foreign exchange. Under the new system all foreign  exchange remittances, whether earned through exports of goods or services, or  remittances, will be converted into rupees in the following manner: 40% of the  foreign exchange remitted will be converted at the official exchange rate while the  remaining 60% will be converted at a market determined rate. The foreign exchange  surrendered at official exchange rates will be available to meet the foreign exchange  requirements of essential imports such as petroleum and oil products, fertilisers,  defence and life saving drugs. All other imports of raw materials, components and  also capital goods will be made freely importable on open General Licence but the  foreign exchange for these imports will have to be obtained from the market. There  will be a specified ‘negative list’ of raw materials, components and capital goods  which will continue to be importable only against licences. There will be no change  in the import policy for consumer goods which will remain restricted as at present.  Foreign exchange required for other payments on private account including travel,  debt service payments, dividends, royalties and other remittances will also have to  be obtained at the market rate.

1 7 . The new system will replace the system of Eximscrips. There will be no  need to issue Eximscrips for each export transaction as the new system will operate  through the banks. Instead of a premium on Eximscrips, exporters will have the  benefit of the premium on 60% of their earnings in the foreign exchange market.  What is more, the incentive for earning foreign exchange will now be available to  remittances from our workers abroad. There is no reason why our workers, who  earn foreign exchange by the sweat of their hard labour abroad, should be denied  incentives presently given to exporters of goods and professional services. I salute  our workers from Kerala and other states working abroad. What I have announced  today is a small token of our appreciation of their magnificent contribution to  India’s foreign exchange earnings.

1 8 . With these changes we will have achieved a major simplification of trade  policy, eliminating licensing and the associated bureaucratic delays and inefficiencies  over a wide range of items. We will also have introduced a self-balancing system to  manage a large part of the balance of payments. The total volume of imports will be  automatically regulated by the available volume of foreign exchange. Scarcity of  foreign exchange will be reflected in a premium which will accrue to exporters and  to those making remittances thus providing a built in incentive to increase this  flow. The details of the new exchange system are being notified by the Reserve  Bank of India. The changes in trade policy are being notified separately by the  Commerce Ministry.

1 9 . One of the reasons why foreign exchange is diverted to illegal channels is  the illegal import of gold. It is time we took a bold step to recognise the realities of  the situation and legalise the import of gold. Government proposes to allow returning  Indians and NRIs to import 5kg of gold per passenger with a modest import duty  provided the gold as well as the import duty is financed from foreign exchange  earned abroad.

2 0 . Many Honourable Members of this House have suggested that the  Government should introduce a Gold Bond, which would help to mobilise the idle  gold resources of ordinary citizens to supplement official reserves. I had indicated  in Parliament that this should be considered only when the balance of payments  situation improves, and adequate confidence has been built in the capacity of the  Government to manage the economy. This has now been achieved. Our reserves  are large and do not need supplementing, but I see no reason why patriotic citizens  should be denied the opportunity to contribute their mite to the development of  India’s economy. I propose to introduce a scheme under which citizens can obtain  a Gold Bond in return for gold. The bond would be for a period of five to seven  years and would be liquidated by return of gold, or equivalent value, at the option  of the holder. It would enjoy a small interest, which will not attract income-tax. The  bonds will also be free of wealth tax and gift tax. As an added incentive, holders of  such bonds will not be asked any questions about the source of the gold holding.  The Reserve Bank of India is preparing a detailed proposal along these lines.

2 1 . One of the initiatives of the new Industrial Policy is a new approach towards  foreign investment, which can play a vital role in upgrading our technology levels,  integrating our industry into the global economy, and bringing in non-debt resources.  The Government proposes to actively encourage foreign investment in critical  infrastructure sectors where capacities are inadequate and needs for investment  are large. A policy to encourage private investment, including foreign investment,  in the Power sector has already been announced. Another area which is critical for  our future development, and for management of the balance of payments, is the  hydro-carbon sector. Government has already announced that joint ventures will  be permitted in both exploration and development, including development of existing  fields. The Government will welcome proposals for private investment, including  foreign investment, in production, refining and marketing of oil and gas, with a  view to maximising the growth potential of this crucial area.

2 2 . Concern is sometimes expressed that the policy of welcoming foreign  investment will hurt Indian industry and may jeopardise our sovereignty. These  fears are misplaced. We must not remain permanent captives of a fear of the East  6  India Company, as if nothing has changed in the past 300 years! India as a nation  is capable of dealing with foreign investors on its own terms. Indian industry has  also come of age, and is now ready to enter a phase where it can both compete with  foreign investment, and also cooperate with it. This is the trend all over the world  and we cannot afford to be left out. The House can rest assured that we have  enough policy instruments at our disposal to ensure that enterprises with foreign  equity function in accordance with our national priorities.

2 3 . The new approach to industrial policy calls for a review of regulations  such as the Foreign Exchange Regulation Act, which introduced a great deal of  detailed administrative control over companies where the foreign equity exceeded  40% and also on non-resident Indians. The Reserve Bank of India has recently  liberalised the procedure by granting general exemption from several of these controls  applicable to Indian companies with foreign equity and to non-resident Indians  returning to India. There are other restrictions which prevent Indian companies  and Indian residents from entering into various types of commercial relations with  companies abroad without prior approval. These provisions are out of line with the  needs of today’s economy, where Indian businesses will have to deal extensively  with their counterparts abroad, requiring expeditious decision making. The  Government proposes to introduce comprehensive amendments to the Foreign  Exchange Regulation Act to bring it in line with the requirements of the new policy.

2 4 . In my Budget speech last year I had referred to the importance of financial  sector reform and had announced the establishment of a Committee on the Financial  System. The Narasimham Committee has submitted its report which has been  tabled in Parliament. While commending the progress made by the banking system  in several directions, the Committee has drawn attention to serious problems posed  by the deterioration in the financial health of the system because of low profitability,  poor portfolio quality and inadequate provisioning for bad debts. The Committee  has made comprehensive recommendations for reform covering all aspects of  banking, including the introduction of better capital adequacy norms, better  provisioning for bad debts, rationalisation of the provisions for directed lending  and the associated interest rate structure. The thrust of the Committee’s  recommendations is to move to a more efficient and competitive banking system  including a larger role for the private sector. Many of the recommendations can be  implemented very quickly. Others need further consideration. The Government  proposes to implement the recommendations of the Committee in a phased manner.

2 5 . As a first step in implementing the recommendations of the Narasimham  Committee, the Government has decided to begin a phased reduction in the Statutory  Liquidity Ratio (SLR) which at present locks up large quantities of bank funds in  relatively low yielding Government securities. Accordingly, the SLR on incremental  domestic liabilities of the commercial banks is being reduced from 38.5% to 30%  with effect from 1992-93. This reduction is in line with the proposed reduction in  the fiscal deficit, which will reduce the Central Government’s need to borrow from  commercial banks. It will release funds for banks to expand credit to agriculture  and industry. The market borrowing of the States will not be affected. Steps are  also being taken to develop an active market for Government securities which will  make Government less dependent on statutory borrowing from the banks in future.

2 6 . In view of the decline that has already taken place in the rate of inflation,  it is possible to provide some relief in the interest rates charged by the Banks on  commercial advances. Honourable Members will be pleased to know that the Reserve  Bank of India is separately notifying a reduction in the floor level of interest rates  on commercial advances by one percentage point.

2 7 . Financial sector reform also includes reform of the capital markets, which  will increasingly play a vital role in mobilising and allocating resources from the  public. Several initiatives announced in my Budget speech last year have since  been implemented. The Securities and Exchange Board of India (SEBI), has now  been established on a statutory basis. As we gain experience, additional powers  will be given to SEBI to strengthen its capability. The Government has also issued  guidelines which will govern the operation of new private sector mutual funds.  Government has also decided to give permission to companies with a good track  record to issue convertible debentures or equity to investors abroad and to extend  to these issues the same tax benefits as are available for Offshore Mutual Funds.  This will enable domestic companies to tap the large pool of equity funds available  in world capital markets. We will also consider ways of allowing reputable foreign  investors, such as pension funds, to invest in our capital markets, with suitable  mechanisms to ensure that this does not threaten loss of management control.

2 8 . The role of the Controller of Capital Issues in the Finance Ministry needs  to be reviewed, especially in the context of the emerging industrial and financial  scenario. The practice of Government control over capital issues, as well as over  pricing of issues, has lost its relevance in the changed circumstances of today. It is  therefore proposed to do away with Government control over capital issues including  premium fixation. Companies will be allowed to approach the market directly  provided the issues are in conformity with published guidelines relating to disclosure  and other matters related to investor protection. Government proposes to bring  necessary legislation to implement this decision.

2 9 . In presenting the Budget for 1991-92 I had announced the Government’s  intention to establish a National Renewal Fund with the objective of ensuring that  the cost of technological change and modernisation does not fall too heavily on the  workers. This Fund was intended to provide a social safety net which would protect  the workers from the adverse consequences of technological transformation. The  Government has now established the Fund. The Fund will provide assistance to  cover the cost of retraining and redeployment of labour arising as a result of  modernisation and restructuring, and also provide compensation to labour affected  by restructuring of an industrial unit. Government also proposes to approach  multilateral financial institutions to meet part of the requirement for the National  Renewal Fund. It is estimated that about Rs.1000 crores would be available from  the International Development Association to be used for social safety net schemes  under the Fund including special schemes for unorganised sector workers. In this  context we would work out a scheme to upgrade the technology of handicrafts  which employ a very large number of people in the decentralised sector. Honourable  Members may rest assured that the Government is firmly resolved to protect the  interests of labour while dealing with the problems of industrial sickness and  structural reforms.

3 0 . Agriculture is the foundation of our national prosperity and no strategy of  economic development can succeed in our country if it does not ensure rapid  growth of production and employment in agriculture. Nor can we hope to provide  8  sufficient jobs for our growing rural labour force unless we can transform the  economy of our rural areas. This calls for a multi-pronged strategy involving effective  implementation of land reforms, large investments in irrigation and drainage,  improvement in water management systems, control of land degradation,  strengthening of the credit system and improvements in agricultural extension and  research. Much of this effort has to be made by the State Governments since  Agriculture is a State subject, and it is our hope that State Governments will give  these issues the highest priority. The Centre on its part is firmly committed to  continued funding and revamping of the various poverty alleviation schemes, which  are a major element in our development strategy.

3 1 . Special attention needs to be paid to supporting innovative ideas for  generating income and employment in rural areas through support to various types  of agri-business. As an experimental measure, Government proposes to set up a  Small Farmers’ Agri-Business Consortium as an autonomous corporate entity funded  by the Reserve Bank of India, NABARD and IDBI. The Consortium will include  representation from various Development Boards dealing with individual crops and  Public Sector Corporations dealing with agriculture and agro-industries, private  sector companies, banks, scientific organisations and farmers’ associations. The  Consortium will function on the principles of economic efficiency, environmental  soundness and social equity and will organise 12 major projects in 1992-93 in  different parts of the country, based on a mix of enterprises with active participation  by State Governments and farm families. The programme will be expanded as we  gain experience. We must begin a new chapter in our agricultural history where  farm enterprises yield not only more food, but more productive jobs and higher  income in rural areas.

3 2 . I now turn to the Revised Estimates for 1991-92. Our major macroeconomic  objective in 1991-92 was to reduce the fiscal deficit in order to restore  macro-economic balance in the economy. I am happy to inform the House that we  have succeeded in this objective.

3 3 . The Budget Estimates for 1991-92 provided for a total expenditure of  Rs.113,422 crores. Unlike in the past, when Revised Estimates of expenditure  showed substantial increases over Budget Estimates, this year they are marginally  lower by Rs.320 crores. On the revenue side there has been a large shortfall of Rs.  3760 crores in customs revenue owing to the severe import compression during  most of the year, but this has been partially offset by higher realisation from excise  duties and income tax so that the shortfall in gross tax revenues is Rs.1869 crores.  The, non-tax revenues and capital receipts are also significantly higher. As a result  total receipts are estimated at Rs.106,070 crores which is higher than the Budget  Estimates of Rs.105,703 crores.

3 4 . The Budget deficit in the Revised Estimates for 1991-92 is Rs.7032 crores  which is lower than the Budget Estimate of Rs.7719 crores, and much lower than  in 1990-91, when the budget deficit reached Rs.11,347 crores. The fiscal deficit,  which takes into account all borrowing, is Rs.37,792 crores in the Revised Estimates.  This is almost identical to the figure of Rs.37,727 crores in the Budget Estimates,  and is much lower than Rs. 44,650 crores in 1990-91. With this, we have successfully  reduced fiscal deficit from about 8.4% of GDP in 1990-9 to around 6.5% in  1991-92.

3 5 . The reduction in the deficit was made possible by enforcement of strict  discipline on the expenditure side. Certain additional expenditure provisions became  necessary after the Budget was presented. The most notable of these was the  additional requirement for fertiliser subsidy, consequent on the decision to restrict  the price increase from 40% proposed initially to only 30%, and also the fact that  the rupee cost of imported fertilisers was higher than assumed in the Budget  Estimates. As a result, the provision for fertiliser subsidy has been increased from  Rs.4000 crores in the Budget Estimates to Rs.4800 crores in the Revised Estimates.  Even this amount does not fully cover the subsidy claims for 1991-92 and some  amount will spill over into the next year as is normal commercial practice. A separate  provision of Rs.405 crores has been included in the Revised Estimates for the  scheme for supplying fertilisers to small farmers at the pre-revised prices.

3 6 . I have also had to increase the Budget provision for food subsidy by  Rs.250 crores on account of the delay in increasing issue prices. An extra amount  of Rs.550 crores has also been provided for the export subsidy. This subsidy was  abolished on 3rd July 1991, but the claims in the pipeline appear to be much more  than was originally anticipated. These demands for additional expenditure have  however been offset by savings located within the sanctioned Budgets of various  Ministries.

3 7 . The difficult resource position in 1991-92 had its impact on Plan  expenditure. Overall resource constraints forced the Government to restrict Budget  support for the Central Plan and the Revised Estimates for this item are 7% less  than Budget Estimates. Despite the marginal reduction, efforts were made to ensure  that projects of high priority are not affected, and the reduction has been achieved  mainly by regulating the release of funds to match the actual progress of schemes  on the ground. However, Central Assistance for State and UT Plans was stepped up  by Rs. 651 crores, mainly on account of larger rupee requirements of externally  aided projects.

3 8 . The House will be happy to note that even though the Central Government’s  own expenditure in the Revised Estimates is below the Budget Estimates, the total  transfer to the States by way of share of taxes, and Central Plan assistance is  higher than the Budget Estimates by Rs. 1683 crores. This more than offsets the  shortfall in small savings loans of Rs.1365 crores. We have not allowed our fiscal  difficulties to come in the way of meeting our obligations to the States in any way.

3 9 . I now turn to the Budget Estimates for 1992-93. The Eighth Five Year  Plan commences from 1st April 1992 and aims at the objective of achieving near  full employment in a period of ten years. The investment requirements of every  sector are large, and it is important that Plan allocations should enable implementing  agencies to make a good start, especially in the infrastructure sectors. However we  have had to work within the limits imposed by the continuing need to restore  macro-economic balance, which is essential if we are to contain inflation and manage  the balance of payments. This calls for a further reduction in the fiscal deficit in  1992-93. Larger Plan expenditure can be accommodated within a smaller fiscal  deficit if, apart from increasing tax and non- tax revenues, Government’s non-Plan  expenditure can be contained. I must admit that this has been a daunting task.

4 0 . Interest charges are the largest single item of non-Plan expenditure and  account for Rs. 32,000 crores in the Budget Estimates for 1992-93. This represents  10  an increase of Rs. 4750 crores over the Revised Estimates for 1991-92, which is  larger than the increase in total non-Plan expenditure of Rs. 4405 crores. This  means that in 1992-93 all other items of non-Plan expenditure taken together are  actually lower than in the current year. Honourable Members will appreciate that  interest charges are a committed expenditure, reflecting the cumulative effect of  past deficits. This item can be controlled only by reducing the reliance on borrowed  funds, and I intend to do this by reducing the fiscal deficit for 1992-93. However,  the benefit of this action will be felt only by Finance Ministers presenting the  Budget in future. I venture to think that my successors as Finance Minister will be  able to sleep far more peacefully than has been my lot thus far.

4 1 . For the Defence Services I am providing Rs. 17,500 crores, an increase of  7% over the provision of Rs. 16,350 crores in the current year. Combined with  some economies and tight expenditure control, I am confident that this allocation  will enable our armed forces to fulfil their responsibilities in ensuring the security  and defence of the nation.

4 2 . In the election Manifesto of our Party, we had committed ourselves to find  an innovative solution to the long standing demand of Defence pensioners for ‘One  Rank One Pension’. An Empowered Committee, under the chairmanship of Raksha  Mantri and comprising ex-servicemen and Members of Parliament representing the  major political parties has looked into the issue and its recommendations have  been accepted by the Government. Accordingly, Government has sanctioned ad  hoc increase in the pension rates applicable to Defence personnel. This decision  effective from 1.1.92 will benefit over six lakh Armed Forces pensioners of all  ranks, of whom over two lakhs are Jawans, some of whom retired after 1.1.86.  Government has also ordered grant of ex-gratia Family Pension to the families of  deceased Reservists not in receipt of Family Pension. These benefits will entail an  expenditure of over Rs. 120 crores per annum at current rates of dearness relief.

4 3 . Subsidies are another important component in non-Plan expenditure. Last  year, Food, Fertiliser and Export subsidies were the three major subsidies and  their rapid growth has been one of the main factors behind the unchecked growth  of non-Plan expenditure. We made an important change this year by abolishing  export subsidies. However, some subsidy payments still remain in the pipeline, and  I am providing Rs. 480 crores on this account.

4 4 . Food subsidy is a part of our system of food security for the poorer and  weaker sections of our population and is a basic element in our social policy. I am  providing an allocation of Rs. 2500 crores on this account which should be sufficient  for the normal requirements of the system. The revamped Public Distribution System  being implemented in 1700 backward blocks will require an additional allocation of  Rs. 250 crores on account of the additional subsidy and also the cost of constructing  a large number of godowns with a capacity of 3 lakh tonnes. The allocation for  these items will be augmented in the course of the year to meet the requirements  fully.

4 5 . This brings me to fertiliser subsidy which has grown into the largest  single subsidy in our system. There is no doubt that fertiliser is an essential  ingredient for agricultural production, and agricultural development is vital not  only for economic growth in general, but also to ensure rising levels of income and  employment in rural areas. In 1980-81, the fertiliser subsidy was 12% of the total  allocation in the Central and State Plans taken together for Agriculture, Rural  11  Development, Special Area Programmes and Irrigation and Flood Control. It increased  to 33% in 1991-92. A Parliamentary Committee is currently looking into the whole  issue of fertiliser pricing and subsidy including alternatives for restructuring the  subsidy. I propose to wait for the report of this Committee and take a view, on this  matter later in the year. Taking all factors into account, I am making a provision of  Rs. 5000 crores for fertiliser subsidy in 1992-93.

4 6 . Other items of non-Plan expenditure have been tightly constrained in the  allocations provided to keep the fiscal deficit within manageable levels. I have  requested my colleagues in all Ministries to review the expenditure control system  in their Ministries to ensure that every possible step is taken to enforce economy  so that the provisions being made in the Budget Estimates are not exceeded. As in  the last two years, in the Budget Estimates for 1992-93 also no separate provision  is being made for the additional dearness allowance installments that may become  payable in that year. All Ministries will be expected to absorb the additional  expenditure on this account within the approved Budget provisions.

4 7 . With these provisions, the total allocation for non-Plan expenditure stands  at Rs.84,475 crores, higher by Rs. 4,405 crores compared to the Revised Estimates  for 1991-92. But then, as I mentioned earlier, the increase in interest expenditure  alone is Rs.4,750 crores. Honourable Members would appreciate that the large  requirements for interest and subsidies make it difficult to reduce non-Plan  expenditure further and this limits the extent to which the budget can support  Plan expenditure. Nevertheless, I have tried to provide adequately for all the critical  areas of Plan expenditure.

4 8 . Central assistance for the Plans of States and Union Territories is being  stepped up from Rs. 14,710 crores in Budget Estimates 1991-92 to Rs. 16,111  crores in 1992-93. This increase of Rs. 1401 crores, coupled with an increase of  Rs. 2237 crores in the share of taxes, even at the existing levels of taxation, should  enable the States to substantially increase the allocations for the various Plan  programmes.

4 9 . The total Central Sector Plan outlay for 1992-93 has been fixed at Rs.48,407  crores. This is based on budgetary support for the Plan of Rs. 18,501 crores, and  a contribution of Rs. 29,906 crores from internal and extra-budgetary resources of  the various undertakings/enterprises. The internal and extra-budgetary resources  show a sharp increase of 25% over the current year’s level and this is critical to  achieve the substantial increase in the Plan outlays of the various infrastructure  sectors. Thus the outlay for the Railways stands increased from Rs. 5325 crores in  the current year’s Budget Estimates to Rs. 5700 crores in the next year’s Plan;  Shipping from Rs. 617 crores to Rs. 1222 crores; Civil Aviation from Rs. 433 crores  to Rs. 1036 crores; Telecommunications from Rs. 3203 crores to Rs. 4500 crores  and Fertiliser industry from Rs. 411 crores to Rs. 1234 crores. The outlay for  Power has been fixed at Rs.6411 crores, and for Petroleum at Rs. 6054 crores.

5 0 . The allocation for Rural Development Programmes in the Budget is Rs.2610  crores, which is somewhat lower than the Budget Estimates of 1991-92 though it  is higher than the Revised Estimates. This however presents only part of the total  effort we are making in support of the weaker sections in our rural areas. The  Government is deeply conscious of its special responsibility to protect the poorer  sections of our society, especially in rural areas from the burdens that would  otherwise be forced upon them as the economy goes through the process of macro  economic stabilisation and economic restructuring. It is therefore proposed to  earmark an additional allocation of Rs. 500 crores from the corpus of the National  Renewal Fund for employment generation schemes to supplement the normal  employment generation through the Jawahar Rozgar Yojana, particularly in those  areas where the pressure for such employment is seen to be more than in earlier  years. The additional allocation of foodgrains, through the Public Distribution System  in the 1700 most backward blocks at a subsidised rate is another important step  for protecting these vulnerable sections of society from the pressure on prices.  Taking the proposed additional allocations on these accounts together with the  Plan provision in the Budget, the total allocation to rural development would show  a substantial increase over the current year.

5 1 . The Plan outlay for the Family Welfare programme has been stepped up  from Rs. 749 crores in the current year to Rs. 1000 crores next year reflecting the  Government’s firm commitment to tackle the population problem. The outlay for  the programmes of the Ministry of Welfare has also been increased from Rs. 479  crores to Rs. 530 crores reflecting fully Government’s commitment to protection of  the weaker sections of society.

5 2 . Despite severe resource constraints, most of the other sectors which are  largely dependent on budgetary support for their Plan outlays have been provided  at least the same order of budget support as in the current year. I would have liked  to provide more but we also have to live within the constraint of available resources.  I would particularly like to point out that we must give up the practice of judging  the quality of our Plan effort by the increase in the outlays provided for in the  Budget. Our resources are scarce and there is a vast unexploited potential for  improving the productivity of available resource use. There has to be much tighter  scrutiny of various claims on resources and much greater emphasis on how to get  more out of available resources. We cannot simply spend our way into prosperity.

5 3 . Gross tax receipts at existing rates of taxation are estimated next year at  Rs.75,541 crores compared to Rs. 67,300 crores in the current year’s Revised  Estimates. The States’ share of taxes is placed at Rs. 18,492 crores showing an  increase of Rs.1293 crores over the current year’s Revised Estimates. Non-tax  revenues next year show an increase of Rs. 2689 crores over the current year’s  Revised Estimates. This includes Rs. 416 crores of deferred dividends from the  Railways. Next year’s estimates assume an increase of Rs. 423 crores from dividends  and profits of public sector enterprises. Unlike in the past, it is proposed to ensure  that these enterprises transfer as dividend or surplus profits, a reasonable part of  their post tax profits instead of determining the dividend payable merely on the  basis of capital investment. The Reserve Bank of India will also be transferring a  larger share of its profits.

5 4 . Under Capital Receipts, I have taken credit for market borrowing of Rs.  5000 crores. This is significantly lower than the amount of Rs. 7500 crores in the  Budget Estimates for the current year and reflects our objective of reducing the  fiscal deficit and consequently the recourse to borrowed funds. External assistance  including grants, but net of repayments, is estimated at Rs. 5374 crores.

5 5 . The disinvestment in public sector equity undertaken in the current year  has been successfully completed. There is scope for continuing this process in  1992-93 with a view to raising non-inflationary resources for development. I am  13  accordingly taking credit for a receipt of Rs. 2500 crores from further disinvestment  of equity holding in public sector enterprises. In addition to this amount, Government  will consider a further sale of equity of Rs. 1000 crores to provide resources to the  National Renewal Fund in 1992-93, which can be used for various schemes of  assistance to workers in the unorganised sector, including women workers, who  may be adversely affected by the process of economic restructuring. These resources  will also be used to fund the special employment creating schemes in backward  areas which I have mentioned earlier.  5 6 . Thus, at existing rates of taxation, total receipts are placed at Rs. 114,  215 crores and total expenditure at Rs. 119,087 crores. This leaves a gap of Rs.  4872 crores.

PART B 

5 7 . While presenting the budget last year, I drew attention to the need for a  comprehensive reform of both the direct and indirect tax system and had explained  that lack of time had made it difficult to do as much as I would have liked in this  regard. Subsequently, the Government set up a Tax Reforms Committee under the  Chairmanship of Dr. Raja J. Chelliah. The Committee has since submitted its  Interim Report. The Report distills the wisdom of some of our most distinguished  experts on the complex subject of reform of both direct and indirect taxes and I  have drawn heavily upon it in framing my Budget proposals. The summary of  recommendations contained in the Report is separately being placed in Parliament  to enable fuller appreciation of the analysis of the Committee and the rationale for  its recommendations.

5 8 . There is a consensus among fiscal experts, based on experience gained all  over the world, that a moderately progressive tax structure combined with strong  enforcement is the best way of encouraging honesty and voluntary tax compliance.  The Chelliah Committee has endorsed this view and has recommended that our  direct tax system would be more effective if the income tax regime had lower rates  of taxation, with a narrower spread between the entry rate and the maximum  marginal rate, and a minimum of tax incentives. I agree with this assessment and  I propose to restructure the personal income tax in the following manner. I propose  to enhance the exemption limit for income tax levy from Rs.22,000 at present to  Rs.28,000. This will provide substantial relief to the taxpayers in the lower income  group and I am sure it will be welcomed by the Honourable Members, many of  whom had urged such an adjustment even last year. I hope this will convince them  that I am an attentive and sensitive listener to what goes on in this august House.  I further propose that there will only be three tax rate slabs, with the entry rate of  20 per cent. applicable upto Rs. 50,000, a middle slab of 30 per cent. upto  Rs.1,00,000 and a maximum rate of 40 per cent. above Rs.1 lakh. A corresponding  revision is also being made in the case of specified Hindu undivided families. Because  of the severe resource constraints, I am compelled to retain the surcharge at 12 per  cent. for one more year; but this will be payable only by those whose income  exceeds rupees one lakh.

5 9 . With the reduction in tax rates, a number of tax exemptions, which  conferred large benefits on higher income tax payers are no longer justified. I,  therefore, propose to abolish the deductions under sections 80L, 80CCA and 80CCB  14  of the Income-tax Act. The computation of income from house property is also  being rationalised in respect of certain deductions presently being allowed. The  provision under section 88, which provides for tax rebate in respect of specified  savings such as Life Insurance, Provident funds etc. will however continue, as  these are normally availed of by fixed salary earners. In fact, I propose to widen its  scope by including within its purview contributions to Pension Funds set up by the  National Housing Bank and by Mutual Funds. I am also providing that those who  wish to continue contributing to the savings schemes which until now qualified for  deduction under section 80CCA and 80CCB, can get tax rebate under Section 88  of the Income-tax Act.

6 0 . It is said that the child is the father of man, but some of our taxpayers  have converted children into tax shelters for their fathers. The tax law provides for  clubbing of income from gifts given by parents but this does not apply to other  income, including income from other gifted assets, and the practice of cross gifting  is widely used to evade clubbing. The Chelliah Committee has recommended that  in order to plug this loophole, which accounts for a substantial leakage of revenue,  the income of a minor child should be clubbed with that of the parent. There is  merit in this suggestion and I propose to accept it. Recognising however the existence  of a number of child prodigies, especially child artistes in our country, I propose to  exclude their professional income, as also any wage income of minors, from the  purview of such clubbing. The practice of clubbing the income of minor children  with that of the parent for tax purposes is in vogue in a number of countries.

6 1 . The revenue loss on account of the restructuring of income-tax rates as  traditionally estimated will be Rs.1500 crores. However, this will be offset by the  proposed abridgement in the concessions and tax exemptions and the change in  the tax treatment of minor’s income. If, as I expect, lower tax rates will lead to  better tax compliance, there will be a net revenue gain even though it is not possible  to quantify it. If tax-payers cooperate with me and revenue earnings go up  significantly, I propose to reward the tax-payers with a further cut in income tax  rates. The ball is now in their court.

6 2 . In a country with a population of over 800 million, hardly 7 million persons  pay income and corporate tax. It is therefore necessary to attract new taxpayers  into the tax net. With this end in view, I propose to introduce a presumptive tax  system in respect of shop keepers and other retail traders with an annual turnover  below Rs. 5 lakhs. In order to enable them to avoid the difficulty of maintaining  detailed account books, filing a complicated tax return and going through the  normal assessment procedure, a simplified scheme has been worked out under  which the taxpayer will give only brief particulars of his turnover and pay just  Rs.1400 as tax for that year. This should enable potential taxpayers in this category  to overcome their psychological hesitation of getting into the tax system. The scheme  is being introduced on a purely optional basis and is intended only for those who  may have taxable income and wish to avail of this simplified procedure. With the  increase in the exemption limit to Rs.28,000, those with a turnover of less than Rs.  2.5 lakhs to Rs.3 lakhs may well find that they do not have to pay this presumptive  t a x .

6 3 . The present tax treatment of long term capital gains has been criticised  on the ground that the deduction allowed in computing taxable gain is not related  to the period of time for which the asset has been held. It does not take into  15  account the inflation that may have occurred over time. The Chelliah Committee  has suggested a system of indexation to take care of the problem and I propose to  accept its recommendation. Taxable capital gains will be computed by allowing the  cost of the asset to be adjusted for general inflation before deducting from the sale  proceeds. The adjustment factor for each year will be notified by the Central  Government. The long term capital gains thus computed will be taxed at 20 per  cent. in the case of individuals and HUFs, 40 per cent. in the case of companies,  firms, associations of persons and bodies of individuals, and 30 per cent. in the  case of others. The new system will favour those whose capital gains accrue over a  longer period, while those making capital gains over a shorter period will pay a  higher tax. This is as it should be. The cut off date for valuation is also being  shifted from 1st April, 1974 to 1st April, 1981. With these changes, I propose to  withdraw the standard deduction in computing taxable capital gains and also the  exemptions under section 54E for capital gains invested in specified assets and  section 53 in respect of capital gains arising from sale of residential house.

64.1While I am simplifying the income-tax structure, I should extend some  concessions directly to certain categories of taxpayers who deserve sympathetic  consideration from the Government.  64.2Many individuals have to maintain handicapped dependants which often  imposes a heavy burden upon them and this is a burden which we should lighten  as much as we can. I therefore propose to increase the deduction available to such  persons from Rs.6,000 at present to Rs.12,000 per year. Further, the scope of this  tax concession is being made available to all taxpayers irrespective of their income.  64.3Women who take up employment deserve special consideration and  encouragement. I, therefore, propose to increase the standard deduction from  Rs.12,000 to Rs.15,000 in the case of working women having total income upto  seventy five thousand rupees. I hope this will convince Honourable lady members  of this House about my commitment to the cause of social and economic uplift of  Indian women. The only quid pro quo I expect from them is to defend the budget  regardless of their party affiliations.  64.Taking note of the financial difficulties often encountered by persons in  old age and as a token of my regard for such senior citizens, I propose to give a tax  rebate of 10 per cent. on the net tax payable by persons who have completed 65  years of age and whose gross total income is below Rs.50,000.  64.5Having regard to the fluctuating nature of income earned by authors,  playwrights, artists, musicians, actors and sportsmen and in recognition of their  contribution to the enrichment of the cultural life of the nation, the tax rebate for  them in respect of specified savings under section 88 of the Income-tax Act will be  increased from 20 per cent. to 25 per cent.  64.6The victims of the Bhopal Gas Disaster are to get compensation on the  basis of the Supreme Court judgement. Having regard to the human dimensions of  the tragedy, I propose to exempt, in all cases, the compensation received by such  recipients from income tax liability.  64.7I have received several representations for widening the scope of exempting  medical expenses for both salaried and self-employed persons. I propose to  substantially liberalise the provisions relating to hospitalisation and medical  16  insurance. Tax benefits to salaried persons will no longer be limited to treatment in  a few government recognised hospitals only. Similarly, for self-employed persons,  the deduction available for medical insurance is being enhanced from Rs. 3,000 to  Rs. 6,000.  64.8Exemption from income-tax is now available to the employees of the public  sector on payments made under the Voluntary Retirement Schemes. I propose to  extend the benefit of the exemption, subject to certain guidelines, to the employees  in the private sector as well.

6 5 . There has been a long standing criticism that by subjecting the income of  both partnership firms as well as the partners to taxation, we are engaging in  double taxation. The Chelliah Committee has also stressed that double taxation in  this regard should be avoided. I agree that we should avoid double taxation and I  propose, as a measure of relief, to treat the firm as a separate tax entity and do  away with the taxation of the same income in the hands of partners. I propose to  allow deduction towards interest and salary payments made to partners from the  income of the firm and then tax the balance income in the hands of the firm at a  flat rate of 40 per cent.. The proportion of deduction allowed decreases with the  income level of the firm and is so designed that the total tax incidence on small  firms and professional firms will be reduced. The partners will not be taxed on  their share in the income of the firm though they will be liable to pay tax on salary  and interest income. This method will result in enormous simplification from the  point of view of taxpayers as well as tax administration as the proposed scheme will  do away with complexities, associated with the procedure relating to registration of  firms, rectification of partners’ assessments when firms’ assessments are revised,  etc.  6 6 . Last year, I introduced provisions relating to tax deduction at source in  respect of interest on term deposits with banks and commission payments. There  has, however, been considerable criticism from taxpayers about the implementation  of these provisions. I have also received representations from a number of Members  of Parliament seeking withdrawal of these provisions. The system of tax deduction  at source is a useful tool and one of the well recognised methods of enforcing tax  compliance in many countries. However, a harassed Finance Minister has to be  sensitive to the opinions of Honourable members of Parliament even when they  differ from his own convictions. Therefore, I propose to withdraw these two provisions.

6 7 . The Wealth-tax Act, 1957 has far too many exemptions making its  administration enormously complicated. The valuation of certain assets such as  shares also presents problems, since very high market values reflecting speculative  activity can lead to a heavy burden on shareholders who are long term investors.  There is also no distinction at present between productive and non-productive  assets. The Chelliah Committee has suggested that, in order to encourage the  taxpayers to invest in productive assets such as shares, securities, bonds, bank  deposits, etc. and also to promote investments through Mutual Funds, these financial  assets should be exempted from wealth tax. Wealth tax should be levied on  individuals, Hindu undivided families and all companies only in respect of nonproductive  assets such as residential houses including farm houses and urban  land, jewelry, bullion, motor cars, planes, boats and yachts which are not used for  commercial purposes. The Committee has further suggested that such tax should  be at the rate of one per cent., with a basic exemption of Rs.15 lakhs. I propose to  17  accept this recommendation and I hope this change will encourage investments in  productive assets and discourage investment in ostentatious non-productive wealth.

6 8 . Earlier in my speech I have referred to the importance which the  Government attaches to the capital market and the special role of mutual funds  including private sector mutual funds. In order to treat all mutual funds alike in  tax matters, I propose to exempt from income tax mutual funds in both public  sector and private sector recognised by the Securities and Exchange Board of  India. I had also referred to the scheme permitting Indian Companies to issue  convertible bonds and equity to investors abroad. I propose to tax the income and  capital gains from these issues at a concessional rate of 10 per cent., as is applicable  to Offshore mutual funds. It is hoped that these measures will give a new thrust to  the capital market in the country.

6 9 . Last year, I had extended expenditure tax to cover air-conditioned  restaurants in order to mop up additional resources. I have received several  representations that this provision falls heavily on innumerable restaurants and  small establishments which are patronised mainly by the middle class. It has been  suggested that air conditioning in restaurants, unlike in homes, is no longer a  luxury item of the rich. The largest number of such complaints have come from  Bombay. Having lived in Bombay for two and a half years, I have special regard for  the citizens of this great city. This has been reinforced by their voting behaviour in  the recent elections to the Municipal Corporation. I, therefore, feel a special obligation  to respond. I propose to withdraw this levy as far as the restaurants are concerned.  However, I have made certain changes in the scope of the Expenditure-tax Act  relating to hotel receipts. I propose to enhance the qualifying limit for liability  relating to room charges of the hotel from the present Rs.400 per day to Rs.1200  per day. In view of the exchange rate adjustments undertaken recently, there is no  longer any need for exempting expenditure made in foreign exchange from the tax.  I am, accordingly, withdrawing this exemption.

70 . With a view to providing support to the cooperative sector, I propose to  exempt all cooperative societies including urban cooperative societies engaged in  the business of banking from the purview of Interest-tax Act.

7 1 . I recognise the need for a reform of the corporate tax system. This is also  an area where rates of taxation need to be lowered and I would like to give advance  notice of my intention to begin lowering them as soon as possible. However, as the  detailed recommendations of the Chelliah Committee on corporate taxation are yet  to be received, I propose to defer major restructuring in this area until after I have  received its recommendations. Accordingly, for the present there will be no change  in the rate structure as well as the surcharge. In this budget, I propose to make  just two changes. Ordinarily, depreciation and investment allowance carried forward  from earlier years is set off against the current income. In line with the rationalisation  of depreciation allowance brought about last year, I propose that in respect of  assessment year 1992-93, the quantum of set off for carried forward depreciation  and investment allowance in the case of companies, where such amount exceeds  Rs.1,00,000, shall be limited to two-third of such amount and the remaining one18  third will be allowed to be adjusted in the assessment year 1993-94. Further,  having regard to the widespread criticism that the Income-tax Act has artificial  ceilings in regard to certain business expenses, I am liberalising some of the items  on the basis of the recommendation of the Chelliah Committee.

7 2 . Having regard to the complexities in tax laws, I have been receiving  representations that the Government should give Advance Rulings whenever a  taxpayer has doubts about the tax liability in respect of intended transactions. This  practice obtains in a number of countries. There are certain practical difficulties in  implementing such a suggestion. However, in the interest of avoiding needless  litigation and promoting better taxpayer relations, a scheme for giving Advance  Rulings in respect of transactions involving non-residents, is being worked out and  will be put into operation soon. The scope of this can be extended subsequently on  the basis of experience gained. The Government is also planning to set up the  National Court of Direct Taxes in order to ensure that litigation in direct tax matters  is settled expeditiously. Along with this, the Government would also like to bring  forward, as soon as possible, a Bill on Direct Taxes Code, integrating therein all the  three direct taxes so as to make the law easily understandable and tax administration  simple.

7 3 . I do not propose to take up the time of the House with other minor changes  in the Direct Tax Laws.

7 4 . My proposals on direct taxes are estimated to yield a net revenue gain of  Rs. 795 crores. Of this amount, Rs. 435 crores will accrue to the States.  7 5 . I now turn to the proposals relating to indirect taxes.  7 6 . A long standing complaint of our industry, and of experts in trade policy  is that our customs tariff rates are too high and increasingly out of line with the  trends in our competitor countries, all of whom have reduced tariffs to very moderate  levels. My colleague the Honourable Commerce Minister has repeatedly told me  that we cannot expect to compete with these countries in world markets if we  persist with high tariff rates which have the effect of creating a high cost industrial  structure. This is in line with the directions I had indicated in my budget speech  last year. The Chelliah Committee, which was asked to look into all aspects of  customs duties, has recommended reduction in the general level of tariffs, a reduction  in the dispersion of the tariff rates and a rationalisation of the system with abolition  of numerous end-use exemptions and concessions. The Committee has also rightly  suggested that the process of reform should be gradual, so as to moderate the  impact of the adjustment, both in terms of possible revenue loss and the pace at  which domestic industry is exposed to competition. I propose to act on these  recommendations by making a substantial start in this budget on reforming the  customs tariff structure.

7 7 . Last year I had begun the process of reducing import duties by lowering  the ad valorem rates of basic plus auxiliary duties of customs to a maximum of  150%. I now propose to lower the peak tariff level further by reducing the basic  plus auxiliary rates of import duties (inclusive of specific duties) to a maximum of  110% with the exception of passenger baggage and alcoholic beverages. The loss of  revenue on account of this proposal as traditionally estimated is Rs. 1700 crores,  though I feel it could be much lower in practice.

7 8 . My next proposal relates to the duty on capital goods. The general duty on  capital goods, including project imports, is currently at 80% which is below the  peak rate of 110%. However, there is a good case for giving priority to reducing the  duty on capital goods because high duty on capital goods constitutes a permanent  increase in the cost of production for the life of the unit. In order to encourage new  investment in export oriented industries, we should move to a lower duty rate on  capital goods at an accelerated rate. I, therefore, propose to reduce the duty rate on  project imports and general machinery from 80% to 60%. In the case of capital  goods including project imports for electronics industry, I propose to reduce the  import duty from 60% to 50%. In relation to capital goods for projects of coal  mining and crude petroleum refining, I propose a deeper reduction in the import  duty prescribing a uniform rate of 30%. In the case of power projects, the present  concessional duty rate of 30% or 40% is being rationalised to a uniform rate of  30%. I also propose to reduce the import duty on other capital goods currently  attracting duty above 80% by 10 percentage points. The existing concession in the  duty rates available to the components of specified machinery enabling those items  to be imported at rates below the rate applicable to the machinery is proposed to  be continued. These changes will not adversely affect the competitive position of  the Indian capital goods industry especially in view of the exchange rate adjustment  effected last year. These proposals involve a loss of revenue of about Rs.840 crores.

7 9 . In view of the reduction of tariff peaks, I have also taken the opportunity  to remove some of the end-use notifications for concessional duty imports. In this  process of rationalisation, some duties may go up marginally. However, in view of  the overall reduction of duty rates, industry should be able to absorb such marginal  increases.

8 0 . In my last budget I had proposed certain rationalisation of the rates of  auxiliary duty of customs. I propose to further rationalise the auxiliary duty structure  by reducing the number of duty slabs to four. The loss of revenue on this account  is estimated at Rs. 125 crores.

8 1 . Agriculture is the bedrock on which our economic development depends  and the vital inputs for this sector have always been accorded a preferential tax  treatment. In line with this principle, I propose to reduce the duty rate on 15  specified pesticides from 110% at present to 75%, by adding them to the list of  pesticides eligible for this concession. I also propose to reduce the import duty on  two pesticide intermediates from the present level of 120% to 65%. So also I propose  to exempt three specified pesticide intermediates completely from excise duty. These  proposals involve a revenue loss of about Rs.8 crores.

8 2 . Successful agricultural development calls for injection of new seeds which  can increase productivity and imported seeds and planting material can help in  this process. I, therefore, propose to fully exempt from import duty, oil seeds, seeds  of vegetables, flowers and ornamental plants; tubers and bulbs of flowers; cuttings  or saplings of flower plants; and seeds of fruit-plants and pulses, for the purpose  of sowing and planting. In order to ensure efficient transplanting of seedlings, I  also propose to reduce the import duty on rice transplanters from 80% to 40%.

8 3 . The petrochemical industry suffers from high duty rates on certain basic  feed stocks which are the building blocks of the industry. There is a case for duty  reduction and rationalisation in this area. I, therefore, propose to reduce the import  duty on propylene from 120% to 80%, on butadiene from 55% to 40% and on  benzene from 40% to 25%. I also propose a uniform import duty of 40% for ethyl  20  benzene and styrene which are essential inputs for the manufacture of polystyrene.  Similarly, I propose to reduce import duty on certain specified feed stocks which  find use in the manufacture of polyethylenes from 120% to 40%. The loss of revenue  on account of the proposals would be around Rs.26 crores.

8 4 . As a measure of relief to the asbestos cement industry which serves the  housing, water supply and irrigation sectors, I propose to reduce the import duty on  asbestos fibre from 90% to 70%. The proposal involves a loss of revenue of Rs.18  crores.  8 5 . Films in our country have become an important vehicle of national  integration. I have therefore to worry about the economic health of this important  industry. In order to give relief to the film industry, which is facing increasing  competition from cable TV and video, I propose to reduce the import duty on  unexposed colour negatives of cinematograph film by 20 percentage points from  the existing level. The loss of revenue involved in the proposal is Rs.8 crores.

8 6 . I propose to reduce the import duty on specified items of machinery required  for the manufacture of fly ash and phosphogypsum bricks and building components.

8 7 . Last year as a relief to the newspaper industry I had exempted standard  newsprint fully from customs duty. I feel my support base in the Press could do  with some strengthening. I now propose to fully exempt glazed newsprint which is  presently attracting import duty of Rs.550 per metric ton from payment of duty.  The proposal involves a revenue loss of about Rs. 3 crores.

8 8 . I have already mentioned that import of gold by Indians including persons  of Indian origin as part of their baggage will now be allowed. Every such passenger  will be allowed to bring upto five kilograms of gold and the import duty on such  gold will be Rs.450 per 10 grams, which works out to about 15% in ad valorem  terms. This duty will be payable in convertible foreign exchange. I am confident  that this step will be welcomed by all, except those engaged in the hitherto profitable  business of smuggling this metal into the country.

8 9 . The restructuring of customs duty being attempted in this Budget is the  beginning of a process in which our customs duties are gradually reduced, over a  three to four year period, to levels comparable with those in other developing  countries. I would like to reassure Honourable Members that they need have no  fear that the process of reducing duties will lead to the de-industrialisation of  India. On the contrary, the reduction is necessary to give the Indian industry an  environment in which it can increase its competitiveness through absorption of  technology and greater integration with the world economy. This is essential if we  are to achieve true self reliance. We shall take effective promotional measures to  build up the competitive strength of Indian industry. The proposed restructuring of  customs duty, together with the other changes in customs duty results in a net  loss of Rs. 2023.35 crores. The loss is estimated in the conventional way and it is  possible that it may be overestimated if we allow for a substantial improvement in  the balance of payments, permitting a larger volume of imports and, therefore, a  higher level of customs revenue.

9 0 . In the field of excise duties, I have been guided by the objectives of  rationalising the excise duty structure, providing reliefs where necessary and, of  course, raising additional resources to offset the revenue loss from restructuring of  customs tariffs.

9 1 . While presenting the budget for 1991-92, I had referred to 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. I propose to make an  advance in this direction by abolishing licensing controls on production and  manufacture under the Central Excises and Salt Act, 1944. The assessees would  simply be required to register themselves with the central excise authorities. At  present assessees are required to get their central excise licences renewed every  five years. Registration will be valid as long as the assessee continues the  manufacturing activity. I am proposing suitable amendments in the law to this  e n d .

9 2 . Honourable Members would be aware that a Settlement Commission was  established in 1976 under the Income-tax Act, 1961. I propose to set up a Settlement  Commission, on similar lines, for dealing with customs and central excise disputes  between the Department and the assessee. I trust this will help in speedy settlement  of tax disputes.

9 3 . Honourable Members may also recall that a law was enacted in 1986 for  the establishment of an appellate tribunal for the adjudication of disputes relating  to the determination of the rates of duties of customs and central excise and to the  valuation in pursuance of Article 323-B of the Constitution. Due to unavoidable  reasons, the tribunal could not be established. I propose to introduce legislation to  suitably amend the Customs and Central Excise Revenues Appellate Tribunal Act,  1986 and set up the tribunal.

9 4 . The housing sector is important, both socially and for employment  generation and as such deserves special treatment. I propose to fully exempt from  excise duty bricks and tiles having a minimum content of 25% of red mud, which  is a waste product of aluminium industry. I also propose to fully exempt light  weight concrete building blocks from excise duty. Further I propose to reduce the  excise duty on pre-fabricated buildings from 15% to 5%. I also propose to fully  exempt doors and windows made of plastic, iron and steel which incidentally would  conserve our dwindling forest cover. Further, I propose to exempt completely panel  doors which are currently attracting 30% excise duty. The proposals involve a  revenue loss of about Rs. 4 crores.

9 5 . The glass container industry has been going through a lean period. I  propose to reduce excise duty on glass containers from 40% to 30%. The excise  duty on glass containers manufactured by semi-automatic process and mouth  blown process will also be reduced from the existing levels of 30% and 15% to 20%  and 10%, respectively. The proposals involve a revenue loss of Rs. 30 crores.

9 6 . At present there is a wide dispersion of duty rates among various sectors  of the textile industry. My primary aim is to simplify and rationalise the tariff  structure and to reduce the duty differential between the various textile fibres and  y a r n s .

9 7 . I propose to rationalise and restructure the excise duty on cotton yarn  and cellulosic spun yarn. On cotton yarn, I propose to reduce the multiplicity of  rates by having only five duty slabs. Excise duty on cellulosic spun yarn is also  being similarly rationalised by having three slabs.

9 8 . I also propose to raise the basic excise duty on viscose fibre from Rs.  10.50 to Rs 12 per kg., on viscose filament yarn from Rs. 12 to Rs 15 per kg., and  on acrylic fibre from Rs. 9.24 to Rs 12 per kg. The duty rates on polyester blended  yarns are also being rationalised.

9 9 . Rags and synthetic waste are both raw materials for the shoddy woollen  industry. I propose to equate the import duty incidence on both at 110%.

100.With a view to raising the revenue from additional excise duty the proceeds  of which go to the States, I propose to increase the duty on processed cotton fabrics  by restructuring the duty slabs.

101.Several units in the nylon and polyester filament yarn industry are passing  through difficult times. As a measure of relief, I propose to reduce the excise duty  on nylon filament yarn from Rs. 63 to Rs 55 per kg and also to reduce the import  duty on caprolactum from 80% to 50%. I also propose to reduce the excise duty on  polyester filament yarn from Rs.70 to Rs.62 per kg.

102.To promote use of jute by the handloom sector, I propose to fully exempt  jute yarn in hanks from excise duty. Similarly, jute products manufactured in  rural areas by registered co-operative societies, women’s co-operatives, etc. are  also proposed to be fully exempted from excise duty.

103.As a measure of relief to the silk industry, I propose to reduce the import  duty on raw silk from 55% to 30%.

104.The package of proposals relating to the textile industry involve a revenue  reduction of about Rs. 25 crores.

105.I would now take up the proposals for rationalisation and additional revenue  mobilisation.

106.At present excise duty is levied on ad valorem basis on some commodities  and at specific rates on others. Over the years, for administrative reasons, ad  valorem duties have been steadily replaced by specific rates or ad valorem-cumspecific  rates. Ad valorem duties are preferable to specific duties as they ensure  buoyancy in revenue on account of increase in prices, and the Chelliah Committee  has recommended switching over to ad valorem rates for a number of commodities.  It has also recommended that where specific rates are retained, the same should  be revised every year taking into account the price inflation. I propose to make a  modest beginning by switching over to the ad valorem mode of levy where feasible.

107.In respect of major non-ferrous metals, namely, copper, lead and zinc and  products thereof, I propose to fix a uniform ad valorem levy of 10% in the place of  existing specific rates of duty. As regards iron and steel, the excise duty on primary  and semi-finished forms thereof is generally charged at specific rates of duty. For  administrative reasons, I propose to retain the specific rates of excise duty on items  like ingots and certain rolled products like bars, rods, etc., other than of stainless  steel. In respect of these products, I propose to raise the existing rates, which are  presently between Rs. 300 and Rs. 1800 per metric ton to rates between Rs. 400  and Rs. 2000 per metric ton. However, in respect of iron forgings and other steel  products, I propose to prescribe a uniform excise duty of 10%. The proposals  involve a revenue gain of about Rs.400 crores.

108.In my budget speech last year, I mentioned that every Finance Minister  has to do his bit to curb smoking which is injurious to health. This injury to health  is continuing and I would be failing in my duty if I did not make one more attempt  to use the fiscal instrument in this worthy cause. While I do not propose to increase  the duty on non-filter cigarettes of less than 60 mm in length, the duties on all  other cigarettes are being raised by Rs.30 to Rs.100 per thousand depending on  the length. The gain in revenue from the proposals is of the order of Rs.325 crores.

109.I propose to increase the excise duty on certain plastic resins, namely,  polystyrene, low density polyethylene, high density polyethylene and polypropylene  from 30% to 40%. The revenue gain from the proposal is Rs. 165 crores.  110.Watches attract a very low rate of duty of 5% which is out of line with the  general duty structure. I propose to raise the rate to 10%. The revenue gain from  the proposal is estimated to be Rs. 12 crores.

111.I propose to increase the excise duty on cement from Rs. 215 to Rs. 290  per metric ton. The excise duty on cement produced in mini cement plants will also  go up from Rs. 90 to Rs.165 per metric ton, thus maintaining the existing duty  differential of Rs. 125 per metric ton in favour of mini cement plants. However, I  propose to reduce the duty on white cement from 40% to 35% to bring the incidence  closer to that on ordinary cement. The estimated revenue gain from these proposals  is Rs. 376 crores.

112.I propose to raise the excise duty on paints from the existing levels of 15%  and 30% to 20% and 35% respectively. The revenue gain on account of the proposal  is estimated to be Rs. 35 crores.  113.I propose to increase the excise duty on organic surface active agents  from 25% to 30%. The proposal would yield an additional revenue of Rs. 50 crores.

114.At present two-wheelers such as motorcycles and scooters attract excise  duty in slabs of 10%, 15%, 20%, 25% and 30% depending on the engine capacity.  I propose to rationalise the duty structure by levying a uniform duty of 15% on all  two-wheelers of engine capacity upto 75 cc and 25% on all others whose engine  capacity exceeds 75 cc. I also propose to increase the excise duty on light commercial  vehicles from 10% to 15%. The proposals involve a revenue gain of Rs.80 crores.

115.I propose to increase the excise duty on cocoa and cocoa based preparations  from 15% to 25%. The proposal involves a revenue gain of Rs. 24 crores.

116.I propose to increase the excise duty on wires and cables by five percentage  points from the present levels. The additional revenue from the proposal is expected  to be of the order of Rs. 60 crores.

117.I also propose to revise upwards the existing specific rates of excise duty  on tyres, tubes and flaps. However, I propose to reduce the duty on moped tyres  from Rs. 30 to Rs.25 per tyre. The proposals involve a revenue gain of Rs. 40  crores.

118.Special excise duty is being levied at present at the rate of 10% of the  basic excise duty; certain essential items such as tea, coffee, sugar, matches,  24  kerosene and vanaspati are fully exempted. In addition, high speed diesel oil and  two wheelers attract special excise duty at 5%. I now propose to raise the special  excise duty on products which are presently attracting a 10% rate of duty to 15%.  However, this increase will not be applicable to petroleum products. I also propose  to exempt from this increase certain consumer durables like motor cars and  consumer electronics such as television sets, as these industries are passing through  a difficult phase. This proposal involves a revenue gain of Rs.1025 crores.

119.The changes in trade policy introduced last year have eliminated the  differential incentives for export at higher stages of manufacture. While a uniform  pattern of incentive is generally to be preferred, there is a case for introducing  some disincentives for exports of certain primary products where the same product  can be easily exported in value added form. I propose to impose an export duty of  10% on exports of certain types of finished leather and on unpolished granite in  order to encourage exporters to shift to leather products and polished granite. I am  also imposing an export duty of 5% on iron ore. The proposals are expected to yield  an additional revenue of Rs.142 crores.

120.I have also proposed certain amendments in the Finance Bill seeking to  effect changes in the excise and customs tariff. 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.

121.The proposals with regard to changes in excise duty outlined above are  likely to yield additional revenue of Rs. 2515.70 crores. The concessions and reliefs  announced aggregate to Rs. 304.80 crores. Out of the net additional sharable  revenue from excise duties of Rs. 2210.90 crores, the Centre’s share would be Rs.  1146.53 crores and the States’ share Rs. 1064.37 crores.

122.The net impact of my proposals on customs and excise duties taken together  amount to an additional mobilisation of only Rs. 187.55 crores on indirect taxes.  Since the loss in customs duties falls entirely on the Centre whereas the gain in  excise revenue is shared with the States the impact on the Centre’s revenue is a  loss of Rs. 876.82 crores while the States will gain as much as Rs. 1064.37 crores.

123.Copies of notifications giving effect to the changes in customs and excise  duties effective from the 1st March, 1992, will be laid on the Table of the House in  due course.

124.Taking direct and indirect taxes together the changes I have proposed are  expected to result in a net revenue loss of Rs.517 crores to the Centre while the  States will gain Rs.1500 crores. Consequently the estimated year end budget deficit  of the Centre for 1992-93 will be Rs.5389 crores and the fiscal deficit for that year  will be Rs.34408 crores.

125.Our nation will remain eternally grateful to Jawaharlal Nehru for his  vision and insistence that the social and economic transformation of India had to  take place in the framework of an open society, committed to parliamentary  democracy and the rule of law. India’s development is of tremendous significance  for the future of the developing world. To realise our development potential, we  have to unshackle the human spirit of creativity, idealism, adventure and enterprise  that our people possess in abundant measure. We have to harness all our latent  resources for a second industrial revolution and a second agricultural revolution.  Our economy, polity and society have to be extraordinarily resilient and alert if we  are to take full advantage of the opportunities and to minimise the risks associated  with the increasing globalisation of economic processes. We have to accept the  need for reform if we are to avoid an increasing marginalisation of India in the  evolving world economy. The economic policy changes brought about by our  Government in the last eight months are inspired by this vision. Our party is an  inheritor of great traditions of national service. True to this heritage, we commit  ourselves to providing a firm and purposeful sense of direction to the reform process  so that this ancient land of India regains its glory and rightful place in the comity  of nations. This budget represents a contribution to the successful implementation  of this great national enterprise, of building an India free from the fear of war, want  and exploitation, an India worthy of the dreams of the founding fathers of our  republic. We shall pay any price, bear any burden, make any sacrifice to realise  those dreams. India is on the move again. We shall make the future happen.

126.Sir, I commend the Budget to this august House.  [29th February, 1992]

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