Manmohan Singh – 1993 Budget

Finance Minister : Manmohan Singh
Budget Year : 1993


Manmohan Singh


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.


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]

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