Rajiv Ghandi – 1987 Budget

Finance Minister Rajiv Ghandi
Budget Year :1987


Rajiv Ghandi



Sir,  I rise to present the Budget for the year 1987-88.

2. Twenty nine years ago, presenting the country’s budget, Jawaharlal Nehru  told this House:  “The times we live in and the problems that our country has to face do not  permit a static or complacent approach or any avoidance of the burdens  which inevitably accompany an attempt to advance with some speed…..  We have to strive with all our strength for our planned development by  conserving all our resources, increasing production and trying to ensure  progressively a more equitable distribution, and thus to raise the standards  of the great mass of our people.”  These are our objectives today.

3. When we came into office, we were fortunate in inheriting from Indiraji  an economy that was sound. After the devastation of 1979-80, the inflation rate was  brought down sharply. The growth rate was stepped up, and the infrastructure restored  to health. We have built on these successes and initiated a process of reform in areas  requiring urgent attention. This, I believe, we have been able to accomplish in large  measure.

4. Our principal objectives are the elimination of poverty and the building of  a strong, modern, self-reliant, independent economy. In these two years we have  sharpened the focus on poverty alleviation. Direct outlays on anti-poverty programmes  were substantially increased in the last Budget. The 20-Point Programme (1986) was  announced in August. Taking advantage of high stocks of food, rural employment  programmes were expanded. Two million tonnes of cereals were made available in  tribal areas at highly subsidised rates. We launched an important scheme to enlarge  employment opportunities for the urban poor. I have extensively toured and seen the  work being done in the most backward and remote villages of our country. Talking to  the people face to face, I know how much more needs to be done. I am also convinced  that we are making progress in our struggle against poverty.

5. Agriculture is the bedrock of our economy. Growth in this sector is also  crucial for the removal of poverty. Our farmers, farm technologists and scientists have  2  turned India from a net-importer of foodgrains living at the margin of survival to selfsufficiency.  We are proud of them. We congratulate them.

6. We have reinforced the policies that have proved so successful. We are  committed to providing remunerative prices, and increased availability of water, power,  seeds, fertilizers and credit to our farmers. Foodgrain production will exceed 150  million tonnes despite a poor monsoon. We have increased incentives to our farmers  to reduce our dependence on imports of sugar and edible oils. They have responded  magnificently.

7. I am, however, concerned about the situation of agricultural labour. They  are subject to exploitation. Government will appoint a National Commission on Rural  Labour. It will look into the working conditions of this vulnerable section of our  society and the implementation of social legislation for their protection .

8. Industry is forging ahead. Major initiatives for modernising industry and  stimulating industrial investment were taken in the Sixth Plan. Our strategy in the  Seventh Plan is to build on these initiatives to strengthen industrial performance. We  are encouraging economies of scale in production, induction of modern technology  and greater competition to increase production, reduce costs and improve quality. We  have enhanced the incentives for small scale units. There is clear evidence now that  these policies are having the expected impact on the economy.

9. Our industrial base has widened. New industries have developed . The  small scale sector has expanded rapidly. A large number of new jobs has been created.  In the three years beginning 1984-85, the growth rate in industry is expected to exceed  8 per cent per annum on average – this has not happened in the last twenty years.

10. We have given high priority to the important task of tax reform. Our tax  laws and rules had become complex. There was widespread evasion. Reform was  vital. Our reform of the fiscal system, undertaken in the past two years, has been  thoroughgoing. We have made tax rates and the tax structure reasonable. We have  simplified laws and procedures. We have enforced these laws vigorously without fear  or favour. This has helped the honest tax payer, and yielded more revenue than ever.

11. The public sector is the core of our industrial economy. I am also convinced  that our public sector enterprises can be made as efficient as any in the world. I am  glad to say that the infrastructure industries in the public sector are showing distinctly  better performance. There has been a significant improvement in productivity in coal,  power and railways. The improvement in thermal power generation is particularly  striking. The plant load factor in the current year is the highest since 1976-77. The  improvement in the functioning of infrastructure has been brought about by a change  in the management culture, and better performance on the shop floor.

12. Government will further improve the working of public sector enterprises.  We will enhance their autonomy, and make them accountable for results. Government  will bring before Parliament a White Paper on the public sector.

13. As a nation, we have good reason to be satisfied with our economic  performance. During a period when growth rates in many developing countries have  declined sharply, we have been able to accelerate growth and increase per capita  incomes. We have avoided debt problems, and have kept inflation under control. Our  food stocks and foreign exchange reserves are comfortable. These are important  strengths. But we cannot afford to be complacent. The world environment, both political  and economic, continues to be unfavourable. There are also important domestic  problems that demand our attention.

14. The rapid growth in Government expenditure is exerting mounting  pressures on our fiscal balance. In the recent period, we have been compelled to  increase defence expenditure. We shall spare no effort nor shrink from any sacrifice  where our national security is concerned. At the same time, there are pressing  requirements for development. Any slackness in critical investments now will cost us  heavily in the future. It is a social imperative to spend on programmes which directly  benefit the poor and to provide food subsidy. We have had additional commitments  arising out of implementation of the Pay Commission’s Report. Higher relief and  grants had to be provided to several States severely affected by drought and flood.

15. Even so, some hard choices have to be made to keep our expenditure  within our means. Government is determined to make them. The situation requires a  thoroughgoing review of our expenditure policy. Mere scratching the surface will not  help. Ad hoc and across the board cuts of the past, while providing temporary relief,  have not yielded enduring results. There is no room for waste, ostentation or  unproductive expenditure. We have to pull together and work harder than ever before  to realise national goals.

16. We have a good record in price management. However, it will be a mistake  to take too complacent a view of the price situation. The demand and supply balance  in a developing economy is always delicate. Any external or internal disturbance can  create difficulties. It is essential, therefore, to keep a careful watch on the price situation.

17. The balance of payments has been under pressure. We had anticipated  this and initiated a range of measures to curb the growth of imports and increase  exports. These have yielded results. Exports increased by 17 per cent while imports  increased by only about 2 per cent in the first nine months of the current year. The  trade deficit is lower than last year by Rs. 1,000 crores. But there is much more to be  done. Part of the improvement is due to the fall in oil prices and we cannot count on  this. Government will remain fully vigilant on the external front.

18. The results of policies initiated in the last two years show that our direction  is correct. I propose to use this year’s Budget to provide a new thrust in selected areas  which will strengthen the economy and further our Seventh Plan objectives. First  among these is education.

19. The New Education Policy has been adopted by Parliament after extensive  discussions.It has been evolved from a national consensus. It is a powerful weapon to  fight poverty. It gives to the socially and economically weaker sections the means to  realise equality of opportunity guaranteed by our Constitution. It will help us preserve  our heritage and release the creative energy of our youth. It will bind together people  speaking different languages, professing different faiths and belonging to diverse  cultural traditions that are part of the composite culture of India. It aims at excellence  in all fields – science, technology, the arts, humanities and philosophic thought.

20. To give a good start to the new Policy, I have allocated as much as Rs.800  crores for education as compared with Rs.352 crores in 1986-87. This massive increase  is a measure of our resolve to bring about an educational transformation in our country.

21. State Governments have the primary responsibility for education. These  resources will supplement the efforts of State Governments.

22. The momentum of anti-poverty programmes will be maintained. In 1985-  86, one million tonnes of foodgrains was provided to States as grant for extending the  coverage of the National Rural Employment Programme (NREP) and the Rural  Landless Employment Guarantee Programme (RLEGP), resulting in the creation of  62 million mandays of additional employment. In 1986-87, the additional allocation  was increased to two million tonnes, leading to additional employment of 128 million  mandays. I propose to continue the Programme of allocating additional foodgrains for  employment.

23. The Integrated Rural Development Programme will be strengthened further.  This year, more than 3.2 million families are likely to benefit. In the coming year, an  outlay of Rs.310 crores is being provided. Combined with matching allocations of  States and credits from the banking sector, the total flow of funds under this Programme  will be 4 to 5 times greater than this allocation. Total Plan outlay for the Department  of Rural Development will exceed Rs.2,000 crores in 1987-88. This compares with  the total Sixth Plan expenditure of about Rs. 3,600 crores.  24. Housing is high on our list of priorities. It is a basic need. It also generates  employment. We propose to launch a comprehensive programme for housing  development, particularly housing for economically weaker sections.

25. The Central Government has again earmarked Rs.125 crores in 1987-88  for the Indira Awaas Yojana. Under this scheme, one million houses will be built  during the Seventh Plan period for the Scheduled Castes and the Scheduled Tribes.  We have decided that State Governments would be free to use the amounts allocated  to them under this Programme as seed capital for launching Indira Awaas Yojana  Societies for housing loans for the Scheduled Castes and the Scheduled Tribes.

26. A new financial structure will be created to provide funds for housing. At  the apex level, a new national housing bank will be set up by the Reserve Bank of  5  India with an equity capital of Rs.100 crores. This bank will promote housing institutions  at both local and regional levels. The Reserve Bank will be announcing the details  separately.

27. The National Commission on Urbanisation, in its Interim Report, has  suggested several changes in the laws affecting housing, including the Urban Land  (Ceiling and Regulation) Act, 1976. This important social legislation aimed at using  surplus lands in urban areas for the common good. However, the results achieved  have been disappointing. Although 10 years have passed, less than one half of one per  cent of the land declared surplus has actually been used for construction. Meanwhile,  scarcity of land has pushed up rents and speculative profits in urban areas. The worst  sufferers have been the poor. This is not acceptable. I have asked the Ministry of  Urban Development to work out suitable legislative proposals taking into account the  recommendations of the Commission, and place these before the House for  consideration.

28. The Commission has also recommended certain changes in the Rent  Control Acts which would give protection to the economically weaker sections, while  also providing sufficient incentive for new constructions. These changes should, over  time, bring down rents by improving the availability of housing. The report of the  Commission will be commended to State Governments.

29. Later, in my speech, I shall be announcing certain incentives for income  tax payers in respect of housing loans taken from specified institutions.

30. In the last two years, Government has taken a number of measures for  workers’ welfare. These include legislative changes to protect workers’ dues,  introduction of a new stock option scheme for workers, increase in eligibility limit for  bonus payments, increase in the rate of DA for public sector employees, tax concession  for investment in workers’ housing, increase in the interest rate on workers’ Provident  Funds and removal of ceiling of house-rent allowance for exemption from incometax.  As a further step, I propose to make certain legislative changes in the Income-tax  Act to protect the dues of workers by way of Provident Fund, ESI and gratuity.

31. We have achieved remarkable success in mobilising small savings. An  expert group, appointed by Government last year, has pointed out certain problems  with the present scheme of tax incentives on personal savings. An important lacuna is  that fiscal concessions are currently available for gross savings, with no penalty for  dissaving. It has, therefore, recommended shifting to a system which gives incentives  for net savings.

32. I propose to introduce a new savings scheme based on the net saving  principle. To avoid any transitional problems, this scheme will be, for the present, in  addition to the existing tax concessions available under Section 80C of the Incometax  Act for National Savings Certificates and other instruments. Under the new scheme,  6  50 per cent of deposits upto a maximum of Rs.20,000 will be eligible for deduction.  However, in the year of withdrawal, 50 per cent of the amount withdrawn will be  added to the taxable income . Receipts under the scheme will be shareable with States.  The full details of the new savings scheme, which will be introduced in the next  financial year, are being announced separately.

33. The capital markets in India have shown tremendous growth in the last  few years. Approvals for capital issues have exceeded Rs.5,000 crores in 1986-87.  They were only about Rs.500 crores in 1980-81. For a healthy growth of capital  markets, investors’ rights must be fully protected. Trading malpractices must be  prevented. Government have decided to set up a separate Board for the regulation and  orderly functioning of Stock Exchanges and the securities industry.

34. Last year, the UTI had set up a Mutual Fund for investment in equity to  attract small investors. In order to widen their choice, the State Bank of India will set  up a similar Mutual Fund. I shall also be announcing certain measures later which  should contribute to the development of capital markets.

35. I have referred to the acceleration in industrial growth. Government’s  main thrust is to modernise India’s industrial structure. Efficiency and productivity  have to be increased. Existing technology has to be upgraded. New technology has to  be absorbed and further developed indigenously. Costs must be reduced. All these  objectives can only be realised in a medium term time frame.

36. Government have been carrying out an intensive review of individual  industries. New policy measures have been announced in respect of several important  industries, such as, textiles, jute, sugar, drugs, electronics and software. We have also  set up the Textile Modernisation Fund and the Jute Modernisation Fund. These will  facilitate modernisation of these traditional industries which provide substantial  employment. Another special development fund is being set up for jute. This will  benefit growers and workers and promote diversification and research and development.

37. Government will continue to undertake systematic reviews of the total  policy framework for selected industries, and take necessary steps to stimulate growth  and modernisation.

38. The capital goods industry is central to our efforts for achieving self  reliance. It needs immediate attention. I propose to introduce a package of measures  to further accelerate the growth of this industry. First, import duty rates for machinery,  including general project imports, are being adjusted. Second, in order to reduce  costs of domestic manufacture in certain critical sectors, such as, power, heavy  equipment and textile machinery, cost of certain special types of imported steel is  being reduced. I will have more to say on these proposals later.

39. Third, a special programme of technological upgradation for selected  capital goods industries will be launched by financial institutions for the three year  7  period upto the end of this Plan. This will cover in the first instance electrical machinery,  including power equipment and electric motors, foundries and machine tools. The  objective of this programme will be to induct the latest technology in these sectors,  improve indigenous R & D facilities for constant upgradation, and reduce costs. The  details will be announced separately by the Industrial Development Bank of India.

40. Industries linked to agriculture have a special role in our development.  They provide markets for agricultural produce and generate higher incomes for our  farmers. I have already referred to the measures taken for modernisation of two of the  most important agro-based industries, namely, jute and textiles. Last year’s budget  had provided important tax incentives for use of certain indigenous oils in vanaspati.  I shall be announcing certain proposals to encourage the food processing industries.  This will benefit the farmer and the consumers. There are other proposals to benefit  cotton and wool.

41. In the past year, Government have taken a number of measures to support  export industries. New schemes of cash compensatory support and customs duty  drawback have been introduced. Import duties on capital equipment for selected export  industries have been reduced. Interest rates have been lowered. Specified raw materials  are being provided at international prices. Fiscal incentives have also been extended.  Exports are now doing better. In this Budget, I shall be proposing some further measures  for increasing export production.

42. Mr. Speaker, Sir, these and other budget proposals will strengthen the  productive forces in our society. The fundamental assumption of the Seventh Plan, as  indeed of all our Five Year Plans, is that growth and development are the real antidotes  to poverty. Direct measures for alleviation of poverty are indispensable in our society.  However, such measures can be sustained only by rapid development. This was the  message that Jawaharlal Nehru gave to the country while introducing the Second  Five Year Plan in this House :  “We have, therefore, to lay great stress on equality, on the removal of  disparities, and it has to be remembered always that socialism is not the  spreading out of poverty. The essential thing is that there must be wealth  and production….”

43. We can grow faster only if we use modern technology. This is the only  way to deal effectively with the problems of unemployment and poverty. Those wise  men who decry the use of modern technology in the name of social justice would do  well to listen to Panditji, who in the course of the same speech, said,  “Do not imagine that minus technological progress we are going to deal  with the problem of unemployment…. If India is to advance, India must  advance in science and technology, and India must use the latest techniques,  8  always keeping in view, no doubt, that in doing so, the intervening period,  which always occurs, must not cause unhappiness or misery. “

44. This then is our basic strategy – a framework of sustained growth on the  basis of rapid modernisation of India’s agriculture and industry. I am committed to  planning for socialism in India, socialism which fits in with our genius but nevertheless  socialism in its basic meaning of removing disparities and providing equality of  opportunity. This is the yardstick by which I want to judge all policies and programmes.

45. Let me now turn to the Revised Estimates for 1986-87 and Budget  Estimates for 1987-88.  REVISED ESTIMATES 1986-87

46. Budget Estimates 1986-87 provided for a total expenditure of Rs.52,883  crores. The expenditure in the current year is likely to exceed the original estimate by  Rs.7,445 crores owing to a number of post-budget developments.

47. I do not propose to take the time of the House by going into details as  they have been explained in the Budget documents. I shall only refer to certain major  items.

48. Non Plan expenditure is expected to be higher by Rs.5,508 crores including  expenditure arising from the recommendations of the Fourth Pay Commission. To  reduce the cost of carrying the buffer stock, the Food Corporation of India is being  provided loans of Rs.1,200 crores on soft terms. This will replace equivalent bank  financing. For reasons well known to the House, we have increased defence expenditure  by Rs.1,466 crores. Interest payments will be higher by Rs.800 crores.

49. Plan expenditure is likely to be Rs.1,937 crores higher than the original  estimates. Budgetary support for the Central Plan is expected to increase from  Rs.13,617 crores to Rs.14,792 crores. The increase of Rs.1,175 crores is mainly in  Telecommunications, Railways, Petroleum, Mines, Textiles and Atomic Energy sectors.  Central assistance for State and Union Territory Plans will be Rs.762 crores more  mainly because of additional Rs.510 crores of advance Plan assistance to States affected  by natural calamities. Taking Plan and Non-Plan together, natural calamities assistance  to States will be Rs.640 crores higher than the Budget Estimate of Rs.150 crores.

50. Coming to receipts, net tax revenue is likely to increase by Rs.1,564 crores  compared with the Budget Estimate of Rs.22,643 crores.This is a large increase, made  possible by vigorous implementation of our tax laws. Non tax revenue and capital  receipts including the contributions from the oil sector are estimated at Rs.27,836  crores against the Budget Estimate of Rs.26,537 crores. The total receipts are placed  at Rs.52,043 crores and the total expenditure at Rs.60,328 crores. Inclusive of Rs.1,200  crores on account of replacement of bank credit for buffer stock by Government loans,  the current year is expected to end with a Budgetary Deficit of Rs.8,285 crores.

51. The deficit is high and I do not like it. I have decided that the deficit in the  Budget Estimates for 1987-88 shall not be exceeded. Some supplementary demands  are unavoidable; I am instructing the Ministries and other Central Government  organisations to ensure that additional demands are offset by equivalent savings or  through measures to raise more resources. We will review the financial performance  of public sector units to ensure that targets for internal resource generation are met. I  am constituting a Cabinet Committee on Expenditure to monitor the implementation  of these measures.

52. The overall economic situation is good. Our foodstocks and foreign  exchange reserves are quite satisfactory. We have been able to keep the overall price  situation under control through judicious demand and supply management. Along  with expenditure control, we will continue to take anticipatory action to reduce excess  liquidity and increase supply of sensitive commodities, particularly foodgrains, sugar  and edible oils.

53. Following the report of the Committee on the working of the monetary  system, in consultation with the Reserve Bank of India, it has been decided that  henceforth the Budget documents should show the budgetary deficit as well as the net  change in the Reserve Bank of India credit to Central Government. The latter presents  a more accurate measure of the monetary impact of the Government’s fiscal operations.  According to the present information, it is estimated that the change in the net Reserve  Bank of India credit to Central Government in 1986-87 will be Rs.7,250 crores, which  is lower than the budgetary deficit.


54. For 1987-88, in the present situation, I have given the highest priority to  maintaining the tempo of the Plan. I have provided an outlay of Rs. 24,622 crores for  the Central Plan of 1987-88, of which Rs.14,923 crores will be provided as budgetary  support. With this order of outlay, in the first three years of the Plan, we would have  fulfilled about 63 per cent of the Seventh Plan outlay. This is a record.

55. However, we now have to make greater efforts to achieve more for every  rupee of investment that we make. Achievement of physical targets is far more important  than just spending the money. Government must be more cost effective. The cost of  delivery of our programmes must be reduced.

56. The Government has, therefore, given a high priority to implementation  of projects in time, avoidance of time and cost over-runs in projects, and the use of  innovative methods and new technologies. A monitoring system has been set up for  projects under implementation.

57. Revised accounting classification to bring about one to one correspondence  between heads of accounts and heads of development used for Plan purposes is being  introduced from 1.4.1987 in consultation with the Comptroller and Auditor General of  10  India. This will strengthen the planning process and help better monitoring. Equally  important is obtaining timely feed-back from grass root levels regarding implementation  of programmes and flow of benefits therefrom.

58. In the Central Plan, a high priority has been given to programmes which  have an impact on alleviation of poverty in the rural areas. As I mentioned earlier,  particular emphasis has been given to education , the NREP, the IRDP, the RLEGP,  rural water supply, and the use of food stocks for creation of additional employment  opportunities in the rural areas.

59. Agricultural development has a major impact in alleviating poverty. In the  Central Plan, the accent in the agricultural sector continues to be on increasing  productivity by increasing the area under high yielding and improved varieties,  accelerated transfer of new technology, increasing crop intensity, diversifying the  cropping pattern and control of pests and diseases. Some of the important programmes  under implementation are : Special Rice Production Programme, National Oil-seeds  Project, National Watershed Development Programme and National Pulses  Development Project. These projects are designed to solve specific agricultural  problems, and are already making an impact in our rural areas.

60. Irrigation and fertilizers are two major components of programmes for  increasing agricultural productivity. In irrigation, a high priority is being given to the  completion of on-going projects and for bridging the gap between irrigation potential  and its utilisation. Fertilizer production in the current year will increase to nearly 7  million tonnes from about 5.7 million tonnes last year. The fertilizer plant at Paradeep  has commenced production during the year. In the next year, the fertilizer plants at  Vijaipur and Aonla – each with a capacity of 7.2 lakh tonnes of urea are expected to  be commissioned.

61. In terms of financial outlays, infrastructure sectors, namely, energy,  transport and communications will account for more than 54 per cent of the total  Central Plan . In 1987-88, taking the Centre and States together, we will be  commissioning 4880 MW of additional power capacity. In coal, the output per manshift  has improved by 11 per cent. The target for coal production in 1987-88 is 183.5  million tonnes as against 165 million tonnes in 1985-86.

62. In the Sixth Plan, we were able to increase our crude oil production nearly  three-fold. In the current Plan, production is likely to show a slower increase and it is  necessary to accelerate investment in exploration and development of new oil fields.  The total outlay for the petroleum sector as a whole is Rs.3,265 crores next year.

63. In order to save the time of the House, I have mentioned only a few of the  highlights of the Central Plan for 1987-88. In several other areas, such as, women and  child development, health and family welfare, youth affairs and sports, art and culture,  science and technology, environment, social forestry and information and broadcasting,  11  this Government has taken several new initiatives to make the Plan more meaningful  to our people. These programmes are being strengthened. Necessary provisions have  also been made for industrial projects, including those in heavy industry, steel and  mines.

64. I am also happy to inform the House that the total Plan outlay of States  and Union Territories for 1987-88 has been fixed at Rs.19,537 crores representing an  increase of 17 per cent over the current year. We have taken care of the requirements  of Arunachal Pradesh and Mizoram on being elevated to Statehood. A provision of  Rs.8,754 crores has been made next year for Central assistance for State and Union  Territory Plans as against Rs.8,140 crores in the current year’s Revised Estimates.

65. The Budget Estimate for defence is Rs.12,512 crores in 1987-88. This has  naturally cast a heavy burden on our budgetary resources, but the House will agree  with me that no compromise is possible where country’s defence is concerned. The  strength and morale of our Armed Forces are high. On behalf of this House, I assure  our Jawans of the unstinted support of the entire nation.

66. Interest payments next year are estimated at Rs.10,650 crores against  Rs.9,550 crores in the current year. Food and fertilizer subsidies including arrears, are  placed at Rs.3,910 crores as against Rs.3,893 crores in the current year. Next year’s  Budget includes a lump provision of Rs.500 crores to cover likely increases in additional  dearness allowance to Government employees and also the increases in pensionary  charges arising out of the recommendations of the Fourth Pay Commission. This  Government – ever sensitive to the difficulties of pensioners- has decided to increase  the minimum pension and minimum family pension to Rs.375 per month. This will  benefit nearly six lakh pensioners.

67. The total Non Plan expenditure in 1987-88 is estimated at Rs.39,266 crores.  Tax revenue next year net of States’ share is estimated at Rs.25,689 crores against  Rs.24,207 crores in the current year. Non tax revenue and capital receipts are placed  at Rs.31,243 crores against Rs.27,836 crores in the current year. The total receipts at  existing rates of taxation thus amount to Rs.56,932 crores against the total expenditure  of Rs.62,942 crores, leaving a gap of Rs.6,010 crores.

68. I shall now turn to my tax proposals.


69. In the 1985-86 Budget, we initiated a process of major tax reform. The  broad direction and strategy for this reform was set out in the Long Term Fiscal Policy  (LTFP). We will be introducing a detailed Amendment Bill on Direct Taxes separately  in the Budget Session. This Bill will implement wide ranging changes aimed at  simplification and rationalisation.

70. The basic thrust of my few Direct Tax proposals is to provide incentives  for savings to promote investment and to support housing. I propose to strengthen  some welfare measures. I have also included some measures to enhance revenue.

71. I do not propose any changes in the rate structure for Personal and  Corporate Taxes. This is in line with the Long Term Fiscal Policy.

72. In order to conserve foreign exchange and to raise revenue, I propose to  levy a modest tax of 15% on foreign exchange released in India for foreign travel.  Foreign exchange released for medical treatment and education abroad will be excluded.  This tax will be applicable for travel from a date to be notified. The revenue yield  from this measure is expected to be Rs. 60 crores.

73. Those who can afford to patronize high class hotels should also be afforded  the further pleasure of contributing to the national exchequer. A separate legislation  will be brought forward for levy of a tax on expenditure in expensive hotels. This tax,  to be levied at 10% of expenditure, will not apply to payments made in foreign  exchange. It will become effective after passage of the necessary legislation.

74. I have already mentioned the decision to introduce a new National Savings  Scheme based on net savings. Necessary legislative changes are being included in the  Finance Bill.

75. I propose to provide a fiscal incentive for channelising savings into the  housing sector. Repayment of loans and payments made to the extent of Rs.10,000 in  a year towards the cost of any new residential property will qualify for deduction on  the same lines as life insurance premia or contribution to provident fund under Section  80C of the Income-tax Act. This exemption will be within the existing limit of  Rs.40,000.

76. Capital gains arising from the sale of a residential house are exempted in  case such gains are utilised for acquiring another house. This was hitherto applicable  only to individuals. It is now being extended to Hindu Undivided Families.

77. I understand that for the purpose of taxation of income from houses, our  tax laws make a distinction between a real owner who is not a legal owner and a legal  owner who is not a real owner. Following the well-established revenue tradition,  when it comes to taxing, we tax both the real owner who is not a legal owner and the  legal owner who is not a real owner. Concessions available to a house owner are,  however, given only to a real owner who is also a legal owner. I propose to simplify  the law by clarifying that the real owner, even if he is not the legal owner, will pay  the tax and avail of the concessions available to the legal owner. I hope this proposal  is abundantly clear to the Hon’ble Members.

78. In cases where the compensation for acquisition of a property is enhanced,  or where a new residential house is not acquired within the specified time after selling  13  the old house, the completed tax cases for the past years have to be modified to tax the  capital gains accrued earlier. Certain procedural changes are being made in the law to  remove this complication.

79. Several important changes have been introduced in the corporate tax  structure in the last two years. With effect from April, 1987, a liberalised set of  depreciation rules is being introduced. Depreciation will be allowed in respect of  blocks of assets instead of the present system linked to individual assets. There will  be only three rates of depreciation for plant and machinery, namely, 100%, 50% and  33-1/3%. Apart from simplifying assessment, this will enable industry to replace and  modernise capital equipment faster.

80. It is only fair and proper that the prosperous should pay at least some tax.  The phenomenon of so-called “zero-tax” highly profitable companies deserves attention.  In 1983, a new Section 80VVA was inserted in the Act so that all profitable companies  pay some tax. This does not seem to have helped and is being withdrawn. I now  propose to introduce a provision whereby every company will have to pay a “minimum  corporate tax” on the profits declared by it in its own accounts. Under this new  provision, a company will pay tax on at least 30% of its book profit. In other words,  a domestic widely held company will pay tax of at least 15% of its book profit. This  measure will yield a revenue gain of approximately Rs.75 crores.

81. The capital markets have shown remarkable buoyancy. I propose to make  some changes in the Tax Laws which will support healthy development of the capital  markets. The existing provision of allowing deduction in respect of investment in  equity shares of certain categories of new companies was to be withdrawn with effect  from 1st April, 1987. In view of the need to continue support for issues of new  companies, I propose to extend this concession for 3 more years. I also propose to  reduce the holding period of these shares from 5 years to 3 years.

82. At present shares have to be held for a period of 36 months before capital  gains on their transfer qualify for the concessional treatment allowed for long term  capital gains. It is proposed to reduce the holding period to 12 months. This will  provide greater flexibility to investors and also improve the mobility of capital invested  in shares.

83. Concentration of industries in many of our urban areas poses serious  problems of congestion, pollution and hazards. In order to encourage industries to  shift out of such areas, I propose to exempt capital gains made on the sale of land and  buildings in such areas provided these are reinvested in approved relocation schemes.

84. The provisions regarding additional income-tax on undistributed profits  of closely held companies have lost their relevance after the reduction in tax rates  effected in 1985-86 Budget. These are being deleted. Because of some court decisions,  the capital gains on transfer of goodwill of a concern or transfer of assets from a firm  to a partner and vice-versa escape the tax net. Such gains will be explicitly taxable.

85. A tax holiday to newly established undertakings in Free Trade Zones has  been provided. It is being clarified that this will also extend to units which develop  software as also those which assemble or process components for exports.

86. A tax concession is available to the Indian companies earning income  from a foreign Government or a foreign enterprise for imparting technical knowhow.  This tax concession will now be available only if the foreign exchange earned is  repatriated to India. It is also being clarified that an Indian resident cannot be treated  as a foreign enterprise for this purpose.

87. It is proposed to exclude computers and machines for transmission and  reception of messages from the list given in the Eleventh Schedule of the Income-tax  Act as these industries are no longer non-priority.  88. At present Indian citizens earning remuneration in foreign currency for  services rendered abroad are allowed 50% exemption under Section 80 RRA of the  Income-tax Act subject to certain conditions. This is being further liberalised. The  exemption will now be allowed to the extent of 50% of the remuneration, or 75% of  the remuneration repatriated in convertible foreign exchange, whichever is higher.

89. In order to improve coverage and prevent tax evasion, it is proposed that  tax at specified rates should be deducted at source in respect of all payments beyond  certain prescribed amounts of fees for professional and technical services, royalty,  rent, commission or brokerage and payments for goods supplied to Government, etc.  This will apply to payments made by all persons, excepting individuals and Hindu  Undivided Families.  90. Let me now come to measures for the welfare of workers, members of  armed forces and the handicapped. There are a number of cases where the employers  do not credit their own contributions nor those of the employees to the Provident  Fund and the State Insurance Fund. It is also unfortunate that a separate fund is not  being kept by some employers in respect of gratuity of workers. To prevent this antilabour  practice, we propose to penalise such delinquent employers by providing that  the contributions of the employees to these funds will be taxed as the income of the  employer and allowed as a deduction only when they are made over to the separate  accounts relating to these funds within the time allowed under the statute.

91. Any compensation received by a workman at the time of his retrenchment  is exempt from tax. Similar exemption is being extended to payments made under  voluntary retirement schemes for public sector employees.

92. Regimental Funds or Non-public Funds are utilised for purposes such as  providing assistance to widows of armed personnel killed in action, as also to disabled  soldiers. The contributions will enjoy similar tax concessions as other funds of national  importance like the National Defence Fund.  15

93. I am increasing the special deduction allowed to the physically  handicapped persons and the totally blind from Rs.10,000 to Rs.15,000.

94. There are other procedural proposals in the area of Direct Taxes including  those to ensure better functioning of the Settlement Commission which are in the Bill.

95. For the Members of Parliament, I propose to introduce a general  exemption in respect of Constituency Allowance without reference to any monetary  ceiling.

96. The above proposals will give a net revenue gain of Rs.145 crores.

97. Let me now turn to Indirect Taxes. The tariff regime for capital goods  will be restructured and rationalised. I propose to extend MODVAT to most of the  remaining areas. Excise and Customs duties for certain industries are being adjusted  to stimulate growth. There is a package of reliefs for the common man.

98. As I mentioned earlier, the capital goods industry needs special support.

99. At present, there are two tariff rates for import of machinery: 101% for  import of general machinery and a concessional rate of 55% when machinery is  imported for a new project. The low duty rates for project imports have provided a  strong encouragement for unnecessary imports. The differential between the general  rate and the project rate also discriminates against modernisation of existing units,  and favours sickness. These anomalies must be corrected.

100. I propose to equalise the two rates at 85%. The rate of duty applicable for  components will be 15% below the applicable tariff rate.

101. At present, fertilizers, power and electronics are allowed concessional  import duty on their capital goods imports. These rates are being adjusted upwards.  The duty on import of equipment for the electronics industry is being raised from 25%  to 30% and for fertilizer plants, it is being increased from zero percent to 15%. In the  case of power, plants of above 50 MW capacity will continue to be imported at 25%.  Plants of 50 MW and below will pay a higher duty of 35%.

102. Further concessions are needed to encourage upgradation of technology  in specified capital goods sectors.  (i) At present, domestic capital goods manufacturers have to pay very high  import duties on import of special steels. The duty rate is being reduced  to 85% on steels such as boilers-pressure-vessels-quality plates, sheets or  coils, turbine blade flats and stainless steel plates.  (ii) The textile machinery industry will be allowed supply of imported stainless  steel at concessional duty of 65% instead of the prescribed rate of 245%  at present.  16  (iii) In order to encourage modernisation of foundries, import duty on specified  capital goods is being reduced from 101% to 55%.  (iv) Caustic soda plants presently based on mercury-cell technology should be  encouraged to convert into membrane-cell technology. The new technology  saves energy and reduces pollution. Specified equipment required for  this conversion will be allowed imports at concessional duty of 35% instead  of the present 101%.

103. The MODVAT introduced in the 1986-87 Budget was a major innovation.  We covered 38 chapters of the Excise Tariff last year. I now propose to extend  MODVAT to all the remaining chapters except those relating to textiles, tobacco and  the petroleum sectors. MODVAT will now be extended to cover food products, mineral  products, leather and travel goods, footwear, paper and paper-board, wood and cork  products, asbestos cement products and precious metals.

104. Last year, in order to ensure revenue neutrality, the introduction of  MODVAT was accompanied by an increase in the duty on the final product to balance  the set-off being given of the duty paid on inputs. This year, keeping in view the  nature of products, the duty on the final product is not being increased except in a few  items. This will reduce the effective duty on a large number of items.

105. In the case of food products, for example, the total number of items  coverd by MODVAT will be over 100. The duty increase for revenue neutrality is  being done only in case of cheese, malt preparations and aerated soft drink. The  effective rate of taxation on other food products, such as biscuits, skimmed milk  powder, butter, jams and jellies, and confectionery will be significantly reduced.  Farmers and horticulturists are benefited by the expansion of the market of valueadded  food products.

106. Some increase in the final duty is necessary in five of the items which  were covered last year where we have found that set-off given last year was very  much larger than initially estimated. These are zinc-oxide, adhesives based on synthetic  resin, organic surface-active agents, electric motors and primary batteries.

107. A number of important procedural changes are also being introduced to  simplify the operation of MODVAT. Some of the concessions are:  (1) Refund in cash of input duty credit if the final product is exported by the  manufacturer in certain circumstances.  (2) Availability of credit of duties in respect of inputs lying in stock.  (3) Adjustment of input duty credit if additional duty is demanded from input  manufacturers in case of change in classification of inputs.  (4) Receipt of inputs directly by the job-workers will be permitted for all  items under the MODVAT scheme.

108. With these measures, we will have successfully eliminated the cascading  effect of excise duty and given a measure of excise relief.

109. Our comprehensive policy package has made electronics one of the fastestgrowing  industries. It has generated substantial employment. I propose to make  certain changes which will strengthen the basic design of the existing policy.

110. For computers, the following reliefs and rationalisations are being carried  out:-  (i) Import duty on electronic sub-assemblies is being reduced from 308% to  150%.  (ii) The list of peripherals is being enlarged and a uniform rate of import duty  of 60% is being specified.  (iii) Import duty on specified data-communication equipment is being reduced  from 140% to 100%. Duty on mechanical parts of data-communication  equipment is being reduced from 140% to 55%.  (iv) The present notification regarding exemption of import duty on computer  peripherals for Research Institutes is being extended by 3 years.  (v) Duty on computer systems imported under OGL is being reduced from  150% to 140% (basic and auxiliary).  (vi) Import duty on specified electronic parts of computers is being increased  from 25% to 75% in order to give appropriate protection for indigenous  production. The import duty on mechanical parts of computer peripherals  is also being increased from 5% to 75%; and this is being extended to  mechanical parts of CNC system.

111. The Indian computer industry achieved a turnover of Rs.225 crores last  year. It has passed its infancy and is healthy and vigorous. Now that the industry has  arrived, can the tax- collector be far behind? It is proposed to levy an excise duty of  10% on computers and peripherals. With MODVAT, the effective incidence of duty  will be much lower.

112. The research and development base of the electronics industry is crucial  for its long-term success. I, therefore, propose to reduce the duty on specified  equipments required for R&D from 140% to 55%.

113. We must also encourage domestic production of capital goods required  for the electronics industry. At present, mechanical components required for  manufacture of such capital goods attract a duty of 140%. I propose to reduce this  duty to 45% in the case of components required for nearly 300 specified machines.

114. In the field of general electronics, a concessional duty structure of 30%,  45% and 75% is allowed for imports of raw materials, piece-parts and components,  respectively. We are expanding the coverage of this concessional duty structure by  adding some more items.

115. I propose to abolish the excise duty on the production of poly-silicon in  all forms as a measure of support for the domestic industry. The customs duty for the  import of silicon, solar cells and photo-voltaic systems is being fixed at 30%, 45%  and 75%, respectively. I propose to increase the duty on the import of poly-silicon to  75% for electronics industry in the interest of domestic production.

116. Production of television sets has increased rapidly in line with targets. A  thriving and competitive industry has been set up. I propose to make two changes:  (i) As an anti-avoidance measure, it is proposed to impose an excise duty or  countervailing duty of Rs.150 on black and white tubes meant for sets of  size above 36 cms. and to impose an excise duty or countervailing duty of  Rs.600 on all colour television tubes. Under MODVAT, this input duty  would be fully rebated to duty-paying manufacturers with no additional  duty burden on the consumer. It will, however, help to check unlicensed  production.  (ii) The excise duty on colour television sets exceeding 36 cms. size is  presently Rs.1,500 irrespective of the value of the set. I propose to increase  the duty on costlier sets to Rs.1,750 per set. This will apply to sets  cleared at assessable value higher than Rs.5,000 which corresponds to a  retail price of about Rs.7,500. The excise duty for sets cleared at assessable  value of Rs.5,000 or below will remain at Rs.1,500. The costlier sets can  bear the extra duty.

117. These proposals relating to the electronics industry will involve a net  loss of revenue of Rs.19.30 crores. There will be a revenue gain of Rs.40 crores in  excise duty and a loss of Rs.59.30 crores in customs duty.

118. Important developments have taken place in the automobile industry in  the past few years. New technology has been introduced, production has increased  and indigenisation is taking place. Government have been reviewing these and other  developments and will be announcing a comprehensive policy. For the present, I  have the following tax proposals for automobiles:  (i) At present, a concessional rate of customs duty of 50% is allowed for  imported sub-components required for the manufacture of components  for fuel-efficient trucks, cars, and two-wheelers. I propose to enlarge the  list of components eligible for concessional import of sub-components.  This will encourage indigenisation.  19  (ii) Excise duty on fuel-efficient motor vehicles with engine capacity not  exceeding 1000 c.c. is proposed to be increased from 20% to 25%. This  sector can bear the additional duty and it will still benefit from a lower  rate than the rest of the industry.  (iii) For handicapped individuals, I propose to provide for total exemption  from customs duty in respect of automatic transmission and other special  equipment to be fitted into fuel-efficient cars of engine capacity not  exceeding 1000 c.c.  (iv) The rate of duty on import of spares for meeting the after-sales or warranty  of fuel-efficient motor vehicles is being increased from 50% to 75%.  (v) Excise duty on tractors will now be fixed on engine capacity instead of  Power-Take-off-Horse-Power . This is an anti-avoidance measure with  no revenue implication.

119. Plastics are widely used by the common man. They also have a tremendous  potential for use in farms and factories. Our plastic prices are high. Government  propose to initiate measures to reduce costs in this important area.

120. I propose to reduce the basic customs duty on PVC resin (general-purpose  suspension-grade) from Rs.10,500 per metric tonne to Rs.7,500 per metric tonne.  These resins are used in the manufacture of cheap footwear, pipes for agricultural  application and as insulation for wires and cables.

121. I also propose to reduce the basic customs duty on Low- Density -  Polyethylene (LDPE) from 100% to 75%. LDPE is used as a base for production of  a wide range of packaging materials. LDPE film has a big potential use in the lining  of canals and farms and field-channels.

122. The excise duty on products of regenerated cellulose, which includes the  cheap packaging material-cellophane, is being reduced from 40% to 20%. Excise  duty is being similarly reduced on cellulose acetate moulding granules which is used  for spectacle-frames, umbrella handles, tooth-brushes and on sodium carboxy-methyl  cellulose which is used in oil-drilling, textiles processing and detergents.

123. Excise duty on certain varieties of industrial plastics i.e., acrylic and vinyl  resin emulsions is being reduced from 40% to 20%.

124. Over the past year, we have taken a number of steps to strengthen our  export performance through fiscal and other means. I propose to give the following  additional incentives.  (a) For the gem and jewellery industry, customs duty on 46 additional items  of tools, machinery, etc. is being reduced to 35%.  20  (b) For the marine products industry , 3 additional items will be allowed  concessional import duty of 40% (basic and auxiliary).  (c) For the leather industry -  (i) 31 additional items of machinery required for leather industry will  be allowed concessional duty of 35%.  (ii) polyurethane film/foil used for improving finished leather will have  lower countervailing duty of 40%.  (iii) polyurethane leather required for the manufacture of football for  exports will be exempted from duty.  (d) The import duty on tyre moulds required for export production is being  reduced to 25%.  (e) Export duty on mica products is being abolished except for mica waste  and scrap.  (f) Import duty on flax and ramie fibres is being reduced from 80% to 40%.

125. I also propose to make some adjustments which will further benefit the  common man:-  (1) In August 1985, Government introduced a scheme of fiscal relief for the  manufacture of inexpensive blended fabrics -Sulabh fabrics. Under this  scheme, NTC mills are supplied raw material free of excise duty for the  manufacture of suitings of value upto Rs.45 per metre and shirting of  value upto Rs.20 per metre. This scheme has made a good start. It is now  proposed to have a similar scheme for manufacture of Sulabh sarees.  This will make available good-quality sarees at reasonable prices.  (2) At present, footwear of Rs. 45 per pair is exempt from excise duty. I  propose to raise the limit to Rs.60 per pair of assessable value which  corresponds to footwear retailing at about Rs.100 per pair. To off-set the  revenue loss, excise on footwear exceeding this assessable value is being  increased to 15% for leather footwear and 20% on footwear of synthetic  resins.  (3) Janata soaps of value not exceeding Rs.10,000 per metric tonne bear a  lower rate of excise duty of 5%. I propose to raise the value limit to  Rs.12,000 per metric tonne. This should reduce the cost of cheaper toilet  and laundry soaps. Soaps of value between Rs.12,000 per metric tonne  and Rs.25,000 per metric tonne will continue to pay duty at 15% but  expensive soaps, whose value exceeds Rs.25,000 per metric tonne, will  be charged 25%.  21  (4) Complete exemption from excise duty is available in respect of shoddy  wollen fabrics of assessable value not exceeding Rs.40 per sq. mtr. I  propose to raise this limit to Rs.60 per sq. mtr. Shoddy blankets are  already fully exempt from excise duty.  (5) Excise duty on fluorescent tubes is being reduced to the specific rate of  Rs. 2 per tube. The other fittings and parts of such tubes will also pay  reduced excise duty at the rate of 10%.  (6) I also propose to exempt, from excise duty, bio-gas appliances such as  stoves, hot plates and lights. This would encourage greater use of biogas.  (7) Specified life-saving equipment is presently fully exempt from customs  duty but import of spares needed for such equipment attracts duty. This  is an unnecessary burden on our hospitals and clinics. I propose full  exemption also for spares and accessories of such life-saving equipments.  (8) Items like note-books, letter-pads, blotting pads, registers, account books,  file covers are being exempted from excise duty altogether.  126. I have two proposals for cotton textiles:-  (i) I propose to liberalise the Small-Scale Scheme for hand-processed fabrics  by increasing the full exemption limit from 36 lakh sq. mtrs. to 50 lakh  sq. mtrs. in case of hand-processed cotton fabrics.  (ii) The excise duty structure on cotton fabrics in the power- processing sector  is being rationalised. Specific rates of excise duty are being provided in  respect of fabrics of value upto Rs.25 per sq. mtr. This will involve a  revenue loss of Rs. 15 crores.

127. I propose to remove excise duty on wool tops altogether. However, I  propose to increase the customs duty on raw wool, woollen rags and wool waste from  20% to 30% and reduce the customs duty on synthetic rags from 80% to 30%. Excise  duty on polyester-wool-blended yarn is also proposed to be reduced from Rs.30 per  kg. to Rs. 15 per kg. This will benefit cheaper varieties of woollen textiles.

128. The present rates of duty on viscose staple fibre and viscose filament yarn  have not been revised for a number of years. As a revenue measure, I propose to  increase the excise duty on viscose staple fibre from Rs. 5 per kg. to Rs. 7 per kg.  Similarly, excise duty on viscose filament yarn is also being increased by about 12.5%  of the existing rates. These measures together will give us an additional revenue of  Rs. 29 crores.

129. As the House is aware, there is a scheme which has replaced sales-tax on  sugar, tobacco and textiles by an Additional Excise Duty (AED). The proceeds of  22  AED go entirely to the State Governments. The AED is required to be raised to reach  the agreed level of tax incidence. The rate of duty on costlier fabrics of assessable  value exceeding Rs.100 per sq. mtr. is being increased to 20%. The total revenue gain  of AED will be Rs. 40 crores and will be passed on wholly to State Governments.

130. I now propose to deal with some other industries which require relief:Р (1) As a result of recent policies, cement production has grown rapidly  benefiting the consumer and converting a sellers market into a buyers  market. The newer units in the industry need some support in view of  their high capital costs. I, therefore, propose a rebate of excise duty at the  rate of Rs.50 per metric tonne in respect of portland cement manufactured  by units commencing production of such cement on or after 1.4.1986.  This rebate will be available for a period of three years from 1.3.1987.  The levy quota in respect of such units is also being reduced from the  existing 30% to 15%. The excise concession will be available only to  those units whose aggregate production is not less than 30% of the licensed  capacity.  (2) I propose to allow imports of specified machinery for improvement in  productivity and quality of solvent-extracted oils and oilmeals at concessional  duty rate of 55%. Last year, we introduced a system of rebate in excise  duties for vanaspati and soap linked to larger use of minor oils. This has  had the desired effect and production of rice-bran oil as well as its use in  vanaspati and soap have increased considerably. The rebate scheme is being  continued this year. There are some procedural changes and the ad valorem  duty on vanaspati is being changed to a specific duty.  (3) Better food-packaging and food-processing can contribute greatly to raise  the income of our farmers. I have already made some proposals in plastics  which will help. I further propose to reduce the import duty on specified  items of machinery and aseptic packaging from 101% to 50%.  (4) I propose to exempt 36 more drug intermediates used either exclusively  or predominantly in the manufacture of drugs from additional duty of  customs. In addtion, I propose to lower the customs duty to 70% on two  specified drug intermediates required for the manufacture of pyrazinamide,  an anti-TB drug.  (5) Customs duty on specified raw materials for refractories is being reduced.  (6) It is proposed to reduce excise duty on unwrought aluminium of CGgrade  from 13% to 11%.  (7) I propose to reduce excise duty on feature films, including dubbed feature  films by about 10% of the existing duty leviable.  23  (8) Denatured-ethyl-alcohol of specified strength, when imported for use  exclusively for industrial purposes, is being exempted from customs duty  in excess of 60% ad valorem.  (9) It is proposed to merge the two existing SSI schemes for the refrigeration  and air-conditioning appliances and machinery industry into one and to  liberalise it. Full exemption from excise duty will now be available for  clearance upto Rs. 5 lakhs. Thereafter, 50% of the excise duty leviable  will be applicable for clearance between Rs. 5 lakhs and Rs. 15 lakhs.  Subsequently, the unit will pay the normal duty but eligibility limit for  retaining exemption and concessions for the unit will be Rs. 40 lakhs.  (10) I propose to extend the concessional rate of customs duty of 20% in  respect of HBI (Hot Briquetted Iron)/ sponge iron and melting scrap of  steel available to electric arc furnace units to induction furnace units also.  (11) Customs duty on fluorspar (natural calcium fluoride) used for manufacture  of aluminium fluoride is being reduced from 110% to 75%.  (12) I also propose to reduce customs duty to 25% for plant and equipment  needed for manufacture of family-planning apparatus and appliances and  also of equipment using non-conventional energy sources. The same lowduty  rate is being applied for certain specified sophisticated fire-fighting  equipment for fire-fighting services administered by Central/State/U.T.  Governments and local bodies.

131. In looking for more revenue, I have to fall back on the ever dependable  and reliable friend of Finance Ministers and the certified enemy of Health Ministers.  Lately, I am told, the friendly relationship has been marred by disputes and litigation.  I now propose to restore amity between the two by moving over to a new and more  rational system of levying excise duties.

132. The existing scheme of excise duty on cigarettes is based on the printed  retail price. I propose to move over to an entirely new scheme of specific excise duty  based on the length of the cigarette. This is the system prevalent in many countries.  It ensures unambiguous determination of the excise duty, avoiding all problems of  determining either assessable value or sale value.

133. It is proposed that for non-filter cigarettes of size upto 70mm, the excise  duty would be Rs.150 per 1000 cigarettes. In case of filter cigarettes, the excise duty  will be in four slabs namely, upto 70 mm, over 70 upto 75 mm, over 75 upto 85mm,  over 85 upto 100mm. The rates of duty per 1000 filter cigarettes in these slabs will  be Rs.200, Rs.300, Rs.400 and Rs.600, respectively. The tariff rate for cigarettes is  Rs.700 and, therefore, non-filter cigarettes beyond 70 mm length and filter cigarettes  beyond 100 mm length will pay the tariff rate.

134. This scheme will be a major simplification and rationalisation measure.  Incidentally, it will also yield additional revenue to Government of Rs.200 crores!

135. I will now mention some other measures largely of rationalisation:Р (1) Denudation of our forests is causing serious damage to our environment.  The tax structure must also make a contribution towards preservation of  our forest wealth. With this objective in view, we have rationalised the  duty structure on wood products. I propose to levy a uniform rate of  excise duty of 20% on wood products based on waste wood such as  particle-board, insulation and hard- boards and fibre-boards. A higher  rate of 30% will be levied on all plywoods made from prime timber. I  invite suggestions from Members and other conservationists and I am  prepared to take further measures which would implement this policy  objective.  (2) Excise duty on snuff and chewing tobacco or products containing chewing  tobacco is being imposed at the rate of 25% .  (3) A large number of exemption notifications in customs have the effect of  lowering the rate of duty below 25% for many items. In order to prevent  invoicing malpractices, rates of duty should not be below 25% except in  very special circumstances. Accordingly, duty rates are being raised to  25% for 7 items. In a few other cases, the duty rates have been reviewed  and increased.  (4) The concessional rate of 25% (basic) in respect of soda ash will continue  until 31st March, 1988.  (5) The 70% concessional duty on 13 specified parts of mechanical and quartz  analogue wrist watches will continue for another year with certain  modifications. The rate of duty is being enhanced to 100% for three  specified parts. The concessional rate in respect of certain other parts of  wrist watches is being withdrawn altogether.  (6) The excise duty on aerated soft drink is being increased by 20 paise per  bottle and in the case of soda, by 15 paise per bottle. Soda and soft drinks  in packagings other than bottles will have a duty of 60% and 75%,  respectively. MODVAT benefits will now be available to these items.  Hence, the effective incidence will be considerably lower.  (7) Processed foods of various types are charged 15% excise duty. The list of  such processed and relatively expensive packaged foods is being extended  to noodles, spaghetti, macaroni, vermicelli, flakes of cereals, ready-tocook  food- mixes, etc. put up for sale in unit containers.  25  (8) Basic customs duty on unwrought aluminium is proposed to be raised  from 20% ad valorem to 35% plus the normal additional duty. This is  necessitated by the upward revision of domestic aluminium prices to equate  the landed cost of imported metal with the statutory price per tonne.  (9) I propose to raise the excise duty on steel ingots made by mini-steel plants  from Rs.315 per tonne to Rs.365 per tonne so as to equate the duty with  steel ingots produced by the integrated steel plants. Even at the revised  rate, the ad valorem incidence of excise duty will be lower than on the  steel produced by integrated plants because of substantial MODVAT credit  and higher prices.

136. I am also taking this opportunity to bring the surplus of the Oil Pool  Account into the tax-net. This will have no effect on consumer prices. This surplus  presently accrues to Government as non-tax receipts. I now propose to raise the  customs duty on imported crude petroleum by Rs.500 per tonne. I also propose to  increase the ceiling limits upto which excise duty by way of cess for the development  of oil industry may be levied on crude oil and natural gas produced in India. The  limits are proposed to be raised from Rs.300 per tonne to Rs.1000 per tonne on crude  oil and from Rs.50 to Rs.300 per thousand cubic metres on natural gas. The effective  rate of cess on crude oil is proposed to be raised from 1st March, 1987 from Rs.300  to Rs.600 per tonne. The proposals are expected to yield Rs.800 crores by way of  customs duty and Rs.900 crores by way of cess with an equivalent reduction in nontax  receipts. These increases will be absorbed fully by the Pool Account and will not  affect prices paid by the consumer in any way.

137. Apart from the above proposals, I have proposed certain amendments in  the Finance Bill seeking to effect changes in the excise and customs tariffs. These  amendments are merely enabling provisions and have no revenue significance. Besides,  there are several proposals for amendments in existing notifications, excise rules which  have merely procedural significance. In order to save the time of the House, I do not  propose to recount them. Provision in the Finance Bill is also being made for  continuation of the levy of auxiliary duty of customs and Special Excise duty.

138. Copies of notifications giving effect to the changes in customs and excise  duties effective from 1st March, 1987, will be laid on the table of the House in due  course.

139. My proposals in respect of Customs and Central Excise duties outlined  above are likely to yield additional revenue of Rs.531.73 crores from Customs duties  and Rs.431.80 crores from Excise duties. The concessions and reliefs aggregate  Rs.464.81 crores on the Customs side and Rs.130.00 crores on the Excise side. The  net additional revenue from Customs duties thus would be Rs.66.92 crores and that  from Excise duties, Rs.301.80 crores. In Excise duties, the Centre’s share would be  Rs.109.48 crores and that of States, Rs.192.32 crores. Out of the total net additional  26  yield of Rs.368.72 crores, Centre’s share would be Rs.176.40 crores and that of the  States, Rs.192.32 crores.

140. I had earlier mentioned that the Budget deficit at the existing rates of  taxes would be Rs.6,010 crores. The proposed tax measures, taken together with  reliefs, are estimated to yield net additional revenue of Rs.322 crores to the Centre.  This will leave an uncovered deficit of Rs.5,688 crores. This is significantly lower  than the deficit for the current year. As mentioned earlier, I have decided that this  shall not be exceeded. I have set in motion measures to implement this decision.

141. Mr. Speaker, Sir, I am conscious of the enormous challenges that confront  our economy. Some are inherent in the process of planned development in a democracy.  But some are in the nature of a price that we have to pay for pursuing an independent  foreign policy. The people of India have asserted their independence and willingly  accepted these burdens. Their heroic exertions, their sacrifices, and their unshakable  confidence in their capacity to build the India of their dreams are a source of strength,  inspiration and direction to me. Let us move forward with determination.

142. I commend the Budget to the House.  [28th February, 1987]

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