S.B. Chavan – 1989 Budget

Finance Minister : S.B. CHAVAN
Budget Year :1989

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S.B. CHAVAN

1  SPEECH OF SHRI S.B. CHAVAN MINISTER OF FINANCE  INTRODUCTING THE BUDGET FOR THE YEAR 1989-90  Sir,

1. I rise to present the Budget for the year 1989-90. The Budget is an  instrument for achieving the basic objectives of planned development which, broadly,  are growth, modernisation, self-reliance and social justice. In each of these areas, we  have made substantial progress. There are clear signs of an acceleration in the growth  rate of our economy during the eighties. The pace of modernisation, particularly in  industry and infrastructure has increased greatly because of the policies pursued by us  for the past few years. The movement towards self-reliance has been maintained by  the sustained growth in exports. And most important of all, our commitment to the  goals of social justice has been demonstrated in the major initiatives that we have  taken in anti-poverty and employment programmes and in the fulfilment of essential  needs. These long-term objectives provide the framework within which the Budget  for 1989-90 has been formulated.

2. The Annual Budget has to pursue these long-term objectives within the  context of the short-term economic situation. The Economic Survey for the year  1988-89, which was laid on the Table of the House a few days ago, deals with the  economic situation in some detail. I will only highlight a few key points.

3. The performance of the Indian economy in the past few years has shown  unmistakable features of strength. The first is the resilience of the economy when  confronted with the severe disruption caused by drought and floods. Last year, my  predecessor, when presenting the Budget, had referred to this and indicated that the  gross domestic product would grow perhaps by 1 to 2 per cent. I am happy to inform  the House that the latest estimates of economic performance in the drought year of  1987-88 indicate that, despite the drought, GDP grew by 3.6 per cent. This  commendable performance in a year of drought has been followed by vigorous growth  in the current year and we expect the GDP to grow by 9 per cent or more in real terms.  Both the rate of growth of GDP in the drought year and the pace of recovery in the  post-drought year, are significantly higher than those in earlier periods of drought. I  may add that the average growth rate of GDP in the first four years of the Plan will  exceed the Plan target of 5 per cent.

4. The performance in the agricultural sector in these past two years gives  grounds for hope. Last year, despite the severe drought and floods, foodgrains  production was 138 million tonnes, only marginally lower than in the previous year,  showing that our policies to contain the impact of the drought were successful. This  2  year, foodgrains production is expected to exceed the target of 166 million tonnes.  Oilseeds, cotton and sugar production are expected to reach record levels. The sector  continues to demonstrate a high potential for growth.

5. The growth in output in a period of stress, the careful management of the  food economy by the Government, and the special measures taken to boost agricultural  production and provide relief to those affected by drought have ensured that inflation,  as measured by the Wholesale Price Index, was limited to 10.6 per cent in 1987-88.  The rate of inflation in the current year has been under 5 per cent up to the end of  January, 1989 Government is concerned about the pressure on prices, but it is a matter  of some satisfaction that this pressure has been generally lower than in previous  droughts. Government remains fully vigilant on this crucial front and are determined  to ensure effective containment of inflation.

6. The second encouraging feature of economic performance in recent years,  is the sustained growth of industrial sector and improved performance in the field of  infrastructure. For 4 years in succession, manufacturing output has grown by over 8  per cent per year which is a clear vindication of the industrial policy of the Government.  There is a spirit of optimism in industry which is reflected in the generally good  corporate performance and buoyant conditions in the capital market. Electricity  generation has increased steadily and the plant load factor of thermal plants has gone  up from 50.1 per cent in 1994-85 to 56.5 per cent in 1987-88. Targets for capacity  creation in the power sector set for the Seventh Plan are expected to be achieved. In  the Railways the quantity of freight carried has increased in the first three years of the  Seventh Plan by an amount as large as the total increase over the previous 10 years.  More important, there has been a steady improvement in productivity over these years.  A particularly welcome feature is the improvement in the performance of the basic  materials industries. In the first nine months of this year, production of saleable steel  by the integrated steel plants rose by 10.1 per cent, of cement by 12 per cent, nitrogenous  fertilisers by 26.2 per cent and phosphatic fertilisers by 64.5 per cent when compared  with the corresponding period last year.

7. The performance of Central Public Sector Enterprises has shown  improvement. In the first six months of this year the provisional results of 179 operating  enterprises show that their net profit rose to Rs.694.19 crores from Rs.59.79 crores in  the corresponding period of 1987-88.

8. We are committed to a policy of supporting the growth of our public  sector. However, we recognise that some changes are required to ensure a higher  level of performance, particularly with regard to resource generation. With a view to  granting greater autonomy to public sector enterprises consistent with their  accountability, the Government has been signing Memoranda of Understanding with  some of the Public Sector Undertakings. The MOU indicates the responsibilities of  the enterprise in fulfilling certain physical, financial and social objectives including   resource generation, and of the Government, in turn, for supporting the enterprise in  fulfilling various objectives and targets set for the enterprise. Eleven Public Sector  Undertakings signed MOUs with the Government for the year 1988-89. Seven more  Public Sector Undertakings will sign MOUs for the year 1989-90. The Government  has constituted a High Level Committee under the Chairmanship of Cabinet Secretary  to evaluate the performance of MOU signing companies and their administrative  Ministries in fulfilling their obligations under die MOU.

9. I have referred to the resilience of the economy and the improved growth  performance in industry and infrastructure because these are the strengths that will  allow us to pursue even more vigorously our basic objectives of raising the living  standards of the poor and strengthening the economic independence of our country.  But I would be failing in my duty if I do not also draw the attention of the House to  certain problem areas.

10. One area that needs more attention is the stimulation of savings and the  containment of the budget deficit. We have always prided ourselves on being a nation  with a high savings rate, and our culture has always emphasised the virtues of simple  living and frugality. Budgetary policy must reinforce these virtues of thrift both through  positive incentives to stimulate savings and through measures to restrain luxury  consumption. I will indicate later in the speech the specific measures that we propose  to take towards this end.

11. Equally important, and in some sense more significant, is the prudent  management of public expenditure: Sometimes, it is assumed that Government  expenditure, as commonly understood, is all on the wages and salaries of Government  servants and on goods and services purchased by the Government Departments to  fulfil their functions. This is far from being the case. In actual fact the direct  consumption expenditure of the Central Government on defence and Government  Administration is less than one quarter of the total expenditure. A little under one  tenth of the Budget is for the direct capital expenditure of the Central Government.  As much as two-thirds of the Budget expenditure really take the form of financial  transfers to other spending entities by Way of interest, subsidies, grants, loans, etc. In  fact, a significant part of what is shown as expenditure in the Budget is only the  financial inter-mediation of funds shown as a capital receipt on the one side and as  expenditure in the form of loans or equity investment on the other.

12. I am drawing attention to the structure of the expenditure side of the  Central Budget in order to emphasise that the exercise of due prudence is not merely  a matter of economy instructions regarding staff or travel or purchases. That is certainly  important. But it is as important, in fact even more important, to consider other items  of expenditure like subsidies, grants and loans, many of which are embedded in specific  schemes and programmes. We must ask ourselves whether we are getting value for  money from these subsidies, schemes and programmes. In many cases the desired    result could be achieved at a lesser cost by better targetting, consolidation of multiple  programmes, greater decentralisation linked to mobilisation of local resources. We  will ensure that such an evaluation forms the basis for the schemes/programmes that  will form part of the Eighth Plan.

13. The balance of payments is another area of concern. A certain amount of  pressure on external payments is unavoidable in a situation where we have urgent  needs for investment and modernisation which inevitably require expansion of imports.  It is for this reason that Government have attached high priority to expanding exports  to pay for the imports the economy needs. Our policies in this regard have been  successful and in the past two years our exports have increased quite rapidly-over 25  per cent in 1987-88 and 24 to 25 per cent in the first nine months of the current  financial year. But at the same time, the import bill has also increased sharply, especially  so in the first half of this year. This surge in the import bill is partly due to the  foodgrains and edible oil imports necessitated by last year’s drought and partly to the.  sharp increase in the international prices of metals, chemicals and edible oils. Apart  from this, our debt repayment liabilities were relatively high. The limited availability  of concessional finance has compelled us to increase the share of commercial  borrowings, but we have tried to keep these within limits that are manageable. We do  not envisage any difficulty in servicing our external debt.

14. The Indian economy has a great deal of underlying strength. The sustained  growth of industrial sector and the investments made in modernisation and upgradation  will show results in terms of higher exports. Ibis in fact is the real answer to the  balance of payments problem. I have every hope that the momentum of export growth  will be sustained and enhanced. If necessary, we must be prepared to restrain domestic  consumption to some extent in certain areas in order to release supplies for export.

15. We have resisted the temptation to cope with the short-term difficulties in  our balance of payments by ad hoc import regulation through detailed import licensing.  Such a process would be self-defeating as it will disrupt the economy, inhibit exports  and weaken our attempts at modernisation. The composition of our imports has changed  greatly during the eighties. In 1980-81, 65 per cent of our imports consisted of a few  bulk commodities like foodgrains, edible oils, fertilizers, petroleum and metals where  direct import regulation through foreign exchange allocations is relatively easy. In  1987-88, these bulk commodities accounted for only 33 per cent of our imports. The  other imports cover a vast range of raw materials, capital goods, chemicals and industrial  components. Direct regulation of these through foreign exchange allocations is difficult  and could well lead to delays and inefficiency. Hence, the non-bulk import bill has to  be managed through more effective use of indirect instruments.

16. Later in this speech I will put before you some measures to discourage  low priority imports which go towards the consumption of upper income groups. Kit  culture based consumerism is not the objective of our industrial and trade policy and  must be discouraged.

17. Industrial policy has an important role to play in stimulating production  which can substitute efficiently for imports. Towards this end the Government will  ensure that domestic production of items which are imported in substantial quantity is  maximised and will re-examine and remove any restrictions which stand in the way.

18. Let me now turn to the special thrust areas in this Budget.  Anti-Poverty Programmes:  19. Successive budgets have sought to tackle the basic problems of poverty  and unemployment directly, a process which has been greatly accelerated since 1980-  81. In that year, actual expenditure on rural development, social services and food  and cloth subsidies amounted to Rs.1,971 crores in the Central Budget. The greater  part of the expenditure in these areas is for directly targeted programmes to improve  employment and the earning capacity of the poor and of vulnerable groups like  scheduled castes and tribes, and weaker sections, provide them with basic services  like education, health-care and water supply, and subsidise some items of essential  consumption. In 1988-89 the Budget Estimates provided Rs.8,652 crores for the same  activities.

20. I have not included in this total the expenditure on agriculture and the  fertilizer subsidy which has increased from an actual expenditure of Rs.1,179 crores  in 1980-81 to a Budget provision of Rs.4,343 crores in 1988-89.  21. Under the Integrated Rural Development Programme (IRDP) over 25  million families below the poverty line have been assisted to take up income generating  activities. The total investment under this Programme since the beginning of the  Sixth Plan has been over Rs. Ten thousand crores, including the term credit provided  by the financial institutions.

22. I am happy to inform the Hon’ble Members that under the twin programmes  of employment generation for the rural poor, viz., National Rural Employment  Programme (NREP) and Rural Landless Employment Guarantee Programme (RLEOP),  67 crore mandays of employment were generated during 1987-88 as against the target  of 50 crore mandays.

23. The present strategy of direct attack on rural poverty through the existing  major programmes of self-employment and wage-employment will be continued and  made more cost effective.

24. Employment is the most urgent need of our people. Much of the  employment growth will come from growth in agriculture and in labour-intensive  agro-processing industries and services. However, a direct attack on the problem of  unemployment is essential. We, therefore, propose to give a special thrust to all  programmes of employment generation. It is proposed to merge NREP/RLEGP into  a single programme, and to decentralise its implementation. This merged programme  will operate throughout the country and will be funded 75 per cent by the Centre.

25. Poverty and unemployment are intense in certain disadvantaged regions  and existing employment programmes fall short of needs. Hence, in addition to the  reorganised national programme it is proposed to launch a new intensive rural  employment programme which will provide additional funds to selected 120 districts  which are backward and suffer from acute unemployment.

26. In this year when we are celebrating the birth centenary of Pandit  Jawaharlal Nehru, the architect of modern India, there is perhaps no better way of  remembering him than to intensify our efforts to remove poverty and unemployment.  This programme is a further major step in that direction. It will be named after  Panditji to reflect the deepest aspiration of our people.

27. This new programme will allow fuller employment opportunities to at  least one member of each family living below the poverty line. The funds for this  scheme will be in addition to the provision available to the district under the NREP  and RLEGP Programmes. These funds will be merged and locally useful schemes  will be taken up to maximise employment opportunities and the creation of productive  assets. We hope that the enhancement of the provision for employment through this  new scheme will ensure substantial improvement in living standards of the poor and  an increase in the productive and socially useful assets in these areas. The details of  the programme will be announced later. The provision for this new programme will  be Rs.500 crores in 1989-90. Including this, the provision for employment programmes  will be Rs.1.711 crores in 1989-90. I propose to cover the cost of the new programme  basically by mobilising additional resources from those who already have substantial  incomes and the benefit of gainful employment. I will revert to this later in my  speech.

28. We welcome further efforts in this direction by State Governments.  Recently, the Constitution has been amended to raise the upper limit for the profession  tax to Rs.2,500. We urge State Governments to use this enabling provision to mobilise  additional resources for expanding employment.

29. Additional employment will help poor households to raise their standard  of living. But in addition a more direct effort at improving the condition of women  and children is necessary. I therefore propose a new programme for the free distribution  of saris to destitute women. As for children the ongoing Integrated Child Development  Services Programme will be greatly expanded to cover 500 more blocks in addition to  over 1700 already covered. This programme is aimed at raising the health, nutrition  and educational status of poor children.

30. The total outlay for rural development, social services and on food and  cloth subsidies will be Rs.9374 crores in this Budget.

31. The implementation of anti-poverty and social services programmes takes  place largely through State Plans. Many of these programmes are externally assisted.    At present 70 per cent of assistance received under externally aided projects is made  available to State Governments as additional Central assistance. It is proposed to  modify these arrangements to enhance the additional central assistance made available  to the States to 100 per cent for assistance received under externally aided projects in  the social services sector, and for programmes which have a direct bearing on poverty  alleviation. This decision will make available substantially more resources to the  States than under the present arrangements, and will facilitate additional investments  by them in these vital sectors. Sectors which are expected to benefit from this decision  are Agriculture, Rural Development, Irrigation, Environment, Health, Family welfare,  Nutrition, Women’s Development, Education, Housing, Water Supply and Urban  Development.  Agriculture

32. Agriculture is the mainstay of our population and a priority sector in our  Plans. Today the incidence of taxes on agricultural outputs and inputs is minimal and  in fact substantial subsidies are provided both in the Central and State Budgets.

33. As I mentioned earlier, Plan and non-Plan expenditure on agriculture and  the fertilizer subsidy has gone up sharply since 1980-81. This year also provision is  being stepped up and will reach a level of Rs.5173 crores.

34. Credit is a major input for agricultural production. In order to increase  the flow of credit to agriculture, the target for direct finance to agriculture by Public  Sector banks, which was raised last year from 16 per cent to 17 per cent of their total  outstanding advances is being further raised to 18 per cent to be achieved by the end  of 1989-90. With this change the total credit to be made available to agriculture by  commercial banks, Regional Rural Banks and Co-operative banks will increase by  over Rs.4,000 crores in 1989-90. Hon’ble Member; are aware that the rate of interest  on crop loans upto Rs.15,000 was reduced last year and the reduction varied between  1 1/2 per cent and 2 1/2 per cent. With a view to extending the scope of relief, the  Reserve Bank of India is today issuing instructions reducing the rate of interest charged  on crop loans between Rs.15,000 and Rs.25,000 to 12 per cent from the existing  maximum rate of 14 per cent.

35. One area of concern is the pace of implementation of irrigation projects  in the States. In addition, the gap between the potential created and utilisation of  irrigation, leaves much to be desired. The decision to provide higher additionality for  external assistance for agriculture and irrigation which I have referred to earlier will  add to the funds available for these purposes in State Plans. My hope is that this will  help in ensuring better utilisation of aid funds and quicker completion of projects.

36. The rapid growth in incomes in our rural economy will require not merely  higher production but also diversification of crops, better post-harvest technology,  processing of agricultural products into higher value products, etc.

37. The new Ministry of Food Processing Industries, the first of its kind in  the developing countries, was established in July, 1988 to provide for a dynamic  relationship between the farmer and industry so that there is better utilisation of  agricultural products, greater addition of value to rural produce, generation of massive  employment in rural areas, enhancement of the net level of rural incomes and induction  /Of modem technology in the processing of food. Another objective of the Ministry  is to promote utilisation of the large scale wastages which take place in the pre and  post harvest handling of fruits and vegetables, thereby improving the economic  utilisation of food produced as well as enhancing the nutritional inputs available to  the people. Later in my speech I will indicate some fiscal incentives to provide a  greater stimulus to these industries.

Housing

38. The Government attaches very high priority to housing. It is an activity  that meets a very essential need and that is capable of generating a very substantial  volume of employment. In pursuance of this, the Government has formulated a  comprehensive National Housing Policy. In the field of housing finance several new  initiatives were taken in 1988-89. The Reserve Bank of India has liberalised the terms  and conditions of housing loans. The Life Insurance Corporation has launched a new  scheme known as Bima Niwas Yojana which will enable policy holders to receive  financial assistance for purchase or construction of flats.

39. The National Housing Bank has been established and has now become  operational. Promotion of a healthy housing finance system and providing adequate  finance to the housing sector are the principal functions of the Bank. In formulating  its financing policies, the Bank will adopt the motto of the small man first. It has  accordingly announced its re-finance scheme in respect of loans given for low income  housing of upto 40 square metres. Similarly, in land development and housing projects  financed by it, the Bank will ensure that not less than 75 per cent of the plots to be  thus developed or houses to be built, will be for those seeking built-up accommodation  upto 40 square metres.

40. The prospect of owning a house is a major incentive for saving. We have,  therefore, decided to establish a new scheme called the Home Loan Account Scheme  which will be launched by the National Housing Bank in co-operation with scheduled  banks. To facilitate participation by all segments of the community especially in rural  areas, the minimum contribution to the saving scheme is fixed at Rs.30 per month or  Rs.360 per annum. The savings will earn interest at 10 per cent per annum. Any  individual. not owning a house anywhere will be eligible to join the scheme. After  saving for a minimum period of five years, a member will be eligible for a loan equal  in amount to a multiple of the accumulated savings including interest Specific efforts  will be made to link up the Home Loan Account Scheme with the registration for land  or house allotment by public agencies. I will propose certain tax concessions for  these savings.

Industrial Development

41. Let me now turn to the industrial sector. I have referred to the good  performance of the industry and infrastructure sector. We believe that the changes  with regard to industrial licensing, price and distribution controls and trade policy that  we have made over the past few years have paid rich dividends. The underlying  theme of these policy changes is to promote both growth and efficiency by stimulating  domestic competition, technology acquisition and modernisation. Our industrial  structure is now very complex. Many segments have reached a certain degree of  maturity. In this situation it is possible for us to relax many of our detailed regulations  and yet remain in control over the direction of development through a judicious use of  fiscal and credit policies. In furtherance of this approach, the Government has decided  to decontrol the pricing and distribution of cement and aluminium with immediate  effect.

42. Since the partial decontrol of cement from 28th February, 1982, the cement  industry has witnessed an impressive growth. The production of cement which was  21.01 million tonnes in 1981-82 is slated to increase to 43.5 million tonnes in 1988-  89 and 49 million tonnes in 1989-90. Over this period, the levy obligation has been  progressively decreased and a fair price for the levy cement has been given. These  policies have led to the stoppage of imports since 1985. In fact the country is now in  a position to export cement. Our long term strategy is to increase the production to 65  million tonnes by the end of the Eighth Plan and 87 million tonnes by the end of the  Ninth Plan. At present, the levy obligation works out to less than 20 per cent of the  total output of the industry. It has now been decided that all price and distribution  controls on the cement industry be removed with effect from 1st March, 1989. To  ensure the availability of cement at reasonable prices in the remote and hilly regions  of the country, a suitable subsidy scheme is being worked out.

43. With the progressive commissioning of the National Aluminium Company  (NALCO), India has made great strides in the production of aluminium metal. After  achieving a record production of 278,000 tonnes in 1987-88, production in 1988-89 is  estimated to go up by 30 per cent to about 360,000 tonnes. During 1989-90 aluminium  production is likely to increase by another 20 per cent to reach a level of 435,000  tonnes. NALCO is also exporting alumina and some aluminium and will earn about  Rs.200 crores in foreign exchange during 1988-89. India has thus emerged not only  self-sufficient in aluminium metal but will generate exportable surplus in the years  ahead. In view of this the Government has decided to decontrol the price and  distribution of aluminium with effect from 1st March, 1989.

44. The dispersal of industry to backward areas remains a major plank of our  industrial policy. The principal barrier to industrial development in backward areas is  the lack of infrastructure. Recently, the Government has announced a new approach  to this in the form of the Growth Centre Scheme. In the first phase 61 growth centres  will be taken up and provided with infrastructure facilities of a high order. I have  10  provided Rs.20 crores as the Central contribution for this scheme in 1989-90 Plan  and, depending on the pace of implementation, this will be enhanced, if necessary.

45. Let me now turn to the operation of capital markets. A substantial volume  of personal savings now flows through the financial instruments traded in this market  in fact, the breadth and depth of our financial structure is an asset that we must use to  mobilise savings and channel it into productive directions. Our rural households are  showing growing interest in investing in bonds, debentures and shares . However, the  provision regarding tax deduction at source is a disincentive. We have already raised  the limit below which there will be no tax deduction at source to Rs.2,500 for dividends.  I propose to do the same for interest payments on bonds and debentures.

46. The flow of savings into the Capital Market is directed very much to  fixed interest bonds and debentures. However, industrial development also requires  risk capital in the form of equity. In order to stimulate the flow of personal savings  into equity, the Government intends to introduce an Equity-Linked Savings Scheme.  The Scheme will operate through UTI and recognised Mutual Funds and investments  will be eligible for tax deductions on the basis of net annual additions to such savings.  Details of the Scheme will be announced shortly.

47. The dynamism shown by the industrial sector is to a certain extent the  result of our effort to stimulate competition. However, as the industrial environment  becomes more competitive, we will need effective measures for coping with the  problems of industrial sickness. Some arrangements are in place under the Sick  Industrial Companies (Special Provisions) Act, 1985. However, it is necessary that  we take steps before this stage of sickness is reached to encourage and stimulate  potentially sick units to rehabilitate themselves. In order to do this, the Government  intends to work out an excise relief scheme for weak units to provide them with a  proportion of their excise payments as part of a diversification, modernisation or  rehabilitation package approved by designated Financial Institutions.  Other Areas

48. Let me now turn to couple of other areas where I propose some changes.

49. The Government has been examining the utility of the Gold Control Act  to see whether it has served its purpose or not and whether it requires any modification.  In the fight of this examination the Government proposes to modify the Gold Control  Act with a view to keeping a measure of control over primary gold only. This is  expected to benefit hundreds of thousands of goldsmiths and artisans who will be able  to freely conduct their age-old traditional profession and provide better service to the  customers in terms of quality, purity and price. Further this will lead to a boost in the  export of gold jewellery which has been stagnant. The details will be worked out and  necessary legislation will be introduced soon.

50. I have referred to the need to give a stimulus to savings and have already  referred to two measures directed towards this end -the Home Loan Account Scheme  and the Equity Linked Savings Scheme. Several initiatives in the area of small savings  have been taken in the recent years. I am happy to report to the House that the Indira  Vikas Patra, introduced in 1986 and the Kisan Vikas Patra introduced in 1988 are  attracting a substantial volume of savings. These two savings instruments do not  carry any tax concessions. I propose to introduce a new National Savings Certificate  Series VIII which will carry an interest rate of 12 per cent and will be eligible for tax  concession under Section 80C but not under Section 80L. The existing National  Savings Certificates Series VI and VII will be discontinued. This is part of the process  of rationalisation of savings incentives.

51. I am conscious of the need to protect the savings of workers in the provident  fund and their right to gratuity. The Employees Provident Fund Act has been modified  to raise the minimum contribution to 8 113 per cent and this enhanced contribution  has taken effect from 1st August, 1988. The Payment of Gratuity Act has been amended  to provide for compulsory insurance of gratuity liabilities or the setting up of a gratuity  fund under income-tax rules where the pattern of investment will be as prescribed by  the Government from time to time. It is proposed to implement these provisions soon  after framing necessary rules.

52. As the Hon’ble Members are aware, this Government has, in the recent  past, taken various measures to help pensioners. The Government is keen to ensure  that pension and pensionary benefits are sanctioned and paid promptly and procedures  for disbursement simplified. Towards this end, the Government has decided to further  simplify the procedure of pension payment to civil pensioners who draw their pension  from banks. The proposed simplification envisages that the two intermediary agencies  of Accountants General and District Treasuries will not be involved in this work  which will be handled by a new Office of Chief Controller of Accounts (Pensions) in  the Ministry of Finance. The entire work of pension payment and accounting thereof  will be computerised. The new system is proposed to be introduced during 1989-90.

53. I also propose some fiscal relief on family pensions and a new savings  scheme for retiring Government employees with certain tax concessions which I will  revert to later.

54. Our freedom fighters have made great sacrifices in our struggle for  independence. In this year when we are celebrating the birth centenary of one of the  greatest leaders of this struggle, it is but appropriate that we raise the pension for  freedom fighters to Rs.750 as a mark of the nation’s gratitude.  55. I shall now turn to the Revised Estimates for 1988-89 and the Budget  Estimates for 1989-90.  Revised Estimates 1988-89

56. Since the presentation of the Budget for the current year, additional  provisions have become necessary for certain inevitable increases in expenditure.    Budget support for Central Plan has to be increased by Rs.771 crores. The increases  mainly relate to settlement of claims arising out of crop insurance scheme, subsidy for  setting up of industries in backward areas, strengthening of equity base of Power  Finance Corporation, payment to Shipping Companies to meet commitments made by  the erstwhile Shipping Development Fund Committee and passing on to financial  institutions rupee equivalent of external credits extended to them.

57. Central assistance for State and U.T. Plans is expected to be Rs.421  crores higher mainly due to special assistance that has to be provided to Punjab for  financing its Plan outlay.

58. On the non-Plan side an additional provision of Rs.300 crores is required  for export promotion and market development. Subsidy on indigenous fertilizer will  also be higher by Rs.250 crores. A marginal increase of Rs.200 has been made in  defence expenditure. An additional provision of Rs.497 crores will be required for  defence pensions on the basis of actual claims arising out of revision of defence  pension rates. Grant assistance to States affected y floods has to be increased by  Rs.100 crores. Provision of certain facilities in Punjab necessitated by security  considerations has cost Rs.71 crores.

59. There have been other increases as well. All these would have resulted in  a much higher order of increase in non-Plan expenditure and in deficit financing.  Government have taken a number of measures to contain the increase in expenditure  and improve receipts.

60. Ministries and Departments were instructed to locate savings to meet to  the maximum extent possible the increases in expenditure including the liability for  additional instalments of dearness allowance and bonus sanctioned to Government  employees during the year. The economy instructions issued last year were continued  this year also. As a result of these measures, the increase in non-Plan expenditure has  been contained.

61. Gross tax revenue is expected to yield Rs.776 crores more. The  improvement is mainly in Union Excise duties, Customs duties and Corporation Tax.  Under non-Tax Revenue the profit on imported edible oils is expected to show a sharp  reduction owing to an increase in international prices. Capital receipts are expected  to show significant improvement. Total receipts of Government are now estimated at  Rs.67843 crores as against Rs.66076 crores in the Budget estimates. Total expenditure  is estimated at Rs.75783 crores as against the Budget estimate of Rs.73560 crores.  The overall deficit for the year is now estimated at Rs.7940 crores. Thus, in spite of  the large additional burden thrown on the budget and the various concessions given it  has been ensured that overall deficit does not increase substantially.  Budget Estimates 1989-90

62. Next year being the last year of the Seventh Five, Year Plan period every  effort has been made to ensure that maximum resources are made available for   development. Budgetary support for Central Plan including special additional provision  of Rs.500 crores for new economic programmes is placed at Rs.16,964 crores. Internal  and extra budgetary resources for Central Plan are estimated at Rs.17,482 crores. The  total Central Plan outlay for 1989-90 will thus be Rs.34,446 crores against the current  year’s approved outlay of Rs.28,715 crores showing a step up of nearly 20 per cent.

63. Hon’ble Members will be happy to note that in real terms the actual outlay  in the Central Sector for the five years would be around 115 per cent of the original  Seventh Plan outlay.

64. The Central Plan for 1989-90 places a great deal of emphasis on agriculture,  rural development and related areas. A new strategy for agricultural planning has  been developed on the basis of different agro-climatic regions. The provision for  agriculture and irrigation in the Central Plan has been stepped up to Rs.1408 crores.  I also propose allocation of Rs.495 crores for the Department of Fertilizers.

65. The programmes of Rural Development are central to our Plan strategy.  Inclusive of the provision for the new programme, the provision in the Central Plan  for this sector has been stepped up by 28.4 per cent. For promoting rural  industrialisation, the reorganised Khadi and Village Industries Commission has planned  to expand and diversify its activities. Besides identifying  new industries for  promotion in the current year, 41 other industries will be taken up for development in  the future in a phased manner.

66. The provision for social services in the Central Plan is being stepped up  to Rs.3396 crores. The main emphasis in the social welfare programme in the Annual  Plan 1989-90 will be on development of services for early childhood care, women’s  development, prevention of disabilities and rehabilitation of the affected persons. In  order to meet these goals, a large expansion is envisaged in programmes like Integrated  Child Development Service (ICDS), income-generating schemes for poor and destitute  women, education, training and economic rehabilitation of disabled persons. Adequate  attention will be given to creating awareness regarding the rights of women, campaign  against the atrocities inflicted on them and also against the social evils like child  marriage, dowry, drug abuse, etc.

67. The Seventh Plan has been characterised by a special thrust towards human  resources development. The approach, strategies and major thrust areas included in  the Seventh Five Year Plan and the priority programmes of the National Policy on  Education 1986, taken up in 1987-88 are being continued. Emphasis is given on  universalisation of elementary education, eradication of adult illiteracy,  vocationalisation. of secondary education, improvement and consolidation of quality  and standards of higher education and modernisation and removal of obsolescence in  technical education.

68. In order to maintain the tempo of growth that has been attained in recent  years, it is necessary that we continue to invest in the expansion and modernisation of  14  our infrastructure sectors. Hence, the outlays in the Central Plan for Power development  have been raised by 38.6 per cent, for Railways by 15.6 per cent and for  Telecommunications by 56.6 per cent.

69. Major public sector projects in the industrial sector included in the Seventh  Plan have either been completed or are expected to be completed in the last year of the  Plan. These include the expansion of Bhilai Steel Plant, Stage I of Visakhapatnarn  Steel Plant, the Aluminium Complex of NALCO in Orissa, the gas based fertilizer  plants at Bijaippur, Aonla, Namrup III, the Caprolactam project at Udyogmandal,  captive power plants at Durgapur, Barauni, Panipat and Bhatinda and the Maharashtra  Gas Cracker Complex.

70. In the industry sector adequate outlays have been provided in the Annual  Plan 1989-90 for productive schemes and projects of on-going nature which would be  commissioned during the last year of the Seventh Plan, as wen as for initiating the  necessary preliminary action for the Eighth Plan.

71. Central assistance for the Plans of State and Union territory Governments  is placed at Rs.10,850 crores against the current year’s Budget level of Rs.9,714  crores. Total expenditure from Central Budget on Plan account will be Rs.27,814  crores next year as against current year’s Budget level of Rs.25,714 crores.

72. Government is aware of the extremely difficult circumstances in which  our brave armed forces have been carrying out their arduous responsibilities of  defending our country. The whole nation owes its grateful thanks to them for ensuring  the security of our borders and for bringing credit to our country when called upon to  help other friendly countries in their hour of need. At the same time, all of us recognise  that there is continuing need for implementing measures for greater cost effectiveness  in our expenditure on defence. My colleagues in the Ministry of Defence have already  introduced a number of measures to improve the cost effectiveness of such expenditure.  Keeping this in view I have provided for a sum of Rs.13000 crores for Defence during  the coming year. I assure the House that Government will not falter in ensuring the  highest level of defence preparedness.

73. Provision for food, fertilizer and export promotion subsidies next year is  Rs.7,412 crores against Rs.6,841 crores in the current year’s Revised Estimates. Interest  charges next year are estimated at Rs.17,000 crores against Rs.14,150 crores in the  current year. Grants to States as a result of the recommendations of the Ninth Finance  Commission are estimated to be Rs.612 crores higher than in the current year. An  additional provision of Rs.152 crores has been made next year for expenses in  connection with the General Elections. The deficit of Department of Posts is estimated  to be. Rs.97 crores higher than in the current year.

74. Every effort has been made to contain the growth. of non-Plan expenditure  and only the barest minimum provisions have been allowed. Total non-Plan expenditure  15  in 1989-90 is estimated at Rs.54,347 crores against Rs.48,877 crores in the Revised  Estimates for the current year.

75. Coming to Receipts, Gross Tax Revenue at the existing rate of taxation is  estimated at Rs.49,588 crores. After payment of Rs.12,054 crores to States as their  share of taxes and Rs.50 crores to local bodies in Union territories as assignment of  revenue, the net accrual to Centre is estimated at Rs.37,484 crores against Rs.32,652  crores in the current year. Market borrowings are placed at Rs.7,400 crores against  Rs.7,250 crores in the current year. External assistance net of repayment is placed at  Rs.3,722 crores against Rs.3,216 crores in die current year. Taking into account the  variations in other receipts and expenditure, the overall deficit for next year at existing  rates of taxation is estimated at Rs.8240 crores.

PART B

76. I now turn to my tax proposals for 1989-90.

77. For most people taxation is vexation. I will only say that we raise resources  through taxation to fulfil a larger common purpose and seek to return to people a  benefit which is greater than the cost they bear.

78. My budget proposals are guided by the objectives and economic  perspectives I have outlined earlier. More specifically the proposals are oriented to  the following ends:-  – promoting productive employment,  – protecting the consumption standards of the poor,  – discouraging non-essential luxury consumption particularly when it is  import intensive,  – providing some relief to middle income taxpayers,  – maintaining the tempo of industrial modernisation and growth,  – containing the budget deficit for 1989-90.

79. Now I turn to the budget proposals regarding the direct taxes.

80. The Hon’ble Members are aware of the high priority the Government  attaches to creation of productive employment. As I mentioned earlier, a number of  schemes are already being implemented to generate employment in rural areas to  benefit the vulnerable sections of our society. However, we feel that a time has come  for taking initiative to make a substantial dent on the problem of unemployment. To  this end, as already stated, Government proposes to introduce a new intensive rural  employment programme, to be called Jawaharlal Nehru Rojgar Yojana. In order to  mobilise resources for this programme, I propose to levy a surcharge at the rate of 8  per cent. on resident taxpayers with incomes above Rs.50,000/- from assessment year  1990-91. I am sure that those who are privileged to have employment in a society,  where there are so many who are deprived, will not mind this sacrifice in the interest  of creating employment for those not so fortunate.

81. The Government has maintained stability in the direct tax rates during the  last four years. However, it has often been represented that a 25 per cent. tax at the  entry point discourages many taxpayers in coming to the tax net voluntarily.  Accordingly, it is proposed to reduce the rate of tax for individuals in the entry slab of  Rs.18000-25000 from the present rate of 25 per cent. to 20 per cent.

82. This House is aware of the fact that in order to mobilise resources to meet  the requirements of the drought in 1987 and its after-effects in 1988, a surcharge on  income-tax and wealth-tax was levied. I do not propose to continue the Wealth Tax  and Income-Tax surcharge from the assessment year 1989-90 and 1990-91 respectively.  83. The combined effect of the changes that I am proposing with regard to the  employment surcharge and the changes in the rate structure will be such that a person  with a taxable income of below Rs.56,000/- will pay less tax than at present. The  entire burden of additional direct-tax will fall on those with a taxable income above  Rs.56,000/- per annum. The revenue effect of this surcharge will be Rs.500 crores. I  have no doubt that the House will welcome this socially progressive measure.

84. With a view to curbing conspicuous consumption, I propose to enhance  the rate of expenditure tax under the Expenditure Tax Act, 1987, as applicable to  certain hotels, from 10 per cent to 20 per cent. This will yield an additional Rs.30  crores.

85. I now come to some measures for providing relief.

86. To meet the housing needs of the citizens has always been an important  policy objective of the Government. In his Budget Speech for 1987-88, the Prime  Minister envisaged a high priority for the housing sector and had announced the decision  to set up a National Housing Bank. Necessary legislation in this regard has been  passed and the National Housing Bank has become operational. In order to help the  National Housing Bank mobilise resources in its nascent stage, I propose to provide  that the deposits made in the Home Loan Account Scheme of the National Housing  Bank as well as the repayment of housing loan taken from the Bank will qualify for  deduction provided under section 80C of the Income-tax Act. The investment will  also be exempt from wealth-tax subject to the overall ceiling of Rs.5 lakhs. Further,  the taxpayers will now get a tax concession under section 54E on capital gains if the  sale proceeds are invested in the bonds and debentures issued by the National Housing  Bank.

87. Poultry farming is emerging as an important activity for enhancing nutrition  and providing employment. I, therefore, propose to provide tax exemption to the  income from poultry fanning at the rate of thirty-three and one-third per cent. of such  income. This measure should go a long way in encouraging investment in this area.

88. Retiring Government employees are often on the look out for investment  opportunities with a good post-tax return. With this view, it is proposed to set up a  deposit scheme in which a retiring employee may invest the whole or part of his  retirement benefits for a block period of three years. The interest on this investment  will be free from income-tax. Further, this investment will also be exempt from  wealth-tax. The present ceiling of exemption of wealth upto Rs.5 lakhs in respect of  wealth in certain specified forms will also not apply to such deposits.

89. As a measure for providing relief to the widows and heirs of deceased  employees, I propose to amend the provisions of the Income-tax Act, to provide a  standard deduction at the rate of thirty-three and one-third per cent., subject to a  maximum of Rs.12,000/-, for the recipient of family pension also. Similarly, it is  proposed to extend the benefit of deduction of Rs.15,000/-, already available to  permanently physically handicapped persons, to persons who are mentally retarded.

90. Hon’ble Members are aware that under the Constitution Amendment Act,  1998 the ceiling of tax on professions has been raised from Rs.250 to Rs.2,500 per  annum with the object of enabling the State Governments to raise additional resources.  I hope that the States will take full advantage of this. I propose to provide that this tax  be allowed as a deduction in computing the income under ‘Salaries’.

91. Following the announcements made in the budget speech for 1988-89,  Government has formulated schemes setting up the Exchange Risk Administration  Fund and issued guidelines for venture capital companies I funds which provide  assistance to new entrepreneurs. In order to extend fiscal support to these funds. I  propose to extend certain tax concessions to them.

92. Revenue loss, if any. on account of the proposed relief measures is expected  to be made up through be made up through better compliance and better collection.

93. By a notification of the President issued on 7th November. 1988, the  Income-tax Act stands extended to the State of Sikkim from assessment year 1989-90.  In view of some operational difficulties, I now propose to extend the ‘Income-tax Act,  1961 to Sikkim only from the assessment year 1990-91. The Wealth-tax Act and the  Gift-tax Act have already been extended from 1990-91 assessment year by the Central  Government’s notification.

94. I shall now proceed to deal with my proposals relating to indirect taxes.

95. In formulating these proposals, I have been guided by the imperative need  for raising additional resources. In doing so, I have taken care to see that items of  18  mass consumption are not unduly affected and that the burden falls largely on relatively  affluent sections of the population.

96. As the House is aware, problems of evasion of excise duties through  undervaluation and related administrative problems have led to specific rather than ad  valorem duties on a large number of commodities. In fact, of the total excise revenue,  about 70% is derived from commodities carrying duties at specific rates. In the case  of many commodities which are subject to specific rates of excise duty, the duty  incidence is at substantially lower than what it was when the specific duties were  fixed originally. There has to be a system whereby all specific rates are revised  upwards periodically keeping in view price increases. I propose to make a beginning  in this regard in this Budget by increasing the existing specific duty rates of a substantial  number of commodities by a modest five per cent of current rates with suitable rounding  off. I hasten to add that I have taken care to ensure that items of mass consumption  are kept outside the purview of this adjustment. The items on which t ‘ here will be  no change in the rates of excise duly include sugar, tea, coffee, petroleum products  like kerosene, diesel and motor spirit, biris, vegetable oils, vanaspati, cotton yarn and  fabrics, jute yarn and fabrics and electric bulbs and fluorescent tubes. Similarly, the  existing exemption for newsprint and specified paper intended for use in the printing  of textbooks or other books of general interest remains unaltered.

97. It is expected that the upward revision of specific rates will yield an  additional excise revenue of Rs.220 crores.

98. There are some commodities which are charged to excise duty at specific  rates and which would call for a higher rate of adjustment than what has been proposed  in general. I now come to my proposals in regard to these commodities.

99. In the case of iron and steel, the specific rates of duty have not been  changed significantly for over a decade now. As a revenue raising measure, I propose  to raise the rates of duty on these items. The duty on pig iron is proposed to be  increased from Rs.80 to Rs.200 per tonne. On steel items other than stainless steel,  such as ingots, billets, bars, rods, etc. presently attracting duty of Rs.365 per tonne,  I propose to increase the duty to Rs.500 per tonne. The duty on certain hot rolled flat  products such as sheets, strips, etc. is Proposed to be raised from Rs.500 to Rs.700  per tonne. In respect of certain cold rolled flat products such as sheets and strips, the  duty is proposed to be raised from Rs.715 to Rs.900 per tonne.

100. There are certain assessment disputes in the case of forgings and castings  as the duty rates vary depending upon the classification. As a measure of rationalisation  and to prevent such disputes, I propose to levy a uniform rate of duty of Rs.800 per  tonne on steel forgings and Rs.600 per tonne on steel castings.

101. In the case of stainless steel where the duty incidence is rather low, I  propose to raise the duty on ingots, semifinished products and hot rolled products   from the existing rates to Rs.1000 per tonne and on certain cold rolled products from  Rs.715 per tonne to Rs.1500 per tonne. Stainless steel castings and forgings will also  attract a duty of Rs.1500 per tonne.

102. Similar duty adjustments are proposed to be made on other iron and steel  items. In the case of dutiable downstream products, MODVAT credit on iron and  steel items would continue to be available.

103. These measures are expected to result in additional excise revenue to the  tune of Rs.150 crores and customs revenue of Rs.18 crores.

104. No Finance Minister can resist the temptation of looking to smokers of  cigarettes for augmenting excise revenue. I must confess that L like most of my  predecessors, readily submitted to this temptation. Smokers who do not pay any heed  to the statutory warning to their health should, I feel, at least contribute more to the  health of the national economy. I propose to restructure the duty rates on cigarettes.  While generally the duty rates are being raised, the extent of increase would be more  in the case of filter cigarettes of length above 70mm. However, non-filter cigarettes  of length upto 60 mm will carry a rate of excise duty of Re.1 per packet of 10. These  measures are estimated to yield excise revenue to the tune of Rs.101 crores.

105. Having revised the duty structure on cigarettes, I would not like users of  pan masala to feel aggrieved that they have been let down. I propose to double the  excise duty presently being levied on pan masala not containing tobacco for the two  existing slabs based on value from Rs.10 and Rs.20 per kg. to Rs.20 and Rs.40 per kg.  respectively. Simultaneously, I propose to increase the excise duty on pan masala  containing tobacco from 25% to 30%. The revenue implication of these measures is  Rs.8 crores.

106. As the House is aware. molasses is the principal raw material for the  manufacture of liquor. In keeping with its end use, I feel, molasses can bear a higher  incidence of duty than at present. I accordingly propose to increase the excise duty on  molasses from Rs.60 to Rs.120 per tonne. I propose to increase suitably the credit of  money that is presently available when alcohol is used in the manufacture of chemicals.  It is estimated that this measure will yield additional excise revenue to the tune of  Rs.11 crores.

107. I have a couple of proposals relating to travel tax.

108. At present, Foreign Travel Tax is being levied at the rate of Rs.50 per  ticket for travel to neighbouring countries and Rs.100 per ticket in respect of travel to  other countries. These rates have not undergone any change since 1979. I propose to  increase the aforesaid rates of tax to Rs.150 and Rs.300 respectively.

109. As the House is aware, Government has invested substantial sums of money  in developing our airports and providing infrastructural facilities therein. Keeping  20  this fact in view, the privileged few who can afford to fly within the country should  not mind if they are to pay a small extra amount as tax for augmenting revenues. I  intend to levy a new tax called Inland Air Travel Tax at 10% of the basic fare. However,  I propose to exempt passengers paying air fare in foreign currency. There will also be  a provision for exempting deserving special categories of passengers from this tax.

10. The proposals relating to travel tax will be given effect to from a date to  be notified later and are expected to yield additional revenue to the tune of Rs.85  crores.

111. Having dealt with those who fly, I now turn to those who drive. Let me  deal with my proposals in regard to the automobile sector.

112. As Honourable Members are aware, presently there is a concessional rate  of excise duty of 25% in respect of fuel efficient cars of engine capacity not exceeding  1000 cc and 30% in respect of such cars of engine capacity exceeding 1000 cc as  against the rate of 35% for other cars. I feel fuel efficient cars have established  themselves and there is no necessity to continue with the concessional rates any more.  I accordingly propose to levy a uniform rate of 35% on all motor cars. This rate will  apply to vans and jeeps also. The revenue gain from this measure will be Rs.100  crores.

113. Currently the excise duty on two wheelers-of engine capacity not exceeding  100 cc is 15% and that on others, 25%, I propose to restructure the excise duty on two  wheelers into a four tier regime. The rate of duty on two wheelers upto 50cc will  remain at the present level of 15%. The duty on two wheelers between 50 and 100 cc  is being raised from 15% to 20%. There is no change in the rate of excise duty of  25% on two wheelers between 100 and 150 cc. The rate of duty on two wheelers  above 150 cc will be 30%. This measure is expected to yield additional revenue of  about Rs.26 crores.

114. I also propose to give some concessions in customs duties to this sector  keeping in view the need to encourage domestic production and hasten the process of  indigenisation.

115. I further propose to prescribe a concessional duty of 40% on machinery  imported for the manufacture of fuel injection equipment, which is a vital component  for the automobile sector. The same rate would be applicable to components imported  for manufacture of fuel injection equipment. The concessional rate would be available  only to the units manufacturing under an approved phased manufacturing programme.

116. The concessions in customs duty to the automotive sector will have a  revenue implication of Rs.19 crores.

117. I now come to the package of measures relating to the electronics sector.  This is one of the fast growing sectors in our economy and is in a position to contribute  21  more to the exchequer. My proposals in regard to this sector are oriented to giving a  greater stimulus to the process of indigenisation.

118. The Members of the House are aware that television has offered  considerable entertainment to our people. It would be in the fitness of things that  television viewers who derive such entertainment should contribute more to the  resources of Government and thereby to the programmes of national development.

119. At present, black and white television sets of screen size exceeding 15 cm  and upto 36 cm are completely exempted from excise duty. While continuing the  exemption for such sets, I propose to increase the excise duty on the picture tube of  such sets to Rs.200 per tube. Black and white television sets of screen size exceeding  36 cm attract excise duty of Rs.300 per set. I propose to increase this rate to Rs.500  per set.

120. As regards colour television sets, the present duty is Rs.1500 per set of  assessable value upto Rs.5000 and Rs.2000 per set of assessable value more than  Rs.5000. This duty structure has led to some valuation disputes. Some high value  sets have also entered the market. A review of the duty structure on colour television  sets is therefore called for. I propose to fix a duty of Rs.2250 per set without remote  control, Rs.2500 per set with remote control and Rs.4000 per set having the facility of  ‘Picture in picture’.

121. I also propose to fix a uniform rate of 20% on radios, two-in-ones, cassette  recorders and musical systems, as against the present rates of 15% or 20%.

122. I propose to increase the excise duty on computers from 10% to 15% ad  valorem. At the same time, computers are being taken out of the general scheme of  exemption for the small scale sector.

123. Presently, specified raw materials and piece parts imported for the  manufacture of specified electronic components attract customs duty at the rates of  35% and 50% respectively. While extending concessional duty to a larger number of  items, I propose to raise these rates to 40% and 60% respectively.

124. These proposals relating to electronic items are estimated to yield additional  revenue to the tune of Rs.158 crores in excise and Rs.36.5 crores in customs.

125. I have some concessions in customs duty to announce for the electronics  sector. In last year’s Budget, a uniform rate of import duty of 100% was provided to  a large number of equipments for telecommunication, satellite communication, data  communication, television transmission and studio and sound broadcasting. I propose  to extend the concession to 35 more specified equipments.

126. Optical communication cables are essential for telecommunication. In  order to encourage the manufacture of such cables in the country, I propose to reduce  the import duty on specified raw materials required for their manufacture from the  present rates varying from 130 to 300% to the level of 80%.

127. With a view to encouraging production of high-tech items like large scale  integrated circuits, microprocessors and other microelectronic items, 22 items of  machinery have been given a concessional import duty of 15 %. I propose to extend  the concession to five more items of machinery.

128. The concessions in customs duty to the electronics sector will have a  revenue implication of Rs.33 crores.

129. I have a package of measures in regard to the customs duty structure for  capital goods.

130. At the time of presenting the 1987 Budget, the Hon’ble Prime Minister  had emphasised the importance of the capital goods industry and had stated that it is  central to our efforts for achieving self reliance and to promote the growth of this  sector. Important steps were initiated that year. The success brought forth by these  measures encourages us to continue further along those lines. My first proposal is, to  extend the duty concession for import of machinery under the technology upgradation  scheme for the capital goods industry to four more sectors. These are cutting tools,  commercial tool rooms, textile machinery and paper machinery. In addition, for the  machine tool sector, I propose to expand the list of machinery items attracting  concessional duty.

131. I propose to rationalise the import tariff of capital goods. The rate of  import duty on general projects and machinery is being reduced from the existing  90% to 80% ad valorem. The rate of duty on components which is 15% below the  rate applicable to the machinery would get correspondingly reduced.

132. The next step in this regard would be rationalising the rate of concessional  import duty on specified machinery which presently varies between 25% to 35%.  This is being unified and fixed at 40% ad valorem. There would, however, be no  change in the case of fertilizer projects. In the case of power projects, the increase  would be by five percentage points.

133. The rationale for these changes lies in the desirability of reducing the  dispersion in tariff rates as much as possible. In pursuit of this objective, I am  introducing an intermediate level of duty of 60% ad valorem. This will apply to  certain specified items of machinery which are manufactured indigenously such as  captive power plants, certain types of generating sets and circular looms for jute  industry.

134. As a measure of facilitating the export thrust sectors to upgrade their  technology by importing modern machinery, concessional duties have been prescribed  from time to time on machinery for specified thrust sectors. I propose to extend the    concession to rubber and canvas footwear sector and to expand the existing list of  machinery for textile and sericulture sectors.

135. These measures relating to capital goods are estimated to result in a loss  of customs revenue of about Rs.117 crores.

136. As I have mentioned earlier in my speech, pricing and distribution of  aluminium is being decontrolled with immediate effect. In this context, I propose to  increase the excise duty on aluminium ingots and wire-rods from the existing level of  18% to 20% ad valorem plus Rs.2500 per tonne. Since MODVAT credit in regard to  primary aluminium would be available for dutiable downstream products, I propose to  increase the duty on most of such products by ten percentage points. It is also proposed  to exempt aluminium ingots from basic and auxiliary duties of customs. The basic  customs duty on aluminium scrap is being reduced from 30% to 15%. The net revenue  yield from these measures will be Rs.50 crores.

137. There are certain commodities which attract a low rate of customs duty at  present and these call for a review. I propose to ram the import duty on wood pulp,  waste paper, low ash coal, raw petroleum coke and certain chemicals by five percentage  points over the existing rates. On benzene, I propose to raise the basic custom duty  from the existing nil rate to 25% ad valorem. The revenue gain from these proposals  will be Rs.39 crores.

138. I propose to increase the basic customs duty on glazed newsprint from  Rs.550 per tonne to 30% ad valorem. This will yield additional revenue of about  Rs.12 crores.

139. Watches and components thereof presently bear a low rate of excise duty  of 2% ad valorem. This rate was fixed in order to encourage indigenous production  of watches. This measure has been successful. I think the time has come when the  watch industry can bear a higher duty. I propose to increase the rate to 5% ad valorem.  This will result in a revenue gain of Rs.5 crores.

140. I shall now deal with my package of proposals in regard to the agrobased  and related industries.

141. As Honourable Members are aware, the growth of food processing and  packaging industry is essential for increasing value addition of agricultural produce  and raising incomes of farmers. As part of Budget proposals last year, excise duty on  parts and accessories going into the installation of cold storage plants for preserving  foodstuffs was reduced from 40% to 15%. I now propose to extend the concessional  rate of 15% to parts of refrigerating appliances and machinery as well as compressors  intended to be used in refrigerated vans meant for transport of food and dairy products.

142. At present,  specified items of food processing and packaging machinery  enjoy a concessional import duty of 35%. I propose to extend the concessional rate  24  to a few more specified items of machinery such as transport refrigeration unit and  machinery for egg processing. The concessional rate of duty as stated earlier is now  being fixed at 40%.

143. I propose to reduce the excise duty on skimmed milk powder and condensed  milk from 15% to 10%. Simultaneously the exemption from excise duty on skimmed  milk powder in one kilogram pack is being withdrawn. The excise duty on certain  other food preparations such as preparations of fish, meat, tapioca and sago in unit  containers is being reduced from 15% to 10%. Namkeens such as bujiyas and chabena  and specified ready-to-cook mixes such as idli-mix and vada-mix are being fully  exempted from excise duty.

144. A concessional import duty of 61% has been provided for certain specified  items of machinery for marine food sector. I propose to further reduce the rate to 40%  and enlarge the list by adding three more items of machinery for fishing. In addition,  I propose to reduce the import duty on machinery for the manufacture of fish nels  from 90% to 40%.

145. One of the proposals contained in the New Policy on Seed Development  announced in September, 1988 relates to the reduction of import duty on machines  and equipments used for seed production and processing and quality control for which  technology upgradation is necessary. I propose to prescribe a concessional import  duty of 40% on 12 specified items of such machinery and equipments.

146. In order to help improve the quality of poultry feed, I propose to reduce  the import duty on two specified amino acids from the present level of 147.25%  to 70%.

147. To give relief to the jute industry, I propose to exempt from excise duty  jute yam supplied to a registered handloom co-operative society or an organisation set  up or approved by the Government. This exemption will be available for the purpose  of development of handlooms for manufacture of fabrics other than those used for jute  sacks. I also propose to extend this exemption to units set up by the Khadi and  Village Industries Commission and Boards.

148. Paper and paperboard containing not less than 75% by weight of bagasse  is totally exempted from excise duty. In order to further encourage the use of  unconventional raw materials for the manufacture of paper and thus reduce the pressure  on forest based raw materials, I propose to extend full excise duty concession to those  varieties of paper and paper board which contain not less than 75% of pulp made from  raw jute or mesta. This measure may incidentally help the jute industry.

149. For helping the farmers to get better prices for their produce, I propose to  increase the basic customs duty on cinnamon from Rs.20 per kg to 90% ad valorem  plus Rs.20 per kg and that on cloves from Rs.60 to Rs.95 per kg.

150. To give a major thrust to marketing of products of the Khadi and Village  Industries sector, I propose to make an exception in regard to availability of small  scale concession where the products bear the brand name of Khadi and Village Industries  Commission and Boards. The existing concession for products of village industry  marketed by or with the assistance of the Khadi and Village Industries Commission is  being extended to furniture and ceramic products.

151. These measures relating to agrobased and related industries are estimated  to result in a revenue loss of Rs.5 crores of customs duty and Rs.8 crores of excise  duty.

152. On a review of the excise duty structure for the match industry, I feel  there is need for revising the duty rates for the different sectors of the industry.  Currently, excise duty is being levied on the mechanised, semi-mechanised,  nonmechanised and cottage sectors of the industry at Rs.5.85, Rs.4.15, Rs.3.50 and  Rs.1.60 per gross of boxes respectively. I propose to bring down the aforementioned  rates to Rs.4.50, Rs.3.00, Rs.2.50 and Rs.1.10 per gross. Simultaneously, I propose to  increase the excise duty on potassium chlorate, an essential raw material for the  manufacture of matches, from 15 % ad valorem which works out to roughly Rs.2 per  kilograrm to Rs.5 per kilogram. The duty rates will be converted into metric system  and specified as applicable to 100 boxes with effect from the 1st June, 1989. These  proposals involve a revenue sacrifice of Rs.11 crores excise duties.

153. In view of the shortage of cotton due to drought, as part of the Budget  proposals last year, a concessional duty of Rs.5.22 per Kg. was prescribed on viscose  staple fibre for blending with cotton. However, with the increased availability of  cotton this year, there is no further necessity to continue the concession. I propose to  withdraw the concessional rate and fix a uniform rate of Rs.8.35 per Kg. on viscose  staple fibre. The revenue gain from this measure will be of the order of Rs.14 crores.

154. I propose to exempt raw wool to be imported by Khadi and Village  Industries Commission and State Khadi and Village Industries Boards from the whole  of the duty.

155. The customs duty on raw silk is being reduced from 75% to 50% ad  valorem.

156. Dyestuffs are important inputs for the processing of textiles. This  commodity carries at present an excise duty of 35%. I propose to reduce the excise  duty on synthetic organic dyestuffs from 35% to 30%. This proposal which will  benefit this textile related industry involves a revenue loss of Rs.19 crores.

157. Synthetic shoddy blankets of value upto Rs.60 per square metre are being  exempted from the whole of excise duty.

158. I propose to give certain concessions in customs duty to specified life  saving drugs and drug intermediates. The proposals in this regard are likely to result  in a revenue loss of about Rs.7 crores.

159. In order to give relief to cement units using vertical shaft kiln, I propose  to reduce the excise duty on cement manufactured by such units by Rs.100 per tonne  from the general effective rate. This involves a revenue loss of Rs.10 crores.

160. As a step towards energy conservation, I propose to reduce the excise  duty on high pressure sodium vapour lamps from 15% to 10%. Simultaneously, I  propose to prescribe a concessional import duty of 50% on four specified inputs  forthe manufacture of such lamps.These measures are estimated to result in revenue  loss of Rs.2.5 crores in excise revenue and Rs.5 crores in customs revenue.

161. There have been representations that the film industry has been adversely  hit by video piracy. I accordingly propose to restructure the excise duty rates on  feature films. As per the revised proposal, the first 30 prints of each feature film  would be eligible for complete exemption from excise duty as against the first 12  prints at present. The rates of duty on subsequent prints are being reduced.

162. Some of the organisations engaged in the rehabilitation of physically or  mentally handicapped persons undertake manufacturing activity for providing  employment to such persons. Presently, such organisations are eligible for excise  duty exemption only to the extent available for specified goods manufactured in the  small scale sector. I propose to fully exempt such goods produced by these  organisations.

163. In order to promote safety in chemical industry and environmental control,  I propose to extend concessional import duty of 40% on 25 specified equipments such  as monitoring instruments for toxic and hazardous chemicals or gases, special  incinerating systems etc.

164. Paraxylene is an important raw material used in the manufacture of DMT  and PTA which in turn are used by the polyester industry. Keeping in view the recent  trends in the international price of paraxylenej propose to reduce the import duty on  paraxylene from 120% to 90%.

165. There are a few rationalisation and anti-evasion measures relating to  customs and excise duties.

166. Presently, petro-chemical factories are eligible for certain concessions  including concessional excise duty on naphtha when they are declared as refineries.  The present scheme has been reviewed and I propose to make available the concessions  with certain modifications, without linking the concessions to the declaration of a  factory as a refinery. Simultaneously, I propose to raise the concessional rate of duty   on raw naphtha from Rs.30 to Rs.60 per kl. The orders declaring certain factories as  refineries are being rescinded.

167. Small scale units are allowed complete exemption from excise duty upto  a value of Rs.30 lakhs in case they manufacture goods falling under more than one  heading of the Central Excise Tariff. I propose to restructure the scheme so that the  exemption upto Rs.30 lakhs is available only if the goods falling under more than one  Chapter of the Central Excise Tariff are manufactured.

168. The details of the revenue implications of the measures announced are  given in the Explanatory Memorandum to the Finance Bill.

169. Provision is being made in the Finance Bill for continuance of auxiliary  duty of customs and special excise duty at the existing rates.

170. 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 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.

171. In the aggregate, the proposals in regard to changes in the customs and  excise duties outlined above are likely to yield additional revenue of Rs.863.20 crores  from excise duties and Rs.117.06 crores from customs duties. The concessions and  reliefs announced aggregate to Rs.237.12 crores on the customs side and Rs.71.02  crores on the excise side. The net additional revenue from excise duties would thus  be Rs.792.18 crores. On the customs side, there is a net revenue loss of Rs.120.06  crores. Besides, the changes in the Foreign Travel Tax and the levy of Inland Travel  Tax would yield an additional revenue of Rs.85 crores. Thus, out of the total net  additional yield of Rs.757.12 crores from indirect taxes, the Centre’s share would be  Rs.373.13 crores and that of States Rs.383.99 crores.

172. The Medicinal and Toilet Preparations Act is an enactment under Article  268 of the Constitution in terms of which duties are levied by the Union but collected  and appropriated by the States. There has been no change in the rates of duties  leviable on medicinal and toilet preparations containing alcohol, narcotics and narcotic  drugs since 1982. There have been requests from the State Governments that the rates  should be reviewed and revised suitably. While I do not propose to make any changes  in the ad valorem rates, I propose to increase the specific rates by about 50% of the  existing rates. The details of the changes made in the Schedule are given in the  Explanatory Memorandum to the Finance Bill.

173. Copies of notifications giving effect to the changes in customs and excise  duties effective from 1st March, 1989 will be laid on the Table of the House in due  course.

174. The modifications proposed by me in direct and indirect taxes are expected  to yield Rs.903 crores to the Centre. Taking this into account the year end deficit for  the next year is estimated at Rs.7337 crores.

175. Sir, the proposals I have just presented mark, in their totality, a qualitatively  new stage in our continuing quest for social justice. The new employment programme,  which will expand over time, is the people’s own weapon in their struggle to usher in  a society liberated from the shackles of poverty. The budget proposals also reflect  Government’s strong commitment to self-reliance. We are determined to vigourously  implement strategies for export promotion, for modernisation of Indian industry and  for efficient import substitution. Within these basic policy parameters, every effort  will be made to contain imports to reasonable levels. The journey along the path of  development is hard and long. It involves sacrifices. The question is who will make  such sacrifices for future growth and prosperity. The answer of these budget proposals  is clear and categorical. It is the relatively affluent who will have to share a larger  burden so that the weaker and vulnerable sections of society may share in the fruits of  growth.

176. I commend the Budget to the House.  [28 February, 1989]

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