SHRI JASWANT SINGH
MINISTER OF FINANCE AND COMPANY AFFAIRS
Dated : February 28, 2003
I. INTRODUCTION
1. I am greatly honoured to present the sixth successive budget of the Government
of the National Democratic Alliance (NDA), under the premiership of Shri Atal
Behari Vajpayee.
2. I wish to place on record high appreciation of my distinguished predecessor,
Shri Yashwant Sinha, who so ably steered the country’s finances in the
earlier budgetary exercises. That has made my task so much easier today.
II. THE CHALLENGE AND THE RESPONSE
3. At the core of our economic endeavour and management of the country’s
finances are the interests of our citizens; all this effort is for their total
well being. That is our central objective, towards which the NDA government
has a non-negotiable commitment. Through Budget 2003-2004, the Government,
therefore, addresses the following five objectives, as ‘Panch Priorities’,
for our citizens and for the economic security of our country, though these
are not listed in any hierarchial order of importance:
a) poverty eradication; addressing the ‘life time concerns’ of our citizens, covering health, housing, education and employment;
b) infrastructure development;c) fiscal consolidation through tax reforms and progressive elimination of budgetary drags, including reform of the additional excise duty, introduction of service tax, and introduction of Value Added Tax (VAT) from April 1, 2003 at the State level.
d) agriculture and related aspects including irrigation; and
e) enhancing manufacturing sector efficiency, including promotion of exports and further acceleration of the reform process.
4. Permit me to share the conceptual underpinning of these ‘panch priorities’. Let us, to start with readily acknowledge that the essential entrepreneurial character and the creative genius of our citizens is our greatest asset. This energy has to be released. For that, and for converting the liability of want into the asset of ability, eradication of poverty is crucial; that is the moral and economic issue of our times. Too often it is observed that budgetary exercises float over the wide mass of India, relating only to a few. This is not so here. And that is why a closely interrelated concern is renewed progress on the front of agriculture; our nation’s life blood. A second revolution, to follow the earlier Green Revolution is the vital need of today.
5. But neither in agriculture, nor in industry, shall we be able to attain
our objective, if infrastructure, both physical and social, is not rapidly
and efficiently developed. For this, private and public interest must combine
so as to generate maximum social welfare. Upon these foundations, and through
encouraging specific manufacturing sectors, particularly activities where
knowledge is industry, we will enhance growth, improve incomes, generate employment
and promote exports. For our growth to be sustained, fiscal consolidation
is the basis; it is the central pillar. Government has to totally eliminate
budgetary drags, and be rid of the self-laid traps; they retard both the pace
and the robustness of our growth. What is needed is a continuous and self-reliant
progression of accelerating, all round growth, with a wider distributive spread
of national wealth and greater spending power in the hands of all our citizens.
We have to recognise the need to address a reduction of not just our social
but economic inequalities, too. This cannot be postponed. That is why reforms
are so critical. And, our reform agenda must not be held hostage; either to
yesterday’s debates, or to subjective and selective interpretations
of it. This is a collective need, for the nation’s growth, which all
of us have to address together.6. Mr. Speaker, there is palpable impatience in the country for progress
and growth. The nation can not afford the luxury of prolonged periods of reflection,
or a leisurely implementation schedule. The world will otherwise pass us by.
Beyond deregulation, it is more and ever more de-bureaucratisation that is
needed, as much of systems as of the mind. Of course, institutions matter,
correct design and application of rules, too, but all in the service of our
national objectives; not either as obtuse abstractions or as partisan goals.
The core need in the country is of releasing national creativity. The Budget
2003-2004, of the NDA Government endeavours to do just that. This is our economic
and social compact.
III. THE BACKDROP
7. I want to now briefly share with Hon’ble Members the backdrop in
which we address our responsibilities.
Geo-politics
8. The circumstances in which we meet are defined by the current global uncertainties;
their vortex lies over the Gulf, and Iraq is at the very core of it, even
as the Israel-Palestine conflict smoulders. Vast naval armadas crowd the waters
of the North Arabian Sea, and land and air forces prepare for battle. Nearer,
our neighbour Afghanistan, torn by decades’ old violence, continues
to struggle with post-Taliban tremors. In North-East Asia, old animosities
are flared to near criticality through irresponsible external assistance.
And, our immediate western neighbour, riven internally by multiple fault lines,
spews venomous terrorism from the cauldron of its compulsive hostility for
India.
Macroeconomic circumstances
9. Despite all this, and despite the present volatility in international
oil prices, alongside a continuing sluggishness in global recovery, uncertain
markets, a 9- month long military stand-off on our borders; the simultaneous
challenge of combating externally aided and abetted terrorism; and the worst
drought that we have faced in three decades; objectively, the country’s
macroeconomic circumstances have never been better for attaining our developmental
objectives of enhanced and sustainable growth, poverty eradication, employment
generation, and improving the quality of life.
Economic performance: 2002-03
10. Sir, the overall economic performance in 2002-03 has been reported in
detail in the Economic Survey. I do not wish to repeat all that except to
highlight that despite the agricultural GDP decline of an estimated 3.1 per
cent, caused entirely by a large decline in crop output, the country, registered
a real growth of 4.4 per cent in GDP, net of inflation. Growth rates of industry
(6.1 per cent) and services (7.1 per cent) accelerated very encouragingly,
as did exports by a healthy 20.4 per cent.
11. From 1956 onward, continuously, we have endured serious foreign exchange
constraints. Not any longer. After a gap of 24 years, our current account
turned into a surplus in 2001-02, and continued to be in surplus during the
first two quarters of the current year. Our reserves’ build up during
the last year has been the highest ever in a single year, with reserves crossing
$75.5 billion in the third week of February. In early-February, the Government
decided to prepay $3 billion of its external loans. India is now an exporter
of grain to 15 countries, and donor of hard currency aid to a dozen, alongwith
rupee aid to another dozen countries. The rupee, with foreign assets to currency
ratio of 124.8 per cent, is stable. Gross domestic savings, as a proportion
of GDP at market prices, have also improved and stand at around 24 per cent.
In the course of the last four years, our interest rates on Government securities,
have rapidly gone down from 12 to around 7 per cent, thus setting the stage
for growth of investment.
The Tenth Five-year Plan
12. The National Development Council, in December 2002, approved the Tenth
Five Year Plan, with a bold and ambitious target of 8 per cent annual growth
on the average. One of the crucial aims of the Tenth Plan is to promote a
balanced and equitable regional development and to advance the necessary policy
and administrative reforms at the State level. The allocation for 2003-04
includes several additional initiatives such as promoting infrastructure by
leveraging public money through private sector partnership, provision of 2
lakh hand-pumps in water-scarcity areas and schools, rejuvenation of 1 lakh
traditional water sources in villages, research and development (R&D)
support in pharmaceuticals, wind and solar energy, among others.
13. Permit me, Sir, to now address the ‘Panch Priorities’. IV.
ANTYODAYA AND LIFE-TIME CONCERNS Antyodaya Anna Yojana
14. For eliminating poverty, it is only reforms that result in sustained
growth and high employment that are the durable solution. However, given our
comfortable food stock, there is both scope and a need for a direct attack,
too.
15. Mr. Speaker, Sir, I am sure you agree that the disadvantaged must always
be the first charge on our exchequer. This is our belief, it is our creed;
this is also at the heart of ‘integral humanism’. Therefore, it
has been decided, and I want this to be the first announcement that is made,
that the Antyodaya Anna Yojana will be expanded from April 1, 2003, to cover
an additional 50 lakh families raising the total coverage to more than a quarter
of all BPL families during the year 2003-04. The additional budgetary expenditure
on this account will be Rs.507 crore.
16. Sir, may I, in humility, say that this does cover the first part of
my assurance: “Garib ke pet me dana,….”.
17. Rural development, rural industries and artisans, and poverty alleviation
in urban areas are addressed severally through various schemes in different
ministries. A need has, therefore, been felt for sometime that all these schemes,
of the same genre, be rationalised. To do that, a Committee headed by the
Deputy Chairman, Planning Commission, is proposed. It will examine all schemes
having a bearing on poverty alleviation and rural development, and recommend
their practical convergence.
Life-time concerns
18. The Prime Minister had on Independence Day, 2002, announced the Government’s
commitment to improving national well-being by addressing the ‘lifetime
concerns’ of our citizens, a noble and holistic objective.
Housing
19. Of these, I take housing first. It is a basic necessity. While promoting
the all important employment-generating activity of construction, it also
stimulates demand for core industries like steel and cement. To maintain its
present momentum of growth, it is proposed that interest deductible under
income tax up to Rs.1,50,000, for construction or purchase of a self-occupied
house property, be continued. In addition, it is proposed that income from
housing projects for construction of residential units, of prescribed specification,
approved by the local authorities up to March 31, 2005, will now be exempt
from income tax. Thus, not only has the limitation with regard to the year
of sanction, earlier frozen at March 31, 2001, now been extended, but the
benefits of the scheme also made available irrespective of the year of completion.
The Finance Ministry is further examining what additional incentives can be
given to basic infrastructural developments that must accompany slum upgradation,
sewerage system laying and green-field housing projects.
Education
20. Education is the central vein of our ‘life-time concerns’.
Therefore, at the level of the citizen taxpayers, as a first step education
expenses up to Rs.12,000 per child for two children, will be made eligible
for rebate under Section 88 of the Income Tax Act.
21. India is a highly creative, knowledge-based society; but authorship
of books has never been sufficiently rewarded, certainly not monetarily. Therefore,
royalty income up to Rs.3 lakh per annum, received by authors of literary,
artistic and scientific books shall henceforth be fully exempt; as will be
royalty received by individuals from exploitation of patents. This is in addition
to the other existing exemption benefits.
22. I declare, Mr. Speaker, a possible, personal benefit here as an author
of some books, with variable but always modest royalty income. There, however,
is no conflict of interest, Sir, because this measure has not been announced
with any persnal benefit in mind.
Games and sports
23. Games and sports are a necessity, as much for recreation as for developing
sound bodies and minds. They must be encouraged. But, for a nation of a billion
plus, sports facilities available to our young are woefully inadequate. Therefore,
development of sports infrastructure will now be
supported through direct funding of public-private joint initiatives. Guidelines
in this regard will be issued shortly.
Health
24. With three principal objectives in mind: to contribute to enhanced national
health; to promote India as a global health destination; and to enable easier
access to health facilities to our disadvantaged citizens, a number of additional
measures are now proposed.
25. In order to encourage private hospitals to either establish new or to
expand existing medical facilities, it is proposed to extend the benefit of
Section 10(23 G) of IT Act to such financial institutions as provide long-term
capital to private hospitals with 100 beds or more.
26. In view of the rapid strides made in R&D in medical equipment, there
is recognisable need to frequently upgrade and replace the existing equipment
with the more ‘state of the art’. It is therefore, proposed to
increase the rate of depreciation from the present 25 per cent to 40 per cent
in respect of life saving medical equipment.
27. To assist citizens with impaired vision, the basic customs and excise
duties on rough ophthalmic blanks shall be reduced from 25 to 5 per cent,
and from 16 to 8 per cent, respectively. To help people give up their addiction
to tobacco and its products, excise duty on Nicotin Polacrilex gum shall be
reduced from 16 to 8 per cent.
28. It is also proposed to reduce the customs duty on specified life saving
equipment from 25 per cent to 5 per cent, and also exempt them from CVD (additional
duty of customs). In respect of life saving equipment already exempt from
CVD, it is proposed to exempt them from excise duty as well, so as to encourage
indigenous manufacturers.
29. A large number of life saving drugs are either exempt from customs duty
or attract a nominal 5 per cent duty. It is proposed to extend the concessional
duty rate of 5 per cent to some more drugs. Life saving drugs currently attracting
nil or 5 per cent customs duty will also be exempt from excise duty. Basic
customs duty on glucometers and glucometer strips used by diabetics, will
be reduced from 10 per cent to 5 per cent; and they will be exempt from excise
duty as well. Cyclosporine will be exempted from excise duty. This reduction
of excise duty to nil, wherever imports are exempt from CVD, will certainly
make our domestic industry more competitive, as also better enable them to
face the new intellectual property right regime from 2005.
Health insurance
30. For a large majority of our less advantaged citizens, easy access to
good health services is just not there. In order to correct this and offer
health protection, of some choice, the public sector general insurance companies
have been encouraged to design a community-based universal health insurance
scheme during 2003-04. Under this scheme, a premium equivalent to Re.1 per
day (or Rs.365 per year) for an individual, Rs.1.50 per day for a family of
five, and Rs.2 per day for a family of seven, will entitle eligibility to
get reimbursement of medical expenses up to Rs.30,000 towards hospitalisation,
a cover for death due to accident for Rs.25,000, and compensation due to loss
of earning at the rate of Rs.50 per day up to a maximum of 15 days. To make
the scheme affordable to BPL families, the Government has decided to contribute
Rs.100 per year towards their annual premium. Full details will be publicized
shortly.
31. I request Hon’ble Members to give this scheme the widest possible
coverage in their constituencies. The benefits Sir, are real.
32. In the first phase, at least an additional 50 lakh BPL families will
be covered during 2003-04.
Disabled and handicapped
33. The Government is committed to providing equal opportunities, protection
of rights, and all-round development of persons with disabilities. A number
of initiatives have already been taken in this regard. 34. Now, for income
tax purposes, it is proposed that the physically handicapped or persons with
such dependents be entitled to a deduction for permanent physical disability
of Rs.50,000, and an enhanced deduction of Rs.75,000 in case of severe disability.
35. I also propose to reduce the customs duty on hearing aids, crutches,
wheel chairs, walking frames, tricycles, braillers and artificial limbs to
5 per cent without Special Additional Duty (SAD). They will be exempt from
CVD, and the domestic manufacturers will also be exempt from excise duty.
I also propose to reduce the customs duty on parts of hearing aids and wheel
chairs to 5 per cent without CVD and SAD.
36. The Government will establish a college of rehabilitation sciences at
Gwalior, and a national institute for empowerment of persons with multiple
disabilities at Chennai.
The salaried
37. A constant refrain of the salaried has been limited standard deduction
for income tax purposes. It is asserted that as a group they consistently
demonstrate the best tax compliance. I agree, they do. It is, therefore, proposed
that the standard deduction for such employees be raised to 40 per cent of
salary, or Rs.30,000, whichever is less, for salary income up to Rs.5 lakh;
and allow a deduction of Rs.20,000 for salary income above Rs.5 lakh. It is
also proposed that relief be provided to employees opting for voluntary retirement
scheme (VRS), by exempting VRS payments up to Rs.5 lakh, even when taken in
instalments.
38. The Government will restore the Leave Travel Concession (LTC) facility
to its employees. Mr. Speaker, Sir, permit me to hope that the consequential
additional outgo from the exchequer on this account, will at least benefit
some in our tourism industry.
Senior citizens and pensioners
39. India will shortly become home to the second largest number of elderly
persons in the world. The population of our elderly, at present estimated
at 76 million, is expected to increase to 100 million in 2013. The interests
of the pensioners and senior citizens are, therefore, a particular responsibility
of the NDA Government.
40. To enable them to live their life of retirement in dignity, the tax
rebate to senior citizens is proposed to be increased to Rs.20,000. As a result,
their income up to Rs.1.53 lakh will henceforth become fully exempt from income
tax. In the case of senior citizens on pension, the effective exemption limit
may hereafter be actually higher and become Rs.1.83 lakh, because of standard
deduction. They can get further relief by taking advantage of the tax rebate
available under Section 88. In addition, to reduce their cost of compliance,
but of much greater importance to them – to reduce bureaucratic hassles
– I propose to accept self-declarations filed by our senior citizens,
in regard to no deduction of tax at source from interest income, income from
units, and such other sources.
Insurance pension scheme
41. Nevertheless, in the context of the declining rates of interest, I do
take on board the difficulties that are often voiced and could be faced by
our senior citizens and others. In order to provide relief to them, the Life
Insurance Corporation of India (LIC) will launch a special pension policy,
guaranteeing an annual return of 9 per cent, in the form of a monthly pension
scheme.
42. This scheme will be called: Varishtha Pension Bima Yojana, through which
a pensioner, or any citizen above 55 years of age, could on payment of a lump-sum
amount get benefits calculated at 9 per cent per annum. For this scheme, and
with pensions in mind, any citizen above the age of 55 years of age will qualify,
and will get a monthly return in the form of a pension for life. Upon demise,
the initial amount deposited will be returned to the spouse/nominee under
the policy. The minimum and maximum monthly pensions proposed are Rs.250 and
Rs.2,000 per month. This monthly pension will start from the month following
the payment of the lump-sum amount by the citizen. The difference between
the actual yield earned by the LIC, on the funds invested under the scheme,
and the assured return of 9 per cent, will be reimbursed to the LIC annually,
by the Government. Other details of this scheme will be announced shortly
by the LIC.
Ex-servicemen: our veterans
43. For ex-servicemen, whose welfare is so close to my heart, I propose
to grant income tax exemption to corporations set up under a Central or State
Act for their benefit. It is a matter of great personal satisfaction to me,
that of the Prime Minister’sscheme for establishing 227 ex-servicemen
medical (XSM) facilities in the country,the first will be inaugurated in April
this year. The Ministry of Finance fully supports this scheme.
Restructured pension scheme
44. My predecessor in office had, in 2001, announced a road map for a restructured
pension scheme for new Central Government employees, and a scheme for the
general public. This scheme is now ready. It will apply only to new entrants
to Government service, except to the armed forces, and upon finalisation,
offer a basket of pension choices. It will also be available, on a voluntary
basis, to all employers for their employees, as well as to the self-employed.
45. This new pension system, when introduced, will be based on defined contribution,
shared equally in the case of Government employees between the Government
and the employees. There will, of course, be no contribution from the Government
in respect of individuals who are not Government employees. The new pension
scheme will be portable, allowing transfer of the benefits in case of change
of employment, and will go into ‘individual pension accounts’
with Pension Funds. The Ministry of Finance will oversee and supervise the
Pension Funds through a new and independent Pension Fund Regulatory and Development
Authority.
V. PHYSICAL INFRASTRUCTURE
46. I now come to the second of the ‘panch priorities’ – physical infrastructure. Demand generated by enhanced public investment in infrastructure has been a key stimulant underlying our current industrial recovery. In October 1998, the Prime Minister launched the National Highway Development Project (NHDP), one of the most ambitious highway projects in the world, providing strong backward linkages for our steel and cement industries. There is simply no alternative to providing quality roads, railroads, ports, airports, reliable and reasonably priced power supply, safe drinking water and sanitation. Without these India can not take full advantage of the opportunities now offered by technology and competition.
47. In developing infrastructure, there is need to encourage public-private partnership, so that public funds are leveraged, and the quality of service delivery improved, thus yielding better value for money.
48. Accordingly, Budget 2003-04 undertakes to provide a major thrust to infrastructure, principally to roads, railways, airports, and seaports, throughinnovative funding mechanisms. This comprehensive initiative will cover the following:
- 48 new road projects at an estimated cost of around Rs.40,000 crore; with a quarter of them being made of cement concrete;
- National Rail Vikas Yojana projects worth Rs.8,000 crore;
- Renovation/modernisation of two airports, and two seaports at an estimated cost of Rs.11,000 crore; and
- establishing two global standard international convention centres at an estimated cost of Rs.1,000 crore.
49. The total estimated cost of the above projects is about Rs.60,000 crore.
In addition, the North-South and East-West corridors will be funded through
the additional levy of a cess of 50 paise per liter of diesel and motor spirit.
This levy will contribute a further Rs.2,600 crore for road development.
50. The essence of the new funding mechanism is to leverage public money
through private sector partnership, wherever possible. The three critical
components of the scheme are: release of public funds only when linked to
specific and welldefined milestones in completion of the project, in physical
terms; a sharing of the risks with the private promoters and financiers; and
no open-ended Government guarantees at any stage.
Roads
51. These 48 projects, with a total length of over 10,000 kms., are over
and above the NHDP. They have been identified where the traffic volume justifies
fourlaning. These projects will be funded on a build-operate-and-transfer
(BOT) basis, with the Government providing a subsidy in the form of an annuity
flow to meet only the shortfall between anticipated revenue and loan repayment
liabilities. In the first year, 2003-04, at least 3,000 kms., of roads, or
almost a third of the total of these 48 projects, will be taken up for four-laning.
National Rail Vikas Yojana
52. Ministry of Railways has established a special purpose vehicle (SPV)
to take up projects worth Rs.8,000 crore for the Golden Quadrilateral. Their
projects will be funded through Rs.3,000 crore worth of equity, provided by
the Government, and Rs.5,000 crore worth of loans. This SPV will raise debt
from the market. Repayment of debt will be done by earmarking Railway receipts
over the period of amortisation. Further, safety upgradation programme on
the Golden Quadrilateral will be taken up simultaneously under this mechanism.
Airports
53. In addition to the existing initiatives for leasing of major airports,
as well as of setting up two private airports in Bangalore and Hyderabad,
it has now been decided to take up the Delhi and Mumbai airports, as the principal
hubs of international travel to India, for modernisation to international
standards. Twoseparate companies will be formed with initial equal equity
participation from the Airports Authority. These two companies could also
take joint venture partners. On completion, the management will be leased
out.
Seaports
54. It is proposed to facilitate the implementation of comprehensive modernisation
projects for Jawaharlal Nehru Port Trust (JNPT), Navi Mumbai and Cochin Port,
designed to bring them up to international standards. JNPT and Cochin ports
need dredging and modernisation. These projects are expected to cost over
Rs.7,500 crore. The user charges levied by the two port authorities, and the
additional custom flowing in after dredging and modernisation is completed,
are expected to cover the debt service obligations. Here, too, the Government
will provide only the viability gap funding to bridge any possible shortfall.
Convention Centres
55. To redress the lack of convention centres of international standards
in the country, the Government will enable the establishment of two such centres
through public-private partnership; with the Government covering the viability
funding gaps only.
56. For the 48 road projects, National Rail Vikas Yojana, the two airports,
the two sea-ports, and the two convention centres, a sum of Rs.2,000 crore
is being provided as initial contribution from the Government. On a flow basis,
the average annual commitment for all these projects, under the viability
gap funding basis, is expected to be around Rs.2,000 crore per annum in the
medium-term, to be met annually from the budgets of the Railways and the Government
.
Rural roads
57. Encouraged by the success of the scheme of funding rural roads under
the Pradhan Mantri Gram Sadak Yojana by earmarking 50 per cent of the cess
on diesel, it is proposed that the resources for rural roads be augmented.
Accordingly, apart from allocating the anticipated Rs.2,325 crore from the
existing cess on diesel for 2003-04, additional funds will be made available
for rural roads from the proposed additional cess on diesel of 50 paise.
Power
58. As Hon’ble Members know, the Electricity Bill, 2001 was introduced
in the Lok Sabha in August, 2001 and subsequently referred to the Standing
Committee on Energy for examination. The report of this committee has been
received. This Bill seeks to provide a legal framework for our reforms and
restructuring of the power sector, also in simplification of administrative
aspects. We should take up this Bill now for early consideration.
59. Simultaneous to the emphasis on improvement in power distribution, our
attention on capacity addition remains. The Government had earlier, in 1999,
notified 18 power projects as mega projects, conferring upon them various
duty and licensing benefits. The Government now proposes to liberalise the
mega power project policy further by extending all these benefits to any power
project that fulfills the conditions already prescribed for mega power projects.
60. Given the importance of transmission in the power sector, it is proposed
to reduce customs duty on specific equipment for high voltage transmission
projects from 25 per cent to 5 per cent.
61. To further research in solar energy, wind turbines, and hydrogen fuel
as alternatives to fossil fuels, the Government is especially allocating Rs.20
crore to the Council for Scientific and Industrial Research, for launching
incentive-driven research in these three fields.
Drinking Water
62. Supply of safe drinking water is an essential component of infrastructure
development. Orders have been issued to grant depreciation at the rate of
100 per cent on plant and machinery, and buildings that house such plant and
machinery, forming part of a water supply project or a water treatment system.
Water supply projects are now totally exempt in regard to capital goods and
machinery, both from customs and excise duties. In addition, pipes have been
exempted from excise duty for bringing raw water from source to the treatment
plant and for conveying treated water to the storage place. I do hope that
this will provide further incentive to new water treatment and supply projects
for augmenting the supply of safe drinking water in the country.
VI. FISCAL CONSOLIDATION AND DEBT RESTRUCTURING
63. Mr. Speaker, Sir, I have already said that for our growth to be sustained
fiscal consolidation is essential. The Government has nurtured macroeconomic
stability – held inflation low, and maintained a strong balance of payments
position – while promoting growth. It has done so not only in the face
of an unprecedented drought, but also in a global economy where growth is
‘tepid’, uncertainty great, and oil prices high. We have carefully
balanced the need for fiscal consolidation with the need for a contra-cyclical
policy stance. Simultaneously, as I said, Government is committed to totally
eliminating budgetary drags, be rid of the self-laid traps; and go forward
with fiscal consolidation through revenue enhancement under a modern tax administration,
and expenditure rationalisation.
Cash Management
64. Appropriate cash management is integral to expenditure management. There
is, at present, no effective cash management in our system as cash is available
to the Ministries up to the budget ceiling as soon as the Appropriation Bill
is passed by Parliament. The Government, therefore, now proposes to initiate
cash management, on a pilot basis, in some major spending ministries, releasing
budgetary allocations in a time-sliced manner to permit convergence with available
resources within the year. Monthly or quarterly cash limits, based on the
actual requirements of the Ministries will be prescribed. This will avoid
mis-matches between receipts and expenditure and avoid rush of expenditure
and the associated possible waste of resources in the last quarter.
External debt prepayment
65. At the Central level, interest payments in 2002-03 are estimated at
Rs.115,663 crore, equivalent to 48.8 per cent of the Government’s revenue
receipts. The average interest rate on Government of India’s outstanding
debt has come down from 11 per cent in 1999-2000 to9.4 per cent in 2001-02.
But, Mr. Speaker, because of the legacy of high cost debt from the past, this
reduction in the interest cost is not enough; it does not keep pace with the
decline in the market rates of interest. The Government has, therefore, already
started to act on three fronts.
66. First, taking advantage of our comfortable foreign exchange reserves
and lower domestic interest rates, the Government has effected premature repayment
of ‘high-cost’ currency pool loans of the World Bank, and of the
Asian Development Bank totalling around $ 3 billion. We intend to continue
with this policy of prudentlymanaging the external liabilities and of proactively
liquidating relatively higher cost component of our external debt portfolio
Domestic debt of the Central Government
67. Second, a large proportion of the banks’ holding of Central Government
domestic debt, contracted under the high interest regime of the past, is thinly
traded. With the softening of interest rates, ordinarily, such loans should
command a premium over their face value. In effect though, banks are often
unable to encash this because of limited liquidity. The Government therefore,
now proposes to offer a buy back of such loans – entirely on a voluntary
basis – from banks that are in need of liquidity, or of encashing the
premium for making provisions for their non-performing assets (NPAs) thereby
improving their balance sheets, or otherwise. The premium to be offered will
be set on a transparent basis. If the banks declare the premium received as
business income, for income tax purposes, they will be allowed additional
deduction to the extent such income is used for provisioning of their NPAs.
State Governments’ debt
68. Third, is the restructuring of State Governments’ debt. Mr. Speaker,
Sir, the XII Finance Commission will also be making an assessment of the debt
position of the States and suggest such corrective measures as are necessary.
Meanwhile, the Central Government and the State governments have mutually
agreed to introduce a debt-swap scheme. Out of the total stock of debt of
Rs 2,44,000 crore owed by the States to the Government of India, a little
over Rs1,00,000 crore bear coupon rates in excess of 13 per cent per annum,
a rate that is far in excess of the current market rates. In consequence the
interest burden of the States now constitutes a major item of expenditure
for them; leaving little for even routine purposes.
69. The debt swap scheme introduced by the Government of India will enable
States to prepay high cost debt and substitute them by current, low-coupon-bearing
small savings and Open Market Loans. Twenty-six of the twenty-eight States
have consented to participate in the scheme from the current year itself,
while the remaining two States will join from 2003-04.
70. Over a three-year period ending in 2004-05, all State loans to the Government
of India bearing coupons in excess of 13 per cent will have been swapped.
In consequence, the States will save, at the very minimum, an estimated Rs
81,000 crore in interest, and deferred loan repayments, over the residual
maturity period of the loans. Furthermore, and equally importantly, this scheme
will restrain the debt build-up in States through the small savings scheme.
VII. AGRICULTURE
71. Agriculture, the life-blood of our economy, after giving the country
adequate food security, is now again at the cross roads, as it prepares to
diversify and move up the value chain. It also needs to respond robustly to
second generation issues such as land degradation and water logging. Diversification,
resonance with marketforces, and a swift adoption of sunrise technologies
are the other needs.
72. Mr. Speaker, Sir, India has the largest irrigated, arable landmass in
the world; our gross arable land being second only to the United States of
America. We must acknowledge the vital import of these facts: they are both
an unrecognized, and an unused asset; it is our great reserve. We now need
to give it full encouragement.
Diversification into horticulture, floriculture, etc.
73. Promising gains from remunerative agricultural diversification into
horticulture, this significant contributor to both GDP, and food and nutritional
security, will have to be sustained. With this in view, during the current
year, it is proposed to introduce a new Central Sector Scheme on Hi-tech Horticulture
and Precision Farming. Major components of the scheme will be use of hi-tech
interventions like fertigation, use of biotechnological tools, green food
production, and hi-tech green houses. Deployment of precision farming technology
aimed at judicious utilisation of resources like land, water, sunlight as
well as time, including demonstration of these technologies will also be part
of the scheme. I propose to provide, initially, a sum of Rs.50 crore under
this scheme.
Sugar
74. The state of the sugar industry is a matter of serious concern for the
government. There is accumulation of stocks in factories, simultaneously with
growing arrears of payment for cane supplied by farmers, partly in consequence
of soft market conditions. This has both economic and social consequences.
In order to provide relief to both the farmers and industry, the Reserve Bank
of India has already issued instructions to Cooperative Banks for the conversion
of shortfall in margins into medium-term working capital loans, subject of
course, to their furnishing adequate security or State Government guarantees.
The Reserve Bank of India has also issued instructions to extend the repayment
period of medium-term loans to 9 years. In addition, the Ministry of Food
and the Ministry of Finance will jointly address the problems of the sugar
industry and propose a comprehensive scheme for this important agro-industry
soon.
Plantations
75. Our plantation sector, a hundred and fifty year old agro-industry, is
passing through a rough patch, because of price instability in international
markets. The Government has already introduced a series of measures to provide
relief to small and marginal farmers of plantation crops like tea, coffee
and rubber, and help these sectors negotiate the difficult period.
76. With a view to providing stability in terms of income for the small
growers, from 2003-04 onwards, Government has announced a Price Stabilisation
Fund of Rs.500 crore for the benefit of tea, coffee, and natural rubber growers.
The Fund will become operational in 2003-04.
77. In addition, I propose to abolish the excise duty of Re. 1 per kg. on
tea and replace it by a cess of Re.1 per kg., for creating a separate fund
for development, modernisation and rehabilitation of the tea plantation sector.
This measure, Mr. Speaker, will not impose any additional burden on the tea
industry, but it will redesign the duty to help the industry. Further, coffee
plantations will henceforth be eligible for income tax deduction of sums deposited
in a development account, as in the case of tea.
Animal husbandry and veterinary medicine
78. India has the world’s largest cattle wealth; it produces more
milk than any other country in the world, it has the second largest number
of goats and third largest number of sheep in the world. These are great assets.
In addition, animal husbandry provides employment to about 20 million, directly
and indirectly. But our live-stock quality has deteriorated. Therefore to
promote the health of our livestock and give a fillip to animal husbandry
and dairying, I propose to reduce the basic customs duty on specified veterinary
drugs from 15 per cent to 10 per cent. To promote marine food industry, I
propose to reduce the customs duty on shrimp larvae feed from 15 per cent
to 5 per cent, and exempt it from CVD.
Credit availability
79. Timely availability of adequate credit is of utmost importance for the
development of the rural economy and agriculture. At present Regional Rural
Banks, commercial banks and credit cooperatives, encouraged mainly by the
Government, undertake this function. I am not satisfied with this arrangement.
We can not have a system wherein credit for motor cars is on easier terms
than for farm equipment or tractors. Therefore, subject to the Reserve Bank
of India’s prudential norms and approvals, private banks will hereafter
be encouraged to open branches in rural areas, to service both farm and non-farm
sectors there. I will also examine afresh this whole question of franchising
agricultural credit, including through Post Offices.
80. The full benefits of the declining rates of interest have not percolated
to critical sectors such as agriculture and small-scale industry. This has
to be rectified. Therefore, in order to pass on the benefits of lower rates
of interest to agriculture and the SSI sector, the State Bank of India has
announced an interest rate band of 2 per cent above and below its prime lending
rate (PLR) for secured advances. The Indian Bank Association (IBA) is now
advising all its member banks to adopt a similar interest rate band. This
is a welcome move. Agriculture and SSI will hereafter have to pay no more
than an extra 2 percentage points than the best bank customers.
81. The Self-Help Group (SHG)-Bank Linkage Programme being propagated by
NABARD, for the last ten years, has been recognized as the largest and fastest
growin micro-finance programme in the world. Our expectations of providing
bank credit to2.25 lakh SHGs during the current year have been surpassed
once again, and by January 2003, bank credit of Rs.598 crore has already been
provided to about 25 lakh poor families through2.50 lakh new SHGs. The programme
has also set in motion the process of women empowerment. However, the spread
of the programme across the country has been uneven and has largely remained
confined to a few States. I urge all States to vigorously join in our endeavour
to make the SHG-Bank Linkage Programme a widespread success.
Fertiliser subsidy
82. Hon’ble Members no doubt appreciate that despite the grave uncertainties
on the oil front, the Government has by and large absorbed the crude price
rise. Now, in view of the likely increase in naptha and gas feed-stock, at
least the fertilizer subsidy has to be contained. Therefore, the issue price
of fertilizers will be raised by a modest amount of Rs.12 for urea, and Rs.10
for DAP and MOP, per 50 kg bag. The price of complex fertilizers will also
be suitably modified. Water management and irrigation
Drip irrigation
83. The recent drought again brings into sharp focus the need for conserving
our water resources. A number of initiatives have already been taken to conserve
land and water resources. States are also encouraged to promote drip and sprinkler
irrigation through supply of equipment at subsidized rates. But these efforts
have to be intensified. Therefore, a bipartisan Task Force, headed by the
Chief Minister of Andhra Pradesh, and with a Minister of Agriculture from
another State, as one of the members, will be constituted to recommend measures
needed to be adopted firstly, to expand the coverage of such irrigation, thereafter
to also suggest safeguards so that the intended benefits actually reach the
target groups.
River-interlinking
84. Despite major developments in the water resource sector since Independence,
the country has not really come out of the flood-drought-flood syndrome. This
is principally on account of, among other reasons, three major factors: faulty
water management practices, unbalanced development of irrigation sources in
the country, and a highly uneven distribution of water resources.
85. To expedite the proposal for inter-linking of rivers, the Prime Minister
has appointed a Task Force, which will suggest modalities for arriving at
a consensus amongst the States on transfer of water to deficit areas and for
identifying the priority links which could be implemented early, as well as
a mechanism for their clearance and funding. Adequate outlay is being provided
to support this Task Force.
Desert pasturage development
86. A special programme, Maru Gochar Yojana, is proposed to be taken up
for the desert districts of Rajasthan. This programme will provide for rehabilitation
of traditional pastures – ‘Oran’ or ‘Gauchar’ – by developing at least one large pasturage nursery in each of the
identified districts, as a Central scheme, for restoration of traditional
water courses, and other measures so as to provide effective drought proofing.
A Task Force will be established for working out modalities for its implementation.
Rupees 100 crore will be provided for this purpose, over a period of three
years, with only a quarter of the contribution coming from the State Government.
Provision for 2003-04 for this purpose will be Rs.50 crore.
VIII. INDUSTRY
87. As Hon’ble Members know, in the current year so far, industry
has stimulated overall growth, despite a decline in agriculture. We must,
therefore consolidate these gains and build on the robust industrial growth
demonstrated in the last few quarters.
Promoting investment: tax treatment of dividends and capital gains 88. For
this, we need to promote investment in the industrial sector, and improve
the debt and equity markets. Mr. Speaker, I am also committed to bringing
the small investors back to the equity markets by restoring their confidence.
Dividend distribution tax
89. From April 1, 2003, it is proposed that dividends be tax free in the
hands of the shareholders. Correspondingly, there will be a 12.5 per cent
dividend distribution tax on domestic companies. While mutual funds, including
UTI-II, renamed UTI Mutual Fund, will also pay dividend distribution tax,
it is proposed to exempt equity oriented schemes from the purview of the tax
for one year. UTI-I, however, will be exempt from the dividend distribution
tax.
Long-term capital gains tax
90. In order to give a further fillip to the capital markets, it is now
proposed to exempt all listed equities that are acquired on or after March
1, 2003, and sold after the lapse of a year, or more, from the incidence of
capital gains tax. Long term capital gains tax will, therefore, not hereafter
apply to such transactions. This proposal should facilitate investment in
equities. I will, however, reexamine the effects of this exemption in the
next Budget, and the Scheme will be in force until then.
Stock markets
91. My predecessor had already announced that stock exchanges will have
a corporate structure. To enable this, necessary amendments to the Securities
Control and Regulation Act will be proposed in the current session. With a
view to enhancing investor confidence, it is necessary to separate the ownership
of these stock exchanges from their management; resulting in demutualisation.
In the process of corporatisation or demutualisation, it is possible that
capital gains accrue. Therefore, as a one time measure, at the time of corporatisation
or demutualisation of the stock exchanges, in accordance with a scheme approved
by the SEBI, should gains arise, then the consequential transactions shall
be fully exempt from capital gains tax. Research and development
92. Hon’ble members, as I have already said, knowledge is industry;
and this is particularly so when our imperative is to be the best, in all
aspects in general, but particularly in product design and quality. To encourage
R&D, it is proposed to extend the tax holiday to R&D companies established
up to March 31, 2004
Textiles
93. In industry, textiles is the largest employment provider in the country.
It also contributes substantially to our exports. The main thrust of my proposals
for the textile sector, therefore, is to have a moderate rate structure; to
complete the CENVAT chain to promote compliance; to encourage modernisation;
and, to eliminate evasion. Keeping these objectives in view, as a package
of incentives, the following measures are proposed:
94. The procedure for the decentralized sector will be simplified so as
to exempt job workers from maintaining any central excise records or even
from central excise registration. Garments and fabrics manufactured by non-profit
charitable institutions will, however, be exempt from excise duty.
95. As for customs, the duty on apparel grade raw wool shall now be reduced
from 15 per cent to 5 per cent. Further, to encourage modernisation of the
textileindustry, it is proposed that the customs duty on a large number of
textile machinery and their parts be reduced from the existing 25 per cent
to just 5 per cent .
96. Simultaneously, it is necessary to give a helping hand to the power-looms.
For this decentralized sector, it is proposed to strengthen the existing programme
for Induction of Technology in the Weaving Sector further by offering a ‘Power-loom
Package for Modernisation’. This package will have the following three
features.
97. First, the Technology Up-gradation Fund Scheme will be enlarged to cover
modernisation of power-looms.
98. Second, to create a better working environment and obtain higher productivity,
a new Power-loom Workshed Scheme will be introduced by the Ministry of Textiles
together with the State Governments. Improvement of other infrastructure of
existing power-loom clusters will be taken up under the revised Textile Sector
Infrastructure Development Scheme.
99. Third, as a welfare measure, all powerloom workers will be covered under
the Special Insurance Scheme, which will provide them insurance cover against
death, accident and disability.
100. Recognising the need to prevent sickness in the textile industry,
Government is considering a mechanism for restructuring the debt portfolios
of viable and potentially viable textile units. The details will be decided
in consultation with all
the stake holders.
Pharmaceuticals
101. All the benefits listed under health-care will also promote pharmaceutical
industry. Besides, income tax concessions to pharmaceuticals, bio-technology
and information technology are at par. All drugs and materials imported or
produced domestically for clinical trials will be exempt from customs and
excise duties. Customs duty on import of Reference Standards by the industry
has been reduced from 25 per cent to 5 per cent.
Information technology (IT)
102. IT is India’s showpiece success story. We have to not just maintain
its momentum of growth, but continuously encourage it. Therefore, it is proposed
that the concessions extended to IT under Sections 10A and 10B of the Income
Tax Act will continue as originally envisaged. As per law such companies as
are currently covered by these tax exemptions lose the benefits upon change
in their ownership or shareholding. This is not logical. I am, therefore,
removing these restrictions; the benefit of such tax exemptions will remain
even in the case of amalgamation or
de-merger.
103. Another anomaly is levy of excise duty on pre-loaded software in the
case of computers. As software is already exempt from excise duty, I see no
reason why this benefit should be denied simply because it gets loaded in
a computer. From now, the value of pre-loaded software will be excluded for
the purpose of charging excise duty on computers.
104. Customs duty on specified electronic components for IT industry is
being reduced in conformity with our WTO commitment.
105. In addition, customs duty on a number of capital goods used by the
telecom and IT sector for manufacture of components will be reduced from 25
per cent to 15 per cent. For optical fibre cables, used widely for networking
to provide bandwidth to the IT community, the customs duty is also being reduced
from 25 per cent to 20 per cent. To help the domestic industry to manufacture
e-glass roving used for making optical fibres, it is proposed to reduce the
import duty on specified raw materials for the manufacture of e-glass roving
from 30 per cent to 15 per cent.
106. Telecom and domestic satellite service companies enjoy the benefit
of tax holiday. Since it takes quite some time for such projects to materialize,
I propose to extend the deadline of setting up the units by one more year
to March 31, 2004.
Bio-technology
107. Biotech is our today’s sunrise, tomorrow’s showpiece industry.
The Government, to facilitate units engaged in R&D in bio-technology and
the pharmaceuticals sector, has decided to remove the existing restriction
of minimum export obligation of Rs.20 crore for availing exemption from customs
duty for specified equipments. Further, the restriction of full exemption
being limited to only 1 per cent of last year’s export turnover is also
lifted for R&D units. Moreover, in respect of R&D units with manufacturing
facilities, the benefit of full customs duty exemption for specified equipment
will also be available for their manufacturing activity to the extent of 25
per cent of the previous year’s export turnover.
108. So far as benefits under direct taxes are concerned, biotech enjoys
the same tax incentives as the IT or pharmaceuticals industry.
Tourism
109. Tourism, in addition to generating incomes, is amongst the most effective
employment creating sectors. To provide a set of incentives to this industry,
the following proposals will be implemented:
a) withdraw the expenditure tax;
b) extend the benefit of Section 10(23G) to financial institutions that advance long-term capital to hotels in three-star and above categories;
c) the benefit of set-off of unabsorbed loss and depreciation on amalgamation will henceforth be available to hotels under Section 72A of the Income Tax
Act;
d) continue the exemption for the hotel industry from the levy of service tax; a n d
e) reduce basic customs duty on imported equipment for ropeway projects to 5 per cent without payment of CVD and SAD.
110. It is our hope and expectation that the States, on their part, will
now give a commensurate boost to the tourism sector by abolishing the luxury
tax that they charge.
Gems and jewellery
111. Traditionally, India has always excelled in the field of diamond and
gem cutting, polishing and in the craft of gold smithy. With a view to nurturing
this industry, it is proposed to reduce the customs duty on rough, coloured
gem stones from 5 per cent, and on semi-processed, half-cut or broken diamonds
from 15 per cent to nil. Customs duty on cut and polished diamonds and gem
stones will also be reduced from the present 15 per cent to 5 per cent.
112. As for gold, it is proposed to reduce the customs duty on imported
gold to Rs.100 per 10 grams from the present level of Rs.250 per 10 grams,
but only when it is brought in the form of serially numbered bars, or in the
form of gold coins, not as ‘tola’ bars, please. It is my hope
and expectation that this will become the first step in enabling India to
shortly emerge as the gold-trading capital of the world.
113. The gems and jewellery industry has also been quite apprehensive about
withdrawal of benefits under Sections 10A and 10B of the Income Tax Act. I
would like to assure them that no such step is contemplated. Keeping in view
the substantial value addition that takes place in the case of cutting and
polishing of diamonds and gems, it is also proposed to extend the benefits
under Sections 10A and 10B of the Income Tax Act to these activities.
Strengthening ECGC
114. Export Credit Guarantee Corporation of India Ltd. (ECGC) has been
playing a crucial role by providing credit insurance cover for exports from
the country. There is great potential for project exports from India with
our exporters winning bids against intense international competition. In order
to enable ECGC to provide adequate underwriting support to such projects,
the Government has decided to increase its share capital to Rs.80 crore.
Small-scale industry (SSI)
115. A vibrant small-scale industry, contributing to both industrial and
export growth, is critical for sustained growth in income and employment.
Mr. Speaker, as I have already said, the full benefits of the declining rates
of interest have percolated neither to agriculture, nor to small-scale industry.
The recent announcement by the State Bank of India and the decision by the
Indian Bank Association about an interest rate band of 2 per cent above and
below PLR for secured advances will help the SSI sector in obtaining bank
finance at moderate rates of interest. In addition, benefits and entitlements
available to this sector shall be placed on the Ministry’s website,
for ready reference.
116. Accessing the global market with consumer goods of quality, at competitive
prices, produced in both large- and small-scale establishments operating under
flexible conditions, is the goal that we need to target. Members will recall
that last year, Government had announced the dereservation of over 50 items.
After consultations with stakeholders in respect of certain other items in
the reserved list, it is now proposed to withdraw SSI reservation from another
75 items of laboratory chemicals and reagents, leather and leather products,
plastic products, chemicals andchemicals products and paper products. The
Minister of Small Scale Industries will announce the details of these items
separately. To help further investment in the SSI sector, Government will
examine the question of a limited partnership act. Promoting India: India
Development Initiative
117. An initiative to promote India as both a production centre and an
investment destination, called ‘India Development Initiative’,
shall be established in the Ministry of Finance, with an allocation of Rs.200
crore for 2003-04. This initiative will also leverage and promote our strategic
economic interests abroad.
Disinvestment
118. Disinvestment receipts for the current year are estimated at Rs.3360
crore. I am confident that the pace of disinvestment will accelerate in the
coming year. I wish to also state that details about the already announced
Disinvestment Fund and Asset Management Company, to hold residual shares post
disinvestment, shall be finalized early in 2003-04. Mr. Speaker, Sir, disinvestment
is not merely for mobilizing revenues for the Government, it is mainly for
unlocking the productive potential of these undertakings, and for reorienting
the Government, away from business and towards the business of governance.
IX. OTHER REFORMS Banking
119 . Foreign direct investment (FDI) in the banking companies in India
is presently capped at 49 per cent from all sources under the automatic route.
For facilitating the setting up of subsidiaries by foreign banks, as well
as for inviting investment in private banks, this limit will be raised to
at least 74 per cent.
120. The voting rights of any person holding shares of a banking company
are restricted to 10 per cent irrespective of his/her shareholding. The Banking
Regulation Act, 1949 will be amended to remove this limitation.
121. I now also extend the benefit of Sec. 72A of Income Tax Act to nationalized
banks. Any banking company can now merge with a nationalized bank with consequential
tax benefit.
122. As the Hon’ble Members know, the Government is determined to
contain the problem of non-performing assets (NPA) and ensure a credit market
that functions efficiently. Following the Budget announcement last year, the
Credit Information Bureau has already been established. It is proposed to
provide the necessary legislative support to this Bureau.
Interest
rate
123. High rates of interest, in a low inflation regime, clearly act as
disincentive to investment. It is, therefore, important that administered
interest rates on public provident fund and other small saving schemes be
adjusted in line with the market rates. Accordingly, rates of interest on
public provident fund, and small savings schemes, etc. will be reduced by
one percentage point with effect from March2. Interest on relief and savings
bonds will also be reset accordingly. Hon’ble Members may, however,
note that the real returns – adjusted for inflation – offered
on these instruments are still a remunerative6.3 per cent per year; higher
than what they were between 1991-92 and 1995-96.
Capital account
124. Over the last few months, Government has taken a number of steps to
ease restrictions on capital account mobility. After careful assessment, I
would like to announce the following additional steps:
125. The Government is already considering a major review of sectoral limits
for investments by Foreign Institutional Investors. In order to facilitate
their easy entry into the stock markets, the process of their registration
will be further streamlined. Several steps have recently been taken to ease
flows of Capital. There will be more initiatives in this regard.
External aid
126. Mr. Speaker, Sir, a stage has come in our development where we should
now, firstly, review our dependence on external donors. Second, extend support
to the national efforts of other developing countries. And, thirdly, reexamine
the line of credit route of international assistance to others. Having carefully
weighed all aspects, I propose the following measures:
a) While being grateful to all our development partners of the past, I wish to announce that the Government of India would now prefer to provide relief to certain bilateral partners, with smaller assistance packages, so that their resources can be transferred to specified non-governmental oranisations (NGO’s) in greater need of official development assistance. The current agreed programmes will, however, continue and reach their completion. Of course, there will be no more ‘tied aid’ any longer.
b) Having fought against poverty, as a country and a people, we know the pain and the challenge that this burden imposes. For the Heavily Indebted Poor Countries (HIPCs), owing overdue payments of substantial sums to India, I am happy to announce that we will be considering a debt relief package. This will be announced shortly in consultation with the Ministry of External Affairs.
c) I am also happy to announce that the Government proposes to generally discontinue the practice of extending loans or credit lines to fellow developing countries. Instead, in future, I propose to utilize the ‘India Development Initiative’, which I have already announced, for providing grants or project assistance to developing countries in Africa, South Asia and other parts of the developing world.
Reform and reorganisation of the Ministry of Finance
127. Responsibilities of the Department of Company Affairs, the Foreign
Promotion Investment Board (FIPB), and the regulation of the new Pension Funds
Scheme have recently been added to the Ministry of Finance. There is, therefore,
need to reorganize the Ministry, also to go back to the simpler and more direct
name as the Ministry of Finance. The Department of Company Affairs is now
being absorbed as a Department – and will sadly no longer stand shoulder
to shoulder with Finance.
128. In the Ministry of Finance, the Department of Economic Affairs will
be restructured and have separate divisions dealing with economic policy;
analysis: international and national; capital markets; budget; banking; trade
and aid concerns; and infrastructure and coordination.
129. To remain better abreast of agriculture, an Expert Advisory Council,
to advise the Ministry of Finance, will be set up for agriculture.
X. TAX REFORM, REVISED ESTIMATES AND BUDGET ESTIMATES
130. I now come to taxes, tax reforms, and the book-keeping of the current
year, as also 2003-04. Mr. Speaker, I want to emphasise six important aspects
in this regard. First, the coming year will be historic with the States switching
over to a Value Added Tax (VAT). The Central Government has been a partner
with the States, in the highest tradition of cooperative federalism, in this
path-breaking reform. This will also involve an amendment to the Additional
Excise Duty Act. Second, it is proposed to make 2003-04 the year when a long-overdue
Constitutional amendment to integrate services into the tax net in a comprehensive
manner is enacted and implemented. This will give a boost to revenues, and
help implement VAT. Third, there will be major improvements in tax administration
through greater application of IT, and a discretion-free, impersonal system.
Fourth, excise duties are being rationalised further. Fifth, the momentum
of reducing customs duty is being maintained so as to improve the competitiveness
of Indian industry in international markets. And, sixth, Government shall
continue to strive towards fiscal consolidation through expenditure reprioritisation,
and revenue augmentation.
State-level Value Added Tax (VAT)
131. The Conference of State Chief Ministers, presided over by the Prime
Minister, held on October 18, 2002 confirmed the final decision that all States
and Union Territories would introduce VAT from April 2003. The Empowered Committee
of State Finance Ministers, on February 8, 2003, has again endorsed the suggestion
that all State legislations on VAT should have a minimum set of common features.
Apart from avoiding cascading of taxes, the introduction of VAT is expected
to increase revenues as the coverage expands to value addition at all stages
of sale in the production and distribution chain. However, in view of the
apprehensions expressed by a large number of States, about possible revenue
loss, in the initial years of introduction of VAT, the Central Government
has agreed to compensate 100 per cent of the loss in the first year, 75 per
cent of the loss in second year and 50 per cent of the loss in the third year
of the introduction of VAT; this loss being computed on the basis of an agreed
formula.
132. The Government of India considers the introduction of VAT, at the
State level, to be a historic reform of our domestic trade tax system, It
will assist the States to transit successfully from the erstwhile sales tax
system to a modern domestic system, at present in use in over 120 countries.
Additional excise duty (AED) in lieu of sales tax
133. While continuing to give States the additional2.5 per cent of all
shareable taxes and duties, in order to enable them to generate more revenues,
the Additional Duties of Excise (Goods of Special Importance) Act, 1957 is
being amended, from a date to be notified. This will allow the States to levy
sales tax on textiles, sugar and tobacco products at a rate not exceeding
4 per cent. This will also enable the States to integrate these three important
products in the VAT chain. Service tax: a proposed Constitutional amendment
134. To enable levy of tax on services as a specific and important source
of revenue, an amendment to the Constitution is proposed. This Constitutional
amendment, and the consequent legislation would give the Central Government
the power to levy the tax and both the Central and the State Governments sufficient
powers to collect the proceeds.
Central Sales Tax
135. With the introduction of VAT, there is need to now phase out the CST,
and move to a completely destination-based system. This can not be done in
one step. We must let VAT stabilize; but also recognize that these two –
VAT and CST – cannot remain in tandem, in perpetuity. Therefore, in
the first instance, the ceiling rate of CST for inter-State sale between registered
dealers will be reduced to 2 per cent during 2003-04, with effect from a date
to be notified. The Government of India will compensate the States for loss
of revenue from this reduction of the CST. This will be done, as all these
steps have been undertaken, only after arriving at a consensus with the Empowered
Committee of State Finance Ministers.
136. I do wish to place on record my high appreciation of the cooperation
that I have received from this Committee. Without that, I simply could not
have reached here.
Task Forces
137. As the Hon’ble Members are aware, in September 2002, three Task
Forces were set up: one each on Direct and Indirect Taxes, and the third on
Corporate Governance.
138. These were chaired respectively by Dr. Vijay Kelkar and Shri Naresh
Chandra. The former also issued preliminary proposals in November, in the
form of consultative papers for public comment. After evaluating all these
comments, final reports were given in December, 2002.
139. Public response to these Task Forces and their Reports has been overwhelming.
This is a tribute to the excellent work done by Dr. Kelkar and Shri Naresh
Chandra and their selfless and dedicated teams.
140. By opening up the budget-making process, the Kelkar Committee Reports
have more than fulfilled my basic purpose of involving, as far as practical,
our citiens, in the annual budgetary exercise. I have personally benefited
very greatly from these Reports, as also from this open debate. I take this
opportunity to express my sincere gratitude to the two Chairmen and all members
of the Task Forces, as also members of the public for their valuable comments
and suggestions.
141. With regard to the Naresh Chandra Committee Report, corporate governance
is high on the Government’s agenda. There will be a set of regulations
that does not inhibit managerial initiative while instituting a mechanism
for early detection of frauds and their prevention. For this purpose, a Serious
Frauds Office has already been set up.
142. Now, let me deal with the two reports on taxation. The Ministry has
analysed them fully.
143. The basic philosophy of these reports is sound. For a modern, forwardlooking
and in the long run, revenue-beneficial taxation system the proposals that
have been mooted may be the most appropriate. There is need to, eventually,
move away from an exemption and discretion based system to a different, more
current order. That is the ideal that the Task Forces, particularly in respect
of direct taxes have suggested; a radically new approach to taxation.
144. This ideal is difficult to achieve in one leap, and I can scarcely
cross the existing conceptual chasm in two. We cannot ignore the commitments
made, or wish them away. That is why I choose to bridge the divide. We will,
therefore, stay with the basics of the present system of taxation, but we
will, indeed have already accepted, most of the suggestions made by the Task
Forces designed to eliminate procedural complexities, reduce paper work, simplify
tax administration and to nhance efficiency, also integrate such tax proposals
as the system can, at present, absorb, with one overriding thought: Mr. Speaker,
Sir, this will be a move away from a suspicion-ridden, harassment generating,
coercion-inclined regime to a trust-based, ‘green channel’ system.
I do this entirely on the basis of my faith in my countrymen and women
.
145. I now come to the tax proposals proper. What I describe below are
the major changes proposed, not every detail of change, apart from those already
described in the portion dealing with specific sectors. Details are contained
in the Finance Bill and the relevant notifications, which will be laid on
the Table of the House in due course. Moreover, as the Hon’ble Members
are aware, Budget Day restrictions in respect of clearance of goods have been
revoked to allow economic activity to continue without any hindrance.
Direct taxes Rates
146. Rates of income tax, both corporate and non-corporate, have remained
largely stable since 1997. As stability and continuity are commended as virtues
in tax regimes, I intend to be virtuous. Corporate tax structure will, therefore,
be left as it is; except that the 5 per cent surcharge, levied last year in
connection with the security of India, will be halved in the case of corporate
assessees, firms, foreign companies, cooperatives, and local authorities.
In the case of individuals, Hindu Undivided Families (HUF), and Association
of Persons etc., this surcharge will be removed entirely, except in the case
of those earning an income above Rs.8.5 lakhs. From them, that is those earning
above Rs.8.5 lakh, I will collect a 10 per cent surcharge on the tax, which
works out to less than 3 paise out of an income of a rupee. But, I have provided
some relief to them, as well, for example, in standard deduction.
Standard deduction
147. There are more salaried taxpayers at income levels of Rs.2 lakh and
above than the non-salaried. I do often wonder, why? That is why the salaried
always complain, saying they do not have – that cliché phrase
– a level playing field; I agree, they do suffer a more exacting regime.
Therefore, as already announced, their standarddeductions are raised.
148. Individual taxpayers having income from dividends, interest, etc.
are given a general deduction of Rs.9,000. As promised by me earlier, this
deduction has now been increased to Rs.12,000. An additional deduction of
Rs.3,000 is allowable inrespect of interest from Government securities. Thus,
the total deduction available under Section 80L will be Rs.15,000. Though
dividend will not be taxable in the hands of the recipient from next year,
I propose to retain this deduction at Rs.15,000 for next year also.
Tax deduction at source
149. A lot of unintended difficulties are caused by certain provisions
dealing with tax deductible at source (TDS); much too tedious to elaborate
here. I want to correct this. Therefore, in simple terms, it is now provided
that individuals and HUF carrying on business or profession need not deduct
tax at source, from payments made by them for personal purposes.
Not ordinarily resident
150. There is a category of taxpayers in India ordinarily not found elsewhere
– the ‘not ordinarily resident’. They do not normally have
to pay tax on their foreign sourced income. There has been confusion on this
provision in the past due to differing legal interpretations. To set matters
at rest, the relevant definition has been suitably amended so that the benefit
will now be available to persons for two years in case they remain non-residents
for the last nine out of 10 years. Administrative reform
151. In the area of tax administration, Government has initiated a whole
basket of reforms, mainly on the basis of the recommendations of the Kelkar
Committee. Some of the principal ones are:
(a) outsourcing of non-core activities of Income Tax Department, namely allotment of PAN, and creation of data bank of high value transactions through tax information network;
(b) immediate abolition of present discretion-based system for selection of returns for scrutiny; this will be replaced by a computer generated, intelligent, random selection of only 2 per cent of the returns, annually;
(c) expanding the scope of taxpayer services, including extension of interactive voice response system to more cities and software for preparation of returns;
(d) direct crediting of all refunds to the bank account of the taxpayer, through electronic clearance system; but obviously only if the taxpayer furnishes a bank account number;
(e) reduce the compliance cost of the taxpayer, through halving the number of forms presently used in furnishing of applications, returns, etc., for the purposes of tax deduction and tax collection at source, from the present 42 to just 22. Hon’ble Members, if in only one attempt I could halve this headache, please reflect upon the immense possibilities that lie on this route;
(f) immediate introduction of a one-page only return form for individual tax payers, having income from salary, house property and interest, etc. This has already been devised, and will come into operation from April 1 onwards;
(g) the Income Tax Act is being amended to enable electronic filing of returns;
(h) abolition of tax-clearance certificates currently needed by a person leaving India, or any person submitting a tender for a government contract. Henceforth, only expatriates who come to India in connection with business, profession or employment, would have to furnish a guarantee from their employer, etc. in respect of the tax payable before they leave India. An Indian citizen, before leaving India, will only have to give his/her permanent account number, and the period of his/her intended visit abroad to the emigration authorities; and
(i) simplifying the procedure and methods employed during search and seizure, and during survey by the Income Tax department. First, hereafter, stocks found during the course of a search and seizure operation will not be seized under any circumstances. Second, no confession shall be obtained during such search and seizure operations. Third, no survey operation will be authorized by an officer below the rank of Joint Commissioner of Income Tax. Finally, books of account impounded during survey will not be retained beyond ten days, without the prior approval of the Chief Commissioner.
152. These, Hon’ble Members, are only a few steps on this long road
called simplification and rationalisation of taxation. It is not for nothing
that even Albert Einstein had ruefully observed that he found ‘Income
Tax the most difficult thing upon Earth to understand’.
153. Mr. Speaker, please sympathize with me. I endeavour to make easy that
which Einstein found so difficult. Indirect taxes: excise
Rationalisation and relief
154. Rationalisation of excise rate structure and reduction of the multiplicity
of rates are integral to the total tax reform process. In this regard, I propose
to prescribe a 3-tier excise duty structure of 8 per cent, 16 per cent and
24 per cent. These rates would, however, not apply in the case of petroleum
and tobacco products, pan masala, and items attracting specific duty rates.
I have already announced a separate package for textiles, and some changes
in the duty structure relevant for some other key sectors while dealing with
those sectors. I will now refer to the changes proposed in various other commodities.
155. Currently, tyres, aerated soft drinks, polyester filament yarn, airconditioners
and motor cars attract excise duty of 32 per cent. I propose to reduce the
duty on these items to 24 per cent.
156. Certain exempt items were brought under the tax net during the last
two years with an optional duty of 4 per cent without CENVAT, or 16 per cent
with CENVAT. I propose to eliminate the 4 per cent duty without CENVAT. However,
keeping in view the number of representations received for exemptions, I propose
to fully exempt the following items of the ordinary citizen’s use, currently
attracting 4 per
cent excise duty:
157. Rest of the items attracting 4 per cent without CENVAT will now attract
duty at 8 per cent with CENVAT.
158. I also propose to fully exempt from excise duty matches made by the
nonmechanized sector. However, matches made by semi-mechanized and mechanized
sector will attract an ad-valorem duty of 8 per cent without CENVAT.
159. I also propose to reduce the excise duty chargeable under the Medicinal
and Toilet Preparations Act, on medicines and toilet preparations containing
alcohol, from the present high rates of 20 to 50 per cent to a uniform rate
of 16 per cent, at par with the rates on similar items not containing alcohol.
However, exemptions on ayurvedic and unani medicines, containing self-generated
alcohol, will continue.
160. I propose to reduce the excise duty on items like pressure cookers,
ophthalmic blanks, biscuits, boiled sweets and dental chairs from 16 per cent
to 8 per cent. Recorded audio compact discs (CDs) will be fully exempt from
excise duty. 162. It is my conviction, Mr. Speaker, that these measures
will result in “Grihini ki tukia mein anna”: the second part of
my assurance.
Transport
161. As I have earlier stated, efficient transportation is critical for
rapid development. I have already announced major reduction in excise duty
on motor cars and tyres. Further, on environmental considerations, I propose
to reduce the duty on electric vehicles from 16 per cent to 8 per cent.
163. Presently, there is an inequitous duty structure between buses and
trucks, manufactured by an integrated unit, vis-à-vis independent body
builders, who are exempt from excise duty. To reduce the duty differential
and to promote body buildingby integrated bus and truck manufacturers, as
a measure of road safety, I propose to increase the duty on chassis from 16
per cent, to 16 per cent plus Rs.10,000 per chassis, cleared for outside body
building. The body building activity in the unorganized sector would, however,
continue to remain exempt.
164. It is an accepted principle that while taxation should be moderate,
the tax base has to be large, so that every sector contributes moderately
to the national economy. Following this principle, I propose to impose fresh
excise levy of 8 per cent on the following items, with the CENVAT credit facility
available to them: branded refined edible oil and vanaspati packed in sealed
containers for retail sale – this will not apply to unbranded oil; lay
flat tubing; chemical reagents; wood-free particle or fibre board made from
agro base; paper and paper board made from non conventional raw material;
and populated printed circuit board for black and white TV sets.
165. Considering that specific rates on cement and clinker have remained
unchanged for a considerably long period of time, I propose to now increase
these rates by Rs.50 per tonne. This will mean a modest increase of Rs.2.50
per 50 kg. bag of cement.
166. I also propose to impose additional excise duty of Rs.1.50 per litre
on light diesel oil to further discourage its use as an adulterant.
Trade facilitation measures
167. For trade facilitation, I propose to take the following measures,-
(a) The present system of fortnightly payment of excise duty will be liberalized
to permit payment of duty at the end of the month. Further, the excise duty
will be considered to have been paid on the date the cheque is presented to
the bank subject to realisation.
(b) Deduction from the transaction value is allowed on actual freight incurred,
provided that is clearly shown in the invoice. This facility will now be extended
to cases where freight is worked out on an equalized basis also. (c) Over
the years, the Maximum Retail Price (MRP) based excise levy has proved to
be an effective measure of simplification by reducing valuation disputes.
I propose to extend the MRP-based excise levy to chewing tobacco and insecticides.
National Calamity Contingency Fund
168. Unfortunately, the Nation has been facing a severe drought this year.
The funds raised earlier under the National Calamity Contingent Duty are not
sufficient. It is, therefore, proposed to impose a 1 per cent National Calamity
Contingent Duty on polyester filament yarn, motor cars, multi utility vehicles
and two-wheelers. Similarly, crude, domestic or imported, will also be subjected
to a duty of Rs.50 per metric tonne for this purpose. However, these new levies
will be limited to one year only.
169. While the Small Scale Exemption Scheme aims at providing a distinctive
advantage to labour-intensive units, there are reports of misuse of this facility
in certain sectors. I propose to withdraw this facility in case of a few items
and rationalize the eligibility limit of Rs.3 crore under the general SSI
scheme.
Service tax
170. I propose to enhance the general service tax rate from 5 per cent
to 8 per cent, and also impose service tax on 10 new services. While the increase
in the tax rates will come into effect on enactment of the Finance Bill, the
levy of tax on the new services will take effect from a date to be notified.
171. Last year credit of service tax on input services were extended for
payment of service tax, provided the input and the final services fell within
the same category. I propose to extend this facility across all services.
Thus, the credit will now be available even if the input and the final services
fall under different categories. Indirect taxes: customs
External liberalisation
172. Rate rationalisation and reduction of peak rates of customs duties
has been an integral part of economic reform in the country. The economy has
not only ‘weathered’ the removal of quantitative restrictions
on imports and the reduction in customs duty rates, but has responded by improving
its competitiveness and demonstrating the inherent strength of its external
balance of payments. As a part of this continuous process, and in line with
the pronouncements made by several of my predecessors, I now propose to reduce
the peak rate of customs duty from 30 per cent to 25 per cent, excluding agriculture
and dairy products. Rationalisation and relief
173. It has been our policy to minimize sector-specific and end-use based
customs duty exemptions. This policy will continue. Metallurgical coke and
nickel attract customs duty rates at 15 per cent and 5 per cent, depending
upon their usage. I, therefore, propose to rationalize the customs duty on
these two items to a uniform rate of 10 per cent.
174. Conch shells and seed lac are really handicraft items. Their duty
will come down from 30 per cent – why was it ever 30 per cent –
to 5 per cent.
175. Import duty on oleo pine resin, a raw material for rosin shall be
reduced from 15 per cent to 10 per cent.
176. Value limit for a full customs duty exemption, for bona fide commercial
samples and gifts, however, shall be raised from Rs.5,000 to Rs.10,000. 177. I also propose to reduce the customs duty on passenger baggage from
60 per cent to 50 per cent.
178. Phosphoric acid, an input for fertilizers, is exempt from the Special
Additional Duty of Customs (SAD). For the sake of uniformity, I propose to
exempt rock phosphate and crude sulphur, inputs for phosphoric acid, also
from SAD.
179. The basic customs duty on alcoholic liquor will come down to 166 per
cent in conformity with our WTO commitments. I also propose to rationalize
the countervailing duty in respect of imported alcoholic beverages including
wines. Capital goods and infrastructure
180. Considering higher usage levels of Liquified Natural Gas (LNG), I
propose to reduce the customs duty on LNG regassification plants from 25 per
cent to 5 per cent.
181. There is need to support cleaner and environment-friendly technologies.
With this end in view, I propose to reduce the customs duty on components
of membrane cell technology used in the caustic soda industry from 15 per
cent to 5 per cent.
182. Safety and modernisation are key issues before Indian Railways. I
propose, therefore, to reduce customs duty on spares for diesel locomotives,
parts for conversion of locomotives from DC to AC from 25 per cent to 15 per
cent, and loco simulators for training of drivers from 25 per cent to 5 per
cent.
183. Given the importance of promoting food-processing and transporting
agricultural products, I propose to reduce the customs duty on refrigerated
trucks from 25 per cent to 20 per cent.
Trade facilitation
184. I assure Hon’ble Members of faster clearance hereafter of cargo
and fewer procedures, by reducing the transaction cost, thus facilitating
exports and imports. For this, a number of measures have been taken to simplify
and modernize the customs clearance procedures, with the main emphasis being
on cutting down contact of trade with the officers, to the extent possible,
and introducing computerisation in customs clearances. While these efforts
will continue, as a further trade facilitation measure, I propose to increase
the interest-free period for warehoused goods from 30 to 90 days and to reduce
the rate of interest for the period beyond 90 days to reflect the market rate
of interest.
185. To bring our customs clearance procedures at par with best international
practices, I propose to introduce, this year itself, a self-assessment scheme
for importers and exporters. Briefly stated, under the self-assessment scheme,
the importer himself/herself will determine the classification of goods, including
claim for any exemption benefit, and the system will calculate the duty based
on his/her declaration. Physical inspection of imported goods will be done
by using riskassessment and management techniques on a computer-based system
and not on the orders of customs examining staff. Further, the existing system
of concurrent audit of import documents will be replaced by post-clearance
audit, as prevalent in developed countries.
186. Sir, my proposals made in this budget on the Direct Taxes will result
in a revenue loss of Rs.2,955 crore while the proposals relating to indirect
taxes will result in a gain of Rs.3294 crore.
Revised Estimates for 2002-2003
187. The revised estimates for the current fiscal year show a decrease
in expenditure of Rs.6,296 crore as compared to the Budget estimates. This
reduction in overall expenditure has been achieved despite additional expenditure
on drought relief, food subsidy, and the Delhi Metro Rail Project.
188. Net tax revenues for the Centre are estimated to be Rs.164,177 crore
compared to the Budget estimate of Rs.172,965 crore, thereby reflecting a
shortfall of Rs.8,788 crore. Non tax revenue is estimated at Rs.72,759 crore,
Rs.619 crore more than the estimated level of Rs.72,140 crore. However, disinvestment
receipts, at Rs.3,360 crore are lower than the Budget estimate of Rs.12,000
crore. Budget Estimates for 2003-2004
189. In the budget estimates for 2003-2004, the total expenditure is estimated
at Rs.438,795 crore, of which Rs.120,974 crore is for Plan and Rs.317,821
crore for non-Plan.
Plan expenditure
190. In order to strike the right balance between the developmental needs
on one hand and fiscal stability on the other, the Gross Budgetary Support
(GBS) for Plan 2003-04 has been fixed at Rs.120,974 crore. This is Rs.7,474
crore more than last year, indicating an increase of6.6 per cent. Out of
this, an amount of Rs.72,152 crore is being provided as Budget support for
Central Plan. This is an increase of Rs.5,281 crore, or7.9 per cent, over
the last year. Similarly, the Central Assistance for State Plans has been
pegged at Rs.48,822 crore, which is Rs.2,193 crore more than last year.
Non-plan Expenditure
191. Non-Plan expenditure in 2003-2004 is estimated to be Rs.317,821 crore
compared to Rs.289,924 crore in Revised estimates for 2002-2003. The increase
in non-plan expenditure is mainly in interest payments (Rs.7,560 crore), subsidies
(Rs.7,162 crore), and defence (Rs.9,300 crore). Government is fully committed
to modernizing the armed forces, and equipping them with the best available.
This is non-negotiable. Therefore, during the next year, any additional requirement
that may emerge on account of modernisation needs of the three defence services,
or on account of the Married Accommodation Project, will be fully met. There
will be no shortage of funds for defence. Revenue estimate and Fiscal deficit
192. Mr. Speaker, Sir, with these proposals I estimate total revenue receipts
of the Centre at Rs.253,935 crore and the fiscal deficit at Rs.153,637 crore,
which is5.6 per cent of the estimated GDP.
XI. CONCLUSION
193. Sir, in formulating the Budget for 2003-04, the Government has had
to carefully and delicately balance the need for accelerating growth, while
simultaneously making progress on the front of fiscal consolidation. I know
that what Government has done is the most judicious under the circumstances.
194. This budget is about addressing the problem of poverty and life-time
concerns of our citizens; of giving a major boost to infrastructure; and laying
the foundations for balanced, accelerated growth of agriculture and industry,
plus tax reform. I have tried to address the ‘Panch Priorities’,
and I hope, that after this year of drought, our economy will respond favourably
to the Budget package and demonstrate impressive growth in 2003-04.
195. Let me end, Mr. Speaker, by reiterating that this Budget is of an
“India that is on the move.” An India, that now rapidly advances
to prosperity. It is about an India that banishes poverty, and builds on its
great resource base, the strength of its human capital and the immense reservoir
of its knowledge.
196. Sir, I commend the Budget to the House.