SPEECH
OF SHRI R VENKATARAMAN
MINISTER
OF FINANCE
INTRODUCING THE BUDGET FOR THE YEAR 1980-81 (FINAL)
Dated : June 18, 1980
I
rise to present the regular Budget for the year 1980-81.
2. Presenting the interim Budget in March this year I gave an account of the
poor shape of our national economy and the magnitude of the task facing the
nation. The Economic Survey presented to the House last week confirms the brief
review made by me in March. As it gives a detailed account of the present condition
of the Indian economy and its problems and prospects, I shall content myself
with highlighting only a few aspects in order to give the House an idea of the
gravity of the economic problems faced by this Government, the action it has
taken so far to solve them and the need for other measures some of which I.
shall outline in the course of this speech.
3. The most important and disconcerting fact about the Indian economy is that
the gross national product declined in 1979-80 by about 3 per cent. A fall in
agricultural production of about 10 per cent and a reduction of about one per
cent in industrial production were responsible for this outcome. The set-back
in agriculture was partly on account of the severe drought which affected large
parts of the country. The decline in industrial production was mainly the result
of a serious deterioration in the infrastructure.
4. The performance of power, coal and railway sectors was one of the most serious
deficiencies m the economic scene. No doubt the drought was responsible for
a decline of 2.2 per cent in hydel production but what stands out is the inability
to meet increased demand through increased thermal generation despite substantial
additions made to generating capacity in the past three years. Inadequate supply
of coal and its poor quality, poor maintenance, equipment damage resulting in
increasing planned and unplanned outages and poor management were responsible
for the decline in the percentage of thermal capacity utilisation to as low
as 45 per cent.
5. In coal again it was the same story. Despite massive investments the production
of coal and lignite in 1979-80 was just 106 million tonnes, marginally better
than the level reached four years ago. The poor performance of DVC and the failure
to maintain law and order in the coal mining areas of Bihar and Bengal contributed
to the set-back in coal production. At the same time coal could not be transported
to thermal stations in adequate quantities because of difficulties in
railway movement.
6. In 1979-80 the revenue earning traffic of the Railways in terms of tonnes
originating declined by 3.3 per cent from the level reached in 1978-79. The
performance of the Railways in terms of tonnes originating of revenue earning
traffic has been declining continuously since the peak reached in 1976-77. The
deficiencies in the three sectors, power, coal and railways, reinforced me another
and inflicted severe damage on the national economy
.
7. With the serious deficiencies in infrastructure it was not surprising that
there was a fall in the production of major commodities like steel, cement,
non-electrical machinery, aluminium and other non-ferrous metals and cotton
textiles. Sugar production also fell by 28 per cent. There was a decline in
capacity utilisation in industry in general.
8. In a situation in which aggregate supply dropped sharply, there was a steep
rise in prices. In the fiscal year 1979-80 prices rose by 20 per cent. In some
commodities like sugar, gur, khandsari, oilseeds and edible oils the rise was
particularly steep. There was also a persistent upward trend in a wide range
of manufactures and intermediates owing to the low level of production. The
direct and indirect effects of the increases in the prices of crude oil and
oil products also contributed to the inflationary pressures in the economy as
also the long delayed, adjustments in administered prices of commodities like
coal and steel. This naturally gave rise to speculative expectations and the
liquidity in the system due to large expansion of money supply in the previous
years aggravated the price situation.
9. The other area in which there was a deterioration following from all these
factors was the balance of payments. It is true that our overall foreign exchange
reserves declined by only Rs.56 crores in 1979-80 but the trend in the various
forces operating m the balance of payments has been reversed perceptibly. Export
growth in value terms has only been 8 per cent or so which means there was hardly
any growth in terms of volume as world inflation has proceeded at about 10 per
cent in 1979-80. On the other hand imports have increased by about 25 per cent
principally on account of increased oil bill because of steep rise in the prices
of oil and oil products and the consequential impact on other imports such as
fertilizer. The result is that the trade gap in 1979-80 was Rs.2232 crores,
double the size of the trade deficit in 1978-79. This has led to a deficit on
the current account. The rate of growth of remittances which has in the recent
past turned the trade deficit into a surplus on current account also decelerated
in 1979-80.
10. Such a dismal economic situation was to a large extent the result of the
policies - or should I say lack of policies - of the previous Government. For
instance, vacillations in sugar policy contributed to a fall in the area under
sugarcane, decline in sugar production and the frittering away of large stocks
of sugar carried over from previous seasons through releases which could not
be sustained over a period. Had they pursued a more responsible policy on sugar,
we would not have been in the unenviable position of having to import sugar
for domestic consumption.
11. In infrastructure the lack of coordinated policy in the three sectors of
coal, transport and power was responsible for their unsatisfactory performance.
The large Budget deficit of Rs.2700 crores in an economy flush with liquidity
and a policy of sweeping taxation m articles of common consumption in a situation
of declining production were responsible for the spurt in prices. Finally, the
lack of adequate emphasis on export promotion was partially responsible for
the reversal of the trend in our balance of payments.
12. What is important now is to devise ways and means to arrest the deterioration
and set the economy on the path of stability and growth. The fact that we have
a Government which enjoys the confidence of the people and is decisive should
make a qualitative difference; as also the fact that there will be much greater
cooperation between the Centre and the States, now that our party has been so
enthusiastically returned in the State elections. At the end of May, 1980, we
still have food stocks of about 18 million tonnes owing to our earlier foresight.
Foreign exchange reserves stood at Rs.4890 crores as on May 30, 1980. These
elements of strength will be effectively utilised to improve the situation.
But the House should realise that the magnitude and complexity of the. problems
we have inherited do not admit of quick and easy solutions. However, the problems
are so urgent that we shall tackle them with determination and with the cooperation
of all sections of our people.
13. Since it came to power this Government has taken a number of steps to correct
the deficiencies in the economic system. Since restoration of infrastructure
brooked no delay Government constituted a Cabinet Committee on infrastructure
under my Chairmanship to monitor the situation continuously. As power shortages
have been an impediment to the growth of production the Committee has devoted
a good deal of attention to rectifying the power situation. The Committee wanted
to ensure that thermal generation did not suffer for lack of coal and, therefore,
decided to make more wagons available for loading coal to thermal stations.
As a result the number of wagons loaded daily with coal for thermal stations
has gone up from 2900 in January to 3200 in May, 1980.
14. Coastal shipping has been revived to supplement movement of coal by rail
and is expected to achieve progressively a target of one lakh tonnes per month
to meet the needs of western and southern regions.
15. Due to a number of steps taken coal production increased by 9.4 lakh tonnes
in April, and 10.4 lakh tonnes in May, 1980 as compared with April and May,
1979.
16. There has been a dramatic improvement in the port situation. The number
of ships waiting for a berth in Bombay, Calcutta and Madras has come down sharply
by May, 1980. A good indicator of the improvement in port conditions is the
removal of the congestion surcharge for major ports including Bombay and Calcutta
from April 1980.
17. As the rainfall during the period October, 1979 to May, 1980 was also deficient
causing drought conditions to continue in many States affecting 220 million
population, the present Government, immediately after assuming office, mounted
relief operations on a massive scale. Central teams were deputed to these and
other States and an allocation of Rs.150 crores was made for drought relief.
More than 10 lakh destitutes were provided free food. In addition, about 65
lakh persons were employed daily under the special Food for Work Programme.
Government has decided to continue this programme till the end of September,
1980. The existing subsidy on agricultural inputs, including nitrogenous fertilizers,
to small and marginal farmers in the mono-cropped drought affected areas where
no rabi crops could be grown has also been extended till the end of March,1981.
18. A 12-point programme of drought management which provides the basic framework
and approach for fighting the drought has been evolved and recommended to the
States. A large number of rigs have been deployed for sinking wells and a significant
percentage of wells bored has proved successful. These steps are expected to
bring about permanent improvements in availability of drinking water in the
drought affected, States.
19. The demand for petroleum products, particularly diesel, increased during
the last few months owing to a number of circumstances including the drought.
The problem was compounded by almost total cessation of supplies from January
onwards from the four refineries dependent on Assam crude which between them
normally produce around 350,000 tonnes of petroleum -products per month. The
situation was tackled with the utmost vigour. Firstly, the maximum quantities
of diesel and kerosene were imported between January and April, 1980, 6.2 lakh
tonnes of kerosene and 1.1 million tonnes of diesel oil were imported as compared
with 4. 7 lakh tonnes and 4.8 lakh tonnes respectively in January-April 1979.
Secondly, the movement of these commodities was speeded pp by all available
means. The result has been an increase in the level of supplies amounting to
10 per cent compared with the corresponding months in 1979 and avoidance of
a possible adverse effect on rabi production due to a diesel shortage.
20. With regard to prices Government has taken a number of important steps.
The coverage of the public distribution system has been widened. With regard
to edible oils not only has Government undertaken adequate imports but it has
also made arrangements to see that a sizable portion of these imports go into
direct consumption. It is hoped that about 3 lakh tonnes of imported oil will
go into direct consumption through the public distribution system and cooperatives.
In sugar, Government has activated the disrupted dual pricing system.
21. In keeping with our developmental thrust towards the poorest, the banks
have been asked to ensure that a significant proportion of the enlarged priority
sector credit will flow to the beneficiaries of the 20-Point Economic Programme,
which is being revitalised. To further strengthen the linkage between block
level development activities and the bank’s credit programmes, the banks
have been asked to open by the end of the year, branches at all unbanked block
headquarters.
22. Honourable Members are aware of the critical role played by our exports
in our developmental effort. Therefore, the Government had, over the years,
endeavoured to provide all facilities and full encouragement to export promotion
efforts. The management of credit and investment finance for export promotion
in an increasingly competitive international market is, however, becoming more
and more complex. There is thus a need for a specialised institution which will
become a focal point for all aspects of export credit and which will devote
concentrated attention to the needs of the exporting community. Government has,
accordingly, decided to set up an Export-import Bank, to assist the financing
of our international trade. We hope this specialised institution will give the
desired boost to our export promotion efforts.
23. In the light of the problems currently facing the economy the tasks to be
accomplished are clear enough. As there is a great deal of inflationary potential
in the economy, the prime objective of our policy will be to achieve price stability.
This will have to be done through an increase in aggregate supply and a moderation
of aggregate demand. Therefore, we intend to continue our efforts to improve
the working of the infrastructure and to augment available facilities with investment
wherever necessary. Secondly, the accent will be on utilising existing capacity
more effectively, without slackening efforts to increase capacity, to augment
supplies of vital commodities like steel, cement, aluminium and fetilizers.
This will simultaneously increase production and employment, reduce the need
for imports and benefit revenue.
24. With regard to demand management, we shall have to pursue a policy of linking
bank credit expansion to productive and priority purposes and check the diversion
of funds to speculative ends. We will also have to pursue an interest rate policy
which will help in the abatement of inflationary pressures without hurting productive
activity. At the same time profiteers and hoarders intent on exploiting current
shortages for personal gain will have to be dealt with sternly. Smuggling will
have to be countered through Conservation of Foreign Exchange and Prevention
of Smuggling Activities Act and other means.
25. Since there is a great deal of liquidity in the system, there is an obvious
need to minimise the growth of money supply by keeping the budget deficit at
a much lower level than in 1979-80. This will require a fiscal policy which
will reduce wasteful and unnecessary expenditure, invest resources in increasing
the economy’s production potential and maximise the revenue potential
of the existing tax system.
26. In view of deterioration in our balance of payments we will have to emphasise
the promotion of exports to a far greater extent than has been done in the past
three years. At the same time, it is necessary to minimise the growth of imports
through a much more energetic policy for augmenting domestic production in areas
like edible oils, steel, cement, fertilizers, oil and oil products.
27. Government also intends to pursue policies which will encourage savings
and investment in the economy. Since 1971, a convertibility clause is being
inserted in agreements governing financial assistance to industrial units by
public financial institutions. It has been repeatedly represented by industry
that the rigours of the convertibility clause are inhibiting investment. Government
has carefully considered the matter and has decided that the policy guidelines
for convertibility clause be modified on the following lines:
(a) The mandatory insertion of convertibility clause will in future apply to
financial assistance exceeding Rs.1 crore instead of Rs.50 lakhs prescribed
at present.
(b) The financial institutions should hereafter exercise the conversion option
in such a way that they do not acquire more than 40 per cent of the share capital
of an existing concern. However, in case of persistent default in repayment
of loans or mismanagement of an assisted company or continuous closure of an
industrial unit of a company producing goods and services essential to the community,
the financial institutions might, with the concurrence of Government, exercise
their conversion option in such a way that their shareholding can go up to 51
per cent or above.
(c) Under the existing soft loan scheme for modernisation of jute, cotton textiles,
cement, sugar and certain engineering industries, no convertibility clause is
being inserted at present. This exemption is being extended to assistance for
modernisation in any industry and for rehabilitation of sick units. Government
hopes these policy changes would remove the present inhibitions and encourage
fresh investment in and modernisation of industry.
THE PLAN AND BUDGET ESTIMATES FOR 1980-81
28. In our preoccupation with the immediate problems of economic management
we should not lose sight of the need to build up the growth potential of the
economy over the medium term. If we do not do so, the short-term difficulties
will only grow further. The reconstituted Planning Commission will present the
new programmes and priorities when the Plan is formulated by the end of this
year. But meanwhile a Plan for the year 1980-81 has been formulated which will
be dovetailed into the Sixth Plan later. The broad objective of the Plan would
be to achieve a higher growth rate of 5 per cent per annum.
29. The annual Plan for 1980-81 seeks to revive and restore the health of the
economy and accelerate the pace of growth and employment generation. Though
the priorities laid down by the earlier Government are not acceptable to us,
we have recognised that on-going projects should be fully provided for. Within
the room for manoeuvrability permitted by this consideration, we have effected
changes in plan provisions or provided for new programmes so as to give a reorientation
to the Plan in the desired direction.
30. The new Planning Commission has made a quick review of Plan programmes and
priorities. I am glad to announce that in the light of this review the annual
Plan outlay for 1980-81 of the Centre is being raised to Rs.7,340 crores, an
increase of Rs.767 crores over the outlay in the interim Budget; compared with
last year’s original outlay it is higher by 14.5 per cent. It will be
financed by a budgetary provision of Rs.5,322 crores and internal and other
resources of public sector undertakings of Rs.2,018 crores. A provision of Rs.3,094
crores has been made for Central assistance to the outlay on States’ Plans,
Union territories’ Plans and sub-plans of hills and tribal areas, special
component plans for the scheduled castes, schemes of the North Eastern Council,
Rural Electrification Corporation and natural calamities. Inclusive of their
own resources their Plan outlay will be Rs.7,253 crores as against an outlay
of Rs.6,099 crores in 1979-80. Altogether the total Plan outlay of the Centre,
States, Union territories, schemes of North Eastern Council, etc., would amount
to Rs.14,593 crores in 1980-81 as compared with Rs.12,511 crores in 1979-80
- a step up of 16.8 per cent.
31. It is this Government’s firm belief that economic growth could be
accelerated and its fruits widely shared only if employment opportunities in
ruralareas are significantly augmented. Development will have no meaning to
the vastmajority of our people if the poor in the rural areas are not able to
secure a livelihood through satisfactory productive work. As an integral part
of the new Plan, we have therefore, decided to launch a massive National Rural
Employment Programme based on a strategy which will seek to blend opportunities
for self-help and optimum utilisation of available local resources. Such a programme
will go a long way towards revitalising the rural economy and developing the
infrastructure facilities so essential to the life of the community.
32. The Food for Work Programme initiated by us in 1977 has an important part
to play in this regard. But in the last two years this programme has displayed
certain cardinal weaknesses. In many cases, no attempts have been made to develop
an inventory of projects which will meet not only the local needs but also fit
in with the overall national priorities. There was also no firm indication of
annual allocation of foodgrains. The programme thus in effect continued on an
ad hoc basis. No arrangements were also made for financing the cash component
of the works programme undertaken by the State Governments with the help of
foodgrains allocated to them. The result was that they could not undertake works
which could have led to the creation of durable assets and the building up of
productive potential of the areas concerned.
33. In the new National Rural Employment Programme, States will receive assistance
not only in the form of foodgrains but also cash assistance so as to enable
them to undertake truly productive works of lasting benefit. The Budget estimates
which have been presented to the House provide Rs,340 crores in 1980-81 for
this programme. It is estimated that the programme, if properly implemented,
could generate 850 to 900 million man days of additional employment. Some part
of the provision for this scheme would be specifically earmarked for’
high priority programmes like social forestry, fuel plantation, rural community
housing and water supply and nutrition. Rs.10 crores have been provided for
the Food for Nutrition Programme.
34. The process of economic growth will be incomplete unless the benefits of
such growth reach the weakest sections of society. Therefore, the improvement
of the socio-economic conditions of the scheduled castes should be a major element
of our strategy of development. Comprehensive special component plans for the
scheduled castes will have to be drawn up with the objective of earmarking outlays
in all relevant sectors in proportion to the scheduled caste population in each
State. Such outlays are to be utilised for helping the scheduled caste families
to acquire income generating assets and relevant skills for the betterment of
their living conditions. The Budget breaks new ground by providing for a special
central assistance of Rs.100 crores to the States to act as a catalyst in the
generation of more funds from other sources including financial institutions.
This will enable the authorities to provide as a package all the inputs needed
in an integrated programme of promotion of the socio-economic condition of scheduled
castes.
35. A provision for Central assistance of Rs.70 crores has been made for the
development of tribal people and areas under the Tribal sub-plan. Additional
pockets with a population of 10,000 and having at least 50 per cent tribal concentration
will be identified, thus bringing nearly 75 per cent of the tribal population
in eighteen States and Union territories within the Tribal sub-plan. Greater
emphasis will, be laid on selected programmes which can benefit the tribal families.
36. A provision of about Rs.50 crores has been made in the annual Plan for 1980-
81 for providing house sites for the landless and weaker sections as part of
the 20-Point Economic Programme. The Rural Housing-cum-Hut Construction Scheme
for landless workers being operated under the revised Minimum Needs Programme
provides not only house sites but also assistance for the construction of huts.
This provision will be supplemented under the National Rural Employment Programme
which will cover community housing projects in rural areas. Nearly 8 lakh landless
families are expected to benefit under this scheme.
37. Since India lives in its villages and nearly 70 per cent of its population
derives its livelihood from agriculture, the prosperity of the country depends
upon the modernisation of agriculture. The year 1979~80 is a grim reminder of
the importance of the performance of agriculture to the development of the Indian
economy. The Plan outlay on agriculture and rural development in the current
year is being increased to Rs.2,247 crores from Rs.1,811 crores in 1979- 80.
This includes the provision in the Central Plan of Rs.158 crores for Small Farmers
Development Agency, Drought Prone Areas Programme, integrated Rural Development
Programme, etc. ; Rs.32 crores for better exploitation of inland and marine
fish potential; Rs.54 crores for Operation Flood II Project; Rs.59 crores for
schemes of agricultural research and education oriented towards improving agricultural
productivity through better seeds, better agronomic practices, better water
management and better use of fertilizers and other essential inputs; and Rs.10
crores to increase the production of oilseeds to reach a target of 12 million
tonnes.
38. The current levels of international prices of oil and oil products have
highlighted the importance of other fuels. Forests can play an important part
in providing one such fuel. AS forests in India have suffered fast destruction
by people in their search for fuel, it is essential that people’s participation
in the development of forests is secured on an urgent basis. Social forestry
in villages will besides meeting the energy requirements of the people also
provide additional employment. The raising of fuel and fodder is proposed to
be made a part of Minimum Needs Programme and it will receive high priority
in the National Rural Employment Programme.
39. We have to press on with the task of increasing the area under Irrigation
to avoid fluctuations in production and to increase productivity. Therefore,
the outlay on major and medium irrigation projects including flood control for
1980- 81 is being stepped up to Rs.1380 crores from Rs.1258 crores last year.
The minor irrigation programme would continue to receive special attention and
an outlay of Rs.266 crores has been made for this purpose. This provision will
be supplemented by large financial support from the Agricultural Refinance and
Development Corporation. The additional irrigation potential resulting from
all this expenditure is expected to be 2.5 million hectares.
40. Clean and safe drinking water is essential for improvement of the quality
of life in rural areas. The Central Plan for 1980- 81 provides an outlay of
Rs.100 crores as against Rs.80 crores in 1979- 80. Inclusive of the provisions
in the States’ Plans, a total sum of Rs.294 crores will be available for
this vital programme. It is expected that by the end of the current year, 35,000
additional villages identified as problem villages will be having protected
water supply arrangements. A part of the outlay has been earmarked for rigs
to be supplied to States for boring wells in drought affected areas. An additional
sum of about Rs.40 crores has been allocated in the current year to the drought
affected States to take up new water supply schemes and complete those already
in hand.
41. The khadi, village and small scale industries sector has the highest employment
potential next to agriculture. The outlay on this sector in the current year
will be Rs.150 crores and additional production during the year is estimated
at Rs.146 crores. The House will recall that the 20-Point Economic Programme
has particularly emphasised the development of the handloom sector in this context.
In pursuance of this objective, we propose to set up a national level Handloom
Development Corporation for providing a package of marketing and developmental
assistance for the handloom industry. Provision has also been made for establishing
an institute of Handloom Technology in the North-Eastern region, which is well
known for its exquisite handloom products.
42. The provision for the power sector has been raised by over 11 per cent i.e.,
from 11p.2466 crores in 1979-80 to Rs.2745 crores. The work on the four Super
thermal power stations in the different regions of the country is being accelerated.
Total outlay oil the rural electrification programme will be Rs.285 crores in
1980- 81. -The target in 1980- 81 is the energisation of 4 lakh pump-sets and
the electrification of 25,000 villages.
43. Similarly, an outlay of Rs.473 crores is being provided in 1980-81 as against
Rs.364 crores last year for improving the production of coal (including lignite).
This includes a provision of Rs.92 crores for the Neyveli Lignite Corporation.
The bulk of this allocation is for the second mine project which will produce
4.5 million tonnes per annum and the second thermal power station with a generating
capacity of 630 MW. A production target of 113.5 million tonnes has been set
for coal for the current year as against the actual production of 106 million
tonnes in 1979-80.
44. In view of the impact on the balance of payments of the rising prices of
oil there can be no two opinions about the urgency of developing our own oil
resources. The Plan outlay for the petroleum sector for 1980-81 is Rs.837 crores,
Rs.215 crores more than the outlay last year. The Budget provides only Rs.99
crores out of this. This outlay is for the completion of facilities for Phase
III development of Bombay High and advance action in. regard to Phase IV so
as to build up a production capacity of 12 million tonnes per year. It also
includes the expenditure required for the development of the South Bassein Gas
field and the gas pipeline to the new fertilizer projects On-shore exploratory
drilling in the eastern region is to be intensified in view of the region’s
higher potential for hydro carbon discoveries.
45. The Central Plan outlay m chemicals and fertilizers is being raised to Rs.319
crores in 1980-81 to provide adequately for new gas-based fertilizer plants
in Maharashtra and Assam. In addition, a provision of Rs.20 crores has been
made for fertilizer projects in the cooperative sector.
46. The Central Plan also provides in the current year an outlay of Rs.803 crores
for the steel sector as against Rs.600 crores last year. The outlay includes
a provision of Rs.200 crores for raising the capacity of the Bokaro Steel Plant
to four million tonnes per annum and an outlay of Rs.190 crores for the Bhilai
Steel Plant for a similar expansion. Work on the Salem Project will proceed
at the required pace with an outlay of Rs.57 crores. A substantial beginning
will be made on the new Visakhapatnam Steel Plant with a provision of Rs.70
crores. The target of saleable steel in the current year has been fixed at 8.76
million tonnes as against the anticipated production of 7.22 million tonnes
in 1979-80.
47. An outlay of Rs.130 crores is being made in 1980- 81 for the mines sector.
This includes a provision of Rs.10 crores for the new east coast aluminium project,
Rs.28 crores for the Malanjkhand Copper Project and Rs.19 crores for the intensification
of the activities of the Geological Survey of India and the Mineral Exploration
Corporation.
48. A provision of Rs.64 crores has been made for BHEL for its continuing schemes
and for the production of large size turbo generators at Hardwar and the expansion
of boiler manufacturing capacity at Tiruchy.
49. Since port congestion also has figured prominently as a constraint till
recently, a provision of Rs.102 crores is being made in 1980-81 for developing
major and minor ports. However, only a sum of Rs.60 crores has been provided
in the Budget as the rest of the expenditure is being met from internal resources
of the Port Trusts. Bombay, Madras and Cochin are being equipped to handle the
anticipated increase in container traffic. A beginning has been made on the
integrated development of Cochin Port.
50. The Plan outlay for 1980- 81 for the Posts & Telegraphs Department is
Rs.415 crores. It is proposed to provide additional 1.75 lakh lines switching
capacity and 1.7 lakh direct exchange lines and other facilities. The number
of post offices in rural, backward and hilly areas is also proposed to be increased.
The norms for providing telegraph and telephone facilities in tribal areas have
been further liberalised to cover areas having a population of 2500 in a group
of villages within a radius of 10 kms. Provision has also been made for the
expansion of manufacturing capacity for switching equipment.
51. Family Planning programme suffered a serious set back in the past three
years. A revitalisation of this programme must constitute an important element
of the new Five Year Plan, if an improvement of the living conditions of our
people is our goal. A provision of Rs.250 crores is being made in 1980-81 for
health and family welfare. Of this, Rs.140 crores will be for family welfare.
The emphasis in the family welfare programme will be on- educating the people
about the desirability of a small family and providing the necessary technical
services on an adequate scale. An attempt will also be made to provide improved
health services in rural areas, eradicate communicable diseases and provide
health education.
52. The development problems of a poor society of 650 million people are bound
to be stupendous. For a solution of these, within a reasonable time, it will
be necessary to harness the forces of science and technology. India is favourably
placed with regard to the development of science and technology in that she
has a large pool of scientific and technical man-power and a vast institutional
infrastructure developed over the last thirty years. While our scientific institutions
can help to advance the frontiers of knowledge, it is science based technology
which can help to raise production and productivity. Therefore, an outlay of
Rs.116 crores has been provided in the Central Plan for 1980-81 for science
and technology.
53. I will now make a brief mention of a few changes in the non-Plan expenditure.
The provision for Defence expenditure is Rs.3600 crores, Rs.300 crores more
than the provision made in the interim Budget. The provision for export subsidy
has been increased from Rs.330 crores to Rs.355 crores, in view of the need
for a larger export effort.
54. Loans to State Governments, as their share of small savings collections,
are being stepped up from Rs.650 crores in the interim Budget to Rs.715 crores,
in view of the anticipated improvement in these collections. Short term loans
to State Governments for agricultural inputs are also being increased by Rs.50
crores. Besides, additional provision has also become necessary to meet unavoidable
commitments like additional dearness allowance to Central Government employees,
purchase of heavy water for atomic power plants, etc. However, the above increases
in non-Plan expenditure will be partially offset by reduction in fertilizer
subsidy.
55. The Constitution envisages provision of free legal aid by Government in
order to ensure that an opportunity for securing justice is not denied to any
citizen because of economic or other disabilities. The concept of legal aid
has also been dealt with by a Committee on Juridicare headed by Justice P.N.
Bhagwati, whose Report dated 31st August, 1977 has been laid before Parliament.
Several States have been attempting legal aid programmes. It is proposed to
coordinate these schemes and also initiate suitable schemes at the Centre after
an examination of the various aspects. A committee for guiding the legal aid
schemes and implementing the same is being constituted with a Supreme Court
Judge as its Chairman. The Budget for 1980-81
makes a provision for this purpose.
56. Taking into account the effect of the above and some other changes, the
total non-Plan expenditure is now estimated at Rs.13,051 crores as against Rs.12,822
crores in the interim Budget.
57. As regards receipts in the current year, at existing levels of taxation
Corporation tax is estimated to yield Rs.11 crores more than what was reflected
in the interim Budget; this improvement is mainly based on the actual trends
of collection in 1979-80. On the basis of latest available data on estimated
levels of imports and production during the current year, Customs duties and
Union Excise duties are also expected to yield Rs.40 crores and Rs.108 crores
respectively more than anticipated in the interim Budget. However, these increases
will be more or less offset by the recent decision of Government to withdraw
customs and excise duties on fertilizers. Taking into account States’
share of taxes, net tax revenue at existing rates of taxation is estimated at
Rs.8723 crores as against Rs.8725 crores in the interim Budget.
58. On the basis of the latest indications available, external assistance, net
of repayments, in 1980-81 is estimated at Rs.1252 crores showing an increase
of Rs.56 crores over the figures included in the interim Budget. In addition
we expect to avail of a loan of Rs.540 crores from the Trust Fund of the International
Monetary Fund in 1980-81 and the Budget assumes credit for this.
59. There is a welcome increase in small savings collections. The estimate for
1980-81 is now placed at Rs.1100 crores as against Rs.1000 crores in the interim
Budget. Of the increase of Rs.100 crores, Rs.65 crores will accrue to the States
as their share.
60. It has been decided that a part of the investible resources of Life Insurance
Corporation, General Insurance Corporation, and Unit Trust of India should be
lodged with Government in Special deposit accounts to augment resources for
financing the Plan. Budget for 1980-81 takes a credit of Rs.100 crores on account
of these deposits.
61. When we are seeking to step up investment in public sector, it is necessary
to adopt an innovative approach to the problem of mobilising resources for sustaining
such investment. As Honourable Members know, private sector companies raise
resources in the form of deposits from the public. Government feels that there
is no reason why public sector companies with competent professional management
should not do so. Accordingly, we have decided to allow selected public sector
units to raise public deposits on the same lines as the companies in the private
sector. When this scheme makes headway, dependence of these public sector enterprises
on budgetary support will get reduced. But I have refrained from taking credit
for such relief at this stage.
62. Taking into account other variations and also the effect of the changes
in the fare and freight rates of Railways and of changes in Posts and Telegraphs
tariff, to which I will refer a little later, the total receipts in 1980- 81
are estimated at Rs.19,827 crores as against Rs.18,980 crores in the interim
Budget. Total expenditure is estimated at Rs.21,467 crores. The deficit at existing
rates of taxes will thus be Rs.1640 crores. PART B
63. I now turn to my proposals in the field of direct taxes. In framing these
proposals, I have borne in mind certain broad considerations, namely, that the
rate of
direct taxes should be such as to promote voluntary compliance; that the farmers,workers
and the middle class should be afforded some relief in pursuance of the commitment
in our Party’s manifesto and some stimulus should be provided for raising
the level of savings and investment in the national economy. At the same time,
a concerted attempt should be made to counter certain widely prevalent devices
for tax avoidance through fragmentation of income and wealth.
64. The middle class is among the worst hit by the rise in prices in recent
years. As Hon’ble Members are aware, even skilled workers in the organised
sector are now liable to income-tax, at the present level of exemption. in order
to afford a measure of relief to this class of persons, I propose to raise the
exemption limit for income-tax on personal incomes from Rs.10,000 to Rs.12,000.
With a view to keeping the sacrifice of revenue within manageable limits, the
nil rate slab of income is being retained at Rs.8,000. As a result, in cases
where the taxable income exceeds Rs.12,000, the incidence of income-tax, excluding
surcharge, will remain at the existing levels, subject to the grant of marginal
relief in cases where the taxable income exceeds the exemption limit by a small
margin. This proposal will benefit more than six lakhs of income-tax payers.
65. Honourable Members will recall that the rates of income-tax on the personal
incomes were reduced in 1974 on the basis of a recommendation of the Direct
Taxes Enquiry Committee and this process was taken one step further in 1976
when these rates were again lowered. The reduction in rates had largely fulfiled
the expectation that it would lead to better tax compliance. Unfortunately,
the movement in this direction was reversed under the Janata Government and
the rates of income-tax were increased in stages. I am of the view that the
position in this regard should be set right. I accordingly propose to reduce
the surcharge on personal incomes in the case of all categories of non-corporate
taxpayers from 20 per cent to 10 per cent. This will not only bring down the
maximum marginal rate of tax from 72 per cent to 66 per cent but
w111 benefit taxpayers in all slabs of income.
66. In view of the somewhat steep rise in prices of assets, I also propose to
raise the exemption limit for wealth-tax from Rs.1 lakh to Rs.1.5 lakhs with
effect from the current assessment year. In cases where the taxable wealth exceeds
this limit, the tax burden will, however, be retained at existing levels, subject
to the usual
marginal relief.
67. Government hopes that these concessions will provide the necessary inducement
to the vast majority of our taxpayers for correct declaration of their incomes
and wealth.
68. I propose to counter some of the more commonly used devices for tax avoidance.
69. As Hon’ble Members are aware, the separate treatment accorded to Hindu
undivided family in tax laws has been widely used for avoidance of proper tax
liability. I accordingly propose to de-recognise partial partitions of Hindu
undivided families both for income and wealth taxation. Partial partitions made
on or after lst January, 1979 will not be recognised for tax purposes and taxes
will continue to be levied on the basis that the existing Hindu undivided family
had continued to remain joint.
70. At present, Hindu undivided families having one or more members with independent
income exceeding the exemption limit are charged to income-tax at rates
which are somewhat higher than those applicable in the case of individuals.
In order to further restrict the use of Hindu undivided family for the purposes
of tax avoidance, I propose to raise the rates of income-tax in the case of
such Hindu undivided families. The maximum marginal rate of 66 per cent will
now apply on the slab of income over Rs.50,000 and the rates on some of the
lower slabs will also be raised to somewhat higher levels. With these two changes
in regard to tax treatment of Hindu undivided families, I hope that the urge
for forming multiple Hindu undivided families merely for fragmentation of income
and reduction of tax liability will be weakened.
71. Honourable Members will recall that the Government had in 1970 taken several
measures to prevent the use of private discretionary trusts as a device for
tax avoidance. Experience, however, shows that these measures have not been
fully effective and the proliferation of such trusts has not been curbed to
the desired extent. I, therefore, propose to tighten the provisions in respect
of private trusts. At present, discretionary trusts are taxed at a flat rate
of 65 per cent of their income and 1.5 per cent of their wealth, or at the rates
applicable in the case of individual, whichever is higher. Under my proposal,
such trusts will be charged to income-tax at the maximum marginal rate and to
wealth-tax at the flat rate of 3 per cent or at the appropriate rate applicable
in the case of an individual, whichever is higher. I also propose to make several
other provisions in relation to taxation of ‘private trusts with a view
to plugging some loopholes which have come to the notice of Government. All
these provisions will take effect from the current assessment year.
72. Charitable and religious trusts are sometimes used for acquiring or maintaining
control over business or industry for private ends. In 1975, we had laid down
a pattern for investment of funds of charitable or religious trusts if they
were to continue to enjoy the tax exemption. With a view to enabling such trusts
to change over to the new pattern of investment in a smooth and gradual manner,
the law provided that the new pattern may be adopted before 1st April, 1978.
This date was subsequently extended to 1st April, 1981. Such trusts have, therefore,
been given ample time to adjust to the new policy. I want to put them m notice
that this time limit will not be extended.
73. Our tax laws have always sought to encourage long-term savings through life
insurance, provident funds and other similar instruments. Unfortunately, the
efficacy of the provisions for encouraging savings was impaired last year when
the incentives for savings were drastically reduced. Honourable Members should
be glad to know that I propose to restore incentives for such savings to the
pre-1979 budget levels. The taxpayers will thus be entitled to 100 per cent
deduction in respect of the first five thousand rupees of the qualifying savings,
50 per cent in respect of the next five thousand rupees and 40 per cent of the
balance.
74. As a further measure for promoting savings in the household sector, I propose
to give an option to income-tax payers to retain moneys in their Compulsory
Deposit Accounts beyond the due dates on payment of interest at the existing
rate applicable to such deposits. Further, I propose to liberalise the tax exemption
in respect of interest on balances with recognised provident funds. At present,
interest on such funds is exempt from income-tax to the extent it does not exceed
one-third of the salary income of the employee. I propose to remove this ceiling
limit.
75. It is essential to promote new investment in industry. At the same time,
the fiscal system should not lead to a bias in favour of capital-intensive techniques.
Keeping these twin objectives in view, I propose to continue the tax holiday
in respect of new industrial undertakings, ships and hotels, but in a modified
form. Under my proposal, tax holiday will be available in respect of new industrial
undertakings, ships or approved hotels with reference to a specified percentage
of the income derived from these sources. In the case of companies, 25 per cent
of the profits derived from these sources will be exempt for a period of seven
years. In the case of non-corporate taxpayers, the percentage of exempted profits
will be 20 per cent. In the case of co-operative societies, the tax holiday
will be available for a period of ten years as against seven years in the case
of other categories of taxpayers. This concession will be available in the case
of all small-scale industrial undertakings which go into production after 31st
March, 1981 but before 1st Apr11,1985, that is, till the end of the new Five-Year
Plan period. For other industrial undertakings, the concession will apply only
where they do not produce articles or things listed in the Eleventh Schedule
to the income-tax Act. The concession will also be available in the case of
approved hotels which start functioning or new ships which are acquired during
that period.
76. It is necessary to encourage new investment particularly in view of shortages
in several key sectors of the economy. As a special stimulus for new investment,
I propose to allow, in the year of installation, an additional depreciation
in an amount equal to 50 per cent of the normal depreciation on new machinery
or plant installed during the new Plan period. The proposed additional depreciation
will not be admissible in respect of ships, aircraft, road transport vehicles,
office appliances or machinery or plant installed in office premises or residential
accommodation.
77. There is a widespread feeling of frustration among the scientific community.
This Government is keenly aware of the contribution which our scientists and
technologists can make to the economic regeneration of India and is determined
to promote research and development activities in a big way. I, therefore, propose
to allow a weighted deduction in an amount equal to 125 per cent of the actual
expenditure incurred on scientific research in any in-house R & D facility
where such expenditure is incurred on a programme approved by the prescribed
authority having regard to the social, economic and industrial needs of India.
in addition, I propose to extend the scope of the existing provision for a weighted
deduction on the expenditure incurred on scientific research under sponsored
programmes in approved laboratories so as to cover the expenditure similarly
incurred in in-house R & D facilities of public sector companies. I have
no doubt that the Honourable Members will welcome these concessions.
78. At present, income-tax payers are required to pay advance tax during the
financial year on the basis of their own statements or estimates. Where the
estimated advance tax is likely to fall short of the tax on current income by
more than 33-1/3 per cent of the estimate, the taxpayers are required to make
an upward revision of the estimates. I propose to reduce this margin from 33-1/3
per cent to 20 per cent in the case of companies. There will be no change for
other taxpayers. This change will enable us to realise a larger share of the
tax due as advance tax and thus have a favourable impact on Government’s
ways and means position in 1980-81.
79. In order to encourage the employment of blind and handicapped persons in
business and industry, I propose to provide for a weighted deduction of one
and one-third times the salary paid to such persons by employers where such
salary does not exceed twenty thousand rupees in a year. Further. I propose
to enhance the deduction currently available in computing the taxable income
of blind and handicapped persons from five thousands rupees to ten thousand
rupees.
80. At present, standard deduction in computing the salary income is not available
in the case of pensioners. With a view to affording some relief to pensioners
who are amongst the worst hit by the rise in prices, I propose to extend the
benefit of standard deduction in their case as well.
81. In order to encourage our sportsmen to compete in international events,
I propose to allow a deduction equal to 25 per cent of their foreign earnings
if these are brought into India in foreign exchange. This provision will apply
in relation to the current assessment year and onwards. I also propose to allow
higher deduction in respect of savings made by sportsmen through life insurance
and provident funds, etc. as currently available in the case of authors, playwrights,
artists, musicians and actors. Sportsmen will thus be entitled to deduct contributions
made to life insurance and provident funds up to 40 per cent of their professional
income and 30 per cent of the remaining income, subject to a maximum of Rs.50,000.
82. In 1978, certain restrictions were placed on the deductible amount of expenditure
on advertisement, publicity and sales promotion. These restrictions have particularly
hurt small and medium business. I, therefore, propose to do away with these
restrictions.
83. At present, income from poultry and dairy farming and livestock breeding
is exempt from income-tax upto 33-1/3 per cent of such income or ten thousand
rupees, whichever is higher. I feel that time has come when persons deriving
income from these sources should also contribute a little more to the national
exchequer. I accordingly propose to restrict the deduction in respect of such
income to one-third of such income or fifteen thousand rupees, whichever is
less.
84. At present, agricultural property is included in the taxable wealth for
the purposes of the levy of wealth-tax. At the time when agricultural property
was brought within the tax net, it was hoped that it would be a potent instrument
for mobilising resources from the affluent section of agriculturists. But our
experience of over the last decade has been most disappointing. The amount realised
as wealth-tax on agricultural property has generally been less than Rs.1 crore
per annum. The valuation of agricultural land has posed difficulties leading
to complaints of harassment. As this tax has clearly failed to achieve its original
objective, I propose to discontinue the levy of Wealth-tax on agricultural property
except in the case of owners of tea, coffee, rubber and cardamom plantations.
I am sure that this measure will be widely welcomed by our farmers.
85. I also propose to make certain amendments in the income-tax Act to counteract
certain court decisions which have resulted in unintended benefit o taxpayers.
The Finance Bill further contains certain proposals for the amendment of direct
taxes which are of minor significance. I will not take the valuable time of
the House in explaining the same.
86. The reduction in rates and other concessions in respect of direct taxes
should ordinarily involve loss of revenue. However, I am of the view that reduction
in rates will lead to significantly improved compliance with tax laws. The legislative
amendments made for countering tax avoidance devices and the changes in the
provisions in regard to advance tax should result in larger accretion of revenue.
On a broad judgement of the overall impact of all the proposals relating to
income-tax avid wealth-tax, I am not assuming any loss of revenue. I recognise,
however, that there may be need for some adjustment in the inter-se shares of
Centre and States under income-tax. Such adjustments will be made in the course
of the year in the light of trends in collections.
87. An upward adjustment of lending rates should moderate the inflationary,
pressures in the economy. I accordingly propose to revive interest-tax in relation
to interest earned by scheduled commercial banks after 30th June, 1980. The
scope of the levy is being extended to cover also interest received by the larger
all-India industrial finance institutions, namely, IDBI, ICICI, IFCI and IRCI.
The tax will be levied at the rate of 7 per cent m the chargeable amount of
interest as in the past. This measure will yield Rs.217 crores in a full year
and about Rs.108.5 crores in the year 1980-81.
88. With a view to checking lavish expenditure incurred on accommodation and
entertainment in luxury hotels, I propose to introduce a Bill in the current
session to levy a new tax at 15 per cent on gross receipts of hotels in which
the minimum tariff for a single room is 75 rupees per day. The new levy is proposed
to be made effective from lst September, 1980. This will yield about Rs.12 crores
in a full year and the revenue during 1980-81 will be of the order of Rs.5 crores.
89. I shall now turn to my proposals on indirect taxes. In framing my proposals
I have kept in view the following objectives. To the extent additional resource
mobilization is inescapable, this should be done in such a way as not to enhance
the burden on any commodity significantly. Subject to this consideration, the
small scale segment of our industry should be encouraged. Industries with significant
employment and export potential should be provided encouragement through suitable
adjustment of duty structure. The duty burden on some articles of common consumption
should
be reduced or totally removed.
90. At the outset I would like to put the Honourable Members at ease by pointing
out that my proposals are modest. I have tried to avoid the usual device of
picking out selected items for new or increased levies ht relatively high rates.
91. For this year, I have sought to spread the effect of the additional taxation
thinly on a wide range of products, taking care to leave out articles of common
consumption. I propose to achieve this objective through the special excise
duty which is even now leviable on all excisable goods at 1/20th of the basic
excise duty, but from which a number of commodities have been exempted. Under
my proposal, the special excise duty will be levied on those items which are
at present, exempt from the levy, at the rate of 1/20th of the effective basic
excise duty rates applicable. Certain commodities will, however, continue to
be totally exempt from the levy. Thus there will be no special duty on motor
spirit including naphtha, kerosene, high speed diesel oil, light diesel oil
and liquefied petroleum gas or on coal or electricity. Again, the special excise
duty will not be levied on matches, or on vanspati, or on goods falling under
Tariff Item 68. Where special excise is already leviable at 1/20th of the effective
basic duty, I propose to increase this to 1/10th of the effective basic duty.
This increase will not, however, apply to furnace oil, asphalt, bitumen and
tar, petroleum products not otherwise specified and calcined petroleum coke.
Sugar and processed vegetable non-essential oils will also not be subjected
to the increased levy. Cigarettes, which are at present totally exempt from
special excise duty will be subjected to special excise duty at 1/10th of the
basic excise duty rates. These proposals would yield a revenue of Rs.197.71
crores in a full year. The impact of these proposals relating to special excise
duties will also yield a sum of Rs.16.75 crores in the shape of countervailing
duties on imported goods.
92. Soda ash and caustic soda command a sizable premium in the market on account
of persistent shortages. I propose to mop up a part of this premium by raising
excise duty on these products from 10 per cent to 15 per cent ad valorem. I
also propose to increase the excise duty on starch from 10 per cent to 15 per
cent ad valorem. This step will bring these chemical products on a par with
other chemicals products which, in general, bear excise duty at 15 per cent
ad valorem. Synthetic rubber at present bears duty at the very low level of
5 per cent ad valorem. As a revenue measure, I propose to raise the excise duty
on synthetic rubber from 5 per cent to 10 per cent ad valorem. Similarly, the
rate of excise duty on specified acids is being raised from 10% to 15% ad valorem.
These measures would fetch in a full year, additional revenue of Rs.18.93 crores.
93. On revenue considerations, I propose to subject molasses to a specific duty
of Rs.30 per metric tonne under a separate Item in the Central Excise Tariff
instead of 8 per cent under Item 68 of the Central Excise Tariff at present.
The levy is, however, proposed to be restricted to molasses produced in vacuum
Dan sugar factories. Molasses produced in khandsari sugar units, which goes
inter-alia for edible purposes, is proposed to be exempted. The revenue yield
as a result of this proposal is estimated to be Rs.4.24 crores in a year.
94. I now come to proposals which are designed to provide a higher degree of
protection to certain sectors of indigenous industry. The first proposal relates
to audio frequency amplifiers, an item reserved for the small scale sector.
In view of the adverse effect of imports of this item, I propose to increase
the customs duty on imports from 75 per cent to 120 per cent ad valorem. My
other proposal relates to imported unexposed colour positive cinematograph films
in respect of which the basic customs duty is proposed to be raised from 50
paise to Rs.1/- per linear metre to enable the indigenous public sector unit
to withstand competition from imports. I also propose to increase the countervailing
duty on imported computers from 10 per cent to 20 per cent ad valorem as a measure
of affording protection to the indigenous computer industry. These measures
are designed to yield additional revenue of about Rs.1.83 crores in a full year.
95. I have only one more revenue proposal in the field of indirect taxes. This
relates to passengers’ baggage. As Hon’ble Members are aware, baggage
allowances were substantially liberalised in 1978 and, for the generality of
Indian passengers going abroad for short visits, the allowances consist of Rs.1,000
worth of duty-free goods and Rs.2,000 worth of goods on payment of duty. Despite
this liberalisation, goods in the nature of baggage continue to be imported
by many passengers in quantities substantially higher than the permissible limits.
This is mainly due to the prevailing craze for foreign goods and the high margin
of profit on the sale of these goods in India. Such cases of import of baggage
Items in excess of the permissible limits necessitate initiation of adjudication
proceedings which generally have the effect of slowing down the tempo of passenger
clearance in our international airports. I have given thought to this problem
and I am making two proposals in this regard. The first is a pure revenue measure
of increasing the effective rata-of duty on baggage articles in excess of the
free allowances from 120 per cent ad valorem to 150 per cent ad valorem. This
measure is to come into force immediately and is expected to yield an additional
Rs.2 crores in a full year. The second measure to be brought into force shortly,
provides for the levy of duty at a flat rate of 320 per cent on baggage imported
in excess of the- permissible limits, that is, in excess of what can be passed
free or on a duty of 150 per cent. At present, such articles would be treated
as unlicensed imports, resulting in confiscations, fines and penalties designed
to wipe out any profit on their sale. The increased rate of duty is intended
to replace these fines and penalties, without having to go through the time-consuming
process of adjudication. Goods which are obviously in the nature of trade goods
will, however, still attract penal action.
96. I have a few other proposals which are essentially in the nature of rationalisation
measures. The first one relates to aerated waters. In the interest of simplification.
It is proposed to do away with the existing distinction between aerated waters
containing caffeine and those not containing caffeine for the purpose of excise
duty. Instead, it is proposed to levy on all flavoured aerated waters a uniform
duty at 40 per cent ad valorem. The revenue effect of the proposal is expected
to be negligible.
97. I have given considerable thought to the problems thrown up as a result
of the changes made in the 1979 Budget in the excise duty structure applicable
to the match industry. While the duty advantage enjoyed by the cottage sector
obviously needs to be maintained, the non-mechanised middle sector should not
be allowed to make inroads into the cottage sector. In order to ensure that
the benefit of the lower rate of duty accrues only to the genuine cottage sector
units, I propose to confine the duty concession to match boxes bearing approved
labels and sold to or marketed through the KVIC, State Agencies and registered
cooperative societies. At the same time, I do not find justification for the
continuance of the existing limits placed on the clearances of matches by the
cottage sector at the concessional rate of duty. I, therefore, propose to abolish
the existing limit on production by the cottage sector units. I am confident
that this package of measures will result in accelerated growth of the cottage
sector of the match industry.
98. There have been complaints of malpractices in the biri industry by manufacturers
who have been taking advantage of the liberal exemption limit applicable to
the unbranded sector which is at present 60 lakhs of biris per manufacturer
per year. With a view to reducing the possibilities of malpractices, I propose
to lower this exemption limit to 30 lakhs of unbranded biris per manufacturer
per year, which will still leave out of the excise net the really small manufacturer
and the self employed manufacturer. This is not designed as a revenue measure.
99. Some of the provisions in the Finance Bill are aimed at rationalisation
or clearer definition of certain central excise tariff items to remove doubts
or difficulties which have come to notice. The details of these measures may
be found in the Budget papers.
100. I shall now turn to concessions in the area of indirect taxes. The small
manufacturer plays a significant role in our economy. I would like to improve
his competitive position vis-a-vis the large manufacturer and thus widen the
entrepreneurial base of our economy. Only in this way can we check concentration
of economic power. There is already a scheme of excise duty concessions applicable
to manufacturers of 70 excisable commodities, under which clearances upto Rs.5
lakhs in value in a year have been exempted from duty. I now propose to liberalise
this concession in two respects. First I propose to include two more groups
of commodities under the scheme. These are chemicals, namely, sodium bichromate,
bleaching powder, calcium carbide and artificial and synthetic resins and plastic
material. Besides, the coverage is being widened in respect of paper and paper
boards. But the second and important concession which I propose to introduce
is that in respect of all the commodities covered by the scheme, clearances
between Rs.5 lakhs and Rs.15 lakhs will bear only three-fourths of the applicable
rate of excise duty as against the normal duty at present. This measure should
benefit a large number of small manufacturers. The revenue sacrifice will be
of the order of Rs.6.50 crores in a full year.
101. Last year’s Budget made a change which affected a substantial number
of small manufacturers of goods falling under the residuary Item 68 of the Central
Excise Tariff. Honourable Members will recall that the quantum of duty-free
clearances was reduced from Rs.30 lakhs to Rs.15 lakhs. I had opposed this change
then. As a measure of undoing the hardship caused to such small manufacturers,
I propose to provide for complete exemption from duty for clearances upto Rs.30
lakhs per annum. In other words, small manufacturers of goods falling under
Item 68 of the Central Excise Tariff, whose capital investment on plant and
machinery does not exceed Rs.10 lakhs, will be eligible for complete exemption
from duty on their first clearances of goods upto Rs.30 lakhs in a financial
year provided their clearances during the preceding financial year did not exceed
Rs.30 lakhs. For the remaining part of the current financial year, the quantum
of clearances eligible for full exemption from duty will be fixed at a correspondingly
lower figure. This concession is expected to cost Rs.2.4 crores in a full year.
102. Paper and allied products are in short supply in the country and new investment
in this sector has not been readily forthcoming. Much can be done by smaller
units to help in filling the production gap. To encourage them, I propose to
extend a concessional rate of duty of 20 per cent ad valorem as against the
present rate of 30 per cent, to paper and paper board produced by small manufacturers
whose clearances in the preceding financial year did not exceed 300 tonnes of
paper and paper board. This concession will cost a little less than Rs.1 crore
in a full year.
103. The electronics industry has considerable employment and export potential.
We have the necessary skills and expertise and these should be harnessed through
appropriate fiscal incentives for development of the electronics industry in
a big way. This is a field which offers great scope to small scale manufacturers.
I am, therefore, proposing some duty concessions in respect of the industry.
There will be a reduction in customs duty on specified items of capital goods
such as machines and instruments required by the electronics industry and not
produced within the country. The customs duty on such items will be reduced
from the present levels of duty (which in some cases are as high as 89% ad valorem)
to a total of 25% ad valorem. Similarly, I also propose to reduce the customs
duty on specified raw materials and components required for the electronics
industry from their present levels (which in some cases are higher than 200%
ad valorem) to 45,9 ad valorem plus countervailing duty where an excise duty
is leviable under Item 68. These two concessions will cost the exchequer Rs.4.7
crores in a full year.
104. The experience of other countries shows that the growth of consumer electronics
facilitates in due course the development of other sophisticated lines of production
in electronics. Television is a powerful medium of communication and education.
With a view to enabling a. large number of people to get the benefit of this
medium, I propose to reduce the excise duty on cheaper priced T.V. sets from
15% ad valorem to 10% ad valorem, and to effect a corresponding reduction in
the duty on other T.V. sets from 30% to 25% ad valorem. These concessions would
entail a revenue sacrifice of Rs.1.5 crores in a year.
105. Radio is an equally powerful instrument of education and entertainment
and is more widely in use. Government considers that single and two band radio
sets should be popularised in rural areas. The licence fee m such sets has proved
to be irksome and inhibits purchase of radio sets by the rural folk. It is,
therefore, proposed to abolish the fee in respect of single and two band radio
sets including transistor sets. This measure, which I am sure will be widely
welcomed, will cost Government about Rs.4 crores.
106. Our computer industry is still in its infancy, compared with those of other
countries. In order to provide an additional incentive for indigenous production
and
improvement, I propose to reduce the excise duty m indigenously manufactured
computers from 25% to 20% ad valorem.
107. Ship building is a high priority industry and has an important part to
play in promoting economic self reliance. The Indian ship building industry
is finding It increasingly difficult to face competition from foreign shipyards.
I, therefore, propose to extend full exemption from excise duty to ocean going
vessels built in Indian shipyards. This relief would cost about Rs.5 crores
in the current financial year.
108. Honourable Members would be aware that Government has been following the
practice of bringing down the import duty on selected machinery items having
no indigenous angle to 25 per cent ad valorem as a measure of reducing capital
costs in industries. Carrying this process further, I propose, this year, to
reduce the import duty to 25 per cent ad valorem on twelve more items of capital
equipment. These include five Items of machinery used in the printing industry,
such as High speed Letter press rotary and off-set rotary printing machines,
Mono/Lino Type Casting machines, etc. These concessions would entail a revenue
sacrifice of Rs.1.84 crores in a full year.
109. The cost of high pressure gas cylinders constitutes a significant portion
of the total capital outlay required by the Gas industry. With a view to reducing,
at least in part, this capital outlay, I propose to extend complete exemption
from customs duty on steel tubes imported for fabrication of high pressure gas
cylinders. I also propose to reduce the excise duty m such cylinders from the
existing level of 15 per cent, to 8 per cent ad valorem. which is the duty level
applicable under Item 68. These two measures, taken together, are estimated
to cost Rs.1.89 crores in a full year.
110. I have a proposal of general application, which is intended to facilitate
manufacturers of excisable goods, using inputs on which excise duty is leviable.
In order to give relief in such cases, two procedures are in vogue at present.
One is what is called the set-off procedure The other is the proforma credit
procedure under rule 56A of the Central Excise Rules. The proforma credit procedure
is generally recognised to be more beneficial and less Irksome to the manufacturers.
I, therefore, propose to replace the existing concessions based on the set-off
procedure by similar concessions based on the proforma credit procedure. I am
sure that this measure will be welcomed by the industry.
111. It is a little painful for me to remind Honourable Members that last year’s
budget had increased excise duty m a number of articles of common consumption
to a significant extent. I propose to reverse this trend. Thus - - Specified
life-saving drugs, 30 in number, will be fully exempted from excise duty. The
list will be kept under periodical review with a view to adding more items as
may be warranted; - Controlled cloth is meant for the weaker sections of society
and its cost should be as low as possible. I, therefore, propose to exempt controlled
cloth from excise duty. - Cotton and Cotton-viscose blend hosiery consisting
of Items like banians are of relatively low value and these are now subject
to excise duty at 8 per cent. I propose to exempt them fully from excise duty.
- Cycles are the poor man’s conveyance. I, therefore, propose to totally
exempt cycles and cycle parts falling under Item 68 from excise duty. - Sewing
machines, which are indispensable to the housewife and also enable the weaker
sections to earn a living, will also be fully exempted from excise duty. - Pressure
cookers which take the drudgery out of the house wife’s daily tasks and
save fuel now attract duty at 15 per cent. I propose to reduce it to 10 per
cent.
112. I also propose to make substantial reductions in excise duty m some other
Items of everyday use.
Accordingly
- Excise duty on cheaper varieties of toilet soap will be reduced from 10 per cent to 5 per cent;
- Excise duty on tooth paste will be reduced from 20 per cent to 10 per cent;
- Vacuum and gas-filled bulbs not exceeding 60 watts will have the duty reduced from 15 per cent to 10 per cent.
113. I am sure these substantial concessions, which would cost the exchequer
approximately Rs.15 crores in a full year, will be welcomed by Parliament and
by the public. I also hope that industry and trade will play fair by the consumer
and pass on the benefit of these duty reductions to the consumer.
114. Our Party’s election manifesto has referred to the need to encourage
dieselisation of taxis. In fulfilment of this commitment and with a view to
giving an incentive for taxi-owners to go in for dieselisation, I propose to
extend full excise duty exemption to diesel engines used for conversion of petrol
driven taxis.
115. My second proposal is aimed at giving relief to the cycle rickshaw driver.
Powered cycle rickshaws are already exempt from excise duty. To encourage motorisation
of non-powered cycle rickshaws. I propose to extend full duty exemption for
internal combustion engines used for this purpose. I am sure Honourable Members
will welcome this measure, as a visible sign of our keenness to reduce physical
strain and at the same time encourage this relatively cheap means of transport.
116. Before I leave the field of indirect taxes, I have a major declaim of policy
to announce. For the past couple of decades, there has been a persistent public
demand for the setting up of an independent Appellate Tribunal for customs and
central excise matters, somewhat similar to the set-up on the Direct Taxes side.
This demand has recently been endorsed by the Estimates Committee of Parliament.
Government has, in the past, not been in favour of such a system, as it was
felt that it would not be appropriate in the case of indirect taxes, and that
the present departmental machinery was in fact adopting an objective approach.
I think a time has come when we should gracefully accept the common view, which
is based m the dictum that justice should not only be done but should also seem
to be done. It is in this spirit that provision has been made in the Finance
Bill for setting up an Appellate Tribunal to hear appeals in respect of customs,
central excise and gold control matters. This Tribunal will be independent of
the executive machinery charged with the responsibility of day-to-day administration
of revenue laws. I have no doubt that this measure will meet with the whole-hearted
approval of Parliament and of trade and industry.
117. My taxation proposals will yield a sum of Rs.223. 22 crores in a full year
in central excise duties and Ra.39.58 crores in customs duties. The reliefs
I have announced add up to Rs.34.75 crores m the central excise side and Ra.7.93
crores m the customs side. The net yield is, therefore, Rs.188.47 crores from
Central excise duties and Rs.31.65 crores from customs duties. The accrual to
the Central exchequer in a full year will be Rs.144.85 crores and the share
of the States will be Rs.75.27 crores.
118. Where changes are proposed to be made by notifications, effective from
the 19th June,1980, copies of such notifications will be laid on the Table of
the House in due course.
119. I wish to say now a few words on behalf of my honourable colleague, the
Minister of Communications. Payment of dearness allowance and sanction of bonus
linked to productivity to the staff of the Posts and Telegraphs Department have
increased the working expenses of the Department. It has, therefore, become
necessary,-to increase the tariffs on a few selected services. In making tariff
revision proposals, Government has carefully avoided revision of charges for
such services as are generally used by the common man. There will be no increase
in the price of post cards and inland letters. The tariff for letters is, however,
being increased from 30 paise to 35 paise at the lowest slab. The rate for parcels
will be stepped up from Rs.1.50 to Rs.2.00 for every 500 grams. The charges
for installation and shifting of telephone connections are also being increased.
Local calls beyond 5,000 cans in a quarter will be charged at 50 paise per call
as against 40 paise at present. A memorandum showing the proposed tariffs is
being circulated along with Budget papers. It will be seen that the charges
for the bulk of postal and tele-communications services have been left untouched.
The changes would take effect from a date to be notified after the Finance Bill
is passed by Parliament. The proposed tariff revisions are estimated to bring
in an additional revenue of Rs.27.10 crores per annum. The additional revenue
during the year 1980-81 would be of the order of Rs.13 crores and has been taken
into account in estimating the revenues of the Posts and Telegraphs.
120. The tax effort net of reliefs proposed in the Budget will m the whole bring
in about Rs.282 crores for the current year, of which Rs.223 crores will accrue
to the Centre. There will be a residual deficit of Rs.1417 crores which I propose
to leave uncovered. This deficit is only a little over half the deficit of last
year. It is my judgement that a deficit of this order will not have a significantly
adverse impact m the economy. If the monsoon turns out to be normal and if we
continue the sound, economic policies already initiated, there is every hope
that there will be an appreciable improvement in agriculture and industrial
production resulting in a significant growth of GNP. We shall also pursue a
responsible monetary policy so that expansion of bank credit for unproductive
or speculative purposes is held in check.
121. Sir, within the constraints imposed by the difficult economic situation
inherited by the present Government, I have endeavoured my best to provide relief
to those who deserve it most. But since reliefs can only be palliatives and
the real need of a poor society is growth, I have tried to impart a judicious
stimulus to investment. With the higher levels of investment, in the public
sector as well as the private sector, and its particular sectoral distribution,
both production and employment should register a substantial increase. This
Government has a special responsibility towards the weaker sections of society
who have so enthusiastically supported it. The Budget seeks to protect them
through special programmes designed to promote their wen being. It is also our
firm resolve that no matter how difficult the economic situation is, the minimum
basic needs of consumption of the poorer sections and the middle classes will
be met through a reinvigorated public distribution system. With a strong and
cohesive Government it should be possible to utilise fully the existing production
potential.
122. My Budget represents a modest contribution to the process of restoring
the country’s economy to the path of stability, growth and social justice.
Its success, however, depends upon the cooperation of all people who work in
the fields or factories, power stations or ports, railways or coal mines. The
people of this country have high hopes about the ability of the present Government
to achieve these goals and I am sure will be prepared to give their whole hearted
support in this task. It should be the common endeavour of all of us, rising
above partisan prejudices and passions to harness the people’s enthusiasm
for the tasks of development.