SPEECH OF SHRI YASHWANT SINHA
MINISTER OF FINANCE
Dated : February 28, 2001
PART A
Sir, I rise to present the Budget for the year 2001-2002.
2. I do so in all humility. The challenges we face this year are awesome, made more so by the tragedy and devastation caused by the Gujarat earthquake. I hope I shall get the understanding and support of the whole House in my endeavour to meet these challenges.
ECONOMIC CONTEXT
3. The Indian economy has continued to exhibit both growth and resilience that have characterized its performance in the past few years. Overall economic growth this year is expected to be about 6 per cent despite a series of unexpected setbacks. We have had a second successive year of irregular monsoon resulting in low agricultural growth. World petroleum prices have continued to stay at high levels placing strains on the economy as a whole, and have led to a significant increase in inflation over the past year. Fortunately, despite the increase in energy prices, the prices of essential commodities, and of manufactured products as a whole, have remained stable. Inflation, excluding energy, was around 4 per cent during the year. The economy remained secure with record levels of foreign exchange reserves and public food stocks. The creditable export performance recorded last year improved further: exports grew by over 20 per cent in dollar terms in April-December 2000.
4. It is now 10 years since economic reforms began in 1991. During this period,
the economy has grown at an average rate of6.4 per cent per year since 1992-93
compared to the5.8 per cent recorded in the 1980s. Poverty has fallen from
36 per cent in 1993-94 to 26 per cent or less now.
5. While economic reforms have placed the country on a much more secure and
sustained growth path, we still have some serious concerns and cannot afford
to be complacent.
BUDGET STRATEGY6. Thus, despite the many achievements of economic reforms over the past decade, much remains to be done if we have to achieve our full potential. There is urgent need to further deepen reforms to set the stage for higher growth over the next decade. We have to intensify our effort in fiscal adjustment so that the generations to come are not burdened by our borrowing excesses. The economy has achieved significant acceleration in growth over the last 20 years. Our aspiration must be to achieve still higher growth in the next 20 years.7. The broad strategy of the budget, therefore, with this objective of growth in mind is to ensure:
AGRICULTURE AND RURAL DEVELOPMENT
8. As I have noted, reforms in the agriculture sector have been inadequate
and must be speeded up. The Government has already announced the first ever
National Policy in Agriculture.
9. The provision of adequate credit flow is critical for agricultural production.
Total credit flow to agriculture through institutional channels of commercial
banks, cooperative banks and regional rural banks is estimated to have reached
a level of Rs 51,500 crore this year, an increase of about 15 per cent over
last year. It is expected to increase to Rs 64,000 crore in 2001-2002 representing
an increase of 24 per cent. In order to ensure continued healthy growth of
the agricultural sector, I propose the following steps:
The operation of the Rural Infrastructure Development Fund (RIDF), set up in 1995-96 with NABARD, has been very successful in upgrading rural infrastructure with about 1,84,000 projects sanctioned so far. To help the States, I have decided to reduce the interest rate charged by NABARD from 11.5 per cent to 10.5 per cent. The corpus of RIDF VII will be increased from Rs 4500 crore to Rs 5000 crore next year.
10. In 1999, I had announced a credit linked subsidy scheme for construction
of cold storages for perishable commodities. So far, NABARD and NCDC have
provided Rs 161 crore of credit for creation of additional capacity of9.69
lakh tonnes. A subsidy of Rs 78 crore for setting up these cold storages was
provided during 2000- 2001. I now propose to extend the coverage of this scheme
to also cover rural godowns
The subsidy to be provided by the Government would be suitably enhanced to
take care of increased coverage. The loans would carry an adequate long-term
repayment period and would enable individuals, cooperative societies and others
to build godowns by availing of loans from cooperative banks, commercial banks
and RRBs.
11. This scheme will enable small farmers to enhance their holding capacity
in order to sell their produce at remunerative prices. NABARD proposes to
reduce its rate of interest for funding the storage of crops, from 10 per
cent to8.5 per cent. Small farmers will particularly benefit from this scheme
by avoiding distress sales.
12 . With the diversification and modernisation of agricultural practices,
there is a need to augment support and extension services for agriculture.
For this purpose, a scheme for setting up Agriclinics and Agribusiness Centres
by agricultural graduates will be launched with the support of NABARD. These
centres will provide a package of soil and input testing facilities and other
consultancy services, They will strengthen transfer of technology and extension
services and also provide self-employment opportunities to technically trained
persons. Loans on attractive terms for setting up these centres will be provided
by banks with refinance from NABARD.
13. There is a significant potential of improving crop productivity in the
Eastern and North Eastern regions through crop diversification and adoption
of improved technologies. These regions also have large untapped ground water
resources. A sum of Rs 61 crore has been provided for the Centrally Sponsored
Scheme on “On- Farm Water Management for Increasing Crop Production
in Eastern India”.
14. I am also happy to inform the House that I have provided Rs 38 crore
for the “Technology Mission for Integrated Development of Horticulture
in the North- Eastern States”, announced by me last year. Rural Roads
15. In my last Budget, I had announced the launching of a new scheme, the
Pradhan Mantri Gramodaya Yojana (PMGY) with the objective of undertaking time
bound programmes to fulfill the critical needs of the rural people. As a follow
up, particularly with the objective of achieving rural connectivity, the Pradhan
Mantri Gram Sadak Yojana has been launched by the Hon’ble Prime Minister
on December 25, 2000. A Central allocation of Rs 2500 crore was provided for
2000-01. I am providing another allocation of Rs 2500 crore for the coming
year. 50 per cent of the diesel cess is earmarked for development of rural
roads. Rural Electrification
16. It is a matter of concern that even after 50 years of planned development
there are still about80,000 villages, which do not have access to electricity.
A package of initiatives is therefore being launched to improve the power
distribution system in rural areas. This includes:
* Completion of electrification of bulk of the remaining villages in the next 6 years.
* Extension of assistance to the States for village electrification works under the PMGY whose funding is being augmented.
* Stepping up credit support from Rural Electrification Corporation to SEBs for speedy electrification of dalit bastis, households of scheduled tribes and other weaker sections of society.
* Improving the quality of power supply in villages, augmentation of distribution networks in rural areas supported by REC under the Accelerated Power Development Programme.
* Earmarking a sum of at least Rs 750 crore out of RIDF for rural electrification works.
* Augmenting the resources of REC, by allowing it to float capital gains tax exemption bonds along with NABARD and NHAI under Section 54 EC of the Income Tax Act.
Management of the Food Economy
17. Increased production and rising productivity makes the proper management
of the food economy more critical then ever before. Our policy has to be transformed
to deal with surpluses rather than only shortages. The present arrangement
of Government of India procuring foodgrains and States managing the PDS has
led to many problems. While the subsidy has increased from Rs8210 crore at
B.E. to Rs 12,125 crore at R.E. stage this year, the satisfaction level has
gone down. I propose, therefore, to give an enlarged role to the State Governments
in both procurement and distribution of foodgrains for PDS in their respective
states. Instead of providing subsidised foodgrains, financial assistance will
be provided to the State Governments to enable them to procure and distribute
foodgrains to BPL families at subsidised rates. FCI will continue to procure
foodgrains for maintaining food security reserves and for such State Governments
who will assign it this task on their behalf. Details for operationalising
these arrangements will be worked out in consultation with the State Governments
at the earliest.
18. The agricultural sector continues to be constrained by the existence
of a number of inhibiting controls and regulations. The Essential Commodities
Act, 1955 provides for the control of production, supply and distribution
of certain commodities identified as essential commodities under the Act to
protect the interest of consumers. State Governments have issued a large number
of Control Orders under this Act inhibiting free movement of some food and
agriculture products. In the changed present situation undue restrictions
on movement and stocking of foodgrains and agricultural produce is acting
as a disincentive to farmers.
19. Government therefore proposes to review the operation of the Essential
Commodities Act, 1955 and remove many of the restrictions that have been imposed
on the free inter-State movement of foodgrains and agricultural produce and
also on the storage and stocking of such commodities. It will also review
the list of commodities declared as essential under the said Act and bring
their number down to the minimum required. My colleague the Food Minister
will issue necessary directions in this regard after consultations with the
State Governments.
INFRASTRUCTURE
20. Rapid development of the economy depends on adequate investment in infrastructure.
A key issue here is imposition of appropriate user charges necessar to provide
adequate returns on investment. Public resources have been invested in the
public sector over the last 50 years for the provision of infrastructure services
in the country. One consequence of this has been that user charges have inevitably
become politically determined. Over time non-merit subsidies inherent in such
low user charges have mounted to over 10 per cent of GDP, a figure similar
to the total fiscal deficit of the Central and State Governments combined.
Hence they are a major cause of the fiscal distress being experienced at all
levels.
21. I believe that this issue is now so important that it needs urgent discussion
throughout the country. The challenge is to achieve a consensus on the imposition
of appropriate user charges in such a manner that the poor are protected while
those who can pay are made to do so. Only then will we be able to accelerate
investment in these essential services in both the public and private sectors.
A prime example of this is the power sector.
Power
22. The importance of power in fuelling economic growth cannot be over emphasised.
The total cost to the State Electricity Boards of implicit subsidies amounts
to about Rs 36,000 crore this year. After accounting for cross subsidy and
State subventions, actual commercial losses of all SEBs combined are estimated
to be about Rs 24,000 crore. Hidden in these loss figures are extremely high
T&D losses.
23. Although all of these losses are borne by SEBs and State Governments,
I have to express my concern on this issue since this is a massive national
loss and affects Central Government undertakings also. The total dues owed
to Central Government utilities by SEBs and others now amount to over Rs 25,000
crore. If these resources were available, the country would have no difficulty
in investing adequately in power sector expansion to the benefit of all. Theft
of electricity must be stopped and economic tariffs levied.
24. The most vital element of the reform process is the restoration of financial
viability of the State Electricity Boards (SEBs). On the basis of consensus
that has progressively emerged in the National Development Council Resolution
of 1992, the Common Minimum National Action Programme drawn up in 1996 and
the Power Ministers’ Conference of February 2000, the Central Government
is accelerating the programme of reforms in SEBs on the basis of specific
milestones that are being built into MOUs entered into with State Governments.
These MOUs include specific milestones such as:
To demonstrate the importance of this task, the Prime Minister will hold a
meeting of State Chief Ministers on March3, 2001.
25. MOUs have already been entered into with 5 States and we expect more
States to adopt the reform process. Accordingly, plan allocation to the Accelerated
Power Development Programme (APDP) has been stepped up to Rs 1500 crore next
year from a level of Rs 1000 crore this year. Priority under APDP would be
given to those states that undertake such reform. The key to restoration of
financial viability is reform of distribution. Assistance from the Fiscal
Reform Incentive Fund recommended by the 11th Finance Commission would also,
inter-alia, be linked to the achievement of power reforms. The reforming States
would also receive support from the Central Government in form of preferential
allocation of power to SEBs from CPSUs, additional investment by CPSUs in
generation and transmission, and preferential allocation of external aid.
26. In order to help accelerate the reform process in the power sector and
to unify all existing central legislations in the sector, my colleague the
Minister for Power will introduce the Electricity Bill 2001 within this session.
27. The Plan outlay for central sector power utilities is being raised from
Rs 9,194 crore this year to Rs 10,030 crore for 2001-02. This demonstrates
the commitment of the Central Government to accelerate public sector power
investment along with power sector reforms. Roads
28. The National Highway Development Programme (NHDP) represents a new road
vision for this country. Its unprecedented scale is symbolic of government’s
earnestness to provide connectivity and mobility of an altogether different
order. The key to government’s success in accelerating the road development
programme lies in its bold policy of levying a cess on petrol and diesel as
a user charge for road usage. Resources for Phase I, to be completed by December
2003, have already been tied up. Work has already been awarded for more than
1500 Kms. of the golden quadrilateral in addition to the completed sections
totalling 600 Kms. The balance portion is expected to be awarded by the middle
of this year.
29. The cess has paved the way for integrated road development in the country,
including village roads, district roads, state roads, and national highways.
Rs 962 crore from the cess fund is being made available to States for state
roads. The total plan outlay for this sector is being enhanced by 93 per cent
to Rs8727 crore in 2001-02. Telecom
30. Another area of success is in the telecommunications sector. Almost
all the policy measures announced in the New Telecom Policy 1999 regarding
basic and cellular services, national long distance, Internet services, and
corporatisation ofDepartment of Telecom Services have been implemented. Competition
is being introduced in all service segments.
31. By March 2001, overall teledensity is expected to reach3.5 per hundred,
about double the teledensity of only two years ago. Moreover, the new competition
has already reduced prices for consumers. There are now almost800,000 STD/
ISD/Local booths around the country bringing telephone service within reach
of almost all consumers, apart from generating considerable employment.
32. Looking ahead, having recognised the imperatives of technological change
in this area, the Government proposes to introduce the Convergence Bill to
cover telecommunications, information technology, and information and broadcasting
sectors in an integrated manner.
Ports
33. Coming to the port sector, I am glad to report that policy initiatives
designed to increase private sector participation in ports have also been
successfully implemented. Overall, capacity in Indian major ports is expected
to go up to 314 million tonnes this year and further to 376 million tonnes
by the end of 2001-2002, along with substantial capacity addition in minor
ports. There is now adequate capacity in major ports. Ships no longer have
to wait for berths as was the case before.
34. Ennore port has already been corporatised and Jawahar Lal Nehru Port
in New Mumbai is next, and with experience, other major ports can also be
corporatized, enabling them to raise resources in the market. Successful investment
is being enabled by the setting of economic tariff levels. With the formation
of the Tariff Authority for Major Ports, these tariffs are being rationalised
further on a continuing transparent and fair basis.
FINANCIAL SECTOR AND CAPITAL MARKETS
35. A great deal of progress has been made over the last few years in pursuing
reforms in the financial sector and capital markets. I propose to continue
reform in this sector. Debt Market.
36. The Indian equity market is the oldest in Asia. Since the creation of
SEBI much greater transparency as well as automaticity has been introduced
in the working of the equity market. The need now is to develop and deepen
the debt market. This will be of great benefit to small investors and institutional
investors alike. The infrastructure sector will be enabled to raise long term
funds, particularly with the opening of the insurance sector.
37. In order to further develop a transparent and active debt market in
general, and the Government securities market in particular, I propose to
take the following measures:
• A Clearing Corporation will be set up under the active encouragement of the RBI, with State Bank of India as the chief promoter, and is expected to be in place by June 2001. It will also enable settlement of forex transactions.
• Trading of Government Securities, through order driven screen-based system will be implemented.
• An electronic Negotiated Dealing System will be set up by the RBI by June 2001 to facilitate transparent electronic bidding in auctions and dealings in Government securities on a real time basis.
• In order to ensure smooth and quick movement of funds, the Electronic Fund Transfer (EFT) and Real Time Gross Settlement Systems (RTGS) are being put in place by the Reserve Bank of India within the next year.
• Clarifications are being issued by CBDT to promote the issuance of STRIPS, zero coupon bonds, deep discount bonds, and the like.
• The old Public Debt Act will be replaced by Government Securities Act.
• Comprehensive legislation will be introduced on securitization.
38. I propose to set up a small group comprising the Reserve Bank of India,
SEBI, the stock exchanges and Ministry of Finance to monitor and implement
these developments so that the debt market becomes active next year. Banking
Sector
39. Banking sector reforms have proceeded apace in a phased manner over
the past decade. However, the problem of non-performing assets with banks
has continued. Special attention is being paid to recovery of NPAs:
• Public Sector Banks have recovered Rs800 crore of NPAs from2 lakh accounts in 2000-01.
• Net NPAs as percentage of net advances were almost half at 7.4 per cent in 1999-2000 compared to 14.5 per cent in 1993-94.
• 22 Debt Recovery Tribunals (DRTs) and 5 Appellate Tribunals have been established.
• 7 more DRTs will be set up during 2001-02.
40. I also propose to bring in a legislation that will facilitate foreclosure
and enforcement of securities in cases of default in order to enable the intitutions
to realise their dues.
41. In the light of new competition in the banking industry it is necessary
to strengthen the management of the public sector banks. I propose to provide
greater autonomy to bank managements. It is also essential to provide greater
independence to bank managements in forming their own recruitment strategy
and in implementing it. I therefore propose to abolish the Banking Services
Recruitment Boards. This will be done in association with the Reserve Bank
of India by July 31, 2001 or earlier. All future recruitments will be done
by banks themselves. Capital Account Liberalisation
42 . Until about 10 years ago, all foreign exchange transactions were tightly
controlled by the government and by the RBI. We have progressively loosened
these controls and made the current account completely convertible. We have
also liberalised the capital account for certain purposes. I propose to take
further measures for liberalising the capital account. These are:
• Indian companies wishing to invest abroad may now invest up to US $50 million on an annual basis through the automatic route without being subject to the three year profitability condition.
• Companies which have issued ADRs/GDRs may henceforth make foreign investments up to 100 per cent of these proceeds; up from the current
ceiling of 50 per cent.
• Companies with proven track record wishing to invest larger amounts may now get a block allocation in advance from the RBI for investments overseas.• Indian companies that have issued ADRs/GDRs may acquire shares of foreign companies up to an amount of US $100 million or an amount equivalent to ten times of their exports in a year, whichever is higher.
• ADRs/GDRs will be provided two-way fungibility. Converted local shares may be reconverted to ADRs/GDRs while being subject to sectoral caps, wherever applicable.
• Indian companies will now be permitted to list in foreign stock exchanges by sponsoring ADR/GDR issues against block share holding. This facility would have to be offered to all categories of shareholders. The Reserve Bank of India will be issuing these guidelines separately
43. Investments by Registered partnership firms and companies providing
professional services have not, so far, been permitted to make overseas investments.
This ban is now being removed. Similarly, Indian employees who have the benefit
of ESOP schemes in foreign owned companies can now make investments abroad
up to US $20,000 annually instead of in a block of 5 years. Foreign Investment
44. Progressive liberalization has taken place in the provisions relating
to foreign investment. I propose to take the following further measures:
• Foreign Institutional Investors (FIIs) can invest in a company under the portfolio investment route up to 24 per cent of the paid up capital of the company. This can be increased to 40 per cent with the approval of the General Body of the shareholders by a special resolution. I propose to increase this limit to 49 per cent.
• Foreign Direct Investment (FDI) in Non-Banking Financial Companies (NBFCs) is permitted on a case by case basis upto 100 per cent but with a condition that a minimum of 25 per cent of their holding is divested in the domestic market. This condition is being removed, provided the foreign investors bring in a minimum of US $50 million. FDI in NBFCs will now be put on the automatic route subject to RBI guidelines. STRUCTURAL REFORMS
45. In order to accelerate growth in the Indian economy, we have now to
address some of the difficult areas of reform that have not been tackled so
far. 46. There are four significant areas where a price and distribution
control regime exists. These are the areas of petroleum, fertilizer, sugar
and drugs. Administered Pricing Mechanism (APM) Petroleum
47. As Hon’ble Members are aware, Government had, in November 1997,
notified the details of dismantling of the Administered Pricing Mechanism
(APM) in the petroleum sector by March 2002. I propose to adhere to this deadline.
A time bound action programme is being prepared for the deregulation of APM
by March, 2002. My colleague the Minister of Petroleum and Natural Gas will
be outlining the road map for this separately. Fertilizer
48. Hon’ble Members will recall that I have in the past referred to
therationalisation of fertilizer pricing with the objective of phasing out
the existing retention price scheme (RPS) in the medium-term. Government has
now decided to implement the recommendations of the Expenditure Reforms Commission
for a phased programme of complete decontrol of urea by April 1, 2006. The
following steps would be taken in the first phase commencing from April 1,
2001:
• The unit specific RPS will be replaced by a Group Concession Scheme. The current MRP arrangement will be continued and the concession for each group calibrated to enable the units to sell urea at the stipulated MRP.
• The rate of concession for urea units based on naphtha/FO/LSHS will be linked to international prices of these feed stocks. Sugar
49. Government is committed to complete decontrol of sugar. But this must
be irreversible. Government has decided to introduce futures/forward trading
in sugar within the coming year, a step that is necessary before full decontrol.
Sugar under the Public Distribution System will continue to be supplied to
ration cardholders in the special category states, hill states, island territories
and to BPL families in other states and UTs. Such supplies can even continue
after sugar is completely decontrolled. The retail issue price of sugar under
the PDS is being revised to Rs 13.25 per kg. with effect from March 1, 2001.
Drug Price Control
50. The domestic drugs and pharmaceutical industry needs support in order
to meet the challenges and to avail of the opportunities arising out of liberalisation
of our economy and the impending advent of the product patent regime. Government
has been considering measures to lessen the rigours of the present price control
mechanism where they have become counter productive. Towards this end, we
have decided that the span of price control will be reduced substantially.
However, keeping in view the interest of the weaker sections of society, Government
will retain the power to intervene comprehensively in cases where prices behave
abnormally. Changes in the Pharmaceutical Policy are being made accordingly.
Industrial Restructuring
51. Government had constituted a high level committee on law relating to
revival, reconstruction and/or winding up of companies. The Committee has
submitted its report and Government has accepted its key recommendations.
It is proposed to repeal the SICA and also to amend the Companies Act in order
to set up a National Company Law Tribunal. These legislative proposals are
proposed to be introduced during the current session by my colleague, the
Minister for Law, Justice and Company Affairs.
Labour
Market
52 . Along with these changes, it is also necessary to address the contentious
issue of rigidities in our labour legislations. Some existing provisions in
the Industrial Disputes Act have made it almost impossible for industrial
firms to exercise any labour flexibility. The Government is now convinced
that some change is necessary in this legislation. Chapter VB of the ID Act
stipulates that employers in specified industrial establishments must obtain
prior approval of the appropriate government authority for effecting lay-off,
retrenchment and closure, after following the prescribed procedure. It is
proposed that these provisions may now apply to industrial establishments
employing not less than 1000 workers instead of 100. The separation compensation
will be increased from 15 days to 45 days for every completed year of service.
The enhancement of compensation would act as a deterrent on employers to take
recourse to lay-off, retrenchment and closure in a routine manner.
53. Similarly, rigidities inherent in the existing legislation regarding
Contract Labour inhibit growth in employment in many service activities. Section
10 of the existing Act envisages prohibition of contract labour in work/process/operation
if the conditions set therein like perennial nature of job etc. are fulfilled.
Section 10 enables the contract labour engaged in prohibited jobs to become
direct employees of the principal employer. To overcome this difficulty and
at the same time ensure the protection of labour, it is proposed to bring
an amendment to facilitate outsourcing of activities without any restrictions
as well as to offer contract appointments. It would not differentiate between
core and non-core activities, and provide protection to labour engaged in
outsourced activities in terms of their health, safety, welfare, social security,
etc. It would also provide for larger compensation based on last drawn wages
as retrenchment compensation for every year of service.
54. These measures will promote industrial investment in labour intensive,
and export oriented activities providing for renewed industrial growth, while,
at the same time safeguarding the interest of workers. My colleague, the Minister
for Labour will introduce appropriate legislation to amend the Industrial
Disputes Act and Contract Labour Act within this session.
Ashraya
Bima Yojana
55. I am conscious of the short-term impact on organized labour force of the
ongoing liberalization of the economy. I therefore propose to introduce a
new scheme of group insurance viz. “Ashraya Bima Yojana” to extend
security cover to such affected workers. The policy will provide compensation
of up to 30 per cent of last drawn annual pay for a period of one year to
workers who lose their jobs. It is proposed that the policy will initially
cover all employees drawing a salary up to Rs 10,000 per month. The four Government
owned general insurance companies will administer this policy on a “No
Profit No Loss” basis and will announce full details including premium
rates of the proposed policy by the end of June 2001. Small Scale Industries
56. Government’s commitment to the Small Scale sector has been repeatedly
demonstrated. A comprehensive policy package for this sector was announced
by the Prime Minister on 30, August, 2000.
57. In order to encourage production and employment in this sector, the
exemption limit has been doubled to Rs 1 crore from September 1, 2000. 58. The new Credit Guarantee Scheme of August 2000 has been provided budgetary
support of Rs 100 crore in the current year. The limit of loan without collateral
which was earlier fixed at Rs 10 lakh has been raised to Rs 25 lakh under
this scheme. Already 7 banks have entered into an agreement with the Credit
Guarantee Fund Trust that has been created to implement the scheme. A credit
linked capital subsidy scheme for technology upgradation was launched in October
2000 envisaging 12 per cent capital subsidy. It is expected that loans to
the extent of Rs 5000 crore would be made available to the SSI sector over
the next 5 years under the scheme.
59. Our small-scale entrepreneurs have proved their competitiveness in providing over 35 per cent of national exports. To enable further new investment and technology upgradation in some of the key export oriented sectors, it is now proposed to dereserve another 14 items related to leather goods, shoes and toys. Textiles
60. The Government has recently announced a New Textile Policy aimed at preparing industry for the new challenges of global competition. I am happy to announce a textile package comprising the following schemes:
• A scheme for setting up Integrated Apparel Parks is being initiated. This will enable the dereserved readymade garment industry to set up modern units with the best infrastructure. A budget provision of Rs 10 crore has been provided for the year 2001-02.
• A strong and modern weaving sector is very critical for this purpose. At least 50,000 new shuttleless looms and the modernisation of2 .5 lakh plain looms to automatic looms is expected to take place by 2004 through funding from the Technology Upgradation Fund Scheme (TUFS). The budget provision under TUFS is being raised from Rs 50 crore this year to Rs 200 crore in the next year.
• The Cotton Technology Mission is being continued and strengthened. The budget provision is being increased from Rs 15 crore to Rs 25 crore.
• The budget allocation for Ministry of Textiles is being enhanced substantially from Rs 457 crore in 2000-01 to Rs 650 crore in 2001- 02 .
• I shall provide the details of the proposed fiscal changes in Part B of my speech.
HUMAN DEVELOPMENT
Health and Family Welfare
61. Recognizing the need for increasing investments in social sectors, the
Plan allocation for the Ministry of Health & Family Welfare has been stepped
up from Rs 4920 crore to Rs 5780 crore. This includes an allocation of Rs
180 crore for HIV/ Aids Control Programme.
Indian System of Medicine
62. There is now a great interest worldwide in herbal products as people
look for gentler forms of treatment devoid of side effects. We are establishing
a Traditional Knowledge Digital Liberary to bring the knowledge already in
the public domain in international languages to prevent the grant of patents.
We are also introducing a new scheme for strengthening the State Drug Testing
Laboratories and pharmacies. We propose to provide Indian Systems of Medicine
and Homeopathy benefits similar to the pharmaceutical industry.
Education
63. An integrated National Education Programme – the Sarva Siksha
Abhiyan has been launched for universalising elementary education and a National
Mission constituted with the Prime Minister as Chairman. The programme aims
to provide eight years of quality elementary education for all children upto
the age of 14 years in a Mission mode with a thrust on community ownership,
disadvantaged group and girls’ quality education and alternative modes
of education. All existing schemes on elementary education will converge with
this scheme after the Ninth Plan and it will cover all districts in the country
by March, next year.
64. We are determined to maintain and strengthen our competitiveness in
the field of technology education. A task force set up for this purpose under
the HRD Minister has made wide ranging recommendations to upgrade and expand
this area of education, The Roorkee Engineering College will be upgraded in
to an IIT and funding for IIT, Guwahati has been stepped up to ensure its
early completion. The base of IITs is to be expanded, regional engineering
colleges are to be strengthened and new institutes will be set up with public
private partnership. The role of the private sector will be encouraged. A
new Centrally Sponsored Scheme for computer literacy and studies in schools
is being launched and other initiatives planned for encouraging IT education
from school to college levels.
65. Last year, I announced the availability of 100 per cent deduction from
income tax of payments made to institutions for vocational education and training
by the private sector set up in rural areas and small towns. I propose to
make the same deduction available for payments to engineering institutions
also. Educational Loans for Students
66. Mr Speaker Sir, I have personally experienced poverty and faced problems
in pursuing higher studies. I, therefore, feel that no deserving student in
the country should be deprived of higher and technical education for want
of finances. I am glad that the Indian Banks Association (IBA) has formulated
a new comprehensive Educational Loan Scheme, which will cover all courses
in schools and colleges in India and abroad. Loans will be available under
this scheme up to Rs7.5 lakh for studies in India, and Rs 15 lakh for studies
abroad. No collateral or margin will be stipulated for loans up to Rs 4 lakh,
the interest of which will not exceed the prime lending rate (PLR). The interest
rate will not exceed PLR plus 1 per cent for loans above Rs 4 lakh. The loans
would be repaid over a period of 5 to 7 years with provision of a grace period.
I hope that this scheme will enable needy children to pursue higher and technical
studies both inside and outside India.
Women
67. The year 2001 is being observed as Women’s Empowerment Year. My
colleague, the Deputy Chairman of the Planning Commission is heading a Task
Force to review the programmes for women. Meanwhile I propose to:
• Strengthen the Rashtriya Mahila Kosh for providing micro credit to poor assetless women through NGOs.
• Launch an integrated scheme for women’s empowerment in 650 blocks through women’s self help groups.
• Start a new scheme for women in difficult circumstances like widows of Vrindavan, Kashi and other places, destitute women and other disadvantaged women groups. Scheduled Castes and Scheduled Tribes
68. In keeping with Government’s commitment to improve the Welfare
of the scheduled tribes, a separate National Scheduled Tribes Finance &
Development Corporation with an authorised share capital of Rs 500 crore has
been set up. The allocation for the schemes for welfare of scheduled tribes
in the Ministry of Tribal Affairs has been enhanced from Rs 786 crore this
year to Rs 986 crore in the coming year.
69. Similarly, the allocation for the schemes for welfare and upliftment
of scheduled castes in the Ministry of Social Justice & Empowerment has
been enhanced from Rs 709 crore this year to Rs 790 crore in the coming year.
Social Security
70. Hon’ble Members may recall my announcement in the last budget,
of a new Group Insurance Scheme, the “Janashree Bima Yojana” to
extend Social Security cover to the poorest sections of society. The said
scheme was launched by the Prime Minister on 10, August, 2000 and has been
well received. 332 schemes have been approved so far covering 99,750 people
in the BPL segment.
71. I believe that the Social Security cover needs to be widened to minimize
the miseries of our people below the poverty line. Accordingly, I propose
to introduce two more schemes during the next financial year:
(i) A special scheme for landless agricultural labourers, the Khetihar Mazdoor Bima Yojana, which will provide benefits of insurance cover as available under Janashree Bima Yojana and a pension of Rs 100 per month, to the beneficiary on attaining the age of 60 years. In the case of beneficiaries who join the scheme at a young age, some periodical payments at the end of every ten years are also envisaged. The beneficiaries will be required to make a small contribution towards the premium.
(ii) A Shiksha Sahyog Yojana, to provide an education allowance of Rs 100 per month to the children of parents living below the poverty line, to meet the expenses of education during their studies from 9th to 12th standard, so that a needy student is not deprived of the opportunity to continue his/her education for want of funds. This will be available to subscribers of the Janashree Bima Yojana. These schemes will be managed by LIC.
72. Meanwhile, I have some good news for workers. The wage ceiling for coverage
under the EPF and MP Act, 1952 has been enhanced from Rs 5000 to Rs 6500.
To promote the welfare of employees I propose to enhance the ceiling for Government
contribution of1.16 per cent of monthly wage of employees to the Pension
Fund from Rs 5000 to Rs 6000 per month. The extra expenditure on this account
is estimated to be Rs 77 crore per annum.
73. Whereas the organised sector is at present covered by various pension,
provident fund and gratuity schemes, the unorganised sector does not have
adequate social security coverage. I am asking the Insurance Regulatory Development
Authority to look into all these issues and provide a road map for pension
reforms by October 1, 2001. Journalists Welfare Fund
74. Journalists have to increasingly take greater risks in covering terrorist
and other violence prone incidents. As an acknowledgement of their services
and sacrifices, and with the expectation of a better treatment at their hands,
I propose to set up a Journalists Welfare Fund with a contribution of Rs 1
crore under the grants of Ministry of I&B. My colleague the I&B Minister
will announce the details of the scheme.
Entertainment
75. Our entertainment industry, particularly the film industry not only
provides the much needed fantasy to millions of our people who live in an
otherwise harsh and cruel world, it has also emerged as an important segment
of our economy and holds great promise for the future. Two years ago, I provided
for this industry the same tax exemption that was available for merchandise
exports. A few months ago, the Government issued a notification under the
IDBI Act whereby entertainment industry including films has been declared
as an industrial concern. Banks are in the process of finalising guidelines
for financing such projects that are bankable. I hope that the film industry
will take full advantage of these measures to bring about a greater degree
of professionalism and transparency in its operations, and will not do things
chupke chupke and certainly not chori chori.
FISCAL CONSOLIDATION
76. As I have already stated the most serious problem confronting the economy
is the poor state of the fiscal health of both the Central and State Governments.
The combined fiscal deficit of the two together is in the region of 10 per
cent of GDP. I have often been described as a fiscal fundamentalist. Some
have gone to the extent of calling me a fiscal terrorist. Why am I so concerned
about the fiscal deficit? Let me try to explain. The total receipts of the
Central Government in the current year according to BE are about Rs 281,000
crore. Of this amount, Rs 72,000 crore is States’ share of the Central
taxes and grants. The Central Government is, therefore, left with Rs 209,000
crore. On the expenditure side, about Rs 101,000 crore was to be spent on
interest, Rs 59,000 crore on defence, Rs 23,000 crore on major subsidies and
Rs 16,000 crore on pensions. The net amount left for meeting all other Government
expenditure totalling Rs 123,000 crore was, therefore, only Rs 12,000 crore.
I have, therefore, to borrow Rs 111,000 crore in the current year to make
both ends meet. The most worrisome aspect is that over 70 per cent of my borrowing,
i.e. Rs 77,000 crore was for financing unproductive revenue expenditure. This
will add to my interest burden next year forcing me to borrow more and ultimately
fall into a debt trap. I am deeply conscious of the burden which is being
placed on future generations, by our extravagance. I cannot allow this situation
to continue.
77. As promised in my earlier Budget Speeches, I appointed the Expenditure
Reforms Commission last year and introduced the Fiscal Responsibility Bill
in this House in the last session. The bill seeks to reduce the fiscal deficit
to2 per cent and completely eliminate the revenue deficit over the next five
years.
78. A number of initiatives have already been taken to contain, in particular,
the growth of non-plan expenditure. I have not allowed any increase in non-pla
expenditure this year. Consequently, for the first time in many years, the
fiscal deficit target fixed in the budget has indeed been achieved, and remains
at5.1 per cent in the RE of the current year. The target of3.6 per cent
revenue deficit has also been achieved. Expenditure Management
79. I intend to carry forward the process of bringing about structural changes
in the composition of Central Government expenditure and effect economy in
nonplan revenue expenditure with greater vigour while improving the quality
of plan expenditure. For this, I propose to take the following initiatives:
• User charges for services provided by government and its agencies will be revised keeping in view the increased cost of these services. A portion of this increase will be provided to enhance the maintenance and quality of these services.
• Similarly, postal rates will be revised moderately to contain the rising postal deficit.
• All requirements of recruitment will be scrutinized to ensure that fresh recruitment is limited to 1 per cent of total civilian staff strength. As about3per cent of staff retire every year, this will reduce the manpower by2 per cent per annum, achieving a reduction of10 per cent in five years as announced by the Prime Minister.
• The Surplus Pool under the Department of Personnel will be streamlined and equipped to redeploy and retrain surplus staff. Employees in the Surplus Pool will also be offered an attractive VRS package.
• Standard licence fee (rent) on government accommodation will be enhanced by 50 per cent for Group A, 25 per cent for Group B and 15 per cent for other categories of staff with effect from April 1, 2001.
• Facility of LTC to Central Government employees will be suspended for2 years for the remaining part of the four-year block period except for employees who are entitled to last LTC before retirement.
• Use of Information Technology in government activities with large public interface will be maximized to promote efficiency. For this purpose, operations like GPF, pension, pay and accounts offices, passports, income tax, customs, central excise, will be fully computerized by March 31, 2002. Public sector banks and insurance companies are also being asked to complete computerization of their operations within this period.
80. The Expenditure Reforms Commission, which was set up last year, has
presented reports concerning downsizing in 6 Ministries and Departments. These
include Department of Economic Affairs, Ministry of Information & Broadcasting,
Ministry of Coal, Department of Heavy Industry, Department of Public Enterprises
and Ministry of Small Scale Industries. Reports of the Commission concerning
other Departments will also be received within the next six months. These
recommendations will be implemented by July 31, 2001 and identified surplus
staff transferred to the Surplus Pool.
81. Charity, it is said, must begin at home. I believe austerity, too, must
begin at home. To lead by example, based on the recommendations of the Expenditure
Reforms Commission, I propose to abolish three secretary/special secretary
level and two joint secretary level posts in the Department of Economic Affairs.
This will be done in stages by 31, July. In addition, another 44 posts of
directors and below will be abolished, as against 31 recommended by the ERC.
1675 posts are being abolished in the Currency and Coinage Division which
will be restructured and corporatised. The National Savings Organisation is
to be downsized from a level of 1191 staff to about 25. I have asked ERC to
provide their recommendations in respect of the Departments of Revenue and
Expenditure also. I am confident that this will expedite the process of right
sizing the establishments in all the Ministries/ Departments of Government.
82. The Planning Commission has commenced the task of preparing the Tenth
Plan. Given the severity of resource constraints, improvement in the quality
of government spending is of the essence. It has therefore been decided to
subject all existing schemes, both at the Central and State levels, to zero
based budgeting and to retain only those that are demonstrably efficient and
essential. Furthermore, all schemes that are similar in nature will be converged
to eliminate duplication. Centrally sponsored schemes that can be transferred
to States will be identified. Resource flows will be linked to performance.
Necessary procedural changes will also be made to speed up the decision making
process for approval of schemes. Utmost importance will be given to decentralized
planning. Pension Reforms.
83. The Central Government pension liability has reached unsustainable proportions:
as a percentage of GDP, it has risen from about0.5 per cent in 1993-94 to
1 per cent in 2000-2001. As such it is envisaged that those who enter central
government services after October 1, 2001 would receive pension through a
new pension programme based on defined contributions. In order to review the
existing pension system and to provide a roadmap for the next steps to be
taken by the Government, I propose to constitute a High Level Expert Group,
which would give its recommendations within3months. Interest Rates.
84. I have drawn your attention to the increasing share of debt service
burden in the expenditure budget caused by rising government debt and exacerbated
by the prevalence of high real interest rates. Most interest rates in the
economy are now market determined. But, their movement downward is constrained
by the rigidities inherent in the administered interest rates governing the
contractual saving sphere i.e. Provident Fund and Small Savings Schemes. I
have examined this issue very carefully. I find that the interest rates provided
in all these schemes seldom exceeded consumer price inflation by more than3per cent between 1980 and 1998. Since then, this difference has risen to
6 to8 per cent. Not only are such high real interest rates putting an unsustainable
burden on both Central and State Governments but the resulting high cost of
capital is also inhibiting economic growth all round. I am therefore reducing
most administered rates by1.5 per cent as of March 1, 2001. Government guarantee
and tax incentives for these schemes will continue. For the future, I propose
to explore a better system for the determination of these rates. I propose
to appoint an Expert Committee to provide recommendations on this issue.
85. The benefit of reduction in interest rates on Small Savings Deposits
will be fully passed on to the States. This will reduce their borrowing cost
from Small Savings by 100 to 150 basis points. In addition, I am also reducing
the interest rate on loans portion of Central assistance to State Plans by
50 basis points. Alignment of interest rates on GPF by the State Governments
along with the reduced provident funds interest rates at the Centre will further
reduce the interest burden of State Governments. Moreover, because of the
anticipated increase in gross tax collection of the Centre, devolution of
central taxes to States is expected to increase by over Rs 9000 crore in 2001-02
over the current year. All these measures will help in reducing the debt burden
of the States and improve their fiscal position.
State
Fiscal Reforms
86. Along with fiscal consolidation at the Centre, it will be our endeavour
to work jointly with the States to reform their finances. Pursuant to the
recommendations of the Eleventh Finance Commission, an Incentive Fund of Rs
10,607 crore has been earmarked for the next 5 years to encourage States to
implement monitorable fiscal reforms. These reforms will essentially be the
States’ own programmes and considerable flexibility has been provided
for individual States to design their programmes. In the fiscal year 2001-02,
I have provided an amount of Rs 4243 crore towards this Incentive Fund.
PUBLIC SECTOR RESTRUCTURING AND PRIVATIZATION
87. Our public sector has expanded in almost every area of economic activity.
In many ways, it has served the nation well; capability has been developed
all round and a strong industrial base built up. These enterprises must now
be strengthened to compete and prosper in the new environment. Last year I
had defined government’s policy in this regard clearly.
88. Financial and business restructuring plans of a number of PSUs including
SAIL and HMT have been approved. Since 1998 financial restructuring support
to viable and potentially viable PSUs amounting to more than Rs 13,000 crore
has been provided to 23 PSUs. Government has also decided to close down8
non-viable PSUs during the current year. A package of measures for revival
and closure of the various mills of National Textiles Corporation has also
been approved.
89. The procedure for privatization of public sector enterprises has now
been considerably streamlined. The Department of Disinvestment has been set
up to accelerate the privatization process. To maximise returns to government,
our approach has shifted from the disinvestment of small lots of shares to
strategic sales of blocks of shares to strategic investors. The Government
has already approved privatization of 27 companies in which the process of
disinvestment is expected to be completed during the course of the year. These
companies include among others VSNL, Air India, and Maruti Udyog Limited.
90. Given the advanced stage of the process of disinvestment in many of
these companies, I am emboldened to take credit for a receipt of Rs 12000
crore from disinvestment during the next year. An amount of Rs 7000 crore
out of this will be used for providing restructuring assistance to PSUs, safety
net to workers and reduction of debt burden. A sum of Rs 5000 crore will be
used to provide additional budgetary support for the Plan primarily in the
social and infrastructure sectors. This additional allocation for the plan
will be contingent upon realization of the anticipated receipts. In consultation
with Planning Commission I shall come up with sectoral allocation proposals
during the course of the year.
GUJARAT
EARTHQUAKE
91. The earthquake in Gujarat has been a terrible and unprecedented tragedy
in terms of loss of life and damage to property. Although I am confident that
the inherent resilience and entrepreneurial spirit so characteristic of the
people of Gujarat will result in quick restoration of economic activity, I
would like to assure the House that we have the capacity to fully meet the
challenges of such natural calamities without deflecting from our path of
pursuing our economic goals.
92 . To enable the State Government to deal with the situation, Government
of India is extending the following assistance:
• Rs 500 crore was made available to the State immediately from the National Calamity Contingency Fund.
• The National Calamity Contingency Fund, set up with initial corpus of Rs 500 crore as a result of the Eleventh Finance Commission recommendations, is being augmented by the imposition of a2 per cent surcharge on personal income tax and corporate tax.
• Assistance will be provided to the State Government under various Centrally Sponsored Schemes for reconstruction of roads, bridges, power installations, school buildings, public utilities and other public infrastructure.• Arrangements have been tied up with the World Bank and Asian Development Bank for obtaining a line of credit of US $800 million. A joint team has already visited Gujarat and substantial additional funds are expected to be negotiated.
• RBI has instructed banks to make special arrangements for freezing of recoveries and extension of new loans on a liberal terms for borrowers in the affected areas.
• The National Housing Bank and HUDCO have set apart adequate funds for housing reconstruction. I also propose to allocate a special quota of tax free bonds of the order of Rs 2000 crore between the two institutions
• As was done after the Orissa cyclone, cement and steel used for construction in the Indira Awas Yojana, by HUDCO and by agencies identified by the State Government, would be exempt from excise duty.
• The Government of Gujarat will be enabled to raise funds by floating tax free earthquake relief bonds which will be open to subscription in Rupees to individuals and others including Non-Resident Indians through the Reserve Bank of India.
• All goods intended for relief have been exempted from excise and customs duties; direct tax assessees have been given extension of time for filing their returns.
93. A natural calamity of this magnitude has also highlighted the need to
set up permanent institutional arrangements for management of national disasters.
The National Committee on Disaster Management under the Chairmanship of Prime
Minister will be making recommendations for laying down effective long term
strategy for this purpose. BUDGET ESTIMATES Revised Estimates for 2000-2001
94. We have been able to adhere to the Budget target of fiscal deficit despite
pressures on public finances on account of deceleration in disinvestment programme,
natural calamities and the relief to consumers of petroleum products. The
revised estimates for the current fiscal year show a marginal decrease in
expenditure of Rs2 ,965 crore as compared to the Budget estimates.
95. Net tax revenues for the Centre are estimated to be Rs 1,44,403 crore
compared to the Budget estimates of Rs 1,46,209 crore, thereby reflecting
a shortfall of Rs 1806 crore. The shortfall is mainly due to lower collection
of Customs and Union Excise duties which were reduced to provide relief to
POL consumers. Non tax revenue is estimated at Rs 61,763 crore, Rs 4299 crore
more than the estimated level of Rs 57,464 crore. However, disinvestment receipts
are expected to be lower at Rs 2500 crore against the Budget target of Rs
10,000 crore.
96. The fiscal deficit as a percentage of the GDP is expected to be on target
at5.1 per cent.
Budget Estimates for 2001-2002
97. In the budget estimates for 2001-2002, the total expenditure is estimated
at Rs3,75,223 crore, of which Rs 100,100 crore is for plan and Rs 275,123
crore for non-plan.
Plan
Expenditure
98. The budget support for Central, State and UT Plans has been placed at
Rs 100,100 crore, an increase of Rs 13,862 crore over revised estimates 2000-2001.
This amounts to an increase of 16 per cent. Gross budgetary support for the
Central Plan is being enhanced from Rs 48,269 crore in the revised estimates
2000-2001 to Rs 59,456 crore in 2001-2002. Central Plan assistance to States
and Union Territories in 2001-2002 is also proposed to be increased to Rs
40,644 crore from Rs 37,969 crore in the revised estimates 2000-2001.
Non Plan Expenditure
99. Non-plan expenditure in 2001-2002 is estimated to be Rs2 ,75,123 crore
compared to Rs2 ,49,284 crore in Revised estimates for 2000-2001. The increase
in non-plan expenditure is mainly in interest payments (Rs 11,633 crores),
defence (Rs 7,539 crore) and Grants to State Governments (Rs2 ,221 crore).
100. In order to practice greater accountability and transparency, I am
attaching with the budget papers this year a new report on “Implementation
of Budget Announcements, 1999-2000 and 2000-01”.
PART
B
101. Sir, I now present my tax proposals, indirect taxes first.
102. In my earlier budgets, I have endeavoured to ensure a continuity of
approach in framing my revenue proposals. The principles that have guided
me have been the need for growth in revenues, simplification and rationalization
of the tax regime, and effective tax compliance through measures, which are
friendly for the honest taxpayer, and a deterrent to the evader. I have reduced
the number of rates in both customs and excise duties, simplified procedures
and introduced measures to improve tax compliance. I have given up my discretionary
power to grant excise and customs duty exemptions in individual cases thus
saving hundreds of crore of revenue for Government. The policy of penalties
against tax evaders has also been made nondiscretionary. With all these steps
I have sought to put an end to a system that pressure groups or lobbies could
influence. My attempt this year is to take this process to its logical conclusion.
103. In my last budget, I had introduced the rate of 16% as the rate of
Central Value Added Tax (CENVAT). I had also rationalized the rates of special
excise duty to three, namely,8%, 16% and 24%. The single rate of CENVAT now
contributes about 68% of the total excise revenues from ad valorem duties.
104. I now propose to reduce the three rates of special excise duty to
a single rate of 16%. As a consequence, I propose to abolish the8% special
excise duty on the following items:
(1) Glazed tiles
(2) Mattresses and articles of bedding
(3) Carpets and floor coverings
(4) Painted canvas, studio back cloth, etc
(5) Linoleum and textile wall coverings etc.
(6) Scooters and motorcycles, and
(7) Taxis
These items will now be charged to CENVAT only at the rate of 16%.
105. White cement and other special cements, yachts and pleasure boats,
arms and ammunition for private use and articles of fur skins, will attract
SED of 16% and a total duty of 32%.
106. The special excise duty on aerated soft drinks, soft drink concentrates
supplied to vending machines, and motorcars will be reduced to 16%, thus putting
an end to the rate of 24% special excise duty. These items also will now bear
a total duty of 32%. There will be no change in respect of products, which
already attract this rate of 32%.
107. There are a few items that currently attract CENVAT at half the rate,
namely,8%. All these items will henceforth be charged to the normal rate
of 16% except cotton yarn including sewing thread, LPG, kerosene and diesel
engines up to 10 HP, which I am leaving at8% for the present in the larger
public interest.
108. After these rationalization measures about80% of the revenue in respect
of ad valorem duties will come from the single rate of 16% and about 17% from
the combined rate of 32%.
109. India is the world’s second largest producer of fruits and vegetables.
However, most of these are wasted in the absence of proper storage and processing
facilities. Food-processing industry dealing in perishable fruits and vegetables
needs special support. I, therefore, propose to exempt food preparations based
on fruits and vegetables completely from excise duty. This will include a
very wide range of products of common use like pickles, sauces, ketchup and
juices, etc. This, along with the support I have given to creation of better
storage facilities will give a fillip to the food processing industry and
will go a long way in improving the rural economy of our
country.
110. The Eleventh Finance Commission has recommended a special levy for
the replenishment of the National Calamity Contingency Fund. As an ad hoc
measure, this was provided for in the current year through a special surcharge
on corporate taxes. I propose to establish this funding on a regular basis
through a special surcharge of excise on a range of products the use of which
should be discouraged on health grounds. I propose to levy a surcharge of
15% on cigarettes. The duty on biris would increase from Rs 6 to Rs 7 per
thousand biris. The total duty on pan masala would be 55%/60%. Miscellaneous
tobacco products like chewing tobacco would be charged to a total duty of
60%.
111. Excise duty on High Speed Diesel was reduced from 16% to 12% in September
last year. I propose to restore it to the normal CENVAT rate of 16%. I also
propose to restore special excise duty on motor spirit to the previous rate
of 16%. The burden of increase in duty is not proposed to be passed on to
the consumers except for any technical corrections.
112 . LPG is charged to excise duty at8%. I propose to apply the same rate
of duty to Compressed Natural Gas, which is exempt at present.
113. A special scheme of charging excise duty from independent textile
processors on compounding basis was introduced in December 1998. The working
of this scheme has resulted in serious distortions. I have therefore decided
to revert to the ad valorem duty structure for independent textile processors
with effect from 1, March 2001. Independent processors would be allowed to
take CENVAT credit of the duty paid on inputs on a deemed basis.
114. There is no economic logic to continue with excise duty exemption
on garments sold under a registered trade name. I propose to impose a duty
of 16% on such garments.
115. Products of SSI units are exempt from excise duty up to Rs one crore.
This exemption is intended to provide fiscal support to the genuinely small
producers. I propose to withdraw this exemption in respect of the following
items, in which misuse of the exemption is more than likely:
« Cotton yarn
« Ball or roller bearings
« Arms and ammunition for private use
116. The excise duty structure on matches comprises rates of duty ranging
from 25 paise to Rs2 .40 per hundred boxes of 50 sticks each. I propose to
rationalise the existing rates to a more rational structure with a duty rate
of 50 paise for the handmade sector, Re.1 for the middle sector, Rs2 for
the semi-mechanized sector and Rs3for the mechanized sector.
117. Mr. Speaker, Sir, in the matter of rates of duties of excise I have
almost achieved the ultimate with only one basic rate of CENVAT and one rate
of special excise duty. The procedures in excise have also been made modern.
I can humbly claim that excise duty is now a model of value added tax up to
the manufacturing stage.
118. The only issue, which remains to be tackled now, is the issue of individual
exemptions. The regime of exemptions is incompatible with a simple, equitable
and rational tax structure that has now been put in place. I am not doing
away with the exemptions altogether, realizing that this may come as a sudden
shock to those who are accustomed to exemptions. However, I will like to give
notice to them to be prepared to pay duties like anyone else. For the present,
I am making a modest beginning by imposing a nominal duty of 4% on some items
like goggles, imitation jewellery, rubberized mattresses etc. which in four
equal annual installments will be taken to 16%. More and more items will be
put on this escalator every year.
119. Structural changes have taken place in the economy with the service
sector growing faster than other sectors. I am expanding the net of service
tax and I propose to add the following services to the list of taxable services:
• Specified Banking and Financial Services
• Authorized Service Stations for servicing of vehicles including two wheelers
• Port Services
• Broadcasting Services
• Photographic Services
• Convention Services
• Sound Recording Services
• Scientific and Technical Consulting Services
• Telex Services
• Telegraph Services
• Facsimile Services
• On-line Information & Data Base Retrieval services
• Video Tape Production Services
• Services auxiliary to Insurance
120. I propose to bring the service provided to lease circuit line holders
also in the tax net.
121. I now turn to my proposals relating to customs duties.
12 2. In my previous budgets, I have reduced the total number of major customs
duty rates to four, that is, 35%, 25%, 15% and 5%. I do not wish to propose
any further reduction in the number of customs duty rates this year. However,
I propose to discontinue the surcharge of 10%. With this, peak level of customs
duty will decline marginally from 38.5% to 35%.
1 23. All agricultural produce already attracts the peak rate of duty of
35% or more. Current tariffs on major cereals are: Wheat (50%), Rice (70%/80%)
and Maize (50%). I now propose to increase the customs duty on tea, coffee,
copra, and coconut and desiccated coconut from the present 35% to 70%.
124. Similarly, I propose to increase the rate of duty on crude edible
oils ranging from 35% to 55% at present to a uniform rate of 75% and on refined
oils from 45%/ 65% to85%. A lower rate of 45% would apply to soyabean oil
on account of WTO binding. I also propose to enhance the rate of customs duty
on the import of crude palm oil by vanaspati manufacturers from 25% to 55%
and restrict this concession to sick vanaspati units only. The others will
pay 75%. I wish to assure the House that in order to safeguard the interest
of our farmers we shall move swiftly whenever any perceptible threat on account
of imports is noticed.
125. The House is aware that Government has committed itself to abolish
customs duty on IT and telecom products and their inputs and components under
the ITA 1 Schedule by 2003. The customs duty on these products is proposed
to be reduced to 15% from 1, March 2001 from current levels.
126. Mr. Speaker, Sir, with the abolition of the remaining Quantitative
Restrictions in April this year second hand cars will also become freely importable.
To allay the fears of surge in import of second hand cars, the rate of basic
customs duty on their import will be raised to 105%, which is three times
the peak rate. The total duty now applicable to second hand cars will be more
than 180%. I propose a similar structure of duty for the import of old multi
utility vehicles, scooters and motor cycles.
127. In order to provide a level playing field for domestic liquor producers,
I propose to levy CVD at a suitable rate on imported liquor, taking into account
the levies of state excise on domestic production.
128. Our textile industry has to modernize itself and acquire the latest
technology in order to face global competition and attain high quality of
production. I propose to reduce the basic customs duty on specified textile
machines, including shuttle-less looms, from 15% to 5%. As a measure of further
relief to the textile sector, I propose, to reduce the customs duty on silk
waste, cotton waste and flax fibre from 35% /
25% to 15%.
129. There are some cases of anomaly in customs duty between raw materials
and intermediate goods on the one hand, and intermediate goods and final products
on the other. DMT, PTA, MEG and Caprolactum are raw materials for production
of man-made fibers and yarns. However, the customs duty on these materials
is higher than the rate applicable to fibers and yarn. I propose to reduce
the customs duty on DMT, PTA, MEG and Caprolactum from 25% to 20%, which is
the WTO bound rate for synthetic fibers and yarns. Similarly, soda ash is
an input for the production of glassware, detergents etc. and currently attracts
the peak customs duty of 35% along with the final products. I propose to reduce
it to 20%. I also propose to reduce the customs duty on polyester chips and
nylon chips for the manufacture of fibers and yarns from 35% to 25%.
130. On the same analogy, the customs duty on high quality DBM, seawater
magnesia and fused magnesia is being reduced from 25% to 15%.
131. Gems and jewellery have considerable potential for export. I propose
to reduce the customs duty on cut and polished coloured gem stones from 35%
to 15%. I also propose to reduce the customs duty on specified equipment when
imported by training institutes sponsored by the Gem and Jewellery Export
Promotion Council from 25% to 15%. The rate of customs duty on rough diamonds
would now be 5%.
132. CNG kits and their parts attract low duty at 5%. I propose to extend
the same treatment to LPG conversion kits and their parts.
133. LNG is not produced in India. The burden of CVD on the import of LNG
adds to the cost of LNG projects. I therefore propose to exempt LNG from CVD.
134. For the same reason, I also propose to exempt wattle extract from
the application of CVD.
135. I propose to reduce the customs duty on cement, and clinkers from
35% to 25%. I am confident that this reduction would help softening of domestic
prices of cement for the benefit of consumers.
136. Mr. Speaker, Sir, accredited pressmen and cameramen are allowed to
import cameras, computers, fax machine etc. up to a value of one lakh rupees
for their professional use without payment of customs duty once in five years.
In view of many good photographs they have taken of use, I propose to reduce
this long waiting period from five years to two years.
137. In order to encourage better quality of cinematography I propose to
reduce the customs duty on cinematographic cameras, projectors and certain
other related equipment used by the film industry from 25% to 15%.
138. In order to discourage smuggling I propose to reduce the duty on gold
from Rs 400 per 10 grams to Rs 250 per 10 grams.
139. Several industry associations have pointed out that the CVD on the
imported consumer products should also be charged on the basis of maximum
retail price; otherwise it does not provide a level playing field. I accept
the logic of their argument. The Finance Bill contains the enabling provision
to implement this decision. 140. I propose to withdraw the exemption from
customs duty on a few items and impose on them a nominal duty of 5%.
141. I have already promised that our customs tariff would be brought down
to East Asian levels. I will like to move progressively within three years
to reduce the number of rates to the minimum with a peak rate of 20%. The
modalities for this will be worked out in time for the next budget.
142. Sir, a number of steps are also being taken for greater procedural
and administrative efficiency.
143. A new Manual of Procedures and Instructions on Central Excise and
Customs would be brought out by 1, September 2001. The emphasis would be on
simplicity, brevity and transparency. I also propose to simplify the central
excise rules to make them user friendly.
144. My proposals on the excise side are estimated to result in a revenue
gain of Rs 4677 crore in a year. On the customs side my proposals are estimated
to result ina revenue loss of Rs 2128 crore. I estimate that the indirect
tax revenue next year would be Rs 1,40,992 crore.
145. Copies of the notifications issued to give effect to the changes in
excise and customs duties shall be laid on the Table of the House in due course.
146. In Direct Taxes, my thrust during the last three years has been on
providing stability of tax rates, widening the tax base, rationalizing and
simplifying the tax laws and giving impetus to economic growth. These efforts
have resulted in increasing the direct tax revenue from Rs 46,428 crore in
1998-99 to an estimated Rs 74,467 crore this year. In addition, the number
of assessees has increased significantly from a little over one crore in March
1998 to2 .3 crore at the beginning of this year. I, therefore, propose to
continue with the same rates this year also. Co-operative Societies, however,
will henceforth pay 30% tax instead of 35%.
147. While imposing the surcharge of 10 % on corporates and non-corporates
in my budget of 1999-2000, I had promised that this would be a temporary levy.
However, I was constrained to increase the surcharge on non-corporate tax
payers at the higher income levels to 15% due to the unexpected expenditure
burden of Kargil. During the course of this financial year I had further levied
a surchage of 1% on corporates towards the National Calamity Contingency Fund
and an additional2 % on all tax payers for the Gujarat Earthquake relief.
I now propose to remove all surcharges payable by corporates and non-corporates
except the surcharge of2 % for relief to quake hit areas of Gujarat. Individuals
having an income of up to Rs 60,000/- will not be subject to this surcharge.
148. As a welfare measure, Sir, I propose to allow 100% deduction for donations
to the National Trust for welfare of persons with autism, cerebral palsy,
mental retardation and multiple disabilities.
149. Hon’ble Members are aware that the modified one-by-six scheme,
which I introduced in the Finance Act, 1998 to identify potential income-tax
assessees and to bring them into the tax net, has paid rich dividends. I,
therefore, propose to extend the one-by-six scheme to all urban areas in the
country as defined by the 1991 Census. Changes arising out of the 2001 census
will be incorporated subsequently.
150. Certain companies are not filing their returns of income, presumably
on the plea that they are not having any taxable income. These companies go
out of fiscal discipline and their financial transactions during the initial
years escape scrutiny. I therefore, propose that all companies should file
their returns even if they incur a loss.
151. Sir, another effective measure of widening the tax base is to further
enlarge the scope of deduction of tax at source. Income tax at source will
henceforth be deductible at the rate of 10 % on income by way of commission
or brokerage exceeding Rs2 ,500/-, except on transactions relating to shares
and securities.
152 . Winnings from lotteries, crossword puzzles etc. are currently taxed
at 40%As the marginal personal income tax rates have now stabilized at 30%,
this income will also now be taxed at 30%. Television game shows are very
popular these days. I wish the winners well. At the same time, I propose that
income tax at the rate of 30% will be deducted at source from the winnings
of these and all similar game shows.
153. At present, tax is deducted at source on income from interest on time
deposits only if such income exceeds Rs 10,000/- in respect of deposits with
a Bank or Housing Finance Company and Rs 5,000/- in other cases. These threshold
limits have led to the erosion of tax base and under-reporting of taxable
income due to splitting up of deposits. I, therefore, propose to lower this
limit to Rs2 ,500/- in all cases.
154. With economic liberalization, the pay package of salaried class is
undergoingmany changes. It is being divided into various components and the
forms of perquisites and benefits or amenities provided by the employers are
assuming new dimensions. To align our tax system with the present structure
of pay packages, I propose that the value of perquisites, benefits or amenities
shall be determined on the basis of their cost to the employer, except in
respect of houses and cars where different criteria will be adopted for simplicity.
155. Sir, I also propose to provide relief to salaried persons in the lower
income range having income up to rupees one lakh. Such persons will get an
enhanced tax rebate at the rate of 30% in respect of their eligible investments
under section88 of the Income Tax Act, as against 20% at present.
156. In the case of Export Oriented Units, and units located in Export
Processing Zones, Free Trade Zones and Software Technology Parks 25% of their
sales in the domestic market are currently tax exempt. I propose to provide
for the taxation of profits from these domestic sales of such units.
157. I.T. Sector continues to do well and should be encouraged to do better.
I, therefore, propose that profits derived by the units located in the software
technology parks from the export of “on-site” services will be
eligible for deduction like their other export income. Units located outside
these zones will also get the benefit of tax exemption on such export earnings.
I further propose that the condition relating to transfer of ownership of
companies in sections 10A and 10B of the Income-tax Act shall not apply in
respect of companies in which public are substantially interested.
158. The income of NABARD, National Housing Bank and Small Industries Development
Bank of India (SIDBI) was exempted from tax in order to provide fiscal support
in the initial years of their functioning. Now these institutions have come
of age and are working on commercial lines. I, therefore, propose to withdraw
the tax exemption available to these institutions.
159. The interest payable on certain External Commercial Borrowings (ECBs)
is currently exempt from tax. Having regard to the fact that interest received
by thelender is taxable in the country of his residence and he would get a
credit for any tax paid by him in India, any exemption from tax liability
in the host country does not benefit the lender but only results in reducing
our tax revenues. I, therefore, propose that the tax exemption in respect
of interest paid on such External Commercial Borrowings will not be available
for such borrowings made on or after the first day of June 2001.
160. Certain interest income up to a limit of Rs 12,000 is deductible at
present under section80L. In addition, income from Government securities
is also deductible up to Rs3,000. I propose to reduce the maximum limit of
this deduction to Rs 9,000.
161. The tax payable on the distribution of dividends of domestic companies
and income in respect of Units of Mutual Funds and UTI was increased from
10% to 20% last year. To provide a stimulus to the growth of capital market,
I propose to reduce this tax to 10%.
162 . To help revive investor-interest in primary issues I propose to exempt
longterm capital gains arising from the sale of securities and Units if such
gains are reinvested in primary issues of shares of public companies.
163. Sir, the tax incentives in the form of tax holidays for infrastructure
facilities are proposed to be further rationalized and enlarged. For the core
sectors of infrastructure namely, roads, highways, rail system, water treatment
and supply, irrigation, sanitation and solid waste management systems, I now
propose a ten30 year tax holiday which may be availed of during the initial
twenty years. In the case of airports, ports, inland ports and waterways,
industrial parks and generation and distribution of power, which also become
commercially viable only in the long run, a tax holiday of ten years is being
proposed to be availed of during the initial fifteen years. The period of
commencement of business for power and industrial parks is also being extended
up to 31, March 2006.
164. The five-year tax holiday and 30 % deduction for next five years was
available to the telecommunications sector till 31, March 2000. I propose
to reintroduce this concession retrospectively for the units commencing their
operations on or before 31, March 2003. These concessions will also be extended
to internet service providers and broadband networks.
165. Sir, in addition to the tax holiday proposed for development of infrastructure,
tax incentives have also been provided for the investors providing long-term
finance or investing in the equity capital of the enterprises engaged in infrastructure
facility. Any income by way of interest, dividends or long-term capital gains
from such investments is fully exempt. I propose to extend this concession
to guarantee commissions and credit enhancement fees earned by financial institutions
from infrastructure enterprises. Co-operative Banks will also be eligible
for exemption of their income from investments in approved infrastructure
facilities.
166. To be globally competitive, our companies need to increase their investment
and expenditure for Research and Development. Currently, a weighted deduction
of 150% of the expenditure on in-house research and development in certain
areas is allowed to companies. Sir, I propose to extend this weighted deduction
to biotechnology as well for clinical trials, filing patents and obtaining
regulatory approvals. I also propose that the entire amount paid to specified
projects under the India Millennium Mission, 2020 will be eligible for 125
% weighted deduction.
167. To encourage development of industrial infrastructure, I had provided
100% deduction of export profits for a period of ten years to units operating
in the Special Economic Zones last year. I now propose to give further tax
incentives for the development of these zones. The concessions available for
infrastructure by way of a 10-year tax holiday will be available to the developers
of Special Economic Zones on the same lines as developers of industrial parks.
The income of investors making long term investment for the development of
SEZs will also be exempt.
168. The storage of food grains and their transportation are our major
concern. Sir, I propose to provide a tax holiday for five years and 30% deduction
of profits for the next five years to the enterprises engaged in the integrated
business of handling, transportation and storage of food-grains.
169. Sir, for promoting the industry that provides the cup that cheers,
I propose to increase the development allowance available for tea from 20%
to 40%. This additional allowance will be used only for re-plantation, rejuvenation,
and modernization of tea plantations and processing facilities.
170. There has been a long-standing demand from the Shipping Industry that
the rate of depreciation available in respect of ships and inland water vessels
may be increased. I propose to increase this rate of depreciation to 25%.
171. To encourage investments in weaving, processing and garment sectors
of the textile industry, I propose to allow accelerated depreciation at the
rate of 50% on plants and machinery purchased under the Technology Up-gradation
Fund Scheme.
172. In order to give a boost to the commercial vehicles sector presently
facing recession, I propose to allow accelerated depreciation at the rate
of 50% on new commercial vehicles for one year.
173. Each of my past three budgets has provided for increasing tax incentives
for the housing sector. Sir, continuing with this practice, I propose to further
increase the maximum amount of deduction available for interest payable on
housing loans for self-occupied houses from rupees one lakh to rupees one
and a half lakhs.
174. For persons having income from house property, the present deduction
of 25 % of annual value for repairs etc. is proposed to be enhanced to 30%.
However, there will be no further deductions, except for the expenditure incurred
by way of interest payment on housing loans.
175. I propose to extend the tax incentives allowed by way of deduction
or rebate on payments of LIC premium to all insurance companies that have
been approved by the Insurance Regulatory and Development Authority
176. The presence of multinational enterprises in India and their ability
to allocate profits in different jurisdictions by controlling prices in intra-group
transactions has made the issue of transfer pricing a matter of serious concern.
I had set up an Expert Group in November 1999 to examine the issues relating
to transfer pricing. Their report has been received, proposing a detailed
structure for transfer pricing legislation. Necessary legislative changes
are being made in the Finance Bill based on these recommendations.
177. The foreign telecasting channels will henceforth be taxed in India,
on their income computed in accordance with the provisions of the Income-tax
Act.
178. Sir, I propose to bring about a number of measures that will be friendly
to the taxpayer. The time limits for issue of refunds, reassessment and reopening
of assessments by the Income-tax Department are proposed to be reduced. The
Department will also no longer have power to withhold the refund due to an
assessee. Similarly, there will be no requirement to obtain a Tax Clearance
Certificate under section 230A from the Assessing Officer before transfer
of immovable property. I also propose to remove the discretion presently available
in deciding the quantum of penalties. Henceforth, a fixed amount of penalty
will be leviable for most of the defaults.
179. Certain educational and medical institutions are required to be approved
for claiming tax exemption. At present, these institutions have to file their
application for approval to the Central Board of Direct Taxes. Sir, I propose
to delegate this power to Chief Commissioners of Income-tax.
180. To sum up, Sir, my proposals made in this Budget on the Direct Taxes
will result in a revenue loss of Rs 5,500 crore, which I propose to make up
with tax buoyancy and increased voluntary compliance. I estimate that the
direct tax revenue in 2001-2002 would be Rs84,800 crore.
181. Mr. Speaker, Sir, with these proposals I estimate total tax revenue
receipts for the Centre at Rs 163031 crore and the fiscal deficit at Rs 116314
crore or4.7% of GDP. I could have managed a lesser fiscal deficit but that
would have been possible only at the cost of growth, which was unacceptable.
182. This is a budget for carrying forward the second generation of economic
reforms. This is a budget for growth. This is a budget for equity with efficiency.
This is a budget for a new deal to the people of India in the new millennium.
183. Mr. Speaker, Sir, with these words, I commend the budget to this august
house.