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India's Budget 2000-01: Full Text of Finance Minister's Speech
2/29/0 6:25 (New York)
--(The following is a reformatted version of the full text of
Finance Minister Yashwant Sinha's Budget Speech)
Budget 2000-2001
Speech of
Shri Yashwant Sinha
Minister of Finance
29th February, 2000
PART A
Sir,
I rise to present the first budget of this millennium.
2. This budget for 2000-2001 has some other firsts to its
credit also. It is the first budget of the new Government which
took office in October 1999 under the visionary leadership of
Shri Atal Bihari Vajpayee. It is also the first budget of the
second half century of our Republic and the first budget of the
new century. I hope it will add many more firsts to its credit as
time goes by. I thank the Hon'ble Prime Minister for entrusting
me with this historic responsibility which I stand here to
discharge in all humility.
3. The year 1999-2000 has been a year of many challenges:
the 50 day war in Kashmir, the super cyclone in Orissa, long
months of political uncertainty before the general elections, a
somewhat weak monsoon, a near tripling of world oil prices and
the continued fragility in world economic recovery. Nevertheless,
we have met these challenges resolutely, accomplished a great
deal and the nation is stronger as a result.
4. The economy's performance is described in detail in the
Economic Survey I laid before the House yesterday. Let me just
touch a few highlights. A broad-based industrial recovery is
under way. Despite lower growth of agriculture due to inclement
weather, overall economic growth this year is expected to be
nearly 6%. The infrastructure sector is performing much better.
For the first time in 17 years the inflation rate has stayed
below 4% for 42 consecutive weeks. Even more remarkable, the
Consumer Price Index (Industrial Workers) in November 1999 showed
zero increase over the previous November. This is an enormous
boon for the weakest sections of our society. Public food stocks
are at record levels. Exports have achieved a remarkable turn
around from negative growth last year to nearly 13% growth in
dollar terms in April-December, 1999. Our software exports are
also booming. Although surging international oil prices have
increased our oil import bill by more than $6 billion, our
foreign exchange reserves have nevertheless attained new record
levels. With the return of investor confidence our stock markets
have also soared to new heights.
5. In my last two budgets I have addressed the accumulated
shortcomings in our policies and freed our companies to compete
globally. We have strengthened our agricultural sector, energised
our financial markets and laid the foundations of an exciting new
economy. With this, my third budget, I propose to put India on a
sustained, equitable and job-creating growth path of 7 to 8% per
year in order to banish the scourge of poverty from our land
within a decade. The next 10 years will be India's decade of
development. To achieve this objective our strategy must
encompass the following elements:
Strengthen the foundations of growth of our rural economy,
especially agriculture and allied activities.
Nurture the revolutionary potential of the new knowledge-
based industries such as infotech, biotechnology and
pharmaceuticals.
Strengthen and modernise traditional industries such as
textiles, leather, agro processing and the SSI sector.
Mount a sustained assault on infrastructure bottlenecks in
power, roads, ports, telecom, railways and airways.
Accord the highest priority to human resource development
through programmes and policies in education, health and other
social services, with special emphasis on the poorest and weakest
sections of society.
Strengthen our role in the world economy through rapid
growth of exports, higher foreign investment and prudent external
debt management.
Establish a credible framework of fiscal discipline, without
which the other elements of our strategy can fail.
6. In all these areas we must pursue thorough-going
economic reforms to unlock the creative energies of our people
and thus reap the gains of productivity growth. But our reforms
must also be guided by compassion and justice. In his Address to
Parliament in October 1999 the President has set out the broad
outlines of our programme of second generation reforms. This
budget carries forward the process of implementation.
Fiscal Management
7. Today, we must squarely confront and overcome the
critical challenge posed by a weakening fiscal situation. A long
history of high fiscal deficits has left us with a legacy of a
huge public debt and an ever-growing bill of interest payments.
This year we have incurred unanticipated expenditure on national
defence, elections and the super cyclone in Orissa. The residual
impact of the Fifth Pay Commission and the need for special
fiscal assistance to the States have added to our burden. All
this, combined with shortfalls in receipts from disinvestment and
revenue, has raised our net borrowing requirements (our fiscal
deficit) to over Rs.1,00,000 crore. This will add about Rs.10,000
crore to our interest bill next year. We must also find
additional resources for Plan, Defence and for additional
transfers to States under the interim award of the Eleventh
Finance Commission. If we do not raise the resources and instead
take recourse to even higher borrowing next year, then we will
jeopardise our prospects for growth, reignite the flames of
inflation, sow the seeds of another balance of payments crisis
and place an unfair burden on the next generation.
8. We must put our fiscal house in order. This means hard
decisions and sacrifices. At the same time we must preserve the
intrinsic dynamism of our economy, which alone can deliver
sustained growth with social justice. For this reason, despite
the severe fiscal strain, the budget support to the plan is being
increased by Rs.11,100 crore to a level of Rs.88,100 crore
compared to Rs.77,000 crore in B.E. 1999-2000.
9. Similarly, there cannot be any compromise on Defence.
Our forces have once again demonstrated in Operation Vijay that
they are second to none in the world. Government is committed to
enhance the quality of our defence preparedness and to modernise
our forces. In this budget I have made a provision of Rs.58,587
crore for defence, which is nearly Rs.13,000 crore more than in
B.E. for the current year. This represents the largest ever
increase in the defence budget in any single year. More will be
provided whenever needed. We shall not shrink from making any
sacrifice to guard and protect every inch of our beloved
motherland.
10. Over the years the composition of Central Government
expenditure has become highly rigid and prone to large, pre-
committed increases. More than half of the annual budget outlays
are transfer payments. Interest payments, Defence, Internal
Security, Major Subsidies, Salaries, Allowances and Pensions and
non-plan grants to States account for about 95% of non-plan
expenditure and about 70% of total expenditure. To curb built-in
expenditure growth and bring about structural changes in the
composition of our expenditure, I am introducing the following
initiatives.
All ongoing schemes will be subjected to rigorous zero base
budgeting scrutiny. I had announced this initiative last year and
I am glad that this exercise has been completed in 8 Departments.
As a result 69 schemes are to be discontinued or merged. This
process will be completed in a timebound manner in the remaining
Departments.
The manpower requirements of Government departments will be
reassessed by reviewing the norms for creation of posts.
Fresh recruitment in Government departments and institutions
will be limited to minimum essential needs.
The scheme for redeployment of surplus staff will be made
more effefctive and will provide facilities for retraining. A VRS
scheme will also be introduced for staff in the surplus pool.
All subsidies will be reviewed with a view to bringing in
cost-based user charges wherever feasible.
No new autonomous institutions will be created without
approval of Cabinet. Budgetary support to autonomous institutions
will be reviewed and they will be encouraged to maximise
generation of internal resources.
In order to align with the overall interest rate structure,
the interest rate on General Provident Funds is being reduced by
1% to 11% from 1.4.2000.
Excessive domestic borrowings to finance current expenditure
has resulted in debt service payments approaching unsustainable
levels. To reduce expenditure on this account, a portion of the
disinvestment proceeds will be earmarked for retiring Government
debt. An initial provision of Rs.1,000 crore has been made in the
budget for this purpose.
I will have something more to say on major subsidies a
little later.
11. These measures are necessary and are only a beginning.
We shall pursue resolutely the objective of downsizing Government
and prepare a roadmap for the purpose. For medium-term management
of the fiscal deficit we also need the support of a strong
institutional mechanism embodied in a Fiscal Responsibility Act.
This had been suggested in the Agenda for Governance of the
National Democratic Alliance. I have set up a committee to
examine this issue and make suitable recommendations. I hope to
bring the necessary legislative proposals to the House during the
course of the year.
12. The challenge of fiscal management is not confined to
the Central Government. The financial position of the State
Governments has deteriorated sharply in the last few years.
Revenue deficits have widened and borrowings are being
increasingly used to meet revenue expenditure. Fiscal reform at
the State level has acquired great urgency. While we have gone
out of our way to help State Governments, the determination shown
by some States to deal with these issues has also helped
enormously. It will be my endeavour to take further collective
measures in the next year for promoting fiscal reforms in the
States. The final report of the Eleventh Finance Commission will
provide valuable inputs for taking policy initiatives in this
regard.
Agriculture and Rural Development
13. It is my firm belief that sustained and broad-based
growth of agriculture is essential for alleviating poverty,
generating incomes and employment, assuring food security and
sustaining a buoyant domestic market for industry and services.
14. We must take all necessary measures to strengthen the
rural economy. Credit flow to agriculture through institutional
channels of commercial banks, cooperative banks and Regional
Rural Banks is estimated at about Rs.41,800 crore this year. It
is expected to increase by over 20 per cent to a level of
Rs.51,500 crore in 2000-2001. In my last two budgets we have
launched a wide array of initiatives to promote the flow of rural
credit. In this budget I propose to strengthen the earlier
programmes and launch further initiatives:
The Rural Infrastructure Development Fund (RIDF) managed by
NABARD has emerged as a popular and effective scheme for
financing rural infrastructure projects. Last year I had
announced an enhanced allocation of Rs.3,500 crore from the
banking sector for RIDF V and extended the repayment period of
loans to 7 years. The scope of RIDF was also widened to allow
lending to Gram Panchayats, Self Help Groups, NGOs and other
eligible organisations for implementing village level
infrastructure projects. This year the corpus of RIDF VI will be
increased to Rs.4,500 crore and the interest charged on this
lending will be reduced by half a percent.
Micro finance has emerged as an effective tool for
alleviating poverty in many countries. In my last budget I had
asked NABARD and SIDBI to cover 50,000 Self Help Groups to
develop micro enterprises. NABARD by itself is likely to link
50,000 such Groups to banks during the current year. NABARD and
SIDBI will cover an additional one lakh Groups during 2000-2001.
To give a further boost to this programme a Micro Finance
Development Fund will be created in NABARD with a start up
contribution of Rs.100 crore from RBI, NABARD, banks and others.
This Fund will provide start up funds to micro finance
institutions and infrastructure support for training and systems
management and data building. Special emphasis will be placed on
promotion of micro enterprises in rural areas set up by
vulnerable sections including women, Scheduled Castes, Scheduled
Tribes and Other Backward Classes.
The cooperative system is a crucial channel for credit in
rural areas. However, over time, problems have developed, mainly
because of excessive bureaucratization and the overlapping
jurisdiction of State Governments and NABARD. Some State
Governments have already taken legislative action to promote
genuinely cooperative institutions. For rural credit, clear
delineation of the supervisory role of RBI/NABARD on banking
matters is also essential. To promote these two prerequisites for
a more vibrant rural cooperative credit system I propose to
establish a Fund in NABARD. The details will be worked out in the
light of the forthcoming recommendations of the Capoor Committee
earlier constituted by Government. In the meantime, RBI is
advising the banks to accord priority to the credit needs of
those cooperatives which are entirely controlled by user-members
and managed by them prudently.
The programme of Kisan Credit Cards is progressing very
well. Cooperative Banks, Regional Rural Banks and Commercial
Banks together have so far issued more than 50 lakh cards and
card-cum-pass books to the farmers. I am asking NABARD and
Commercial Banks to redouble their promotional efforts so as to
issue an additional 75 lakh Kisan Credit Cards by March 2001.
Due to our efforts at recapitalizing RRBs, 158 RRBs are
posting operating profits. Out of these, 48 RRBs have been able
to wipe out their accumulated losses. In view of the importance
of the RRBs in rural financing, we will continue with this
programme of strengthening the RRBs.
15. The Planning Commission and the Ministry of Agriculture
have worked out modalities to integrate 28 ongoing separate
Centrally Sponsored Schemes of agricultural development into one
comprehensive programme. This will weed out duplication, enhance
the productivity of the support programme and accord greater
flexibility to State Governments to develop and pursue activities
on the basis of regional priorities. This is a major step forward
towards the goals of convergence and decentralisation that I had
outlined in my budget last year.
16. There is urgent need to review and coordinate our long-
term strategy at the National and the State levels on the pattern
of land use in the country, development of agriculture in
relation to the agro-climatic conditions in the different regions
and preservation of our forest resources. We need to adopt an
integrated approach to a number of related subjects such as
preservation and development of the forest wealth, optimum
utilisation of the wasteland, watershed development, safeguarding
bio-diversity etc. In view of the complexity of the issues
involved, a National Commission on Land Use Policy comprising of
experts in the relevant fields will be set up to examine the
various aspects and make appropriate recommendations to
Government.
17. Our Government stands fully committed to ensure that
the fruits of economic reforms are shared by all sections of
society, especially those living in rural areas and more
particularly the Scheduled Castes, Scheduled Tribes and Other
Backward Classes. Five elements of social and economic
infrastructure are critical to the quality of life specially in
rural areas: health, education, drinking water, housing and
roads.
18. Even after 52 years of Independence the provision of
basic services in rural areas remains very unsatisfactory. Forty
per cent of our villages are without proper roads; 1.8 lakh
villages do not have a primary school within 1 km; 4.5 lakh
villages have drinking water problems; some estimates indicate a
shortage of 140 lakh rural dwelling units; rural health
infrastructure suffers from large deficiencies. These large gaps
in basic services in rural areas are not acceptable and
Government is committed to removing them rapidly.
19. Universalisation of elementary education is one of our
key objectives. A new Department of Elementary Education and
Literacy has already been created under the Ministry of Human
Resources Development to give a new thrust and focus to these
efforts. Some new initiatives include a scheme for
universalisation of elementary education called "Sarva Shiksha
Abhiyan" which would enable all children to enroll by 2003 and
expansion of the District Primary Education Programme to cover
the remaining districts in Uttar Pradesh, West Bengal, Orissa and
Gujarat. On the literacy front the National Literacy Mission
would be revamped so that the literacy rate can be raised to 75%
by the year 2005. The plan allocation for elementary education
has been increased from Rs.2,931 crore to Rs.3,729 crore next
year. A new Department of Drinking Water Supply in the Ministry
of Rural Development has been set up to intensify the efforts and
accelerate the pace of coverage. Our objective is to provide
drinking water facilities in all rural habitations in the next
five years. It is proposed to cover around 60,000 habitations and
30,000 schools in the next year. The outlay of the Department is
being enhanced to Rs.2,100 crore from Rs.1,807 crore this year.
The Reproductive and Child Health programme will receive Rs.1,051
crore as against an allocation of Rs.695 crore in 1999-2000. For
rural housing schemes a provision of Rs.1,710 crore has been
made.
20. To impart greater momentum to these efforts I am
announcing the launching of a new scheme, the "Pradhan Mantri
Gramodaya Yojana" with the objective of undertaking time bound
programmes to fulfill these critical needs of the rural people. I
am providing a sum of Rs.5,000 crore separately for this Scheme
in the budget. Out of this a sum of Rs.2,500 crore will be
earmarked for launching a nationwide programme of constructing
rural roads and improving rural connectivity. Under the Scheme,
Central assistance will be provided to States for implementing
specific projects in these sectors. The concerned Ministries in
the Central Government will lay down the guidelines and monitor
the implementation of these programmes. The erstwhile Basic
Minimum Services Scheme will be merged with the new Scheme. Thus
the overall provision in the budget for schemes concerning the
five basic needs of the rural population is more than Rs.13,000
crore.
Rural Housing
21. "Housing for All" has been identified as a priority
area in the Agenda for Governance. For the coming financial year,
a goal of providing 25 lakh dwelling units in rural areas has
been fixed. Schemes for meeting the needs of different sections
of society have been prepared.
(i) Under Indira Awas Yojana, it is proposed to provide more
than 12 lakh houses for the people below poverty line. For this
purpose, an amount of Rs.1,501 crore is being provided in the
budget.
(ii) For families with an annual income of below Rs.32,000 per
annum, assistance will be provided for construction of 1 lakh
houses under credit-cum-subsidy Scheme. An amount of Rs.92 crore
is being provided in the budget for this scheme.
(iii) The National Housing Bank will provide refinance to
banks and housing finance companies for construction of 1.5 lakh
houses under Golden Jubilee Rural Housing Finance Scheme.
(iv) To further improve the availability of housing finance in
rural areas, Government have decided to provide equity support of
Rs.350 crore to HUDCO during the Ninth Plan period. Of this,
Rs.200 crore have already been released and it is proposed to
release a further amount of Rs.100 crore in the next year. With
this enhanced equity support, HUDCO will be able to leverage
these funds and raise further resources to facilitate and provide
finance for the construction of about 9 lakh houses in the rural
areas in the coming financial year.
(v) The cooperative sector and voluntary agencies etc. will
support the construction of another 1.5 lakh houses.
Social Security for the Poor
22. More than one third of our population still lives below
the poverty line. There is an imperative need to extend some
social security cover to the poorest sections of our society. I
have decided to introduce a new scheme of group insurance,
"Janashree Bima Yojana", under which beneficiaries will have
insurance cover of Rs.20,000 in case of natural death, Rs.50,000
in case of accidental death or total permanent disability and
Rs.25,000 for partial permanent disability due to accident.
Premia will be fixed on an actuarial basis. Below poverty line
participants in this Scheme will pay only half the premium, with
the remainder being contributed from earnings of LIC's existing
Social Security Fund, suitably augmented by Government. On this
basis, the monthly premium to be paid by the beneficiary is
expected to be Rs.10 or less. This scheme will lay a firm
foundation for insurance cover to the poorest in our country.
Empowerment of Women
23. There is an urgent need for improving the access of
women to national resources and for ensuring their rightful place
in the mainstream of economic development. Towards this
objective, the Government will set up a Task Force under an
eminent person to review all existing legislation and Government
schemes pertaining to the role of women in the national economy.
This Task Force will help us chalk out specific programmes for
observing 2001 as "Women's Empowerment Year".
Population, Health and Environment
24. Government have recently announced a new National
Population Policy a key objective of which is to bring down total
fertility rates to replacement levels by 2010. To operationalise
this objective, the plan allocation of the Department of Family
Welfare has been increased from Rs.2,920 crore in B.E. 1999-2000
to Rs.3,520 crore next year.
25. Recognising the role of the Indian systems of medicine
and homeopathy in our health care, the plan allocation for the
concerned Department is being doubled. Emphasis will be placed
on drug standardisation, quality control, modernising the
colleges, drug testing laboratories and formulations. This will
also help in boosting exports of herbal formulations.
26. We must preserve and nurture our forests and
environment for future generations. Funds are being provided for
regeneration of mangroves and creation of shelterbelts along the
coastal line, bamboo regeneration and afforestation programme,
encouragement of medicinal plants and eco-tourism. Preservation
of the rural environment will raise the living standards of
millions belonging to the weakest sections of our society.
Small Scale Industry
27. The SSI sector plays a vital role in industrial
production, employment generation and exports. In the context of
growing domestic and international competition, our strategy is
to support this sector through promotional policies of credit and
technology. For improving credit flow to SSI units, I propose the
following:
The requirement of providing collateral security is a major
bottleneck to the flow of bank credit to very small units. RBI
has recently issued instructions to dispense with the collateral
requirement for loans up to Rs.1 lakh. The limit is being further
increased for the tiny sector from Rs.1 lakh to Rs.5 lakh.
The existing composite loan scheme of SIDBI and banks helps
small borrowers by providing working capital and term loans
through a single window. To promote credit flow to small
borrowers, the composite loan limit is being increased from Rs.5
lakh to Rs.10 lakh.
I am asking the public sector banks to accelerate their
programme of SSI branches to ensure that every district and SSI
clusters within districts are served by at least one specialised
SSI bank branch. Furthermore, to improve the quality of banking
services, SSI branches are being asked to obtain ISO
certification.
Last year, I had announced that a credit guarantee scheme
for SSI will be launched. I am glad to inform the House that a
new Central Scheme for this purpose has been formulated and a
provision for Rs.100 crore has been made in the budget. The
Scheme will be implemented through SIDBI and will cover loans
upto Rs.10 lakhs from the banking sector. The guaranteed loans
will be securitised and will be tradeable in the secondary debt
market.
28. SIDBI operates the National Equity Fund Scheme under
which equity support is provided for projects up to Rs.15 lakh.
To further help SSI entrepreneurs, this limit will be raised from
Rs.15 lakh to 25 lakh.
29. SIDBI is presently administering the Technology
Development Modernisation Fund Scheme for assisting technology
development and modernisation of SSI units. The Scheme has
certain concessional features including interest at prime lending
rate for direct assistance and refinancing at 2% below prime rate
for indirect finance. The operation of this scheme is being
extended by another 3 years.
30. The Khadi and Village Industries Commission (KVIC) has
been playing a very important role as an instrument to generate
large scale employment in the rural areas with low per capita
investment. Government will continue to encourage the Khadi and
Village Industry Sector so that its products can become more
competitive. For intensifying marketing efforts, the KVIC will
introduce a common brand name for its products and also set up a
professionally managed marketing company for domestic as well as
export marketing.
Industry and Capital Market
31. In earlier millennia, India led the world on the basis
of knowledge. Today history is repeating itself. Young Indian
entrepreneurs are at the forefront of the infotech revolution,
whether in Silicon Valley, Bangalore or Hyderabad. They have
shown us how ideas, knowledge, entrepreneurship and technology
can combine to yield unprecedented growth of incomes, employment
and wealth. Companies unknown 5 years ago have become world
leaders. We must do everything possible to promote this flowering
of knowledge-based enterprise and job creation.
32. A key ingredient for future success lies in Venture
Capital Finance. After a thorough review, I am proposing a major
liberalisation of the tax treatment for venture capital funds. I
will describe the details later. To simplify the procedures, SEBI
will be the single point nodal agency for registration and
regulation of both domestic and overseas venture capital funds.
Venture activity is not limited to dot.com companies! Ideas and
entrepreneurship, which merit venture finance, can be found in
all sectors of the economy. The tax laws and SEBI guidelines are
being formulated accordingly. I should add that this
liberalisation will give a strong boost for Non Resident Indians
in Silicon Valley and elsewhere to invest some of their capital,
knowledge and enterprise in ventures in their motherland.
33. In recent months stock markets have been buoyant all
over the world, including India. Experience has taught us that
there can be hard times as well. It is in such difficult times
that institutions like investor protection funds of stock
exchanges become really important. I will have something to say
on this in part B of my speech.
34. Thanks to our prudent macro-economic management and
calibrated approach to currency convertibility, we have
successfully weathered the East Asian crisis of the past two
years. But we must not confuse caution with timidity. We must
encourage Indian firms and businesses to grow into strong, India-
based multinationals. To promote this trend, it is necessary to
accord our firms increasing flexibility to undertake capital
account transactions, especially for acquisitions of businesses
abroad. Last month, Government had announced a policy to allow
Indian companies to raise funds for investments through issue of
ADRs/GDRs without prior Government approval. Up to 50% of these
proceeds can be used by them to acquire companies in overseas
market. We had also announced on 27th December, 1999, a
liberalized mechanism for acquisition of software companies in
the overseas market through stock swap options up to US$100
million on an automatic basis. I plan to further liberalize this
policy for acquisition of companies abroad to enable Indian
corporates, in knowledge-based sectors to grow rapidly and lay
the foundation for Indian multinationals in areas where we have
comparative economic advantage. For acquisition in other sectors
too, I propose to increase the ceiling under the automatic route
from existing US$15 million to US$50 million for Indian
corporates and beyond this, through approval by the Committee on
Overseas Investment.
35. Under existing policy on portfolio investment, Foreign
Institutional Investors (FIIs) are permitted to invest in a
company, upto an aggregate of 24% of equity shares, which can be
increased to 30% subject to approval by the Board of Directors
and a Special Resolution of the General Body of the Company. To
give our best companies greater access to foreign portfolio
investment, I am increasing this limit from 30% to 40%.
Science and Technology
36. The sustained growth of our knowledge-based industries
will ultimately depend on the quality and extent of scientific
and technological progress and training in our society. We must
harness our potential in science and technology to realise the
dream of modern India envisioned by the Prime Minister in his
address to the Indian Science Congress last month. For taking up
relevant technology vision projects and for increasing
cooperation between our Universities and R&D institutions, I am
making an additional provision of Rs.50 crore in the budget of
the Technology Information Forecasting and Assessment Council
under the Department of Science and Technology. I am also making
a provision of Rs.50 crore in the budget of the Department of
Scientific and Industrial Research for launching a New Millennium
Indian Technology Leadership Initiative. It will focus on areas
which fulfil national objectives and will be based on partnership
between the Government and private sector.
37. To fully benefit from the new intellectual property
rights regime, we need to encourage our scientists and R&D
institutions to maximise their patenting efforts. Government have
decided to allow Universities and Research Institutions to retain
the revenue generated from intellectual property rights through
publicly funded research and also share a part of the revenue
with the inventor.
38. Modernisation of the Patent Office and the Trade Mark
Register is long overdue. Government have sanctioned a
modernisation project of Rs.75 crore for the Patent Office and we
will strive to remove all impediments for early implementation of
this project.
Banking and Finance
39. The recent East Asian crisis has underlined the
critical importance of undertaking reforms to strengthen the
banking sector. In recent years, RBI has been prescribing
prudential norms for banks broadly consistent with international
practice. To meet the minimum capital adequacy norms set by RBI
and to enable the banks to expand their operations, public sector
banks will need more capital. With the Government budget under
severe strain, such capital has to be raised from the public
which will result in reduction in Government shareholding. To
facilitate this process, Government have decided to accept the
recommendations of the Narasimham Committee on Banking Sector
Reforms for reducing the requirement of minimum shareholding by
Government in nationalised banks to 33%. This will be done
without changing the public sector character of banks and while
ensuring that fresh issue of shares is widely held by the public.
The Committee had also expressed the view that the Boards of the
banks should have sufficient autonomy to take decisions on
corporate strategy and all aspects of business management and be
responsible to the stakeholders, that is, the shareholders, the
customers, the employees and the public at large. In particular,
the interests of the employees of the nationalised Banks will be
fully safeguarded. It is proposed to bring about necessary
changes in the legislative provisions to accord necessary
flexibility and autonomy to the Boards of the banks.
40. As Honourable Members are aware, the Report of the
Working Group on Restructuring Weak Public Sector Banks had
suggested the constitution of a Financial Restructuring Authority
(FRA). It has been decided to have a modified version of the FRA.
Thus, in respect of any bank which is considered to be weak or
potentially weak, the statutes governing public sector banks
would be amended to provide for supersession of the Board of
Directors on the basis of recommendations of the RBI and
constitution of a FRA for such a bank, comprising experts and
professionals. The amendments would also enable the FRA to
exercise special powers including all the powers of the Board of
the bank.
41. Government will not close down any public sector bank.
As responsible owner of the banks, Government have decided to
consider recapitalisation of the weak banks to achieve the
prescribed capital adequacy norms, provided a viable
restructuring programme acceptable to the Government as the owner
and the RBI as the regulator is made available by the concerned
banks.
42. The high level of Non-Performing Assets (NPAs) in our
public sector banks is a cause for continued concern. Efficient
and effective mechanisms for recovery of bank dues are critically
important for reducing NPAs. I am happy to inform the House that
comprehensive amendments have been carried out to the Recovery of
Debts Due to Banks and Financial Institutions Act, 1993 by issue
of Ordinance. Five more Debt Recovery Tribunals (DRT) and four
more Debt Recovery Appellate Tribunals have been set up or are in
advanced stage of being set up. I further propose to set up four
more DRTs at Mumbai and one more DRT each at Calcutta, Delhi and
Chennai to facilitate expeditious adjudication and recovery of
dues of banks and financial institutions.
43. The growth of fresh NPAs can also be curbed through
better institutional mechanisms for sharing of credit related
information on borrowers and potential borrowers among banks and
financial institutions. A Working Group constituted by RBI to
examine modalities for setting up a Credit Information Bureau has
recently submitted its report. Based on its recommendation a
Credit Information Bureau will soon be established.
44. In the fast changing world of modern finance it has
become necessary to accord greater operational flexibility to the
RBI for conduct of monetary policy and regulation of the
financial system. Accordingly, I intend to bring to Parliament
proposals for amending the relevant legislation.
45. Similarly, to facilitate development of the Government
debt market the legislative framework needs to be strengthened
and modernised through a Government Securities Act, which I
propose to bring to replace the old Public Debt Act, 1944.
46. The Industrial Investment Bank of India is the only
Calcutta-based development financial institution. To enable it to
improve its viability and profitability by diversifying and
extending its business, Government will subscribe to the
preference capital of the company.
47. NBFCs perform a significant role as financial
intermediaries and in promoting growth of industry and services.
Over the past 3 years RBI has taken a number of measures for
strengthening the regulation of this sector with a view to
ensuring that only financially sound and well run NBFCs are
permitted to accept public deposits. I propose to bring a new
bill which will strengthen the hands of depositors in situations
of malafide or fraudulent actions of NBFCs.
Infrastructure
48. Infrastructure services remain a key bottleneck to
rapid and sustained growth of our economy. We have made
substantial progress in encouraging private infrastructure
service providers and in establishing independent regulatory
frameworks in most infrastructure sectors. We have also sought to
give greater operational and commercial autonomy to existing
public entities in these sectors. We will be moving ahead with
programmes for corporatisation of public sector service providers
in the areas of telecommunications, ports and airports during the
course of the coming year.
49. The Prime Minister has announced a major initiative for
road development, the National Highways Development Project
(NHDP). The cost of the project is estimated at around Rs.54,000
crore. In my earlier budgets, I had announced the levy of cess of
one rupee per litre on petrol and diesel and a substantial part
of this is expected to be available for funding the NHDP. To
further augment resources, for commercially viable components of
this project, I shall have something more to say in Part B of my
speech.
50. The plan outlay for the Central PSUs in the power
sector has been increased from Rs.7,626 crore to Rs.9,194 crore.
Increased budgetary support has been provided for the Tehri Hydro
and the Nathpa Jakhari Hydro projects so that both these projects
can be commissioned by March 2002. For commissioning of high
priority projects by SEBs/State generating companies, a provision
of Rs.300 crore has also been made for subsidizing interest on
loans from Power Finance Corporation.
51. In order to give a fillip to the reform process in the
power sector and for undertaking investments on renovation and
modernisation of old and inefficient plants and for strengthening
the distribution system, a new scheme for providing assistance to
State utilities will be introduced. Under this scheme, additional
Central Plan assistance of Rs.1,000 crore will be provided to
State and Union Territory Governments.
52. The State Electricity Boards have large overdues to the
Central Sector Power and Coal utilities. A Scheme for
securitisation of these dues with the support of Central
Government has been finalized to assist the SEBs to clear these
dues. Central Government support will be linked to reforms in the
operation of SEBs.
53. Hon'ble members are aware that the Sethu Samudram Ship
Canal Project has the potential of providing a shorter route
between the East and West Coast Ports. I am glad to inform that
Government have approved the undertaking of a detailed
feasibility study and environmental impact assessment of the
project at a total cost of Rs.4.8 crore. I have made necessary
provision for this in the budget.
Disinvestment/Privatisation/Public Sector Restructuring
54. Government's policy towards the public sector is clear
and unambiguous. Its main elements are :-
Restructure and revive potentialy viable PSUs;
Close down PSUs which cannot be revived;
Bring down Government equity in all non-strategic PSUs
to 26% or lower, if necessary; and
Fully protect the interests of workers.
55. In line with this policy during the last two years
financial restructuring of 20 PSUs has been approved by
Government. As a result, many PSUs have been able to restructure
their operations, improve productivity and achieve a turn around
in performance. Hon'ble members are aware that Government have
recently approved a comprehensive package for restructuring of
SAIL, one of our Navaratna PSUs.
56. There are many PSUs which are sick and not capable of
being revived. The only remaining option is to close down these
undertakings after providing an acceptable safety net for the
employees and workers. Resources under the National Renewal Fund
have not been sufficient to meet the cost of Voluntary Separation
Scheme (VSS) for such PSUs. At the same time, these PSUs have
assets, which if unbundled and realised, can be used for funding
VSS. Government will put in place mechanisms to raise resources
from the market against the security of these assets and use
these funds to provide an adequate safety-net to workers and
employees.
57. Government have recently established a new Department
for Disinvestment to establish a systematic policy approach to
disinvestment and privatisation and to give a fresh impetus to
this programme, which will emphasize increasingly on strategic
sales of identified PSUs. Government equity in all non-strategic
PSUs will be reduced to 26% or less and the interests of the
workers will be fully protected. The entire receipt from
disinvestment and privatisation will be used for meeting
expenditure in social sectors, restructuring of PSUs and retiring
public debt.
The North-East Region
58. Government is committed to the speedy economic
development of the North-Eastern States and Sikkim. Priority is
being given for development of infrastructure, specially
airports, railways, power and national highways so as to remove
the sense of isolation perceived in many parts of the North-East.
To provide more facilities for vocational education, 50 more
Industrial Training Institutes and 446 Computer Information
Centres would be established in the North-Eastern States within
the next two years.
59. For realizing the potential for agricultural and
horticultural development in the North-East, schemes for minor
irrigation and horticulture will be encouraged. A Technology
Mission for horticultural development in the North-Eastern States
will also be launched.
Scheduled Castes and Scheduled Tribes
60. To promote literacy and to improve the education
standards of persons belonging to Scheduled Castes, a new thrust
will be given to the Post-Matric Scholarship Scheme. The
budgetary provision for this Scheme is being increased from Rs.72
crore to Rs.130 crore. Emphasis under this Scheme will be on
female literacy. Our Prime Minister has announced that it will be
our national goal to liberate and rehabilitate around 6 lakh
Scavengers in the country. A new strategy will be devised under
which Scavengers will be organized into self-help cooperatives
and provided assistance from the Government and the concerned
Finance Development Corporations. To give a greater focus to the
welfare of Scheduled Tribes, a new Ministry of Tribal Affairs has
been set up. The plan allocation of Tribal welfare has been
substantially stepped up from Rs.684 crore to Rs.810 crore.
Revised Estimates for 1999-2000
61. This has been a difficult year for the budget marked by
expenditure over-runs and some deceleration in tax collection.
The increase in budgeted expenditure has been 7% whereas
shortfall in budgeted tax collection is estimated to be 4%. The
non-plan expenditure has increased by Rs.17,461 crore (8.4% over
budget estimate of Rs.2,06,882 crore) and the plan expenditure by
Rs.2,395 crore (3.1% over budget estimate of Rs.77,000 crore).
Major increases in non-plan expenditure are on account of pension
payments (Rs.4,173 crore), interest payments (Rs.3,425 crore),
Extended Ways and Means Advances to States (Rs.3,000 crore),
Defence (Rs.2,810 crore), Interest subsidies (Rs.1,304 crore),
food subsidy (Rs.1,000 crore), postal deficit (Rs.848 crore) and
assistance to States from the National Calamity Relief Fund
(Rs.1,064 crore). On the plan side, main increases are on account
of National Highway Development (Rs.1,900 crore), State roads
(Rs.1,000 crore), Railway safety ( Rs.200 crore), special
assistance to Jammu and Kashmir and enhanced assistance to States
for externally aided projects. About Rs.500 crore are expected to
be released for projects/schemes in the North Eastern Region and
Sikkim out of the savings from the budget of different Central
Ministries.
62. Net tax revenues for the Centre are estimated at
Rs.1,26,469 crore against Rs.1,32,365 crore budgeted, reflecting
a shortfall of about Rs.5,900 crore. The shortfall is mainly due
to lower customs revenue because of very low growth in the dollar
value of non-oil imports and lower excise revenue resulting from
low inflation in manufactured products for most of the year.
Disinvestment receipts are expected to be Rs.2,600 crore against
Rs.10,000 crore budgeted.
63. The fiscal deficit is thus likely to increase to 5.6%
of GDP from the budget target of 4.0%.
Budget Estimates for 2000-2001
64. In the budget estimates for 2000-2001, the total
expenditure is estimated at Rs.3,38,487 crore, of which Rs.88,100
crore is for plan and Rs.2,50,387 crore for non-plan.
Plan Expenditure
65. The budget support for Central, State and UT Plans has
been placed at Rs.88,100 crore, marking an increase of Rs.8,705
crore over revised estimates 1999-2000. Gross budgetary support
for the Central Plan is being enhanced from Rs.43,661 crore in
the revised estimates 1999-2000 to Rs.51,276 crore. Total
Central Plan outlay at Rs.1,17,334 crore will be more by
Rs.21,024 crore from the last year's level of Rs.96,310 crore, a
hefty 22% increase. The plan for 2000-2001 focuses on basic
infrastructure with energy, transport and communications
accounting for 60% of total Central Plan Outlay. The Outlay for
Social Services marks an increase of 21.5% over 1999-2000 R.E.
66. Central Plan assistance to States and Union Territories
in 2000-2001 is placed at Rs.36,824 crore as compared to
Rs.35,735 crore in the revised estimates 1999-2000.
Non Plan Expenditure
67. Non-plan expenditure in 2000-2001 is estimated to be
Rs.2,50,387 crore compared to Rs.2,24,343 crore in Revised
estimates for 1999-2000, showing an increase of Rs.26,044 crore.
The increase in non-plan expenditure is mainly in defence
(Rs.10,083 crore), interest payments (Rs.9,841 crore) and in
grants to States (Rs.9,392 crore). However, this increase is
sought to be partially offset by reduction in outgo on account of
food and fertiliser subsidies.
68. Major subsidies, on food and fertilizer, constitute a
significant portion of our non-plan expenditure. The rate at
which these subsidy payments are growing is not sustainable. We
need to target the subsidies to those who are poor and needy,
whereas others should pay for what they consume. Indeed, we want
to expand the access to subsidised food by Below Poverty Line
(BPL) families so that they can meet their basic nutritional
needs. Accordingly, from next year, we are doubling the
allocation of foodgrains to BPL families, under the Targetted
PDS, from 10 Kg. to 20 kg. This will result in an enormous gain
in food security for our poorest families. The issue price of
foodgrains of BPL families is being fixed at 50% of economic cost
in line with the decision taken by Government in December, 1996.
The net effect of these measures will be to improve the monetary
food budget of BPL families and vastly enhance their food
security. This achievement is possible only by simultaneously
fixing the PDS issue price for APL families at the economic cost.
In respect of sugar, no allocation will be made under PDS for
income tax assessees. For others, keeping in view the increase in
the levy price of sugar, the issue price under PDS is being fixed
at Rs.13 per kg. As a result of these measures I expect to keep
the expenditure on food and sugar subsidy at Rs.8,210 crore in
2000-2001.
69. In the case of Fertilizer Subsidy, Members are aware
that our present Retention Price Scheme suffers from many
shortcomings. Much of the subsidy goes to producers and not to
farmers. To encourage greater efficiency of our fertilizer
units, some rationalisation of the Retention Price Scheme,
including capping of capital related charges, will be implemented
from next year. The Ministry of Chemicals and Fertilizers will
also bring out soon a road map for phasing out the Retention
Price Scheme in the medium-term. Separately, to take into account
the rising cost of inputs, the maximum retail price of Urea is
being raised by 15%. The rate of concession in the case of
decontrolled fertilizer is also being reduced. However, to
moderate the impact on prices the MRP of DAP and MOP is being
raised only by 7% and 15% respectively. I expect that, because of
these changes and some rationalisation of Retention Price Scheme,
the expenditure on fertilizer subsidy will be Rs.12,651 crore in
2000-2001.
The Eleventh Finance Commission has since submitted its interim
report for making provisional arrangements of tax devolution and
grants to States for 2000-2001. Government have accepted the
devolution formula and quantum of grants to States, as
recommended by the Commission in its interim report. I have made
provisions in the budget accordingly.
Budget 2000-2001
Speech of
Shri Yashwant Sinha
Minister of Finance
29th February, 2000
PART B
71. Sir, I now present my tax proposals. I take up indirect
taxes first.
72. Hon'ble Members are aware that both the Centre and the
States depend heavily on indirect taxes. While I did carry out a
major restructuring of the excise rates last year, the process
needs to be taken further. We need to overhaul the rate
structure, rationalise and simplify the procedures to reduce the
compliance cost for the tax payer. We must ensure that we
concentrate on increasing production and absorbing new
technologies rather than frittering away our energies on tax
disputes.
73. Sir, my proposals in excise intend to establish a
single rate Central Value Added Tax (CENVAT) at the Centre. I am
convinced that nothing short of this can provide long term
stability, remove uncertainties in the mind of industry, and
eliminate disputes of classification. This will also encourage
the States to implement their agreed programme for converting
their sales taxes into VAT by 1.4.2001.
74. The House may recall that in my last budget, I had
introduced three ad-valorem rates of basic excise duty, viz., 8%,
16% and 24%. I propose to converge these three ad-valorem rates
to a single rate of 16% CENVAT.
75. The 8% excise rate is therefore being abolished and
most of the items at this rate are being moved to 16%. However,
certain items, essentially covering medicare and items of use by
the common man, are being exempted from the excise duty. These
are:
Medical Items:
Medicinal grade oxygen
Medicinal grade hydrogen peroxide
Anaesthetics
Potassium iodate
Medical and surgical gloves; and
Items of common use -
Cutlery and knives
House hold glassware, including glassware produced by mouth
blown process
Electric bulbs of MRP up to Rs.20 per bulb
Clocks and watches of MRP up to Rs.500 per piece
Tooth powder
Sanitary towels, napkins for babies, etc, and
Soap for distribution through PDS
76. I am including roasted chicory in the list of exempted
items as coffee itself is free from excise duty.
77. I have also decided to exempt specified cold chain
equipment, which had been provided a low rate of 8% in the last
budget, from excise duty in the larger public interest.
78. Some items, on account of their exceptional nature and
sensitivity to price increases, deserve special treatment, at
least for the present. These are Kerosene, LPG, Laundry soap,
Cotton yarn, including cotton sewing thread, and some other
varieties of yarns and Diesel engines up to 10 HP. The rate
structure for these is, therefore, being so designed that there
is no increase in the incidence of excise from the current level
of 8%, and thus there will be no price increase on this account.
79. I have not made any change in the list of items that
are currently charged to 16% excise duty.
80. In addition to the 16% CENVAT rate, I propose to have
three rates of special excise of 8%, 16% and 24%. Unlike the
CENVAT rate, the special excise duties will not generally be
modvatable, that is, users will not be able to avail of MODVAT
credit of these duties.
81. For the items that are mainly in the nature of raw
materials or intermediates, the 16% CENVAT rate is appropriate.
I, therefore, propose to include items like plastic materials,
films and sheets of plastic, tread rubber, cellular rubber,
articles of rubber, nylon filament yarn, transmission and
conveyor belts of textile materials, and sacks and bags made of
synthetic textile materials in the list of 16% CENVAT, from the
current level of 24%. I am also including tyres for OE supplies
and parts of air conditioning and refrigerating machinery in the
list of 16% CENVAT, without subjecting them to any special excise
duty, since they are intermediate goods in the chain of
production.
82. In addition, I am reducing the duty burden on a few
other products that are also currently charged to 24% duty. These
items are sterile contact lens solution, shikakai powder without
additives, and cars for physically handicapped persons. I feel
that these items should not be loaded with a duty burden of more
than 16% CENVAT.
83. Ambulances purchased by registered hospitals are
currently charged to a concessional rate of excise duty of 16%. I
am extending the same treatment to ambulances purchased by Indian
Red Cross Society.
84. The other items that are currently charged to 24% duty
shall continue to bear the same incidence, comprising 16% CENVAT
and 8% special excise duty.
85. In my new design of excise duty structure, the items
that are now charged to a total duty of 30% would be subjected to
a total duty of 32%, composed of 16% CENVAT and 16% special
excise duty. This is only a marginal increase of 2%, which, I am
sure, the consumers of these commodities can afford to bear.
86. Items presently charged to a total duty of 40% will now
be composed of 16% CENVAT and 24% special excise duty. However,
soft drink concentrate supplied to bottlers will be charged to
CENVAT at 16% only, being modvatable.
87. Let me now take up the MODVAT scheme and the changes
that I plan to bring about. MODVAT scheme shall now be known as
CENVAT scheme.
88. Over the years, disputes between the department and
assessees on the interpretation of MODVAT rules and procedures
have plagued the system. I propose to put an end to this
situation. With effect from 1st April 2000, the plethora of
existing rules will be replaced by a small set of simple and
transparent rules, which, I am sure , shall reduce disputes to a
minimum.
89. I also propose to expand and rationalize the scope of
the MODVAT scheme. All inputs and all capital goods are now
included in the eligible list of MODVAT scheme. The only
exception will be High Speed Diesel Oil and Petrol. However, I
propose that the availability of MODVAT credit on capital goods
will be spread over a period of two years, with effect from 1st
April 2000.
90. My proposals include full extension of MODVAT scheme to
cigarettes for the first time, which should cheer the industry.
However, the good news for the cigarette manufacturers ends here.
I propose to enhance the rates of excise duty on all categories
of cigarettes by 5 %.
91. At present, MODVAT credit of CVD paid on project
imports is restricted to the extent of 75%. This has been an
irritant. This credit shall now be available for 100% of the
CVD. I have also decided to do away with the condition of
installation as a pre-requisite for taking credit on capital
goods.
92. Now I shall deal with some sector specific proposals. I
take up steel first.
93. Mr. Speaker, Sir, an ad-valorem structure of taxation
is largely free from distortions, equitable and automatically
buoyant. For the present, I propose to restore ad-valorem
excise duty structure on steel produced by re-rollers and also to
steel produced by induction furnaces. These goods would be
subjected to CENVAT of 16%, with MODVAT benefit, from 1st April
2000. I may add that capacity based tax applicable to re-rollers
and induction furnaces has created more problems than it has
solved.
94. Under the existing law, excise duty on goods sold from
the depots is charged on the basis of depot price and not the
factory gate price. I have received representations that this
has caused distortion in the marketability and distribution of
steel. Deliveries of steel by integrated steel plants, whether
from the plant or stockyard, will henceforth be assessed to duty
at the factory gate price.
95. Sir, now I turn to the textile industry.
96. I had introduced a compounded levy scheme for
independent textile processors in December 1998. This has not
worked as well as expected and has led to leakages and revenue
losses; still, I do not wish to disturb the scheme abruptly.
However, to rectify the situation, I propose to raise the rates
of compounded levy from the existing Rs.1.5 lakhs per chamber per
month to Rs.2 lakhs per chamber per month and from Rs.2 lakhs per
chamber per month to Rs.2.5 lakhs per chamber per month. My
proposals also include some modifications in the scheme in order
to plug the loopholes.
97. Units engaged in the texturising of duty paid polyester
yarn would henceforth pay specific rate of excise duty. This
should reduce the valution disputes in respect of these units.
98. Small scale units enjoy duty free exemption on
clearances up to Rs.50 lakhs a year. I am unable to raise this
limit. However, with effect from 1st April 2000, I propose to
rationalize the special schemes prevalent for cosmetics and
toilet preparations, air-conditioning and refrigerating machinery
and their parts, tread rubber and articles of plastics to fall in
line with the general scheme of exemption for small scale units.
99. Sir, I now come to the next part of my proposals which
relate to streamlining and simplification of the system. These
are aimed at unshackling the excise procedures from the slavery
of complexities and rigidities, and making them simple and user-
friendly. I may add that like my rate-related proposals, these
also go much beyond minor adjustments and mark a fundamental and
even a dramatic departure from the current practices.
100. With effect from 1st July 2000, all statutory records
in excise would be dispensed with. Excise department would rely
upon the manufacturer's records. This completes the process
initiated by me in my last budget in this regard.
101. From 1st April 2000, excise assessees would be allowed
to pay the excise dues in fortnightly instalments. With this
proposal I am putting an end to the age-old practice of day-to-
day payment system of excise duties. For the small scale sector,
the monthly payment scheme, that I had introduced last year,
would continue.
102. Next, I want to make the valuation mechanism simple,
user-friendly and along commercially acceptable lines. From 1st
July, 2000, I propose to replace the existing section 4 of
Central Excise Act which is based on the concept of "normal
price" by a new section based on "transaction value" for
assessment. This is a path breaking departure from the
traditional approach.
103. The House is aware that several items are assessed to
excise duty on the basis of Maximum Retail Price. This system is
largely free from disputes and has been generally welcomed by the
industry. I propose to extend MRP based assessment to about two
dozen new items. I also propose to extend this scheme to more
items during the course of the year.
104. I also propose to rationalize the rates of duties
applicable to medicines and toilet preparations under the
Medicinal and Toilet Preparations (Excise Duties) Act. The MRP-
based assessment provisions are also being extended for
assessment under this Act. These measures would considerably
simplify the collection of excise duty by the States and improve
their revenues from these duties. These changes will come into
force from a notified date.
105. In addition to the above I am rationalizing the
provisions relating to payment of interest and penalty on
default. The details are contained in the Finance Bill.
106. This completes my package of restructuring and
rationalisation on the excise side. Trade and Industry should now
breathe easy.
107. I shall now deal with my proposals relating to customs
duties.
108. I am conscious that in this area, I face serious
constraints. We have to maintain a judicious balance between
the need for providing adequate protection and growth impulses to
the domestic industry and calibrating tariffs to international
levels. We also need to carry the reform and rationalization
process further.
109. Taking all factors into consideration, I propose to
reduce the peak rate of basic customs duty from 40% to 35%,
thereby reducing the total number of customs duty rates from 5 to
4, i.e. 35%, 25%, 15% and 5%.
110. The surcharge of 10%, which I am constrained to
continue on revenue considerations, will also apply to the new
peak rate of 35%. Crude oil and petroleum products, certain WTO
bound items and gold and silver would continue to be exempt.
111. The House may recall that I had imposed a special
additional duty (SAD) of customs in my budget proposals for 1998-
99. This had made manufacturer-importers quite sad. But traders
were glad because they were exempted. I am correcting the
discrimination by withdrawing this exemption. Now all importers
would pay this duty. SAD would, however, not apply to petroleum
products.
112. Consequent to our international trade treaty
obligations, several hundred items will be placed on the free
list for imports effective 1.4.2000. Most of these are consumer
goods and a number of them are agricultural products. To accord
adequate tariff protection for these items, they are being placed
at the peak rate (35% plus surcharge), except for a few items
like capital goods. A number of agricultural and horticultural
products placed on the free list of import in earlier years are
also being brought to the peak rate to ensure adequate protection
to our farmers.
113. Furthermore, for a handful of sensitive agricultural
products (wheat, rice, sugar and edible oils), in which our
experience with supply management has underlined the importance
of occasional tariff adjustments, I am making suitable enabling
provisions to fix the statutory tariff rates at appropriately
high levels. This will give the necessary flexibility for
adjusting the applied rates.
114. Customs is not all about raising revenues. It is also
a powerful tool for building our industrial capabilities and
improving our international competitiveness. I propose to take
several measures in this regard, picking up three sectors for
special attention. These are integral parts of the "convergence
revolution" which is fast becoming a reality.
115. First, and foremost, the Information Technology (IT)
sector, which leads the current excitement. I propose to reduce
the customs duty on several items for the IT sector. These
include:
Computers, from 20% to 15%;
Mother boards, from 20% to 15%;
Floppy diskettes, from 20% to 15%;
Specified capital goods for manufacture of semi conductors
and ICs, from 15% to 5%.
Microprocessor for computers, from 5% to Nil;
Memory storage devices, from 5% to Nil;
CD ROMs, from 5% to Nil;
Integrated circuits and microassemblies from 5% to Nil; and
Data graphic display tubes for colour monitors for computers
from 5% to Nil.
116. Telecommunications is equally important. To become an
economic superpower we must get connected, domestically and
globally. I, therefore, propose to reduce the basic customs duty
on specified raw materials for manufacture of optical fibres from
15% to 5%. I also propose to reduce the duty on cellular phones
from 25% to 5% to improve their availability through proper
channels and to curb the menace of the grey market, and on their
battery packs from 40% to 15%. I am extending the concessional
rate of 5% basic duty applicable to specified telecom equipment
to internet service providers also.
117. The third is the entertainment industry, which is also
an area of great promise. To reduce the cost of cinematography
for the film industry and provide access to the latest
technology, I propose to reduce duty on cinematographic cameras,
and other related equipment from 40% to 25%. I also propose to
reduce the basic customs duty on colour positive films in jumbo
rolls and colour negative films in rolls of certain sizes from
15% to 5%. They shall also be exempt from CVD.
118. I would like to cover one more sector in this context.
119. India can be a world leader in jewellery exports, as it
is for gems. I propose to reduce the basic customs duty on
platinum and non-industrial diamonds from 40% to 15% in order to
encourage production of quality jewellery and to provide a fillip
to jewellery exports.
120. To give effect to our agreements with the European
Union and the United States, I propose to adjust the customs
duties on fibres, yarns, textile fabrics and garments. As a
result, several varieties of fabrics and garments would
henceforth be subjected to the higher of ad-valorem or specific
rates of duties prescribed for them.
121. As far as petroleum sector is concerned, the
international prices of crude oil and petroleum products
prevalent over some time now have been putting considerable
strain on our refineries and distorting the oil pool account.
This is accentuated by the fact that prices of petroleum products
have not been fully decontrolled so far. I, therefore, propose to
reduce the basic customs duty on crude oil from 20% to 15% and on
petroleum products from 30% to 25%, except on kerosene for
parallel marketing, the basic duty on which is being raised to
35%, from 30%.
122. In several cases the bound rates are to be reduced as
part of our international commitment. I do not wish to take the
time of the House by going into details. But they do have some
revenue implications.
123. Mr. Speaker Sir, last year, I had proposed the
abolition of Finance Minister's discretionery power to grant ad
hoc exemptions of customs and excise duties except for goods of
strategic nature, or for charitable purposes. I am pleased to
inform the House that this self-denying rule has helped the
Government save about Rs.500 crore this year.
124. I shall now mention a few small, but significant,
measures for procedural improvements and redressal of the
problems of taxpayers. To curtail the so called "show cause
notice Raj " in customs and central excise, I have decided that
henceforth, show cause notices involving duty amount of more than
Rs.1 crore would be issued only with the approval of the Chief
Commissioner of Customs and Central Excise. Other show cause
notices would require approval of the Commissioner of Customs and
Central Excise.
125. It cannot be disputed that the tax due from a defaulter
should flow to the exchequer at the earliest in public interest.
At present, penalty equal to 100% of the duty evaded is payable,
and this is mandatory, even if someone makes the payment
immediately after the adjudication order is passed. With a view
to encouraging payment of tax due, I have now proposed that if
the amount of tax evaded is paid along with interest within 30
days of the communication of the order, a penalty equal to only
25% of the duty evaded would be payable. I hope this carrot will
be found preferable to the stick, which is bound to follow if tax
is not paid in time.
126. Service tax is emerging as an area of promise as well
as problems. Many experts advise me that the best way to deal
with this tax is to make it applicable to all services in one go.
However, some others have suggested basic changes in the very
structure of the service tax. I have decided not to make any
changes for the present. I am setting up an Expert Group to go
into all aspects of the matter, review the experience so far, and
give me its considered advice.
127. My proposals on the excise side are estimated to result
in revenue gain of Rs.3,252 crore in a year. On the customs
side, my proposals are estimated to result in a revenue loss of
Rs.1,428 crore.
128. 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.
129. I now turn to my Direct Tax proposals.
130. Mr. Speaker, Sir, my edifice of Direct Tax proposals
rests on four pillars of stability, economic growth,
rationalisation and simplification.
131. Our existing rates of personal taxation at 10%, 20% and
30% are only three in number and quite moderate. Although the
basic exemption limit is Rs.50,000, the real exemption limit goes
much higher when the other exemptions and deductions are taken
into account. For example, salaried persons start paying tax only
on crossing Rs.75,000 per year because of the standard deduction.
If the tax rebates and deductions available for savings are taken
into account, the effective limit of exemption gets close to Rs.1
lakh. Thus I feel that the present rates of taxation as well as
the exemption limit are reasonable. I, therefore, propose to
maintain them at the same levels.
132. Although the 10% surcharge imposed last year was meant
to be temporary, I am constrained to continue with it, in view of
the heavy and unexpected expenditure burden, mainly on account of
defence requirements and transfer to states mandated by the
Finance Commission.
133. Having restrained myself from imposing any additional
taxes during the course of the year when there was much talk of a
Kargil tax, I now propose increasing the surcharge moderately
from 10% to 15% on non-corporate tax payers having total taxable
income above Rs.1,50,000 per year. This will slightly increase
their marginal rate from 33% to 34.5%. I trust that these
relatively better-off sections of society would bear this
additional burden cheerfully.
134. Lest it is felt that I am being discriminatory in not
increasing the surcharge on corporates, let me clarify that they
would also get their opportunity to contribute to the national
effort in other ways a little later.
135. Despite the financial constraints, I would like to
propose some positive measures on personal taxation.
136. As an expression of our gratitude to the contribution
made by senior citizens during their active years and taking into
account the possible hardships that they face in the advanced
years of their life, I propose to raise the tax rebate available
to them from Rs.10,000 to Rs.15,000. At the marginal tax rate of
30%, this translates into an exemption of an additional Rs.15,000
from their gross income, or substitutes the need to save an
additional Rs.25,000 to avail of a similar exemption
under section 88.
137. I have always maintained that despite all challenges,
my job as Finance Minister in making a budget is easier than that
of an average house-wife struggling to balance the family budget.
As a token of appreciation and recognition of women as productive
contributors to the economy, I propose an additional rebate of
Rs.5,000 for women tax-payers from their tax liability. This
would be subject to the overall ceiling of Rs.15,000 if they also
happen to be senior citizens.
138. With a view to acknowledging the services rendered by
the members of defence forces and in token of our gratitude for
their exceptional courage and valour, I had provided exemption
from tax for the pension and family pension of gallantry award
winners of these services. I now propose to extend similar
benefits to gallantry award winners of para military forces and
other forces engaged in national and civil defence.
139. I now turn to the role of taxation as a facilitator of
economic growth. Knowledge-based industries are fast emerging as
the front-runners of the Indian economy. To accelerate their
growth, and encourage investment in them as mentioned in Part A
of my speech, I propose to introduce a new regime for venture
capital funds. The highlights of this would be:
(i) No approval of Venture Capital Funds by tax authorities
would be required.
(ii) The principle of "pass through" would be applied in tax
treatment of Venture Capital Funds, whose income would be free of
tax, except when not distributed within the period that may be
prescribed in the guidelines of SEBI. Income in the hands of its
investors, which would otherwise be taxable, would also be kept
tax free, and there would only be a one-time payment of tax by
the Venture Capital Fund at the rate of 20%, when the Fund
distributes its income to the investors. The same rate would
apply to undistributed incomes also.
140. I hope these incentives will facilitate the coming
together of Saraswati (i.e. knowledge) and Laxmi (i.e. wealth) to
bless entrepreneurs and investors.
141. Various tax benefits are already available for the
infrastructure sector. I propose to extend these benefits to two
additional and essential sectors of urban infrastructure, viz.
water treatment and solid waste management. I also propose to
include investments in public companies providing long term
finance for urban infrastructure as approved investments for
charitable trusts. This will enable more investment in projects
for development of urban infrastructure.
142. To provide a more focussed incentive for infrastructure
development, I propose to delete the existing provisions 54EA and
54EB and replace them with a new provision, whereby tax exemption
from capital gains would be available only if investment is made
in bonds to be issued by National Bank for Agriculture and Rural
Development (NABARD) and the National Highways Authority of India
(NHAI). These bonds will have a lock-in period of five years and
their proceeds will be used for providing finance to the
agricultural sector and for the National Highway Development
Project (NHDP).
143. I propose to continue the thrust given to the housing
sector last year and extend the benefits already available for
two more years, i.e. for houses or projects which are completed
by 31st March 2003. I hope this will sustain and accelerate house
construction activity.
144. To supplement the package of incentives of this sector,
I also propose that the 20% rebate of tax under section 88 of the
Income-tax Act would now be available for repayment of housing
loans up to Rs. 20,000 per year as against Rs.10,000 earlier.
145. Presently, the exemption from tax on long-term capital
gains is not available if the capital gain from transfer of
capital assets is invested in a house, if one house is already
owned. I am removing this restriction. Even if they own one
house, taxpayers can make an investment in a new house and claim
exemption from capital gains tax on sale of capital assets.
146. Last year I had provided for 100% exemption on export
profits to the entertainment industry. However, this benefit was
limited to corporate entities only. I propose to extend the
benefits available to corporates to non-corporate assessees as
well with effect from Financial Year 1999-2000. This will remove
the perceived discrimination to the non-corporate film makers,
but I do hope that this industry will move towards
corporatisation and modernization rapidly which is possible
without in any way curbing individual creativity.
147. To address a long-standing demand of the entertainment
industry and with a view to streamlining the procedures, I also
propose to increase the limit of reporting of payments made by a
film producer, during production of a film, to the tax
authorities to Rs.50, 000 from the present level of Rs.25,000.
148. I hope these concessions combined with what I have
already done on the indirect tax side, will reassure the
entertainment industry that "Hum Saath Saath Hain".
149. Shipping provides the transportation sinews to our
international trade, and has a strategic relevance also. To
enable the Indian Shipping Industry, which is facing serious
challenges, to generate resources for strengthening and
modernising its fleet, I propose to allow deduction of their
entire profits, against 50% as at present, if these are kept in a
reserve to be used for purchase of new ships. This 100% deduction
would be available for five years beginning from the next year.
150. Investment in human resources is an essential precursor
for sustainable economic development. To enable meritorious
students, especially those from not so affluent backgrounds, to
avail of opportunities for higher education, I propose to
increase the maximum amount of repayment of loan for higher
education from Rs.25,000 to Rs.40,000 as an allowable deduction.
This would translate into loan amounts exceeding Rs. 3 lakhs,
which would help such students to defray the increasing cost of
higher education, especially in management and professional
courses.
151. Availability of vocational training can go a long way
in mitigating the problem of unemployment. It can also bridge the
paradoxical mismatch between wide spread unemployment on the one
hand and a shortage of properly trained manpower on the other. In
order to remedy the situation I propose to allow 100% deduction
of payments made for the establishment and running of
institutions for vocational education and training by the private
sector in rural areas and small towns.
152. Barring some significant but scattered achievements, we
are not a major force in the international sports arena. Like
many other activities, modern sports and athletics need money and
infrastructure for their development. While some sports have
access to abundant funding, most others suffer for want of
adequate support. To rectify this situation, I propose that 100%
deduction would be available for donations made by corporate
entities to the Indian Olympic Association for the development of
infrastructure and for the sponsorship of games and sports. I
hope that with this concession, IOC would be better equipped to
promote sports in the country.
153. Last year, my proposals on corporate restructuring were
widely welcomed by Indian industry. However, there have been
persistent demands to clarify and rationalise some of the
provisions. I, therefore, propose to remove ambiguities in this
regard by making suitable changes in the provisions of the Income-
tax Act. I also propose that resulting companies as a
consequence of splitting of statutory bodies like SEBs will enjoy
the benefits of demerger if they fulfil the conditions notified
by the Central Government.
154. Last year, I had dispensed with the condition of
continuity of the same business for carry forward and set off of
loss. I propose to liberalise the provisions relating to carry
forward and set off of unabsorbed depreciation on the same lines.
The condition of continuity of same business will be dispensed
with and unabsorbed depreciation may be carried forward and set-
off even if the same business is not continued.
155. To give greater restructuring flexibility and freedom
to the corporates, including PSUs, I propose to make the
conditions for tax exemption of voluntary retirement benefits of
employees more liberal and to simplify the procedure for tax
exemption of benefits given to employees of Public companies and
Co-operative Societies. It will not be necessary any longer to
obtain the approval of the tax authorities for their voluntary
retirement schemes if these are formulated in accordance with the
prescribed guidelines.
156. The various exemptions currently available while
calculating Minimum Alternate Tax (MAT) and the credit system has
undermined the efficacy of the existing provision and has also
led to legal complications. To address these issues, I propose
that the Minimum Alternate Tax be now levied at the revised rate
of 7.5% of the "book profits" as determined under the Companies
Act instead of the existing effective rate of 10.5%. However,
this will now be uniformly applied - barring one exception that I
will mention later. There will also be no credit for Minimum
Alternate Tax paid. This should bring all zero tax companies
within the tax-net, which is also the basic purpose of this tax.
The new system has the virtue of a lowered rate of tax, a simple
method of computation, and an equitable spread.
157. To promote industrialization in less developed areas, I
propose to extend the tax holiday available for new units set up
in industrially backward States and industrially backward
Districts for another two years. Similarly, I also propose to
extend the existing tax benefit for new Small Scale industrial
units for another two years, i.e., till 31st March, 2002.
158. To strengthen our capital market, I propose to provide
100% exemption to the income of Investor Protection Funds of
Stock Exchanges to give them incentives for setting up of such
funds.
159. At present, no tax is payable in the hands of
shareholders on the dividend income received from a domestic
company, only the company pays additional income-tax at the rate
of 10% on the amount of dividends distributed by them. The large
gap in the tax treatment of dividend income and interest income
has been widely criticized. To reduce this anomaly, I propose to
increase the rate of tax on dividends distributed by domestic
companies from 10% to 20%. I would clarify that dividend income
in the hands of share holders will continue to remain tax free.
160. In a similar vein, to reduce the distortions arising
out of the differing tax treatment for interest incomes from
mutual funds and other instruments, like bank deposits and
corporate deposits, I propose to increase the rate of tax on
income distributed by debt oriented Mutual Funds and UTI from 10%
to 20%. However, I would like to clarify that the income
distributed under the US-64 and other open-ended equity oriented
schemes of UTI and Mutual Funds will continue to be exempt from
this tax, as at present.
161. Currently, banks and financial institutions pay an
interest tax of 2%, which adds to their cost. To remove this
impediment to financial transactions, I propose to abolish this
tax. This is a significant measure which will benefit the
financial sector, and consequently the depositors and users of
the products and services of the banks and financial
institutions.
162. The life insurance sector is now opened up and would no
longer remain a public sector monopoly. It is currently taxed at
a special rate which is likely to need a revision in the altered
scenario. I would like to undertake such revision on the basis of
expert advice and in the light of international practice. I
propose to constitute an Expert Committee for this purpose and I
hope to bring necessary amendments based on its recommendations
during the course of the year.
163. One of the major initiatives towards better tax
compliance has been the introduction of the one-by-six scheme.
This, along with other measures, has contributed substantially
to increasing the number of tax-payers, which had languished at
the level of just over a crore till 1996-1997, but has now
crossed the two crore mark, with the biggest boost coming over
the last two years. The momentum generated by this and other
measures to widen the tax base needs to be sustained. I,
therefore, propose to extend the one-by-six scheme from the
existing 54 cities to an additional 79 cities in the country.
With this, all the cities having a population of two lakh and
more on the basis of the 1991 Census would stand covered.
164. In keeping with international practice, it is proposed
to promote a common Business Identification Number to be used by
different agencies and departments. In our context, the Permanent
Account Number of income-tax would be that instrument. To begin
with, the CBEC and DGFT will use PAN for their assessees,
importers and exporters. I hope that in near future, the PAN card
will replace the ration card as the primary identification
document for a sizeable number of people.
165. With a view to intensifying the drive for PAN
allotment, I propose to open special counters in all cities where
the one-by-six scheme will be in operation (including 79 cities
where the scheme is being extended) to issue PAN cards to the
taxpayers within 30 days of their filing the application. This
facility will become operational with effect from the 1st of
July, 2000.
166. A large number of farmhouses have come up in the
vicinity of metropolitan and big cities. Many of these generate
commercial income from being hired out for residential
accommodation and for holding functions and events. No tax is
paid on this income, which is mis-declared as agricultural. This
blatant and visible misuse of an exemption originally intended
only for genuine farmers cannot be condoned or allowed to
continue. I, therefore, propose to make suitable changes in the
law to ensure that the income from farmhouse from anything other
than genuine agricultural operations will be brought in the tax
net.
167. It is my earnest desire to make the system of tax
collection as user friendly and efficient as possible. The tax
payer should be able to pay taxes with speed, convenience and
dignity. With this in view, I propose to expand and revamp the
presently available facilities of tax collection to provide that
taxpayers would be able to pay their tax in any branch of
nationalised banks where they maintain an account. This facility
would be available in all towns and cities covered under the one-
by-six scheme with effect from 1st August, 2000. For operational
reasons, this facility would initially be offered in computerised
branches only, but would be expanded continuously.
168. I also propose to further streamline the system of
refunds. While the present practice of sending the refund cheques
to the tax payers under advice to their banks would continue, the
Tax Department would also offer the facility of issuing refunds
directly on the bank accounts of assessees if the tax payers so
desire. For operational reasons, this facility would also
initially be started from computerised branches of banks, with
continuous expansion as the banks get progressively computerised.
169. With almost every sector of the economy expecting a
special treatment, our Income-tax Act has become a vast
compilation of exemptions. Income is income and should be taxed.
There should be no permanent exemptions. With this in view, I
want to make a beginning towards rationalising the existing
system of concessions and exemptions. Export earnings of various
kinds presently enjoy exemptions from income-tax ranging from 50%
to 100% of income. I have, therefore, decided to phase out these
concessions over a period of five years. To begin with, I am
withdrawing these concessions by 20% from the financial year
2000-2001, and by 20% each subsequent year till they reach a zero
level. I would add that exporters would continue to enjoy
exemption from MAT till the full phase out. The revenues garnered
from this rationalization measure will help to finance
universalization of primary education and other investments in
human resources.
170. My rationalisation measures also include the following:
Trusts running educational institutions and hospitals will
not be denied exemption even if their trustees avail medical and
educational facilities from them. Such benefit alone will be
taxed.
Investments made in public sector companies will continue to
be eligible investments for trusts, for a certain period after
the disinvestment by the Government even after these companies
stop being public sector companies.
Interest for delayed payment of dividend tax and tax on
distributed profits by mutual funds and UTI will be reduced from
2% per month to 1.5% per month.
Exemption of allowances received by employees will be raised
in conformity with the recommendations of the Fifth Pay
Commission.
Limit of gross receipts for compulsory maintenance of books
by professionals will be enhanced from Rs.60,000 to Rs.1,50,000.
Advisory limit for disposal of departmental appeals by
Appellate Tribunal will be provided for in law.
171. To sum up, Mr. Speaker, Sir, as a result of various
proposals made in this budget on the direct taxes, the estimated
revenue in 2000-2001 would be Rs.72,105 crore, including the
component of additional resource mobilisation of Rs.5,080 crore.
172. Mr. Speaker, Sir, with these proposals I estimate total
tax revenue receipts for the Centre at Rs.1,46,209 crore and the
fiscal deficit at Rs.1,11,275 crore or 5.1% of GDP. I could have
sought a deeper cut in the fiscal deficit, but a substantially
higher level of revenue mobilization would have hurt the
industrial recovery under way at present. Thus, in the short-run,
I had to carefully balance the need for fiscal consolidation with
the need to nurture the recovery phase of a growth cycle. I hope
this august House will support the balance I have struck in this
budget.
173. Growth is not just an end in itself. It is the critical
vehicle for increasing employment and raising the living
standards of our people, especially of the poorest. Sustained,
broad-based growth, combined with all our programmes for
accelerating rural development, building roads, promoting
housing, boosting knowledge-based industries and enhancing the
quality of human resources, will impart a strong impetus to
employment expansion. There can be no better cure for the problem
of poverty than this in our country.
174. Sir, the millenium has heralded the arrival of the
Indian economy on the global stage. In two short years, we have
shown that Indian talent and Indian effort is second to none. In
two short years we have ensured that "made in India" is a
compliment for any product or service. In two short years we have
sent notice to the world that India will be an economic
superpower in the 21st century. The world's eyes are now upon us,
and we will deliver.
175. Mr. Speaker, Sir, with these words, I commend the budget to
this august House.
-end-
(am/in)
-0- (CRL) Feb/29/2000 6:25
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