Speech of Sh. Yashwant Sinha Minister of Finance 1st June, 1998
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Introduction
Sir,
I rise to present the budget for the year 1998-99.
This is the first budget of the Government led by Prime Minister Shri
Atal Bihari Vajpayee. It is a defining moment in history. It is an
occasion fraught with expectation. I am very grateful to the Prime
Minister for the confidence he has reposed in me and the guidance he
has given me.
It has been just over ten weeks since this Government took office. But
we know already that a new India is rising. And as May 11 was surely
the first step, today is yet another. Certainly, a long journey lies
ahead, but as history will prove, we have now begun to build a new
India. This will be a strong and prosperous India - a nation self- reliant, but not autarchic, rather a nation keen to deal with the
world as an equal partner with other countries. As the saying goes,
"only the strong can be free. And only the productive can be strong".
This is the new India we propose to build.
The dimensions of the economic challenges that confront us today have
come into sharper focus since the time I presented the interim budget
before this House. While the people of India have reacted with pride
over the events of May 11, some of our friends abroad have responded
negatively. I am confident that these initial negative responses will
be moderated as our position gets better understood, and will not have
any significant impact on our economic development. On our part, our
policies have to be clearly directed and firm. As Gurudev Rabindranath
Tagore said "You cannot cross the sea by standing and staring at the
water". We intend to cross the sea and I seek the cooperation of this
august House in this national endeavour in the weeks and months ahead.
In preparing this budget I have been guided by the famous talisman of
Gandhiji. I have recalled to myself the face of the poorest and the
weakest man I have seen and made sure that this budget is of use to
him. This budget is rooted in Swadeshi which will be unfolded as we
go along. But I shall hasten to add that Swadeshi does not mean
isolation, Swadeshi means making India strong and self-reliant so that
we can compete with the world and win. As our courageous Prime
Minister has himself said :
Flag we hold shall never bow, Marching steps shall never halt.
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Current Economic Situation
A few days ago the Economic Survey, 1997-98 was tabled in Parliament.
It provides a comprehensive analysis of the economy's performance
during 1997-98. In my interim budget speech I had already drawn
attention to some disquieting trends: overall economic growth slowed
to 5 per cent in 1997-98; agricultural growth was negative, with
foodgrain production dropping to194 million tonnes from199 million
tonnes in the previous year; growth of industrial production slackened
to 4.2 per cent; export performance was weak for a second successive
year, recording growth in dollar terms of less than 3 per cent; the
fiscal deficit worsened to 6.1 per cent of GDP; the capital market
remained in the doldrums and infrastructure bottlenecks continued to
plague the economy. But I am not daunted by the situation. Only the
weak are tamed by adversity, the strong rise above them.
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Key Objectives
Drawing on the National Agenda for Governance and policy statements of
the Prime Minister, I believe the key objectives of this budget should
be to:
Strengthen the foundations of the Indian economy to deal effectively
with an inherently uncertain external environment.
Reverse the decline in agriculture and strengthen the rural economy.
Restore the momentum of industrial growth, especially of small scale
enterprises, and revive the capital market.
Accelerate the development of infrastructure.
By these and other means, rapidly expand productive job opportunities.
Give special impetus to social sector development.
Calibrate the pace and character of integration with the world
economy, while strengthening India's international economic position
through revival of exports and reduced reliance on borrowed funds.
Ensure macro-economic stability and control over inflation.
Raise the rate of domestic savings to achieve higher national
investment and thus lay the basis for faster medium-term growth.
Supplement this effort through foreign investment.
Free the productive energies of our people from unnecessary
bureaucratic hurdles and undertake reforms to raise the productivity
of our land, labour and capital.
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Agriculture and Rural Development
As I stand here and address this august House, my thoughts wander
naturally to the remote villages of India and to millions of our
toiling farmers. I have no doubt in my mind that the health and
dynamism of the rural economy is central to India's economic and
social development. I propose to do the following for agriculture and
rural development:
Water is a critical input for agriculture. Yet, after all these years
of development only 37 per cent of our cultivable area is under
assured irrigation. The bulk of our poor people live in rainfed areas.
We propose to accord top priority for development of rainfed areas on
a watershed basis and thereby enhance agricultural productivity in a
sustainable manner. Watershed Development Programmes, currently spread
across several ministries and departments, will be unified and the
plan allocation stepped up to Rs.677 crore from Rs.517 crore in RE
1997-98. Furthermore, there is an increase in the provision for the
Accelerated Irrigation Benefit Programme by 58 per cent over 1997-98.
Next only to water is the question of rural credit and rural
infrastructure. Under the Rural Infrastructure Development Fund (RIDF)
managed by NABARD moneys are made available to the State Governments
for rural infrastructure. During the past three years about Rs. 2,500
crore has been allocated to it annually. I am pleased to announce RIDF
IV with an enhanced allocation of Rs.3,000 crore. I invite the States
to come forward to utilise this important facility.
I propose to augment NABARD's share capital by Rs.500 crore in the
current year. Government will allocate Rs.100 crore from the budget
and the RBI will contribute the balance of Rs.400 crore. This will
enable NABARD to leverage additional resource from the market to meet
the credit needs of agriculture.
The problem of rural unemployment and under-employment is a massive
one. This can only be solved through self-employment. There is no
reason why every craftsman, artisan and weaver cannot become an
entrepreneur and run his own little enterprise. A major bottleneck
however has been lack of credit facilities. Earlier NABARD had
launched a limited scheme for promotion of Self Help Groups (SHG) as a
channel for the flow of funds to the micro enterprises. I am asking
NABARD to greatly extend the scope and coverage of the scheme so that
2 lakh Self Help Groups covering 40 lakh families can be assisted over
the next five years through this scheme of micro credit. 10,000 Self
Help Groups covering 2 lakh families will be assisted this year. The
Reserve Bank of India is also advising commercial banks to design
specific loan package to meet the needs of micro enterprises.
I have asked the National Housing Bank to finance one lakh rural
dwelling units under the Swarna Jayanti Housing Finance Scheme as against 50,000 units last year. I am making a provision of Rs.265
crore to carry forward the process of rehabilitation and
recapitalisation of the Regional Rural Banks (RRBs). Sponsor banks are
being given an enlarged role in providing management, operational and
restructuring support to RRBs.
Farmers often face chronic problems of overdue loans due to
circumstances beyond their control. They are even committed to civil
prison for this default. While the repayment culture must improve,
this government is determined to create conditions so that no farmer
goes to jail for a loan repayment default or is forced to commit
suicide. The Reserve Bank will be issuing appropriate guidelines to
the banks for hassle-free settlement of old cases of overdues. Banks
will be encouraged to provide appropriate relief on accumulated
interest in deserving cases. The new procedure should also help in
reducing the outstanding volume of Non-Performing Assets (NPAs) of the
banking sector.
NABARD is being asked to formulate a model scheme for issue of Kisan
Credit Cards to farmers on the basis of their holdings for uniform
adoption by the banks so that the farmers may use them to readily
purchase agricultural inputs such as seeds, fertilisers, pesticides
etc. and draw cash for their production needs.
The ingenuity and enterprise of our farmers is today hamstrung by
numerous Central and State laws and regulations relating to the
production, marketing and movement of agricultural commodities. This
is clearly unacceptable. My colleague, the Minister of State for
Agriculture, will soon be bringing out, under the guidance of the
Prime Minister, the Government's National Agricultural Policy paper
which will address these constraints in a comprehensive manner. The
Minister of Commerce is systematically reviewing existing controls on
exports of all agricultural commodities except foodgrains. There is no
reason why our farmers should not reap the benefits of access to wider
global markets.
The system of agricultural cooperatives in our country is plagued by
bureaucracy and political interference at many levels. As part of a
concerted programme to revitalise the cooperative sector, government
will shortly bring forward a model cooperative law to replace the
Multi-State Cooperative Societies Act of 1984 and will encourage the
States to make similar amendments in their own acts.
There has been a long standing demand from our farmers and the
Ministry of Agriculture for the exclusion of farm implements and tools
from the list of items reserved for manufacture by the SSI sector, so
that farmers can benefit from a wider range of implements and tools at
competitive prices and with requisite after sales service. This
proposal had also been recommended by the Advisory Committee of the
Ministry of Industry. Government have decided to accept this
recommendation.
India has made commendable progress in oilseeds production in recent
years. In order to establish an efficient market environment and to
reduce volatility in prices in this sector, the government is planning
to introduce futures trading in edible oilseeds, their oils and their
cakes.
The existing subsidy schemes for both urea and decontrolled phosphatic
and potassic fertilisers are being continued. However, for achieving
optimum crop response ratio to fertiliser use, the use of all the
three nutrients, nitrogen (N), phosphorus (P) and potassium (K) should
be balanced. This balance has been progressively distorted over time
because of the low price of urea compared with decontrolled fertilisers. The NPK balance, which was 5.9:2.4:1 in 1991-92, had
changed adversely to 10:2.9:1 by 1996-97. An increase in the price of
urea would help restore this balance. The increase is also justified
on the ground of rising costs, which have led to a more than 50 per
cent increase in the subsidy on indigenously produced urea in two
years between 1995-96 and RE 1997-98. It is, therefore, proposed to
increase the selling price of urea by Re.1 per kilogram with immediate
effect.
Government is committed to provide safe drinking water to all rural
habitations in the next five years. To achieve this ambitious target,
a multi pronged approach to rural water supply is being adopted:
The allocation for the Accelerated Rural Water Supply Programme is
being enhanced from Rs.1,302 crore in RE 1997-98 to Rs.1,627 crore in
this regular budget. This enhanced outlay will cover about one lakh
habitations.
As mentioned earlier, we will give a special thrust to Watershed
Development Programmes. This will also ensure better results for
ground water availability and conservation.
States are being encouraged to institutionalise community-based rural
water supply programmes, which secure active participation of
beneficiaries to own, operate and maintain rural water supply
facilities.
Over the years, programmes for alleviation of poverty and employment
generation have proliferated. Each scheme is well intentioned but
their multiplicity has led to needless duplication, high overhead
costs, confusion at field levels and insufficient benefit to the
people. It is proposed to unify the various programmes under two broad
categories of Self Employment Schemes and Wage Employment Schemes.
Funding and organisational patterns will be rationalised to achieve
maximum beneficial impact of these programmes.
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Small Scale Industry
The SSI sector makes a valuable contribution of about 40 per cent to
our total manufacturing sector production, 35 per cent to exports and
employs over 160 lakh workers. Our commitment to the SSI sector is
total. The commonest complaint of SSI entrepreneurs and associations
are the insufficiency of timely credit and the harassment of the
"Inspector Raj".
On the credit problems of the SSI sector, I propose the following
initiatives:
At present, for SSI units having aggregate working capital
requirements up to Rs.2 crore, the working capital limit is determined
by the banks on the basis of a simple calculation of 20 per cent of
their annual turnover. This facility is being doubled to Rs.4 crore.
This will ease the flow of bank credit to SSI.
To moderate the cost of credit to SSI units, RBI will advise the banks
to accord SSI units with a good track record, the benefit of lower
spreads over the prime lending rate.
Enhanced powers would be delegated to bank managers of specialised SSI
branches to ensure that most credit proposals are decided at the
branch level.
At present, Small Industrial Development Bank of India (SIDBI) is a
subsidiary of IDBI and IDBI is the major shareholder in State Finance Corporations (SFCs). To equip SIDBI to play its apex role in SSI
credit provision more effectively, SIDBI will be delinked from IDBI
and IDBI shareholding in SFCs will be transferred to SIDBI.
SSI units are often handicapped by delays in the settlement of their
dues from larger companies. To tackle this problem, I am asking RBI to
strengthen the existing mechanisms available to SSI for discounting of
bills. RBI will also modify its guidelines to commercial banks on
credit appraisal to give greater weight to the amount of overdue
outstandings that large units have in respect of SSI supplier. My
colleague, the Minister of Industry is separately bringing amendments
in the Interest on Delayed Payments to Small Scale and Ancillary
Industry Undertaking Act,1993 to make the existing legislation more
effective.
As for the pervasive problem of the "Inspector Raj", I shall be
announcing far reaching changes in the administration of Central
Excise which should help SSI units significantly. I urge all States to
review their laws and regulations and make necessary changes to
lighten the burden of the inspector raj problem of SSI units.
I shall also be announcing some tax concessions to the SSI sector
later in my speech.
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Private Investment in Industry
The government accords high priority to boosting private investment,
including foreign investment, in industry. We must minimise
bureaucratic and procedural hurdles and create an investor friendly
environment. Industrial licensing was abolished in most industrial
sectors as part of the economic reforms. On reviewing the remaining
handful of licensed sectors, the government have further decided to
delicense coal and lignite and petroleum products.
Industrial deregulation would remain incomplete without reducing the
burdens imposed by the "Inspector Raj". The majority of inspectors
operate under State level statutes. Government have initiated a
dialogue with the State Governments to explore the consolidation of
regulatory legislation relating to industry and exchange of best
practices across States in carrying out the necessary inspections in
the least burdensome way. I will return to this subject when I present
my excise proposals.
The Foreign Investment Promotion Board (FIPB) has done a good job in
promoting foreign investment and streamlining the procedures at the
Central government level. Foreign investment flows have increased
substantially and were estimated to be $3.1 billion in 1997-98. About
60 per cent of investment approvals are in the energy and
infrastructure sectors. It will be our objective to create conditions
in which foreign investors will find India an attractive investment
destination. We hope to double the inflow of foreign direct investment
within two years. Foreign investors are frequently inhibited by lack
of familiarity with our systems and statutes and particular problems
at the State level. To reduce such problems, we will implement a
system whereby, an officer of the administrative Ministry would be
designated as a monitoring officer to help processing and
implementation of the project in conjunction with Central and State
authorities for every foreign investment proposal exceeding Rs.100
crore. We are committed to creating a hassle-free procedure and I
would like to assure all foreign investors that a decision on their
investment proposals shall be taken within a period of 90 days. It
will be the personal responsibility of the monitoring officer to
ensure this.
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Housing
The National Agenda, identifies housing as a priority area. We will
move purposefully to tackle the country's enormous housing shortage
problem through partnership between government, housing finance
institutions and the private sector.
20 lakh additional dwelling units will be built this year with 13
lakhs in rural areas and 7 lakhs in urban areas.
The budget allocation for the Indira Awas Yojana Programme is being
substantially enhanced to Rs.1600 crore, from Rs.1144 crore in RE
1997-98. The scope of this scheme is also being widened to include a
loan-cum-subsidy programme.
The Urban Land Ceiling and Regulation Act will be repealed to free the
supply of usable urban land for housing construction.
The capital base of the Housing and Urban Development Corporation
(HUDCO) is being increased by Rs.110 crore from the budget so that it
may leverage more funds for housing construction.
I also have some tax incentives for housing which I will outline later
in my speech.
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Infrastructure
The acuteness of our infrastructure problems is equalled only by our
resolve to tackle them. One of the major planks of this budget is to
provide strong stimulus to the infrastructure sector through larger
public and private investment in these sectors. This will also help to
boost industrial growth and overall economic activity.
The plan outlay for the key infrastructure sectors of Energy,
Transport and Communications in the revised estimates for 1997-98 was
Rs.45,252 crore. I am happy to announce that the outlay for these
sectors for the current year will be Rs.61,146 crore. This is an
increase of 35 per cent. I am hopeful that this steep increase in
investments will trigger industrial activity and revive rapid economic
growth.
Within a few weeks of taking office, the government passed an
important ordinance for establishing Central and State Electricity
Regulatory Commissions with the primary objective of rationalising
electricity tariffs. This will go a long way towards enhancing
investor confidence in the power sector and facilitate raising
resources for higher public and private investment. We have also
simplified the procedures for extending sovereign counter guarantees
for a few "Fast Track" power projects which were held up for long. We
now expect early financial closure of these projects. The total plan
outlay for Ministry of Power is being increased to Rs.9,500 crore as
against Rs.6,738 crore in RE 1997-98.
The outstanding dues from State Electricity Boards to major public
sector undertakings such as NTPC and Coal India amount to about
Rs.10,000 crore. These large outstanding dues are serious impediments
to investment by these public sector undertakings. The government
will evolve a guarantee scheme to cover such dues. On the strength of
such guarantees, the PSUs concerned will be able to raise resources
either by securitising these debts or directly entering the market for
tapping resources. This would help these enterprises to raise
resources to fund large projects in the power and coal sectors. The
resulting investment will also boost industrial growth and investment
through linkage effects.
We must build more roads and the quality of our roads must also
improve. Our National Highways must be brought up to international
standards. I am providing Rs.500 crore for the National Highways
Authority of India to catalyse new road projects including four-laning
of existing National Highways. I shall announce some more measures for
this sector in Part B of my speech.
To enhance long-term finance for infrastructure investment in the
private sector, the Infrastructure Development Finance Company Limited
(IDFC) was incorporated as a non-government company in 1997. I am
happy to inform the House that the IDFC has tied up its paid up equity
capital of Rs.1,000 crore, including equity participation of Rs.400
crore by nine foreign investors and has now commenced operation. In
order to put IDFC on par with other all India public Financial
Institutions in the matter of fiscal incentives and fund raising
benefits extended to these institutions, it is proposed to make
necessary amendments to the Companies Act.
Provident funds are a potentially important source of funding for
private sector infrastructure projects. The present pattern of
investment prescribed for provident funds does not permit any
investment in securities of private sector infrastructure projects. I
propose to provide some flexibility in this regard by allowing upto
10% of the new accretion to provident funds to be invested in private
sector securities which have an investment grade rating from at least
two credit rating agencies. This is an enabling provision which will
allow the Board of Trustees managing these funds to invest in these
securities subject to their assessment of the risk-return prospects of
each security.
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Education
Education is the key vehicle for social transformation.
Universalisation of elementary education and eradication of illiteracy
are central elements of our social policy. Government also plans to
implement the Consitutional provision for making primary education
free and compulsory up to fifth standard and for girls up to the
college level.
This budget provides for a nearly 50 per cent increase in the total
budgetary allocation to Education, from Rs.4,716 crore in RE 1997-98
to Rs.7,047 crore in this budget. We are committed to raising the
total resource allocation for Education to 6 per cent of GDP in a
phased manner.
The allocations under the Kasturba Gandhi Shiksha Yojana and the
Mahila Samiridhi Yojana will be integrated to support a unified Action
Plan for accelerating female education.
Swami Vivekanand while exhorting the youth had said "A far greater
work is the sacrifice of yourself for the benefit of your race, for
the welfare of humanity." In order to harness the limitless energy of
the youth, government will formulate a scheme for creation of a
National Reconstruction Corps, which will mobilise youth for
community-based nation building activities. The scheme will also
promote self-employment of youth whereby the volunteers would
simultaneously be given training in vocations and entrepreneurship
development for taking up self-employment vocations. An inter-
Ministerial Committee is being set up to work out the details.
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Information Technology
The Prime Minister has underlined the crucial importance of Information Technology for India. It is the fastest growing sector of
the Indian economy as indeed of the world economy. It has tremendous
potential for the generation of employment, incomes and export
earnings. It can also provide millions of skilled jobs for women. Our
Information Technology specialists and software creators are second to
none in the world.
The government have set itself a target of making India a Global
Information Technology Power and one of the largest generators and
exporters of software in the world within ten years. A National
Information Technology Task Force, headed by the Deputy Chairman,
Planning Commission has been set up, to formulate a National
Informatics Policy which will help achieve our objectives.
Our software companies operate in a highly competitive global market
and the skilled professionals working in these companies have
attractive opportunities abroad. Our companies need flexible systems
of incentives to retain their human resources. They have sought
permission to offer stock option schemes to their Indian employees
linked to ADR/GDR issues abroad, under which their employees will be
eligible for ADR/GDR stock options. In recognition of the excellent
work being done in this sector, and its very special circumstances,
the government have decided to formulate a special scheme to allow
such options for the software sector. The details of the scheme will
be notified separately.
I also have some fiscal proposals to support rapid development of this
crucial sector which I will present later in my speech.
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Financial Sector
A mature and well functioning financial system is essential
for promoting savings, channelling investment into the most
productive activities and ensuring an efficient payments
mechanism. The East Asian financial crisis has highlighted the
importance of prompt action to strengthen our financial system.
The recently submitted Narasimham Committee Report has provided
many recommendations which are being examined in consultation
with RBI. However, I am happy to announce that decisions have
been taken on some important recommendations.
The relatively high level of Non-Performing Assets (NPAs) in
our public sector banks is a cause for concern. Net NPAs,
averaging 9 per cent in 1996-97, must be brought down to below 5
per cent by the year 2000-2001. As one way of reducing NPAs, Debt
Recovery Tribunals will be strengthened and more Tribunals will
be set up to cover all States.
A few banks have particularly high NPAs. These banks will be
encouraged, on an experimental basis, to establish Asset
Reconstruction Companies, which will takeover the NPAs of the
bank at their realisable value and swap them with special bonds
to be held by the bank. The Asset Reconstruction companies will
concentrate on recovery of dues to realise the maximum value for
the assets transferred to them.
To strengthen the underlying health of our banks, RBI is
raising the minimum required Capital Adequacy Ratio for banks
from the present 8 per cent to 9 per cent by March 31, 2000 and
to 10 per cent by as early as possible thereafter. RBI will also
announce certain other enhancements of prudential norms in regard
to asset classifications, income recognition, risk weights, etc.
Our financial system today works under the burden of several
archaic laws regarding transfers of and transactions in
properties and financial instruments. An Expert Group is being
set up to propose precise legal amendments in the key laws to
make the provisions consistent with modern financial and banking
practices.
Non-Bank Finance Companies (NBFCs) perform an important role
in our financial sector. But regulation of this sector has to
improve to protect unwary small investors. The Reserve Bank of
India Act was amended last year with a view to laying down a
framework for improved regulation of NBFCs. RBI has recently
issued guidelines for registration as also for effective
regulation of NBFCs. Our objective will be to develop a framework
of prudential regulations and a supervisory system which will
foster the development of a healthy financial system and also
provide transparent disclosure norms leading to greater depositor
awareness to enable the investors to take well informed
investment decisions.
Along with reform of the banking sector, it is necessary to
move forward with reforms in insurance which has hitherto been a
public sector monopoly. In order to provide better insurance
coverage to our citizens and also to augment the flow of long-
term resources for financing infrastructure, I propose to open
the insurance sector to competition from private Indian
companies. The Insurance Regulatory Authority will also be
converted into a statutory body. Necessary legislation will be
introduced later in the year.
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FEMA and Money Laundering
The present Foreign Exchange Regulation Act, 1973 is outdated
and is no longer in keeping with the needs of the economy and the
changes that have taken place in foreign exchange markets and
transactions. We have moved to full current account
convertibility. It is no longer appropriate to deify foreign
exchange as something special and maintain a burdensome and
highly regulatory structure around this deity. Accordingly,
government have decided to repeal FERA and replace it with a new
Foreign Exchange Management Act (FEMA), which would be consistent
with the needs of a modern economy. The new Bill will be
introduced in this session of Parliament.
At the same time, I want to assure the House that the
replacement of FERA by FEMA is in no way intended to give license
for illegal transactions to drug peddlers, terrorists, arm
smugglers and other perpetrators of heinous economic crimes.
Indeed, to protect our society from the globally recognised and,
growing problem of money laundering, I will also bring an anti
Money Laundering Bill before the House simultaneously with FEMA.
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Capital Market
I am proposing a number of measures to strengthen our capital markets:
The Securities and Exchange Board of India (SEBI) has approved the
introduction of trading in stock index futures as a way of providing
greater opportunities for hedging and inducing more liquidity into the
market. The government will bring forward the necessary amendment to
the Securities Contracts (Regulation) Act to enable derivative
instruments to be treated as securities.
Foreign institutional investor (FII) debt funds are today allowed to
invest only in listed debt securities. I propose to allow them to
invest in unlisted domestic debt securities also; the risk of default
would be borne by the FIIs.
To encourage modernisation of broker services, a one time permission
was given last year to stock brokers to corporatise their businesses
without attracting capital gains tax. I propose to extend this
exemption by one year.
To encourage more primary public issues, I am proposing certain
changes to expand the income tax deductibility of expenses incurred on
public issues.
After some of the turbulent events in the stock markets in recent
years, a special effort must be made to restore the confidence of
small investors. I am asking SEBI to devote special attention to
strengthening the institutional arrangements for protecting small
investors from defaults and financial failures of brokers and other
market intermediaries.
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Non-Resident Indians
Whenever I have travelled outside India, Non-Resident Indians (NRIs)
have expressed a sincere desire to contribute meaningfully to the
development of India. I believe NRIs constitute a huge, untapped
potential for India's development. I propose the following steps to
encourage NRIs to participate in the development of their country of
origin:
At present NRIs are allowed to purchase shares in Indian companies in
the secondary market subject to a limit of 1 per cent of the company's
total equity for individual NRIs and NRI overseas corporate bodies,
with a 5 per cent limit for aggregate NRI/OCB investments in the
company. These limits were imposed many years ago when our capital
market regulations were much weaker and there were no rules governing
acquisition and takeovers. The situation has changed materially in
both these respects. I, therefore, propose to raise the individual
investment limit of 1 per cent for NRIs to 5 per cent and the
aggregate limit for all NRI investments in a company from 5 per cent
to 10 per cent.
NRIs have also complained to me that the procedures governing their
participation in our share markets are extremely cumbersome and
onerous. I am having these procedures thoroughly reviewed with a view
to modifying them to facilitate investment by NRIs in our capital
markets.
The Unit Trust of India will launch a new India Millennium Scheme
which will be open for subscription in dollars only by NRIs. The money
collected under this scheme would be invested in shares of Indian
companies with high potential for growth and in high quality Indian
debt. The details of the scheme will be announced shortly.
The State Bank of India is launching a new Resurgent India Bond
denominated in foreign currencies for subscription by NRIs. This will
enable NRIs to contribute to the flow of resources for our country's
development, especially for building up infrastructure. The bond will
be fully repatriable and the government will extend tax concessions
similar to those currently available to NRI deposits to this new bond.
The details of the scheme will be notified separately. I am confident
that NRIs will welcome this initiative and will contribute liberally to these Bonds.
I have one more significant announcement to make for NRI's.
Government have decided to draw up a scheme for issuance of a Persons
of Indian Origin (PIO) Card for those living abroad and having foreign
passports. The PIO Card, which would be extended to persons of Indian
Origin settled in countries to be specified by government would
besides introducing a visa-free regime, also confer some special
economic, educational, financial and cultural benefits. The details
are being worked out.
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Decentralisation and Expenditure Restructuring
Government have already appointed a Special Task Force on
Devolution of Powers to States, under the Chairmanship of Shri
Bhairon Singh Shekhawat, to examine and recommend measures for
devolution of additional financial powers to the States and
additional or alternative means by which States can raise more
resources. The first report of the Task Force has been received.
We are examining the recommendations in consultation with the
RBI.
The distinction between plan and non-plan expenditures in our
budgetary system has created several problems. It has led to an
excessive focus on so called plan expenditures with a
corresponding neglect of items such as maintenance which is
classified as non-plan. Various bodies, including the Finance
Commission, have advocated the elimination of the plan and non-
plan distinction in the budget. I propose to constitute a Task
Force, including representatives of Planning Commission, Finance
Ministry, Comptroller and Auditor-General of India and State
Governments to examine these issues in a comprehensive manner and
to make recommendations for a functionally viable and more
focussed presentation of government expenditure in the budget.
A related problem is the proliferation of Central Sector and
Centrally Sponsored Schemes over the years. There is a need to
rationalise these, with the objective of reducing overlaps and
duplication, modifying procedures and norms and making them more
easily accessible to the intended beneficiary. The Task Force,
mentioned above, will also advise on this issue.
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Development of North Eastern Region
The government have already decided to restructure the North Eastern
Council (NEC) for speedy implementation of important infrastructural
programmes in this region. Sikkim will also be included in the
Council. Necessary legislation will be introduced in Parliament to
effect these changes.
Furthermore, it has been decided that a non-lapsable Central Resource
Pool will be created for deposit of funds from all Ministries where
the plan expenditure on the North Eastern region is less than 10 per
cent of the total plan allocation of the Ministry. The difference
between 10 per cent of the allocation and the actual expenditure
incurred on the North Eastern region will be transferred to the
Central Pool, which will be used for funding specific programmes for
economic and social upliftment of the North Eastern States.
The North-Eastern Development Finance Corporation Limited (NEDFi)
promoted by public sector financial institutions and banks was
incorporated in 1995. NEDFi strives to respond to the specific needs
of industries in the North-East. At present there is one State Financial Corporation (SFC) in Assam and twin function Industrial
Development Corporations (IDCs) in some other States. In order to
foster healthy and efficient growth of these institutions, I am
proposing that the refinancing function for industrial loans of
SFC/IDCs of the North-East will be undertaken henceforth by NEDFi,
rather than IDBI/SIDBI as at present.
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Disinvestment/Privatisation/PSU Reform
The regular budget takes credit for a receipt of Rs.5,000 crore from
disinvestment in the current year. In order to expedite the process
the government have decided to disinvest specified portions of equity
from IOC, GAIL, VSNL and CONCOR. As part of an overall strategy to
restructure Indian Airlines and expand its capacity, government have
decided to restructure the capital of Indian Airlines and also to
undertake a phased disinvestment in this company, over three years,
bringing the government's equity holding down to 49 per cent.
Some public sector undertakings have consistently incurred large
losses. Experience and studies by independent organisations, have
conclusively established them to be unrevivable. Nevertheless, a
decision on their closure has been delayed only on account of the
concern for the interest of the workers. In order to find a viable and
satisfactory solution to this dilemma, the government have decided to
provide a safety net to the workers of enterprises destined for
closure by providing a liberal and attractive compensation package
prior to closure. At present, when a unit is closed, the workers are
only entitled to retrenchment compensation under the Industries
(Development and Regulation) Act, which is only 15 days wages for each
completed year of service. To make the compensation package
attractive, it is proposed to make applicable the benefits of VRS
package, namely 45 days wages for each completed year of service,
subject to the maximum wage or salary accruable on the basis of the
balance of years of service left to all the workers of these public
sector units. As a further improvement to the package, the workers of
these units will also be eligible for a maximum of 60 months or 5
years salary or wages as compensation in the case of all those who
have completed not less than 30 years of service. This would mean that
all those who have put in more than 30 years of service will get more
than the normal VRS. The other conditions of the VRS will apply and
this offer will be made time bound.
A separate Restructuring Fund is being constituted for this purpose
and these public sector enterprises will be advanced funds from the
budget to offer a compensation package to the workers. Once the labour
is separated, the assets of the company will be available for disposal
at the best economic price. The proceeds of the disposal, after
settling all pending liabilities, will be credited to the
restructuring fund which will get recouped to that extent. This would
enable the fund to operate on atleast a partially self-sustaining
basis and it is expected that, in the course of time, budgetary
support for the fund will gradually diminish.
Government have also decided that in the generality of cases, the
government shareholding in public sector enterprises will be brought
down to 26 per cent. In cases of public sector enterprises involving
strategic considerations, government will continue to retain majority
holding. The interest of workers shall be protected in all cases.
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Budget Estimates for 1998-99
As Hon'ble Members are aware details of the revised estimates for
1997-98 were presented along with the interim budget in March 1998. I am, therefore, not going over those estimates again. The figures that
are given below are the budget estimates for 1998-99. I shall compare
them with the revised estimates for 1997-98, since budget estimates
are after all estimates. What really matters is the expenditure in the
previous year and the increase proposed in this year's budget.
I shall now briefly go over the budget estimates for 1998-99.
For 1998-99, the total expenditure is estimated at Rs.268107 crore. Of
this, Rs.72,002 crore has been provided as budget support for Central,
States and UT Plans and balance Rs.1,96,105 crore is for non-plan
expenditure. Hon'ble Members will be pleased to note that the budget
support for the plan has been increased by Rs.11,372 crore from
Rs.60,630 crore in revised estimates 1997-98, which is the largest
increase ever in absolute terms. Even in percentage terms the 18.8 per
cent increase is the highest in the last decade, except for one year.
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Plan Expenditure - Central Plan
Total Central plan outlay at Rs.1,05,187 crore will be higher by
Rs.24,154 crore from the last year's level of Rs.81,033 crore. Gross
budgetary support for the Central plan is being enhanced from
Rs.33,629 crore in the revised estimates 1997-98 to Rs.42,464 crore.
The balance will be met by the internal and extra-budgetary resources
of the Central Public Sector Enterprises. Gross budgetary support for
the Central plan includes provision of Rs.5,741 crore for externally
aided projects.
The plan allocations reflect our dominant priorities. The plan
allocation for the Ministry of Agriculture has been increased by 58
per cent from Rs.1807 crore to Rs.2,854 crore.
For 1998-99, the plan allocation for Ministry of Rural Areas and
Employment is Rs.9,912 crore, an increase of Rs.1,556 crore over RE
1997-98 of Rs.8,356 crore.
The plan allocation for Ministry of Health and Family Welfare is
Rs.3,684 crore, an increase of 34% over RE 1997-98 of Rs.2,747 crore.
The plan allocation for the Department of Education has been increased
substantially from Rs.3,351 crore to Rs.4,245 crore.
The plan allocation for Ministry of Welfare is being increased by 91
per cent from Rs.804 crore to Rs.1,539 crore. It includes Rs.92 crore
for National Backward Classes Finance and Development Corporation,
Rs.41 crore for National Minorities Development and Finance
Corporation, Rs.60 crore for share capital contribution to State
Scheduled Castes Development Corporations, Rs.28 crore for National
Handicapped Finance and Development Corporation and Rs.10 crore for
National Safai Karmachari Finance and Development Corporation.
In order to sustain our quest for excellence in frontier areas of
scientific research, the plan allocation for Department of Atomic
Energy is being enhanced by 68 per cent from Rs.828 crore to Rs.1,391
crore and the plan allocation for Department of Space is being raised
by 62 per cent from Rs.850 crore to Rs.1,381 crore.
For tapping the potential of non-conventional energy sources, the plan
allocation for the Ministry of Non-Conventional Energy is being more
than doubled from Rs.190 crore to Rs.404 crore.
The plan allocation for the Ministry of Environment and Forests is
being increased by 60 per cent from Rs.440 crore to Rs.704 crore.
The budgetary support for the Ministry of Civil Aviation and Tourism
is being more than tripled from Rs.122 crore to Rs.379 crore.
The plan allocation for the Department of Women & Child Development is
being stepped up from Rs.1,026 crore to Rs.1,226 crore.
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Central Assistance for States and UTs' Plan
I am providing Rs.29,538 crore as Central plan assistance to States
and Union Territories in budget estimates 1998-99 compared to
Rs.27,001 crore in the revised estimates 1997-98. The normal Central
Assistance for State plan is proposed to be enhanced from Rs.12,888
crore to Rs.15,037 crore. The Special Central Assistance for Tribal
Sub-Plan is proposed to be enhanced from Rs.330 crore to Rs.380 crore.
The Additional Central Assistance for externally aided projects is
placed at Rs.5,000 crore. Assistance for Basic Minimum Services and
Slum Development schemes is proposed to be enhanced from Rs.2,873
crore to Rs.3,760 crore.
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New Schemes
A new experimental crop insurance scheme is being launched in 24
selected districts to cover non-loanee farmers with a provision of
Rs.100 crore.
A new scheme of Technology Mission on cotton is being launched with a
provision of Rs.60 crore.
A new scheme for rehabilitation of tribals displaced from National
Parks and project areas is being launched with a provision of Rs.25
crore.
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Non Plan Expenditure
Total non-plan expenditure in 1998-99 is estimated to be Rs.1,96,105
crore compared to Rs.1,74,615 crore in revised estimates 1997-98.
The provision for interest payments has increased from Rs.65,700 crore
in RE 1997-98 to Rs.75,000 crore.
The provision for Defence expenditure has been increased substantially
from Rs.36,099 crore in RE 1997-98 to Rs.41,200 crore. I will consider
further increase in the budgetary support during the course of the
year, if necessary. There can be no compromise in our defence
preparedness.
An amount of Rs.9,000 crore is being earmarked for Food subsidy in
1998-99 representing an increase of Rs.1,500 crore over RE 1997-98.
The provision for sugar subsidy has been retained at Rs.400 crore. An
increase in food subsidy has become necessary due to recent revision
of minimum support price for wheat procurement and also to clear
arrears pertaining to previous years.
Pursuant to the change in the selling price of urea, the provision for
subsidy on indigenous nitrogenous fertilisers is being reduced from
Rs.6,600 crore in RE 1997-98 to Rs.6,000 crore. The subsidy on
decontrolled phosphatic and potassic fertilisers is being increased
from Rs.2,600 crore in RE 1997-98 to Rs.3,000 crore.
Grants to States is being enhanced in 1998-99 from Rs.4,114
crore in RE 1997-98 to Rs.6,314 crore representing an
increase of Rs.2,200 crore. Of this, the increase of Rs.950
crore is due to assistance to the States for improvement in
the pay & allowances of the university and college teachers. The balance of the increase is mainly due to grants under
Tenth Finance Commission's award.
The provision for pension is being increased by Rs.459 crore over RE
1997-98 to Rs.7,342 crore. This provision takes into account the
effect of Government's decision to raise the age of superannuation from
58 years to 60 years. This will also have an impact on the Small
Savings Collections. The provision for loans to States and Union
Territories against net small savings collections is being kept at
Rs.14,200 crore against the provision of Rs.15,732 crore in RE 1997-
98.
A provision of Rs.1,482 crore has been made for non-plan loans to
public sector enterprises mainly for payment of salaries and wages to
the employees of sick and convalescent PSUs.
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Revenue Receipts
I shall now turn to the revenue receipts.
Hon'ble Members are aware that on the basis of a consensus reached in
the Third Meeting of the Inter-State Council held on July 17, 1997,
the then government had approved in principle to accept the
recommendations of the Tenth Finance Commission regarding the
alternative scheme of sharing of Centre's tax revenues with the
States. I am happy to announce that we have ratified this decision.
Accordingly, I propose to shortly introduce a Constitution Amendment
Bill to give effect to this alternative scheme subject only to one
modification. The modification is that the percentage share of States'
share in the gross proceeds of Central taxes may be reviewed by
successive Finance Commissions instead of freezing it for fifteen
years as suggested by the Tenth Finance Commission.
Gross tax revenues at the existing rates of taxation are estimated at
Rs.1,48,506 crore. As Hon'ble Members are aware, we had made a
provision of Rs.7,594 crore in the RE 1997-98 for States' share in the
proceeds of the Voluntary Disclosure of Income Scheme, 1997 as the
collections were estimated to be Rs.10,050 crore by March 31, 1998.
However, the actual collection is reported to be about Rs.1,000 crore
less. After making adjustment for the excess share paid to the States,
I am providing Rs.39,074 crore as the share of taxes of the States.
Thus, the Centre's net tax revenue will be Rs.1,09,432 crore over RE
1997-98 of Rs.99,158 crore. Non-tax revenues are estimated to increase
from Rs.39,356 crore in RE 1997-98 to Rs.45,137 crore this year. I
have taken credit for Rs.2,800 crore as license fee from the operators
of cellular and basic telecom services and Rs.4,200 crore as net
surplus profits of the Reserve Bank of India.
The net revenue receipts for the Centre, including non-tax receipts,
are expected to increase from Rs.1,38,514 crore in RE 1997-98 to
Rs.1,54,569 crore in 1998-99.
In the area of capital receipts, market borrowings are placed at
Rs.55,931 crore. Net external assistance is estimated at Rs.2,337
crore. I am also taking credit for receipts from disinvestment of
equity in public sector enterprises of Rs.5,000 crore.
I shall come to the fiscal deficit in Part B of my speech.
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Budget Speech Part-B
Top
Tax Proposals-A
Sir, I now present my tax proposals.
There has been much talk of a tough budget. The temptation to raise
taxes in the given situation was indeed great. But I recognise that
direct tax policy must impart stability and confidence both to
individuals and corporates. Therefore, any uncertainty in this regard
must be ended. Tax rates introduced last year are moderate enough. I
do not propose to introduce any changes in the rate structure either
for individual or corporate taxes. I do hope that long-term stability
in tax structure would create virtuous circles of increased
productivity, voluntary compliance and enhance our tax widening
efforts. In fact, I am going to announce a couple of concessions.
Considering the difficulties experienced by the tax payers at the
marginal level, the level for tax exemption is being raised from the
existing limit of Rs.40,000 to Rs.50,000.
Salary earners having income upto Rs.1 lakh will be further pleased to
know that I propose to raise the ceiling of standard deduction in
their case from Rs.20,000 to Rs.25,000. Their pleasure, I hope, will
be happily shared by those salary earners whose income is more than
Rs.5 lakhs. They will henceforth not be entitled to this deduction.
For salary earners having income between Rs.1 lakh and Rs.5 lakhs, no
change is proposed in the existing position. I also propose to enhance
the ceiling of tax-free reimbursement of medical expenses from
Rs.10,000 to Rs.15,000.
In a country of our size, it is a matter of great anxiety that the
total number of assessees constitutes less than 1.25% of our
population. The scope for tax widening remains the single most
formidable challenge in the area of direct taxes. It is well accepted
tenet of taxation policy that moderate rates of taxes only make sense
if the net is wide and the scope of evasion progressively minimised.
Towards this objective, I propose to take some important initiatives.
Last year, a scheme was introduced to cover 12 important cities where
if you fulfil two of the four criteria, namely, possession of a house,
subscription to a telephone, spending on foreign travel and possession
of a motor vehicle, you would be obliged to file an income-tax return.
This scheme had several lacunae which I propose to remove. In the
first instance, the scheme is being extended now to cover 23 more
cities in India taking the total coverage to 35 cities. The net itself
is being enlarged to include two additional criteria, namely, holding
a credit card and membership of expensive clubs, taking the total
parameters to six. Finally, the matching of two out of four parameters
apart from being an administratively onerous task provided an escape
route to many potential assessees. I believe that if any one fulfils
one of the six criteria, it would be reasonable to ask the individual
to file his income-tax return. It could thereafter be determined
whether he is liable for payment of taxes or not. This revised "One-
by-Six", as the scheme would now be known, is a significant initiative
in our tax widening efforts and it is my intention to raise the total
number of individuals filing their income-tax returns by at least 50
percent during a full fiscal year.
Coupled with tax widening, tax evasion continues to be a serious
handicap. While efforts at enforcement would be strengthened, I
propose to undertake a new initiative in making it obligatory for
assessees to quote their PAN or GIR number mandatorily in respect of
certain high value transactions. These transactions would be :-
Purchase & Sale of immovable property Purchase & Sale of motor
vehicles Transaction in shares exceeding Rs.50,000 Opening of new
bank accounts Fixed deposits of more than Rs.50,000 Applications for
allotment of telephone connection Payment to hotels exceeding
Rs.25,000/-. With increased usage of computerisation, this data will
be fully utilised for increasing the tax-base and for preventing the
leakage of revenue.
We must recognise that the cumbersome nature of our income tax forms
coupled with complex procedures is a serious deterrent to an honest
individual in becoming an assessee. I, therefore, propose to
introduce, for the first time, a simple one page taxpayer-friendly
return form to be hereinafter called, SARAL', applicable to all non-
corporate taxpayers. SARAL can be filled up easily without the aid of
Chartered Accountants or Tax Advisors. The SARAL', I hope, would
become popular enough, through voluntary compliance and the assistance
of NGOs, which I propose to muster, along with mobile vans for
important cities, can be widely distributed and collected easily on
spot. This will, apart from contributing to our tax widening effort,
also make an important psychological difference in the mindset of
potential tax assessees.
Litigation has been the bane of both direct and indirect taxes. A lot
of energy of the Revenue Department is being frittered in pursuing
large number of litigations pending at different levels for long
periods of time. Considerable revenue also gets locked up in such
disputes. Declogging the system will not only incentivise honest
taxpayers, enable government to realise its reasonable dues much
earlier but coupled with administrative measures, would also make the
system more user-friendly. I, therefore, propose to introduce a new
scheme called "SAMADHAN". The scheme would apply to both direct taxes
and indirect taxes and offer waiver of interest, penalty and immunity
from prosecution on payment of arrears of direct tax at the current
rates. In respect of indirect tax, where in recent years the
adjustment of rates has been very sharp, an abatement of 50 per cent
of the duty would be available alongwith waiver of interest, penalty
and immunity from prosecution.
Legal measures are also being proposed to limit and expedite
litigation. These include enhanced scale of fees for filing appeals
before the Appellate Commissioner and the Income Tax Appellate
Tribunal, abolition of the level of Deputy Commissioner (Appeals),
provision of direct appeals to High Courts to reduce delay, and also
extension of the scope of the Authority for Advance Ruling to notified
categories of resident tax payers.
Moderate rates and large concessions do not go hand in hand. I have,
therefore, carried out a review of the various concessions and
exemptions under the Income-tax Act. I find that many of them are no
longer necessary and some of them are also being used for tax
avoidance. I, therefore, propose to withdraw many of these provisions.
These include exemption to the Export Import Bank of India and
exemption in respect of certain perquisites of foreigners employed in
India. The blanket exemption in respect of educational and medical
institutions which is being misused, is proposed to be withdrawn,
compelling such institutions to come under a discipline. However,
safeguards are being provided to ensure that the institutions
genuinely serving the social cause in either field do not lose the
existing benefits.
I also propose to plug certain loopholes. Rule 5(a) of the First
Schedule to the Income-tax Act relating to computation of profit of
insurance business other than life insurance business is being amended
to prevent leakage of revenue. Similarly, section 10(23G) of that Act
is being recast to serve the objective of infrastructure financing
without misuse of the concession. Under the existing provisions, there
is no mechanism to ensure that the tax free funds raised by an
infrastructure enterprise are actually used for infrastructure
development within a reasonable time and are not used for any other
purpose. I propose to provide such a mechanism.
Gift-tax has been levied in India since 1958. The revenue yield from
this tax has been insignificant. Last year we collected barely Rs.9
crore. The Gift-tax Act has also not been successful as an instrument
to curb tax evasion and avoidance. I, therefore, propose to
discontinue the levy of gift-tax on gifts made after 30th September,
1998. At the same time, to ensure that there are no leakages of
income-tax revenue through the mechanism of gifts, I propose to tax
the gifts under the Income-tax Act itself in the hands of the
recipients. However, the gifts from non-residents including NRIs
through banking channels will continue to enjoy exemption as at
present.
I have already said that housing is an area which requires our utmost
attention. Therefore, I propose several incentives to encourage house-
building activity. These include :- Tax holiday for approved housing
projects - 100 per cent deduction from profits for first five years
and 30 per cent deduction for subsequent five years. Increased
deductions against income from house property - deduction for repairs
and collection charges increased from 1/5th to 1/4th and deduction for
interest on borrowed capital in case of self-occupied property
increased from Rs.15,000 to Rs.30,000. Carry-forward of losses from
house property against future income under the same head to be allowed
for 8 years. Deduction equal to 50 per cent of the profits to
companies engaged in housing projects aided by the World Bank.
Section 80GG in respect of deduction for rents paid is being
reintroduced. Exemptions to certain specified properties like
commercial complexes under the Wealth-tax Act.
Other areas in the social sector for which new tax incentives are
proposed or the existing ones being increased include employment
generation, improvement of environment, upliftment of women, road
safety, cooperatives and medical expenses of the handicapped.
I propose to allow a new deduction to companies with a view to
encourage them to employ additional work force. An amount equal to 30
per cent of additional wages paid to the new workmen will be allowed
as a deduction against profits, subject to certain conditions.
For improvement of environment, I propose to allow 100 percent
deduction, subject to a ceiling of Rs.5 lakhs, to undertakings engaged
in the collection or processing of biodegradable waste. I also propose
to make activities which encourage the production of bacteria induced
fertilisers eligible for 100 per cent deduction under section 35AC of
the Income-tax Act. Necessary amendment in the rules will be notified
for this purpose. Similar benefit is proposed to be extended to the
activities of establishing and running of educational institutions,
hospitals and medical facilities in rural areas exclusively for women
and children and also creches and schools for the children of workers
employed in factories or at project sites. I also propose similar
amendment of rules to make activities which promote road safety and
traffic awareness and prevent accidents eligible for 100 per cent
deduction under section 35AC.
The promotion of sports and games in the country needs to be
encouraged. I propose setting up of National Sports Fund and further
propose that donations made to the Fund will be eligible for 100 per
cent deduction.
I propose to extend 100% tax holiday granted to industrial
undertakings located in any industrially backward State or district
till the year 2000. I also propose similar extension of tax holiday to
power sector upto the year 2003 and also to new refineries set up
after 1st October, 1998. I also propose to extend infrastructure
status to inland waterways and inland ports.
I further propose tax holiday benefits to radio paging services and
services provided by satellite owners for telecommunication. 107. I
also propose several measures in response to demands from business and
industry. Certain categories of business reorganisations are proposed
to be freed from any additional tax liability or loss of tax benefits
keeping in view the necessity of such reorganisation consequent on
economic liberalisation. No capital gain would be charged and the
benefit of carry-forward of losses and unabsorbed depreciation would
be allowed in case of specified reorganisations. Intangible assets are
proposed to be allowed depreciation at the rate of 25 per cent.
Provisions for amortisation of preliminary expenses are proposed to be
liberalised. The period of amortisation is proposed to be reduced from
10 years to 5 years and the rate of deduction will consequently be
doubled. Stock lending is proposed to be exempted from capital gains.
Delay in refund of excess tax collected tantamounts to denial of
justice. It is a source of constant harassment, particularly of small
tax payers. I intend to mitigate this difficulty by effecting an
amendment in section 192 of the Income-tax Act which will enable
adjustment of loss from house property against salary income, at the
source itself. This, I believe, will eliminate a large number of
refund claims.
In response to demands from tax payers, I propose to take further
measures. Under the existing provisions of section 44AA of the Income-
tax Act, every person carrying on business or profession is required
to maintain account books, if his income from business exceeds
Rs.40,000 or his total turnover exceeds Rs.5 lakhs. Considering the
increased cost of engaging accountants, I propose to enhance these
limits to Rs.1,20,000 and Rs.10 lakhs respectively. I further propose
that the penalty leviable at the minimum rate of Rs.100 per day for
failure to furnish certificates of tax deduction or collection at
source under section 203 or to deliver copies of declarations under
section 197A, shall not exceed the amount of tax deductible or
collectible, as the case may be. Presently, there is no such ceiling
on the quantum of penalty leviable which causes hardship, particularly
to small businessmen. 1
Certain demands of the film industry have also engaged my attention
and I propose to give relief to them. Under the existing rules, if a
film is released on commercial basis at least 180 days before the end
of the previous year, full amortisation of the cost incurred on
production or acquisition of distribution rights of the film is
allowed in the year of release itself whereas if the film is released
later, full amortisation is not allowed in that year. Considering that
nowadays film producers and distributors release a large number of
prints simultaneously to counter the threat of video-pirates and cable
television, resulting in shorter life span for exploitation of films,
I propose to reduce the aforesaid period of 180 days to 90 days. This
will enable the film industry to quickly recoup the cost of film
production and distribution. I also propose that producers of films,
who are required to furnish information in respect of all payments
over Rs.5,000 to the Income-tax Department in any financial year would
have to do so now only in respect of payments over Rs.25,000. I hope
these measures would inspire the film industry to make better and
healthier films.
A controversy has arisen recently regarding the deductibility of
payments by way of extortion money. To set the controversy at rest, I
propose to explicitly provide retrospectively since the inception of
Income-tax Act, 1961 that any money paid by way of extortion will not
qualify for deduction as a business expense. As further
rationalisation measure, I propose to make certain amendments with regard to block assessment procedure and treatment of MODVAT credit in
the valuation of inventories and capital assets.
The limit of room rent in hotels for the purpose of attracting
expenditure tax is proposed to be increased from Rs.1200 to Rs.2000
per day.
Taxpayers all over the world have a sense of pride in discharging
their legitimate dues to the government and the society recognises the
important contribution they are making in enabling the State to
discharge its responsibilities. In this country, regrettably, the
culture of pride by honest taxpayer and a social recognition of his
important role has yet to evolve. We must make a change in this
mindset. Towards this objective, I propose to introduce a scheme
called "SAMMAN" to demonstrate the society's recognition of their
important contribution to the national cause. The details of the
facilities and recognition to be conferred on the taxpayers and PAN
holders would be separately announced.
I hope the above measures alongwith SARAL, SAMMAN and SAMADHAN will go
a long way in making our efforts to increase the tax payers compliance
a success. But while we are doing what we can, I call upon the people
of India to do their patriotic duty by the country and honestly pay
their taxes.
Before I move on to indirect tax, I would like to state that a large
number of suggestions were received from all sections of tax payers
and I have got them carefully examined. It is not practicable to
acknowledge all these communications individually. I do so now
collectively and am extremely thankful to the tax payers for their
valuable suggestions.
Hon'ble Members would see from the budget documents that the figure
projected by way of revenue realisation from direct taxes is Rs.48,855
crore which is higher than the figure indicated in the interim budget.
This is after taking into account the revenue loss of Rs.950 crore,
worked out on a mechanical basis, arising out of certain proposals for
reliefs and concessions placed before the House. We intend to make
this loss up and collect the budgeted amount through improved
collection of arrears, continuation of the tax base enlargement
efforts, rigorous enforcement and tightening measures reflected in the
budget proposals.
Top
Tax Proposals - B
Mr. Speaker, Sir, our medium-term objective is to enhance the tax-GDP
ratio. As far as customs duties are concerned the process of
restructuring has resulted in a progressive reduction in tariffs, with
a view to align these with internationally acceptable levels, and the
broadbanding of rates. These measures have enhanced the
competitiveness of Indian industry.
On the excise side, until a few years ago the regime was characterised
by a multiplicity of rates and punctuated with numerous ad hoc
exemptions. As a result, the tax structure was opaque. It is the
objective of the present proposals to introduce greater transparency
in the system through a significant rationalisation of rates. The
ultimate objective of this process is to move towards a Central Value-
Added Tax (VAT) system which can then be merged with a generalised
VAT. It is our intention to move in this broad direction.
The domestic industry has responded favourably to the restructuring of
customs duties and has shown commendable resilience. They need to
improve their competitive efficiency to meet the challenges of global competition. But they also have legitimate concerns which cannot be
ignored. In this background, the path of transition has to be
carefully calibrated to ensure that the adjustment process for the
Indian industry is orderly without leading to serious disruption.
I have received representations from a cross section of the industry
about the regime of import duties. Many Honorable Members have also
written to me expressing their concern on the general health of the
domestic industry. The demands are diverse and asymmetrical in most
cases. This is for obvious reasons. While the users of imported raw
materials and other inputs or the consumers of finished imported goods
would benefit from further reduction in import duties, the domestic
producers have made a convincing case for urgent relief to the
domestic industry.
I have given my earnest consideration to these concerns and the
competing claims. I am persuaded about a clear disability that our
commodity taxation inflicts on the indigenous goods vis-a-vis the
imported goods. While the former are subjected to sales tax and other
local taxes and levies, the import sector escapes them by their very
nature. In order to provide a level playing-field to the domestic
industry, I propose to impose an additional non-modvatable levy of 8%
on imports which is approximately equal to the burden of local taxes
on domestic producers. This duty should not be viewed as a
protectionist measure but only as a response to a legitimate demand
for a level playing field. The new levy would not apply to crude oil,
newsprint, capital goods sector under a special tariff regime or goods
which are subjected to additional duties of excise in lieu of sales
tax, gold and silver imported by passengers or other nominated
agencies and life saving drugs that are free from customs duties. The
levy would also not apply to goods which are currently exempt both
from basic and additional duties of customs. Similarly, goods
imported for subsequent trading have also been left out of its
purview, since they bear the burden of Sales tax at the time of first
sale. The new levy will also not apply to inputs imported under
export-promotion schemes. In addition, there may be other sectors
eligible for exemptions. These would be examined and if considered
appropriate notified separately.
The gradual reduction of import duties in the past few years has
resulted in certain distortions and anomalies. My proposals seek to
correct them as far as found feasible without causing abrupt
disruption in the duty structure.
The steel industry has shown considerable resilience in the past to
withstand gradual reduction in customs duties. Last year, however, the
steel industry has not shown any appreciable growth. I propose to
increase the customs duty on cold rolled coils of iron and steel from
25% to 30%. I also propose to reduce the duty on stainless steel
melting scrap from 10% to 5% and on refractory ceramic goods from 40%
to 30%. I am confident that these changes alongwith the imposition of
the special additional duty that I have proposed on the imports in
general would provide adequate relief to the steel industry.
The duty on wrought copper is being raised from 30% to 35%.
I do not intend to make any other changes in the duty structure
applicable to ferrous and non-ferrous metals.
Textile intermediates like DMT, PTA, MEG attract customs duty at 25%.
However, caprolactum which is the raw material for making nylon yarn
is subjected to a higher duty of 30% . I am reducing the duty on
caprolactum also to the level of 25% so that all the major textile
intermediates attract the same rate of duty. The import duty on paraxylene, an important input for synthetic fibres and yarn, is being
reduced from a total of 15% to 5%.
The decentralised sector of the textile industry generates avenues for
employment. It deserves to be encouraged by reducing cost. I propose
to reduce customs duty on apparel grade raw wool from a total of 25%
to 20%. The duty on wool waste and garnetted stock of wool is also
being reduced by the same extent. I also propose to reduce the duty on
acetate and cuprammoniun filament yarn from 30% to 20%. In the same
vein, machinery required for viscose filament yarn and woollen
industry is being accorded the concessional duty of 10%
The import of paper and paper board has shown phenomenal growth in
terms of quantity. In order to improve the competitiveness of the
domestic producers, I propose to increase the customs duty on paper
and paper board from 20% to 30%.
Mr. Speaker, Sir, my government values the right to information. With
a view to further strengthen this right, I propose to reduce customs
duty on standard newsprint from 10% to 5%. I also propose to
rationalise the duty structure by subjecting glazed newsprint to the
same rate of duty. Furthermore, I also intend to exempt newsprint from
the applicability of 8% across the board special additional duty.
I also propose to reduce the duty on light weight coated paper
weighing upto 51 grams per square metre for printing of magazines to a
total of 5%.
The customs duty on photographic chemicals is being raised from 25% to
30%. Similarly, the duty on citric acid is being increased from 30% to
40%.
I propose to reduce the customs duty on jumbo rolls of cinematographic
film from 25% to10%.
Motor vehicle parts are generally subjected to customs duty at 40%.
However, I.C. engines and parts thereof for motor vehicles attract a
lower rate of 20%. I propose to raise the customs duty thereon to 30%.
I propose to reduce the duty on industrial diamonds from 30% to 20%.
This would help the diamond cutting tool industry.
As a measure of rationalisation, I propose to reduce the duty on
rayon-grade wood pulp from 10% to 5%.
Thalassaemia is a life-threatening blood-disorder. There have been
requests for exempting maltol, an input used in the manufacture of
drugs for the treatment of this disorder. I propose to fully exempt
maltol from customs duty. Hydroxy ethyl starch and dextran are used in
the manufacture of artificial plasma which is free from import duty. I
propose to reduce the burden of duty on artificial plasma by reducing
the duty on hydroxy ethyl strach and dextran from 30% to 5%. I also
propose to exempt Lamivudine, which is used for the treatment of AIDS,
from customs duty.
Leather industry contributes significantly to our export effort. In
order to encourage its export, I propose to reduce the duty on
specified machinery for leather industry from 20% to 5%. This would
also be the rate applicable to leather splitting machinery. I also
propose to reduce the duty on saddle trees from 30% to 10%.
Sir, the House is aware that India has joined the Information
Technology Agreement. We are committed to abolish the import duty on
products of information technology. This is not because we are bound by the ITA but because we are convinced that spread of information
technology and freer exchange of information is the key to success and
human welfare. I propose to reduce the duty on floppy disk drives,
hard disk drives and CD-ROM drives from a total of 12% to 5%. The duty
on ICs of value exceeding one thousand rupees per piece is also being
reduced to 5%. I also propose to reduce the duty on computer parts
excluding PPCB from a total of 15% to 12%. The duty on PPCB is being
reduced from a total of 25% to 22%. I also propose to reduce the duty
on cathode ray tubes for colour monitors for computers from a total of
15% to 5% and on deflection components for colour monitors for
computers from a total of 25% to 5%. My proposals also include
reduction in duty on telecom software from 40% to 30%. Such software
henceforth will not be subject to any additional duty of customs.
In order to encourage the domestic telecom equipment sector, I propose
to reduce the duty on parts of such equipment to 20%.
As a measure of environmental protection, I propose to reduce the
import duty on sawn wood and certain other varieties of wood from 30%
to 25%. I also propose to reduce the duty on biopesticides, which are
eco-friendly , from 30% to 5%. With the same objective, I have
proposed reduction of duty on membrane electrolysers and parts from
25% to 10%.
The duty on spodumene, which is an energy saving material, is being
reduced from 25% to 10%. On silicon, which is widely used in solar
energy applications, I propose to reduce the duty to half of the
existing 10%. I propose to reduce the duty on - Solar cells and
modules from 30% to 20% Button cells from 20% to 10% Watch movements
from 25% to 20% DC micro motors from 40% to 20% CD mechanism from
40% to 30%
Mr. Speaker Sir, good roads are a necessity for social and economic
development. I am sure that those of us who are privileged to afford
personalised vehicles can afford to contribute to the faster
development of good roads in the country. I propose to charge an
additional tax at the rate of rupee one per litre on petrol with
immediate effect. This is expected to generate an amount of Rs.790
crore in a year which will be used for the development of roads and
entirely go towards augmenting the corpus of the National Highways
Authority of India. I propose to extend the concessions presently
available to import of equipment for construction of National Highways
to other road-construction projects also.
The importers of precious yellow metal can certainly afford to
contribute a bit more to the national exchequer. I propose to increase
the import duty on gold from 220 rupees per ten grams to 250 rupees
per ten grams.
The duty free allowance for baggage is Rs.6000 at present. Many
countries do not impose any such restrictions. While we may not follow
them there is need to increase the present limit to reduce delays in
clearance of passengers. I propose to increase the baggage allowance
from Rs.6000 to Rs.12000 for passengers returning to India after a
stay exceeding three days. I also propose to extend free allowance of
Rs.3000 to Indian residents returning from Nepal, Bhutan, Myanmar or
China by air, after a stay exceeding three days.
There are a number of items on which it is necessary to reduce the
customs duties marginally on account of GATT binding. I do not wish to
take the time of the House in going into the details.
The government is committed to provide a tax code which is consistent
with dismantling of administered pricing mechanism of petroleum products in a phased manner. By the year 2001, the import duty on
crude has to be reduced from the current level of 27% to not more than
5%. The import duty on down stream products like furnace oil, LSHS,
HSD oil, motor spirit and ATF has also to be reduced to the level of
10% to 15%. In this process, we will ensure an effective protection
not exceeding 20% for downstream industry by suitable differential and
calibration of import duty structure.
I have initiated the process of implementing the decisions arising
from the dismantling of administered pricing mechanism. I propose to
reduce the customs duty on crude from a total of 27% to 22%. This is
estimated to result in a revenue loss of Rs.965 crore in a year. In
order to recoup the loss, I propose to increase the excise duty on
motor spirit from 20% to 35%. I also propose to impose customs duty on
kerosene imported for parallel marketing at 32%, including special
duty of 2%.
I now come to my proposals on central excise.
Mr. Speaker, Sir, the contribution of the small scale sector in the
economy cannot be over emphasised. It is a critical fast track for
generating employment thus promising support to thousands of families.
The predecessor governments have been sympathetic to the small scale
sector but I am afraid they have not done enough to encourage them so
as to exploit their full potential. The fiscal incentives provided to
the small scale sector have been rather meagre for a number of years.
I have taken certain important steps in this direction. I propose to
raise the exemption limit for excise purpose from Rs.30 lakhs to Rs.50
lakhs, an increase of about 65%. The clearances between Rs.50 lakhs to
Rs.100 lakhs shall be charged to a flat nominal rate of 5%. These
proposals would result in a revenue loss of Rs.300 crore in a year.
This is a small price to pay to restore to health this vital sector of
our economy.
Over the years the scheme of Modvat credit has been considerably
liberalised. However, the amount of Modvat credit availed has grown
unexpectedly fast in recent years, suggesting misuse of the Modvat
credit scheme in the absence of a comprehensive computer net work for
cross-checking modvatable invoices from a-flung ranges. Until such a
computer network becomes functional, and as a transitional measure, I
propose to restrict the availability of Modvat credit by 5% of the
duty paid in the case of inputs used in the manufacture of excisable
goods. However, no restriction is placed on the Modvat credit in
respect of capital goods.
My proposals regarding other changes in excise duty are guided by the
overall need to rationalise the rate-structure so as to reduce the
multiplicity of rates and ensure convergence towards a mean rate of
18% ad valorem. An ideal tax structure would be one where, barring the
mean rate, there is one lower rate for items deserving concession and
a higher rate for what may be described as demerit goods. This would
minimise the oscillations in rates and call for compression of
intermediate rates.
As a first step towards a convergence to the mean rate, I propose to
impose excise duty of 8% on certain commodities. These include :
Packaged tea Branded butter, cheese and ghee Sewing machines, other
than hand operated Branded spices Branded edible preparations when
produced in factories Preparations of meat and fish sold under a
brand name Skimmed milk powder other than for infant feeding
Tractors not exceeding 1800 cc Spectacle lenses and frames Slide
fasteners
I also propose to charge excise duty on exempted articles of plastics
at a flat rate of 5% on clearances in excess of Rs.1 crore in a
financial year. 155. In the same spirit, I propose to increase the
excise duty on medical instruments and appliances as also on pollution
control equipment from 5% to 8%. 156. A good number of commodities
are subject to excise duty at 8%. Some of them can bear a higher
duty. I , therefore, propose to increase the excise duty on these
commodities to 13%.
As a result, malt, certain types of cartons, medical furniture, sun
glasses and unrecorded audio cassettes will henceforth be subjected to
duty at 13%.
As a measure of rationalisation, I propose to increase the duty on
arms and ammunition from 18% to 25%. I, however, assure the House that
arms and ammunition for the military services will continue to be
exempt from excise duty.
I propose to raise the duty on multi-utility vehicles from 25% to 30%
and on solid or cushion tyres also from 25% to 30%. 160. I also
propose to raise the duty on marble tiles from Rs.30 to Rs.40 per
square metre.
My proposals also include reduction of excise duty on: Effluent
treatment plants from 13% to 8% Diesel engine sets upto 10 HP from
13% to 8% Surgical and medical examination gloves from 18% to 8%
Potassium iodate from 18% to 8% Electronic calculators from 18% to 8%
Pagers from 18% to 13% Cellophane from 25% to 18%. PVC compound
from 25% to 18%.
I propose to exempt 100% wood-free particle boards and fibre boards
made from agro-based residues from excise duty. Henceforth, cement
bonded particle board, jute particle board, rice husk board, glass
fibre reinforced gypsum board, sisal fibre board and bagasse board
will also be free from excise duty. I also propose to exempt blocks
and bricks containing more than 25% fly ash, ready mixed concrete,
jute blankets and jute felt from excise duty. Henceforth, pultruded
jute articles shall also be free from excise duty.
I propose to exempt recorded audio cassettes from excise duty. I also
propose to exempt recorded video cassettes intended for television
broadcasting from excise duty. The exemption for computer software
will now be broad-banded to cover all software.
The domestic nylon industry is stagnating for various reasons. I
propose to reduce the duty on nylon filament yarn from 30% to 25%.
Finance Ministers are often criticised by the tax payers for their
compulsive habit to increase the burden of taxes. However, such
complaint cannot be justified by compulsive smokers. I propose to
increase the excise duty on cigarettes by varying degrees ranging from
6% to 11% of the specific rates.
I have no intention of being harsh on smokers all the way.
Accordingly, I propose to reduce excise duty on matches manufactured
in the cottage sector by half from Rs.0.50 to Rs.0.25 per hundred
boxes. A smaller reduction is also being made in respect of matches
manufactured by other sectors.
High rates of duties are known to induce evasion and avoidance. I
propose to reduce the excise duty on alcohol-based toilet preparations
from 100% to 50%. I expect that this will improve compliance and
States will get more revenue.
The Maximum Retail Price (MRP) based excise levy introduced last year
in respect of certain products has been welcomed by the industry.
This scheme provides for simplification and certainty in taxation. I
propose to extend this scheme to a few more commodities, such as
chocolates, malted food preparations, glazed tiles, razor blades,
radio sets, domestic electrical appliances and pan masala.
In the last budget, a number of services were added in the tax net.
These included the service rendered on transportation of goods by
road. The House is aware that it led to wide spread resistance and
protests. As a result, this service tax was virtually kept in
abeyance and rightly so. I have decided to abolish the service tax on
transportation of goods by road. I have also decided to abolish the
service tax payable by outdoor caterers and pandal contractors.
However, I have proposed service tax on some new services. These are
services provided by : Architects Interior decorators Management
consultants. Chartered Accountants. Cost Accountants. Company
Secretaries Private security services Real estate agents and real
estate consultants Market research agencies Credit Rating Agencies
Underwriting agencies Slaughter houses using mechanised means for
large animals We will examine how in respect of certain segments
liable to Service Tax, the manner and mode of payment could be further
simplified to improve compliance. These new service taxes will yield
Rs.220 crore in a full year.
My proposals relating to customs duties are estimated to result in a
net gain of Rs.3,304 crore in one year. In case of excise duties, my
proposals are estimated to result in gain of Rs.5,009 crore.
Mr. Speaker, Sir, there can be no two opinions that we must increase
the level of voluntary compliance and our tax procedures should be
simple, transparent and hassle free. Our tax laws are yet to achieve
this objective even though considerable efforts have been made in the
past.
Our laws are not in tune with the need of the times. It is imperative
that they should be rebuilt on a comprehensive basis and modified to
make them truly modern. I am conscious that it is not an easy task.
But it is also not impossible. I have decided to set up an Expert
Group to recast the central excise law. It will be my Government's
endeavour to bring a new excise law before Parliament in the next
budget session of this House.
The government have also decided to set up a Settlement Commission for
settlement of certain categories of disputes relating to customs and
excise duties. The details of the scheme are contained in the Finance
Bill. I also propose to set up an authority for Advance Tax Rulings
for Excise and Customs in view of the need for foreign investors to be
assured in advance of their likely indirect tax liability. A bill to
this effect will be introduced in Parliament in due course of time.
Mr. Speaker, Sir, with our courage, determination and conviction, we
freed ourselves from the British Raj more than fifty years ago. This
year the nation takes pride in celebrating the 50th year of
Independence. Our trade and industry, however, is still not free from
another Raj, namely, the Inspector Raj. We are committed to put an end
to this in the shortest possible time. I am of the view that we owe it
to our taxpayers to provide a competent, efficient, sensitive and
responsive tax administration. Indeed, it is long overdue.
There is a widespread feeling that the operation and implementation of
excise laws leads to harassment of the assessees. We are earnestly
desirous of bringing about systemic changes to remedy the situation.
Some of the more important measures that are proposed, are: Minimising the contact points between the officials and assessees
Reducing areas which require permission or approval Providing
respectability to orders passed by Commissioner (Appeals) and the
Tribunal Simplifying the procedure for second appeal in Modvat cases
Restricting factory visits by the staff
I am conscious of the fact that there is strong resentment against the
procedures and legal obligations relating to service tax. I have
removed a number of obnoxious and deterrent provisions in law. I also
propose to abolish several of the redundant and irritating central
excise rules very shortly.
On the customs side, I have decided to strengthen the initiatives
already taken in the form of Fast Track Clearance Systems and the
Self-Assessment System in import clearance. Computerisation in both
Customs and Central Excise departments will be completed expeditiously
so that information can be obtained from the assessees and the
importers and exporters through electronic media thereby reducing
contact between the assessees and the department.
I am introducing a new culture of time-bound action by officials of
the Customs and Central Excise department. A Citizens Charter is being
released shortly to lay down the citizen's rights and the obligations
cast on the customs and excise officials.
Copies of notifications giving effect to the above changes in customs
and excise duties will be laid on the Table of the House in due
course.
Finally, I have something to say on behalf of my Hon'ble colleague,
the Minister of Communications. Postal service is highly employment-
intensive and salary and allowances constitute a major part of the
operating expenses of the postal department. A revision of tariff for
postal services has become unavoidable. However, in the interest of
the common man and the role of the print media in a democracy, there
will be no change in the tariff for postcard and registered
newspapers. However, the rate of competition postcard is being raised
from Rs.2 to Rs.3, Inland letter from Re.1 to Rs.1.50, letter from
Rs.2 to Rs.3 for every 20 gms. or part thereof and parcels from Rs.8
to Rs.10 for every 500 gms. or part thereof. There are also certain
other changes which are explained in the Memorandum circulated along
with the budget documents. The changes would take effect from a date
to be notified after the Finance Bill is passed. The revisions
proposed are estimated to yield an additional revenue of about Rs.270
crore in a full year and about Rs.180 crore in 1998-99. Even this
modest increase, which is necessary for sustaining postal development,
will only partially meet the cost of postal services leaving an
uncovered postal deficit of about Rs.695 crore.
As a result of my tax proposals and the postal tariff revision, total
expenditure of the Central government for the year 1998-99 would be
marginally reduced to Rs.2,67,927 crore while the net revenue receipts
and non-debt capital receipts would increase to Rs.1,76,902 crore. The
revenue deficit is placed at Rs.48,068 crore which is 3% of GDP. The
fiscal deficit is placed at Rs.91,025 crore which is 5.6% of GDP. With
the present state of the economy and in view of the need for
expenditure stimulus to growth, I believe further compression is not
warranted this year.
Sir, it is my firm conviction that in the days to come India will
stand tall on the world's stage because of our commitment to democracy
and the pursuit of prosperity. I call upon you to join us to
strengthen freedom and opportunity, I call upon you to join us to build a better future for every man, woman and child. As we move
together and with discipline, the future is ours. In the words of
Ramdhari Singh Dinkar :
Rise O warrior march ahead undaunted
You are the Creator of future history
The stars of the dark night are fading
The whole sky belongs to you.
Mr. Speaker, Sir, with these words, I commend the budget to this
august House.
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