Live India Union Budget 2009-10, Budget High lights

Live India Union Budget 2009-10

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Budget 2009-2010
Speech of Pranab Mukherjee
Minister of Finance
July 6, 2009
Madam Speaker,
I rise to present the Budget for 2009-10.
2. Just 140 days back, I had the privilege to present the Interim Budget for 2009-10.
It is a rare honour that I have been called upon to present the regular budget after the new
Government assumed office.
3. The Congress-led UPA Government has come back to power with a renewed
mandate. As Prime Minister, Dr. Manmohan Singh, said recently “It is a mandate for
continuity, stability and prosperity. It is a mandate for inclusive growth and equitable
development.” It is a mandate that we accept with humility and a firm resolve to do all
that we can for the welfare of this nation.

4. I am deeply conscious of the faith reposed by the people in our government and
the responsibilities that come with it. I am sensitive to the great challenge of rising
expectations of a young India . It reflects a population that is restless, yet engaged and is
ready to seize the opportunities that it is presented with. There are new and powerful
reasons for us to create, facilitate and sustain those opportunities.

5. In the Interim Budget for 2009-10, I had stated that the new Government would
need to anchor its policies for 2009-10, in a medium term perspective that would have to:
(a) sustain a growth rate of at least 9 per cent per annum over an extended period of
time;

(b) strengthen the mechanisms for inclusive growth for creating about 12 million new
work opportunities per year;
(c) reduce the proportion of people living below poverty line to less than half from
current levels by 2014;
(d) ensure that Indian agriculture continues to grow at an annual rate of 4 per cent;
(e) increase the investment in infrastructure to more than 9 per cent of GDP by 2014;
(f) support Indian industry to meet the challenge of global competition and sustain the
growth momentum in exports;
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(g) strengthen and improve the economic regulatory framework in the country;
(h) expand the range and reach of social safety nets by providing direct assistance to
vulnerable sections;
(i) strengthen the delivery mechanism for primary health care facilities with a view to
improve the preventive and curative health care in the country;
(j) create a competitive, progressive and well regulated education system of global
standards that meets the aspiration of all segments of the society; and
(k) move towards providing energy security by pursuing an Integrated Energy Policy.
6. The Government recognizes the challenges that this task entails, particularly at a
time when the world is still struggling with an unprecedented financial crisis and an
economic slowdown that has also affected India . While we are determined to convert our
words into deeds, Members would appreciate that a single Budget Speech cannot solve
all our problems, nor is the Union Budget the only instrument to do so. Yet, it is an
important means to share the vision of the Government, particularly as we begin a new
term. I propose to do just that for the next hour or so, as I dwell on the challenges and
outline the approach of the government in the short term and medium term perspectives.
7. The first challenge is to lead the economy back to the high GDP growth rate of 9
per cent per annum at the earliest. Growth of income is important in itself, but it is as
important for the resources that it brings in. These resources provide us with the means to
bridge the critical gaps that remain in our development efforts, particularly with regard to
the welfare of the vulnerable segments of our population.
8. The second challenge is to deepen and broaden the agenda for inclusive
development; and to ensure that no individual, community or region is denied the
opportunity to participate in and benefit from the development process.
9. The third challenge is to re-energize government and improve delivery
mechanisms. Our institutions must provide high quality public services, security and the
rule of law to all citizens with transparency and accountability.
Overview of the Economy
10. Madam Speaker, at the time of the presentation of the Interim Budget, I had given
a detailed analysis of the economic situation. Without repeating myself, I would like to
highlight that the development course charted by the UPA Government in the last five
years has been possible due to a step up in the growth rate of the economy and improved
revenue buoyancy. The principal growth driver in this period has been private
investment, which has been predominantly funded by domestic resources. During the
year 2008-09, there has been a dip in the growth rate of GDP from an average of over 9
per cent in the previous three fiscal years to 6.7 per cent. It has affected the pace of job
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creation in certain sectors of the economy and the investment sentiments of the business
community. It has also resulted in considerably lower revenue growth for the
government. Another feature of the year 2008-09 was a sharp rise in the wholesale price
index to nearly 13% in August 2008 and an equally sharp fall close to 0% in March 2009.
While a detailed analysis of the developments has been presented in the Economic
Survey-2008-09, tabled in both houses of Parliament last Thursday, I draw your attention
to a few aspects.
11. The structure of India ’s economy has changed rapidly in the last ten years.
External trade and external capital flows are an important part of the economy and so is
the contribution of the services sector to the GDP at well over 50 per cent. The share of
merchandise trade (exports plus imports) as a proportion of GDP has more than doubled
over the past decade to 38.9 per cent in 2008-09. Similarly, trade in goods and services
taken together has also doubled to 47 per cent during this period. Gross capital flows rose
to a peak of over 9 per cent of GDP in 2007-08 before falling in the wake of the global
financial crisis. The significant increase in the inflow of foreign capital is important, not
so much for bridging the domestic savings-investment gap, but for facilitating the
intermediation of financial resources to meet the growing needs of the economy.
12. This growing integration of the Indian economy with the rest of the world has
brought new opportunities and also new challenges. It has made the task of sustaining
high growth more complex. Over the past month, we have critically evaluated
Government’s efforts at both short term economic recovery as well as medium term
economic growth. The economic recovery and growth is a cooperative effort of the
Central and State Governments. That is why, for the first time, I held a meeting with
Finance Ministers of States as part of the preparations for this Budget. I intend to make
this an annual feature.
TOWARDS ECONOMIC REVIVAL
Short-term measures
13. To counter the negative fallout of the global slowdown on the Indian economy,
the Government responded by providing three focused fiscal stimulus packages in the
form of tax relief to boost demand and increased expenditure on public projects to create
employment and public assets. The RBI took a number of monetary easing and liquidity
enhancing measures to facilitate flow of funds from the financial system to meet the
needs of productive sectors.
14. This fiscal accommodation led to an increase in fiscal deficit from 2.7 per cent in
2007-08 to 6.2 per cent of GDP in 2008-09. The difference between the actuals of 2007-
08 and 2008-09 constituted the total fiscal stimulus. This fiscal stimulus at 3.5% of GDP
at current market prices for 2008-09 amounts to Rs.1,86,000 crore.
15. These measures were effective in arresting the fall in growth rate of GDP in 2008-
09 and we achieved a growth of 6.7 per cent. There are signs of revival in the domestic
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industry and the foreign investors have also returned to the Indian market in the last
couple of months. It is possible that the two worst quarters since the global financial
meltdown in September 2008 are behind us. While the global financial conditions have
shown improvement over the recent months, uncertainties relating to the revival of the
global economy remain. We cannot, therefore, afford to drop our guard. We have to
continue our efforts to provide further stimulus to the economy.
16. Madam Speaker, what I unfold now are only the ‘First steps’. It will be my
endeavour to make the process of budget formulation more participatory and a
continuous exercise.
Infrastructure Development
17. To stimulate public investment in infrastructure, we had set up the India
Infrastructure Finance Company Limited (IIFCL) as a special purpose vehicle for
providing long term financial assistance to infrastructure projects. We will ensure that
IIFCL is given greater flexibility to aggressively fulfil its mandate.
18. ‘Takeout financing’ is an accepted international practice of releasing long term
funds for financing infrastructure projects. It can be used to effectively address the asset
liability mismatch of commercial banks arising out of financing infrastructure projects
and also to free up capital for financing new projects. IIFCL would, in consultation with
banks, evolve a ‘takeout financing’ scheme which could facilitate incremental lending to
the infrastructure sector.
19. Government has had some success in attracting private investment in a wide range
of infrastructure sectors such as telecommunications, power generation, airports, ports,
roads and even in railways through public private partnerships ( PPP ). To ensure that
infrastructure projects do not face financing difficulties arising from the current
downturn, as I indicated in my Interim Budget Speech, the Government has decided that
IIFCL will refinance 60 per cent of commercial bank loans for PPP projects in critical
sectors over the next fifteen to eighteen months. The IIFCL and Banks are now in a
position to support projects involving a total investment of Rs.100 thousand crore in
infrastructure. Combined with the steps we are taking to increase public investment in
infrastructure, this will provide a big boost to such investment.
20. The investment in infrastructure for the growth of economy is critical. I have
urged my colleagues in the Central and State Governments to remove policy, regulatory
and institutional bottlenecks for speedy implementation of infrastructure projects. I, on
my part, will ensure that sufficient funds are made available for this sector.
Highway and Railways
21. The allocation during the current year to National Highways Authority of India
(NHAI) for the National Highways Development Programme (NHDP) is being stepped
up by 23 per cent over the 2008-09 (BE). I have also increased the allocation for the
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Railways from Rs.10,800 crore made in the Interim Budget for 2009-10 to Rs.15,800
crore.
Urban Infrastructure
22. The Jawaharlal Nehru National Urban Renewal Mission (JNNURM) has been an
important instrument for refocusing the attention of the State governments on the
importance of urban infrastructure. In recognition of the role of JNNURM, the allocation
for this scheme is being stepped up by 87 per cent to Rs.12,887 crore in the current
budget. To improve the lot of the urban poor, I propose to enhance the allocation for
housing and provision of basic amenities to urban poor to Rs.3,973 crore in the current
year’s budget. This includes the provision for Rajiv Awas Yojana (RAY), a new scheme
announced in the address of the President of India. This scheme, the parameters of which
are being worked out, is intended to make the country slum free in the five year period.
Brihan Mumbai Storm Water Drainage Project (BRIMSTOWA)
23. To address the problem of flooding in Mumbai, Brihan Mumbai Storm Water
Drainage Project (BRIMSTOWA) was initiated in 2007. The entire estimated cost of the
project at Rs.1,200 crore is being funded through Central assistance. A sum of Rs.500
crore has been released for this project upto
2008-09. I have enhanced the provision for this project from Rs.200 crore in Interim BE
to Rs.500 crore to expedite the completion of the project.
Power
24. The Accelerated Power Development and Reform Programme (APDRP) is an
important scheme for reducing the gap between power demand and supply. I propose to
increase the allocation for this scheme to Rs.2,080 crore, a steep increase of 160 per cent
above the allocation in the BE of 2008-09.
Gas
25. With the recent find of natural gas in the KG Basin on the Eastern offshore of the
country, the indigenous production of Natural Gas is set to double with natural gas
emerging as an important source of energy. LNG infrastructure in the country is also
being expanded. Government proposes to develop a blueprint for long distance gas
highways leading to a National Gas Grid. This would facilitate transportation of gas
across the length and breadth of the country.
Assam Gas Cracker Project
26. The Assam Gas Cracker Project sanctioned in April 2006 is being executed at a
cost of Rs.5,461 crore. The capital subsidy of Rs.2,138 crore for the project is to be
provided by the Central Government. The outlay for this project is being stepped up
suitably.
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Agricultural Development
I now turn to Agricultural development.
27. Agriculture has been the mainstay of our economy with 60 per cent of our
population deriving their sustenance from it. In the recent past, the sector has recorded a
growth of about 4 per cent per annum with substantial increase in plan allocations and
capital formation in the sector. Agriculture credit flow was Rs.2,87,000 crore in 2008-09.
The target for agriculture credit flow for the year 2009-10 is being set at Rs.3,25,000
crore. To achieve this, I propose to continue the interest subvention scheme for short term
crop loans to farmers for loans upto Rs.3 lakh per farmer at the interest rate of 7 per cent
per annum. I am also happy to announce that, for this year, the Government shall pay an
additional subvention of 1 per cent as an incentive to those farmers who repay their short
term crop loans on schedule. Thus, the interest rate for these farmers will come down to 6
per cent per annum. For this, I am making an additional Budget provision of Rs.411
crore over Interim BE.
Debt Relief for farmers
28. The one-time bank loan waiver of nearly Rs.71,000 crore to cover an estimated 40
million farmers was one of the major highlights of the last Budget. Under the
Agricultural Debt Waiver and Debt Relief Scheme (2008), farmers having more than two
hectares of land were given time upto 30th June, 2009 to pay 75% of their overdues. Due
to the late arrival of monsoon, I propose to extend this period by six months upto 31st
December, 2009 .
29. It is learnt that in some regions of Maharashtra , a large number of farmers had
taken loans from private money lenders and the loan waiver scheme did not cover them.
The matter requires special attention. To examine the matter in greater detail and suggest
the future course of action, I propose to set up a Taskforce.
Accelerated Irrigation Benefit Programme
30. I propose to provide an additional Rs.1,000 crore over Interim BE for the
Accelerated Irrigation Benefit Programme (AIBP), marking an increase of 75 per cent
over the allocation in 2008-09(BE). The allocation for the Rashtriya Krishi Vikas Yojna
(RKVY) is also being stepped up by 30 per cent over Budget Estimates of 2008-09.
Restoring Export Growth
31. Our exporters by virtue of their close links to the external sector have borne the
brunt of the global economic crisis. It is, therefore, appropriate that we continue to
provide all possible assistance to our exporters to help them overcome the short term
disadvantages. More specifically:
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(a) An adjustment assistance scheme to provide enhanced Export Credit and
Guarantee Corporation (ECGC) cover at 95 per cent to badly hit sectors had been
initiated in December 2008 to mitigate the difficulties faced by the exporters. In view of
the continuing contraction in exports, I propose to extend the benefits of this scheme up
to March 2010.
(b) The Market Development Assistance Scheme provides support to exporters in
developing new markets. With many traditional markets still under financial stress,
greater effort is required to identify and develop new markets. I propose to enhance the
allocation for this scheme by 148% over BE 2008-09 to Rs.124 crore.
(c) With a view to insulating the employment - oriented export sectors from the global
meltdown, Government had provided an interest subvention of 2 per cent on preshipment
credit for seven such sectors. These sectors are textiles including handlooms,
handicrafts, carpets, leather, gems and jewellery, marine products and small and medium
exporters. I propose to extend the interest subvention beyond the current deadline of
September 30, 2009 to March 31, 2010 .
(d) Micro, Small and Medium Enterprises (MSMEs) have been affected by the
slowdown in exports and the indirect effect of the global crisis on domestic demand. To
support this sector, I propose to facilitate the flow of credit at reasonable rates, by
providing a special fund out of Rural Infrastructure Development Fund (RIDF) to Small
Industries Development Bank (SIDBI). This fund of Rs.4,000 crore will incentivise
Banks and State Finance Corporations (SFCs) to lend to Micro and Small Enterprises
(MSEs) by refinancing 50 per cent of incremental lending to MSEs during the current
financial year.
(e) In February, 2009 the Print Media was given a stimulus package comprising
waiver of 15% agency commission on DAVP advertisements and a 10% increase in the
DAVP rates to be paid as a ‘special relief’ subject to documentary proof of loss of
revenue in non-governmental advertisements. Since Print Media is still passing through
difficult times, I have decided to extend the stimulus package for another six months
from 30th June, 2009 to 31st December, 2009 .
Medium-term sustainability
32. The short term fiscal stimulus has to be balanced against long term prudence and
fiscal sustainability objectives. To quote Kautilya, “In the interest of the prosperity of the
country, a King shall be diligent in foreseeing the possibility of calamities, try to avert
them before they arise, overcome those which happen, remove all obstructions to
economic activity and prevent loss of revenue to the state”. I intend to take Kautilya’s
advice and return to the FRBM target for fiscal deficit at the earliest and as soon as the
negative effects of the global crisis on the Indian economy have been overcome. On the
medium term fiscal perspective, I await the recommendations of the 13th Finance
Commission.
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33. To bring the fiscal deficit under control, we have to initiate institutional reform
measures during the current year itself. This is essential for maintaining a stable balance
of payments, moderate interest rates and steady flow of external capital for corporate
investment. These measures have to encompass all aspects of the budget such as
subsidies, taxes, expenditure and disinvestment.
Fertilizer subsidy
34. In the context of the nation’s food security, the declining response of agricultural
productivity to increased fertilizer usage in the country is a matter of concern. To ensure
balanced application of fertilizers, the Government intends to move towards a nutrient
based subsidy regime instead of the current product pricing regime. It will lead to
availability of innovative fertilizer products in the market at reasonable prices. This
unshackling of the fertilizer manufacturing sector is expected to attract fresh investments
in this sector. In due course it is also intended to move to a system of direct transfer of
subsidy to the farmers.
Petroleum and Diesel pricing policy
35. Madam Speaker, Honourable Members are aware that global prices of oil and
petroleum products had shot up to unprecedented levels in 2008-09. Most oil importing
countries, including our neighbours, adjusted their domestic prices to reflect these global
changes. Though prices have declined since then, they are already about double of the
lows reached in the wake of the global financial crisis. It is important to recognise that,
with almost three-quarters of our oil consumption met through imports, domestic prices
of petrol and diesel have to be broadly in sync with global prices of these items.
Government will set up an expert group to advise on a viable and sustainable system of
pricing petroleum products. Details will be announced by my colleague, the Minister of
Petroleum and Natural Gas.
Taxation
36. It is time that we complete the process that was started in 1991 for building a trust
based, simple, neutral, tax system with almost no exemptions and low rates designed to
promote voluntary compliance. The Income Tax Return Forms should be simple and
user-friendly. I have asked the Department to work on SARAL-II forms for early
introduction. We need a tax system which generates revenues on a sustained basis
without use of coercive tax collection methods at the end of each year to meet targets. It
is my intention to make a modest start in this direction in the current year and ensure that
the process is completed in the next four years. At the end of this process, I hope the
Finance Minister can credibly say that our tax collectors are like honey bees collecting
nectar from the flowers without disturbing them, but spreading their pollen so that all
flowers can thrive and bear fruit.
People’s ownership of PSUs
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37. The Public Sector Undertakings are the wealth of the nation, and part of this
wealth should rest in the hands of the people. While retaining at least 51 per cent
Government equity in our enterprises, I propose to encourage people’s participation in
our disinvestment programme. Here, I must state clearly that public sector enterprises
such as banks and insurance companies will remain in the public sector and will be given
all support, including capital infusion, to grow and remain competitive.
Financial sector
38. The financial sector is the life blood of any economy. Our Government’s
approach to the banking and financial sector has been to ensure robust oversight and
regulation while expanding financial access and deepening markets. The merit of this
balanced approach has been borne out in the recent experience, as the turbulence in the
world financial markets has left the Indian banking and financial sector relatively
unaffected. Never before has Indira Gandhi’s bold decision to nationalise our banking
system exactly 40 years ago - on 14th of July, 1969 - appeared as wise and visionary as it
has over the past few months. Her approach continues to be our inspiration even as we
introduce competition and new technology in this sector.
39. The average public float in Indian listed companies is less than 15 per cent. Deep
non-manipulable markets require larger and diversified public shareholdings. This
requirement should be uniformly applied to the private sector as well as listed public
sector companies. I propose to raise, in a phased manner, the threshold for non-promoter
public shareholding for all listed companies.
40. For a country like ours, with significant sections of unbanked population and
regions, financial inclusion is vital for sustaining long term equitable development. As
part of the financial inclusion drive, scheduled commercial banks have been opening ‘no
frills’ accounts either with ‘nil’ or very low minimum balances. So far, these banks have
opened 3.3 crore such accounts. The RBI has announced a further relaxation in its Branch
Authorisation Policy. Scheduled Commercial Banks are now allowed to set up off-site
ATMs without prior approval, subject to reporting.
41. Despite the expansion of banking network in the country, there are still some
areas that remain under-banked or unbanked. A sub-committee of State Level Bankers
Committee ( SLB C) will identify such areas and formulate an action plan for providing
banking facilities to all these areas in the next 3 years. I propose to set aside Rs.100 crore
during the current year as one-time grant-in-aid to ensure provision of at least one
centre/Point of Sales (POS) for banking services in each of the unbanked blocks in the
country.
42. The Government has established Competition Commission of India, an
autonomous regulatory body to promote and sustain competition in markets, protect
interests of consumers and to prevent practices having adverse effect on competition. An
Appellate body headed by a retired judge of the Supreme Court has also been constituted.
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43. The benefits of competition should now come to more sectors and their users and
consumers. Now is the time for us to work on these aspects to eliminate supply
bottlenecks, enhance productivity, reduce costs and improve quality of goods and
services supplied to consumers.
Investment environment
44. Private sector investment has been affected by the global macro economic
conditions. Our Government is committed to creating a facilitating environment in which
a competitive private sector can thrive and play its rightful role in nation’s economic
development. India ’s high growth of 8.5% per annum from 2004 to 2008 was fuelled in
very large part by private investment. I look forward to working closely with industry and
our vibrant entrepreneurial community to address their outstanding concerns.
TOWARDS INCLUSIVE DEVELOPMENT
45. Madam Speaker, the UPA government has gone for a paradigm shift for making
the development process more inclusive. It involves creating entitlements backed by legal
guarantee to provide basic amenities and opportunities for livelihood to vulnerable
sections. ‘Aam Admi’ is now the focus of all our programmes and schemes.
National Rural Employment Guarantee Scheme (NREGS)
46. (i) It is widely acknowledged that the National Rural Employment Guarantee
Act, (NREGA) first implemented in February 2006, has been a magnificent success.
During 2008-09, NREGA provided employment opportunities for more than 4.47 crore
households as against 3.39 crore households covered in 2007-08. We are committed to
providing a real wage of Rs.100 a day as an entitlement under the NREGA. To increase
the productivity of assets and resources under NREGA, convergence with other schemes
relating to agriculture, forests, water resources, land resources and rural roads is being
initiated. In the first stage, a total of 115 pilot districts have been selected for such
convergence. Details of these measures and convergence guidelines will be announced
by my colleague, the Minister of Rural Development. I propose an allocation of
Rs.39,100 crore for the year 2009-10 for NREGA which marks an increase of 144% over
2008-09 Budget Estimates.
National Food Security Act (NFSA)
(ii) I am happy to announce that the work on National Food Security Act has
begun in right earnest. This will ensure that every family living below the poverty line in
rural or urban areas will be entitled by law to 25 kilos of rice or wheat per month at Rs.3
a kilo. The Government proposes to put the draft Food Security Bill on the website of the
Department of Food and Public Distribution for public debate and consultations very
soon.
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Bharat Nirman
(iii) Bharat Nirman with its six schemes is an important initiative for bridging
the gap between the rural and urban areas and improving the quality of life of people,
particularly the poor, in the rural areas. I propose to step up the allocations for Bharat
Nirman by 45 per cent in 2009-10 over the BE of 2008-09. The Pradhan Mantri Gram
Sadak Yojana (PMGSY) is one of the most successful programmes under Bharat Nirman.
I propose to step up the allocation for this programme by 59% over BE 2008-09 to
Rs.12,000 crore. I also propose to allocate Rs.7,000 crore to Rajiv Gandhi Grameen
Viduytikaran Yojana (RGGVY) which represents a 27 per cent increase over 2008-09
(BE).
(iv) The allocation for the Indira Awaas Yojana ( IAY) is proposed to be
increased by 63 per cent to Rs.8,800 crore in Budget Estimates 2009-10. To broaden the
pace of rural housing, I propose to allocate, from the shortfall in the priority sector
lending of commercial banks, a sum of Rs.2,000 crore for Rural Housing Fund in the
National Housing Bank (NHB). This will boost the resource base of NHB for their
refinance operations in rural housing sector.
Pradhan Mantri Adarsh Gram Yojana (PMAGY)
(v) There are about 44,000 villages in which the population of Scheduled
castes is above 50 per cent. A new scheme called Pradhan Mantri Adarsh Gram Yojana
(PMAGY) is being launched this year on a pilot basis, for the integrated development of
1000 such villages. I propose an allocation of Rs.100 crore for this scheme. Each village
would be able to avail gap funding of Rs.10 lakh over and above the allocations under
Rural Development and Poverty Alleviation Schemes. On successful implementation of
the pilot phase, the Yojana would be extended in coming years.
Empowerment of Weaker Sections
47. The Swarna Jayanti Gram Swarozgar Yojna (SGSY) is being restructured as the
National Rural Livelihood Mission to make it universal in application, focused in
approach and time bound for poverty eradication by 2014-15. Stress will be laid on the
formation of women Self Help Groups (SHGs). Apart from providing capital subsidy at
an enhanced rate, it is also proposed to provide interest subsidy to poor households for
loans upto Rs. one lakh from banks.
48. The Women’s Self Help Group movement is bringing about a profound
transformation in rural areas. There are today over 22 lakh such groups linked with
banks. Our objective is to enrol at least 50% of all rural women in India as members of
SHGs over the next five years and link these SHGs to banks.
49. The Rashtriya Mahila Kosh has been working towards the facilitation of credit
support or micro finance to poor women and has developed a number of innovative
schemes for their benefit. In recognition of its role as an instrument of socio-economic
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change and development, the corpus of the Kosh, which at present is Rs.100 crore, would
be raised to Rs.500 crore, over the next few years.
Female literacy
50. The low level of female literacy continues to be a matter of grave concern. It has,
therefore, been decided to launch a National Mission for Female Literacy, with focus on
minorities, SC, ST and other marginalised groups. The aim will be to reduce by half, the
current level of female illiteracy, in three years.
Integrated Child Development Services
51. Government is committed to universalisation of the Integrated Child
Development Services (ICDS) Scheme in the country. By March 2012, all services under
ICDS would be extended, with quality, to every child under the age of six.
Student Loans to Weaker Sections
52. To enable students from economically weaker sections to access higher education,
it is proposed to introduce a scheme to provide them full interest subsidy during the
period of moratorium. It will cover loans taken by such students from scheduled banks to
pursue any of the approved courses of study, in technical and professional streams, from
recognised institutions in India . It is estimated that over 5 lakh students would avail of
this benefit.
Welfare of Minorities
53. The Plan outlay of Ministry of Minority Affairs has been enhanced from Rs.1,000
crore in BE 2008-09 to Rs.1,740 crore in 2009-10, registering an increase of 74%. This
includes Rs.990 crore for Multi-Sectoral Development Programme for Minorities in
selected minority concentration districts, Grants-in-aid to Maulana Azad Education
Foundation which is almost doubled, and provisions for National Minorities
Development and Finance Corporation and Pre-Matric and Post-Matric Scholarships for
Minorities. Allocations have also been made for the new schemes of National Fellowship
for Students from the Minority Community and Grants-in-aid to Central Wakf Council
for computerization of records of State Wakf Boards.
54. Aligarh Muslim University has decided to establish its campuses at Murshidabad
in West Bengal and Malappuram in Kerala. I propose to make an allocation of Rs.25
crore each for these two campuses.
Welfare of workers in the unorganised sector
55. The unorganised or informal sector of our economy accounts for 92% of the
employment and absorbs bulk of the annual increase in our labour force. The
Unorganised Workers Social Security Bill, 2007 has now been passed by both Houses of
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Parliament. I have already initiated action to ensure that social security schemes for
occupations like weavers, fishermen and women, toddy tappers, leather and handicraft
workers, plantation labour, construction labour, mine workers, bidi workers, and rikshaw
pullers are implemented at the earliest. Necessary financial allocations will be made for
these schemes.
Employment Exchanges
56. I propose to launch a new project for modernisation of the Employment
Exchanges in public private partnership so that a job seeker can register on-line from
anywhere and approach any employment exchange. Under the project, a national web
portal with common software will be developed. This will contain all the data regarding
availability of skilled persons on the one hand and requirements of skilled persons by the
industry on the other. It will help youth get placed and enable industry to procure
required skills on real time basis.
Handlooms
57. In the last Budget two mega handloom clusters at Varanasi and Sibsagar and two
mega powerloom clusters at Erode and Bhiwandi were approved. They are under
successful implementation. I propose to add one handloom mega cluster each in West
Bengal and Tamil Nadu and one powerloom mega cluster in Rajasthan. These will help
preserve the magnificent textile traditions in West Bengal and Tamil Nadu and generate
thousands of jobs in Rajasthan. In addition, I propose to add new mega clusters for
Carpets in Srinagar (J&K) and Mirzapur (UP).
Health
58. The National Rural Health Mission is an essential instrument for achieving our
goal of Health for all. I propose an increase of Rs.2,057 crore over and above Rs.12,070
crore provided in the Interim Budget.
59. Rashtriya Swasthya Bima Yojana (RSBY) was operationalised last year. The
initial response has been very good. More than 46 lakh BPL families in eighteen States
and UTs have been issued biometric smart cards. This scheme empowers poor families
by giving them freedom of choice for using health care services from an extensive list of
hospitals including private hospitals. Government proposes to bring all BPL families
under this scheme. An amount of Rs.350 crore, marking 40% increase over the previous
allocation, is being provided in 2009-10 Budget Estimates.
Environment and Climate Change
60. The National Action Plan on Climate Change unveiled last year, outlines our
strategy to adapt to Climate Change and enhance the ecological sustainability of our
development path. Following this, eight national missions representing a multi-pronged,
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long term and integrated approach are being launched. I propose to provide necessary
funds for these missions.
61. Our government has already set up a ‘National Ganga River Basin Authority’
(NGRBA). I propose increasing the budgetary outlay for the National River and Lake
Conservation Plans to Rs.562 crore in 2009-10 from Rs.335 crore in 2008-09.
62. I propose to make a special one-time grant of Rs.100 crore to the Indian Council
of Forestry Research and Education, Dehradun in recognition of its excellence in the field
of research, education and extension. I also propose an allocation of Rs.15 crore each for
the Botanical Survey of India and Zoological Survey of India. An additional amount of
Rs.15 crore is being allocated to Geological Survey of India.
TOWARDS BUILDING ACCOUNTABLE INSTITUTIONS
Improving delivery of public services
63. As substantial resources, both public and private, are mobilized to fuel the growth
of the economy and make it more inclusive in character, efficiency of delivery must
become the focus of government programmes. The enactment of the Right to Information
Act at the Centre and in many states has been an important and successful step in this
direction, ushering in greater transparency and accountability in the public decisionmaking
process.
64. The setting up of the Unique Identification Authority of India (UIDAI) is a major
step in improving governance with regard to delivery of public services. This project is
very close to my heart. I am happy to note that this project also marks the beginning of an
era where the top private sector talent in India steps forward to take the responsibility for
implementing projects of vital national importance. The UIDAI will set up an online data
base with identity and biometric details of Indian residents and provide enrolment and
verification services across the country. The first set of unique identity numbers will be
rolled out in 12 to 18 months. I have proposed a provision of Rs.120 crore for this
project.
National Security
65. For modernisation of Police force in the States, an additional amount of Rs.430
crore is being proposed, over and above the provisions in the Interim Budget. The
Government has also sanctioned special risk/hardship allowances to the personnel of Para
Military Forces at par with Defence forces. Provisions for payment of these allowances
are also being proposed in the Budget.
66. For strengthening Border Management, an additional amount of Rs.2,284 crore,
over and above the provision in the Interim Budget, is being provided for construction of
fences, roads, flood-lights on the international borders.
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67. Significant augmentation in the strength of para-military forces is being done.
This calls for more investment in creating the necessary infrastructure, particularly in the
area of housing. The Government, therefore, proposes to launch a massive programme of
housing to create 1 lakh dwelling units for Central Para-Military Forces personnel. This
will not only contribute to the morale of the forces, but will also enable leveraging of
government’s annual budgetary resources and create an innovative financing model.
One Rank One Pension for Ex-Servicemen (OROP)
68. Our country owes a deep debt of gratitude to our valiant ex-Servicemen. The
Committee headed by the Cabinet Secretary on OROP has submitted its report and the
recommendations of the Committee have been accepted. On the basis of these
recommendations, the Government has decided to substantially improve the pension of
pre 1.1.2006 defence pensioners below officer rank (PBOR) and bring pre 10.10.1997
pensioners on par with post 10.10.1997 pensioners. Both these decisions will be
implemented from 1st July 2009 resulting in enhanced pension for more than 12 lakh
jawans and JCOs. These measures will cost the exchequer more than Rs.2,100 crore
annually. Certain pension benefits being extended to war wounded and other disabled
pensioners are also being liberalised.
Education
69. The demographic advantage India has in terms of a large percentage of young
population needs to be converted into a dynamic economic advantage by providing them
the right education and skills. The provision for the scheme, ‘ Mission in Education
through ICT,’ has been substantially increased to Rs.900 crore. Similarly, the provision
for setting up and up-gradation of Polytechnics under the Skill Development Mission has
been increased to Rs.495 crore. The government shall take forward its intent of having
one Central University in each uncovered State and for this purpose I am allocating
Rs.827 crore. I am also allocating Rs.2,113 crore for IITs and NITs, which includes a
provision of Rs.450 crore for new IITs and NITs. The overall Plan budget for higher
education is proposed to be increased by Rs.2,000 crore over Interim BE.
70. Union Territory of Chandigarh is the capital of Punjab and Haryana. The facilities
at Punjab University , Chandigarh , need to be improved. I, therefore, propose to make an
allocation of Rs.50 crore for this university. To enable the Union Territory
Administration to provide better infrastructure to the people, I propose to suitably
enhance the Plan allocation for Chandigarh during the current financial year.
Commonwealth Games 2010
71. The Commonwealth Games present the country with an opportunity to showcase
our potential as an emerging Asian Power. I propose to substantially enhance the
allocations for the Commonwealth Games from Rs.2,112 crore in the Interim Budget to
Rs.3,472 crore in the Budget for 2009-10.
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72. Madam Speaker, the Government is committed to ensure that Sri Lankan Tamils
enjoy their rights and legitimate aspirations within the territorial sovereignty and
framework of Sri Lanka ’s Constitution. The Ministry of External Affairs is working
closely with the Sri Lankan Government in this regard. I propose to allocate Rs.500 crore
for the rehabilitation of the internally displaced persons and reconstruction of the
northern and eastern areas of Sri Lanka .
73. As Honourable Members are aware, Cyclone Aila struck the coast of West Bengal
in the last week of May 2009. Extensive damage was caused to roads, houses and
infrastructure. While immediate interim relief has been provided from the Calamity
Relief Fund (CRF), it is proposed to draw up a programme for rebuilding the damaged
infrastructure. For this purpose, I propose to allocate Rs.1,000 crore.
BUDGET ESTIMATES 2009-10
Madam Speaker, now I turn to the Budget Estimates for 2009-10.
74. The Budget Estimates 2009-10 provide for a total expenditure of Rs.10,20,838
crore consisting of Rs.6,95,689 crore towards Non Plan and Rs.3,25,149 crore towards
Plan expenditure. The increase in Non Plan expenditure over BE 2008-09 is 37% whereas
the increase in Plan expenditure is 34%. The total increase in expenditure in 2009-10
over BE 2008-09 is 36%.
75. The increase in Non Plan expenditure is mainly on account of the implementation
of the Sixth Central Pay Commission recommendations, increased food subsidy and
higher interest payment arising out of the larger fiscal deficit in 2008-09. Interest
payments are estimated at Rs.2,25,511 crore constituting about 36% of Non Plan revenue
expenditure in BE 2009-10. The total provision for subsidies are up from Rs.71,431 crore
in BE 2008-09 to Rs.1,11,276 crore in BE 2009-10. The outlay on Defence has gone up
from Rs.1,05,600 crore in BE 2008-09 to Rs.1,41,703 crore in BE 2009-10.
76. Honourable Members may recall that while presenting the Interim Budget 2009-
10, I had stated that the Plan expenditure for 2009-10 may have to be increased further as
a part of counter-cyclical measures to minimise the impact of global recession and
economic slowdown. Against the backdrop of limited fiscal space because of reduction in
CENVAT and Service Tax rates, Government have taken a conscious and bold decision
to enhance the Gross Budgetary Support (GBS) for the Annual Plan 2009-10 by
Rs.40,000 crore over Interim Budget 2009-10. Bulk of this enhanced GBS is directed
towards public investment in infrastructure with special emphasis on rural infrastructure,
raising growth potential and leading to income generation. Besides, the State
Governments will be permitted to borrow additional 0.5% of their GSDP by relaxing the
fiscal deficit target under FRBM from 3.5% to 4% of their GSDP. This will enable the
State Governments to raise additional open market loans of about Rs.21,000 crore in the
current year. In other words, the total additionality in Plan expenditure by Centre and the
States put together would be Rs.61,000 crore over Interim Budget. I do believe that this
17
fiscal expansion will go a long way in reversing the impact of economic slowdown and
accelerate our growth revival in the medium term.
77. Madam Speaker, given the possibility of the economic downturn persisting in the
current year, the gross tax receipts are budgeted at Rs.6,41,079 crore in BE 2009-10,
compared to Rs.6,87,715 crore in BE 2008-09. The non tax revenue receipts are,
however, likely to be better and are estimated at Rs.1,40,279 crore in BE 2009-10
compared to Rs.95,785 crore in BE 2008-09. The revenue deficit as a percentage of GDP
is projected at 4.8% compared to 1% in BE 2008-09 and 4.6% as per provisional
accounts of 2008-09. The fiscal deficit as a percentage of GDP is projected at 6.8%
compared to 2.5% in BE 2008-09 and 6.2% as per provisional accounts 2008-09. This
level of deficit is a matter of concern and Government will address this issue in right
earnest to come back to the path of fiscal consolidation at the earliest.
78. Madam Speaker, before I turn to my tax proposals, I cannot resist the temptation
of re-visiting Kautilya. He said and I quote, “Just as one plucks fruits from a garden as
they ripen, so shall a King have revenue collected as it becomes due. Just as one does not
collect unripe fruits, he shall avoid taking wealth that is not due because that will make
the people angry and spoil the very sources of revenue.”
PART - B
TAX PROPOSALS
79. Madam Speaker, I shall now present my tax proposals.
80. As the House is aware, the thrust of reforms over the last few years, including the
previous term of this Government, has been to improve the efficiency and equity of our
tax system. This is sought to be achieved by eliminating distortions in the tax structure,
introducing moderate levels of taxation and expanding the base. These policy changes
have been accompanied by requisite re-engineering of key business processes coupled
with automation, both for direct and indirect taxes. On the direct tax side, a recent
initiative for further improving efficiency is the setting up of a Centralized Processing
Centre (CPC) at Bengaluru where all electronically filed returns, and paper returns filed
in entire Karnataka, will be processed.
81. These tax reform initiatives have produced impressive results. The Centre’s Tax-
GDP ratio has increased to 11.5 per cent in 2008-09 from a low of 9.2 per cent in 2003-
04. The healthy growth in tax revenues over the last five years is essentially attributable
to growth in direct taxes. Further, the share of direct taxes in the Centre’s tax revenues
has increased to 56 per cent in 2008-09 from 41 per cent in 2003-04, reflecting a sharp
improvement in the equity of our tax system. The Government is committed to
furthering this process of tax reform.
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82. In the course of preparation of this budget, I have had the opportunity to interact
with large number of stakeholders and receive valuable inputs. Most suggestions were
for structural changes in the tax system. Tax reform, like all reforms, is a process and not
an event. Therefore, I propose to pursue structural changes in direct taxes by releasing
the new Direct Taxes Code within the next 45 days and in indirect taxes by accelerating
the process for the smooth introduction of the Goods and Services Tax (GST) with effect
from 1st April, 2010 .
83. The Direct Taxes Code, along with a Discussion Paper, will be released to the
public for debate. Based on the inputs received, the Government will finalise the Direct
Taxes Code Bill for introduction in this House sometime during the Winter Session.
84. To further enhance efficiency in tax administration, I intend to merge the two
Authorities for Advance Rulings on Direct and Indirect Taxes by amending the relevant
Acts. This will enable the Authority for Advance Rulings set up under Section 245-O of
the Income Tax Act, 1961 to also function as the Authority for Advance Rulings for
Indirect Taxes.
85. I have been informed that the Empowered Committee of State Finance Ministers
has made considerable progress in preparing the roadmap and the design of the GST.
Officials from the Central Government have also been associated in this exercise. I am
glad to inform the House that, through their collaborative efforts, they have reached an
agreement on the basic structure in keeping with the principles of fiscal federalism
enshrined in the Constitution. I compliment the Empowered Committee of State Finance
Ministers for their untiring efforts. The broad contour of the GST Model is that it will be
a dual GST comprising of a Central GST and a State GST. The Centre and the States
will each legislate, levy and administer the Central GST and State GST, respectively. I
will reinforce the Central Government’s catalytic role to facilitate the introduction of
GST by 1st April, 2010 after due consultations with all stakeholders.
DIRECT TAXES
86. I shall now deal with direct taxes.
87. Madam Speaker, there have been demands by the corporate sector for reduction in
tax rates. However, tax rates are determined by the size of the tax base; if the tax base is
higher, the tax rates can be lower. The Income Tax Act is riddled with a plethora of tax
exemptions which substantially erode the tax base. The extent of this erosion is
presented to this House in the form of a Revenue Foregone Statement. The growth in the
direct tax revenue foregone is relatively higher than the growth in the direct tax revenues.
Accordingly, I do not propose to make any change in the Corporate Tax rates.
88. With a view to providing interim relief to small and marginal taxpayers and senior
citizens, I propose to increase the personal income tax exemption limit by Rs.15,000 from
Rs.2.25 lakh to Rs.2.40 lakh for senior citizens. Similarly I also propose to raise the
exemption limit by Rs.10,000 from Rs.1.80 lakh to Rs.1.90 lakh for women tax payers
19
and by Rs.10,000 from Rs.1.50 lakh to Rs.1.60 lakh for all other categories of individual
taxpayers. Further, I also propose to increase the deduction under section 80-DD in
respect of maintenance, including medical treatment, of a dependent who is a person with
severe disability to Rs.1 lakh from the present limit of Rs.75,000.
89. In the past, surcharges on direct taxes have generally been levied to meet the
revenue needs arising from natural calamities. The Government has set up the National
Calamity Contingency Fund to build up resources to meet emergency situations. As a
corollary, surcharge on direct taxes should be removed. However, this has to be balanced
with the revenue needs of the Government. Therefore, in the first instance, I propose to
phase out the surcharge on various direct taxes by eliminating the surcharge of 10 per
cent on personal income tax.
90. Deduction in respect of export profits is available under sections 10A and 10B of
the Income-tax Act. The deduction under these sections would not be available beyond
the financial year 2009-2010. In order to tide over the slowdown in exports, I propose to
extend the sun-set clauses for these tax holidays by one more year i.e. for the financial
year 2010-11.
91. The Finance Act, 2005 introduced the Fringe Benefit Tax on the value of certain
fringe benefits provided by employers to their employees. This tax has been perceived as
imposing considerable compliance burden. Empathising with these sentiments, I propose
to abolish the Fringe Benefit Tax.
92. The competitive ability of an economy rests on its progress in the area of
Research and Development (R&D). In order to incentivise the corporate sector to
undertake R&D work, I propose to extend the scope of the current provision of weighted
deduction of 150% on expenditure incurred on in-house R&D to all manufacturing
businesses except for a small negative list.
93. Under the present scheme of the Income Tax Act, tax exemptions are largely
profit-linked. Such incentives are inherently inefficient and liable to misuse. Therefore,
it is proposed to incentivise businesses by providing investment-linked tax exemptions.
To begin with, I propose to extend investment- linked tax incentives to the businesses of
setting up and operating ‘cold chain’, warehousing facilities for storing agricultural
produce and the business of laying and operating cross country natural gas or crude or
petroleum oil pipeline network for distribution on common carrier principle. Under this
method, all capital expenditure, other than expenditure on land, goodwill and financial
instruments will be fully allowable as deduction.
94. Minimum Alternate Tax (MAT) was introduced to address inequity in taxation of
corporate taxpayers. In the quest for greater equity, I propose to increase the rate of MAT
to 15 per cent of book profits from the present rate of 10 per cent. However, to grant
relief to corporate taxpayers, I also propose to extend the period allowed to carry forward
the tax credit under MAT from seven years to ten years.
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95. The New Pension System (NPS) is an important milestone in the development of
a sustainable, efficient, voluntary and defined contribution pension system in India .
While the NPS will continue to be subjected to the Exempt-Exempt-Taxed (EET) method
of tax treatment of savings, it is proposed to provide necessary fiscal support to the NPS
for the establishment of this much needed social security system. Accordingly, I propose
to exempt the income of the NPS Trust from income tax and any dividend paid to this
Trust from Dividend Distribution Tax. Similarly, all purchase and sale of equity shares
and derivatives by the NPS Trust will also be exempt from the Securities Transaction
Tax. I also propose to enable self employed persons to participate in the NPS and avail of
the tax benefits available thereto.
96. In order to further improve the investment climate in the country, we need to
facilitate the resolution of tax disputes faced by foreign companies within a reasonable
time frame. This is particularly relevant for such companies in the Information
Technology (IT) sector. I, therefore, propose to create an alternative dispute resolution
mechanism within the Income Tax Department for the resolution of transfer pricing
disputes. To reduce the impact of judgemental errors in determining transfer price in
international transactions, it is proposed to empower the Central Board of Direct Taxes
(CBDT) to formulate ‘safe harbour’ rules.
97. The Finance Act, 2008 introduced the Commodity Transaction Tax (CTT) to be
levied on taxable commodities transactions entered in a recognized association. The
Prime Minister’s Economic Advisory Council has recommended abolition of the CTT. I,
therefore, propose to abolish the Commodity Transaction Tax.
98. The House will agree that it is desirable to bring about transparency in the funding
of political parties in the country. With a view to reforming the system of funding of
political parties, I propose to provide that donations to electoral trusts shall be allowed as
a 100 per cent deduction in the computation of the income of the donor. For this purpose,
Electoral Trusts will be such trusts as are set up as pass-through vehicles for routing the
donations to political parties and are approved by CBDT.
99. Section 80E of the Income-tax Act provides for a deduction in respect of interest
on loans taken for pursuing higher education in specified fields of study. I propose to
extend the scope of this provision to cover all fields of study, including vocational
studies, pursued after completion of schooling.
100. Anonymous donations to charitable institutions are presently liable to tax so as to
prevent unaccounted money being routed to such entities in the garb of anonymous
donations. However, some organisations are facing genuine problems in complying with
the procedural requirements. In order to mitigate the practical difficulties being faced by
such charitable organisations, I propose to grant relief to such organisations by not taxing
anonymous donations received to the extent of 5 per cent of their total income or a sum
of Rs.1 lakh, whichever is higher.
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101. To facilitate the business operations of all small taxpayers and reduce their
compliance burden, I propose to expand the scope of presumptive taxation to all small
businesses with a turnover upto Rs.40 lakh. All such taxpayers will have the option to
declare their income from business at the rate of 8 per cent of their turnover and
simultaneously enjoy exemption from the compliance burden of maintaining books of
accounts. As a procedural simplification, I also propose to allow them to pay their entire
tax liability from business at the time of filing their return by exempting them from
paying advance tax. This new scheme will come into effect from the financial year 2010-
11.
102. Madam Speaker, in the context of the geo-political environment, it is necessary
for us to create our own facilities for energy security. Accordingly, I propose to extend
the tax holiday under section 80-IB(9) of the Income Tax Act, which was hitherto
available in respect of profits arising from the commercial production or refining of
mineral oil, also to natural gas. This tax benefit will be available to undertakings in
respect of profits derived from the commercial production of mineral oil and natural gas
from oil and gas blocks which are awarded under the New Exploration Licensing Policy-
VIII round of bidding. Further, I also propose to retrospectively amend the provisions of
the said section to provide that “undertaking” for the purposes of section 80-IB(9) will
mean all blocks awarded in any single contract.
103. Under the present provisions of section 2 (15) of the Income Tax Act, “charitable
purpose” includes relief of the poor, education, medical relief, and the “advancement of
any other object of general public utility”. However, the “advancement of any other
object of general public utility” cannot involve the carrying on of any activity in the
nature of trade, commerce or business. I propose to provide the same tax treatment to
trusts engaged in preserving and improving our environment (including watersheds,
forests and wildlife) and preserving our monuments or places or objects of artistic or
historic interest, as is available to trusts engaged in providing relief of the poor, education
and medical relief.
INDIRECT TAXES
104. Madam Speaker, I turn to my main proposals on indirect taxes.
105. I will first take up customs duties.
106. Although our domestic industry has weathered the impact of the global financial
crisis and the resultant slowdown with resilience, it is yet to fully find its feet.
Manufacturing growth, which had turned negative in October 2008 on a year-on-year
basis and remained in that zone till March this year, appears to be barely turning the
corner. However, the global scenario remains worrisome and it is my view that the
paramount need is to provide industry with a stable framework. My proposals on indirect
taxes seek to achieve this by maintaining the overall rate structure for customs and central
excise duties as well as service tax. I must hasten to add that I have not hesitated to act
22
where distortions provide a compelling reason or where relief would provide a healing
touch.
107. Full exemption from basic customs duty was provided to Set Top Boxes in 2006
to enable their free import for the smooth introduction of the Conditional Access System
(CAS). Now that production capacity has come up in the country, I propose to impose a
nominal basic customs duty of 5 per cent on such Set Top Boxes to encourage domestic
value addition.
108. The electronic hardware industry has a strong potential for creating employment
especially in the SME sector. I intend to reduce the basic customs duty on LCD panels
from 10 per cent to 5 per cent to support indigenous production of LCD televisions.
109. Full exemption from CVD of 4 per cent was available to accessories, parts and
components imported for the manufacture of mobile phones till the 30th of June, 2009 . I
propose to reintroduce this exemption for another year.
110. For reasons that are apparent, industry sectors having an export-orientation have
been adversely impacted by the demand compression in global markets. Presently,
exporters of leather products, textile garments, footwear as well as sports goods are
permitted to import raw materials, consumables etc. upto 3 per cent of the fob value of
their exports free of duty. I propose to add a few more items to these lists. Full exemption
from basic customs duty is being provided to rough corals for encouraging value-addition
and export.
111. It is imperative that the contribution of new and renewable energy sources of
power is enhanced if we have to successfully combat the phenomena of global warming
and climate change. I am reducing the basic customs duty on permanent magnets - a
critical component for Wind Operated Electricity Generators - from 7.5 per cent to 5 per
cent.
112. On influenza vaccine and nine specified life saving drugs used for the treatment
of breast cancer, hepatitis-B, rheumatic arthritis etc. and on bulk drugs used for the
manufacture of such drugs, I propose to reduce the customs duty from 10 per cent to 5
per cent. They will also be totally exempt from excise duty and countervailing duty.
113. Customs duty will also be reduced from 7.5 per cent to 5 per cent on two
specified life saving devices used in treatment of heart conditions. These devices will be
fully exempt from excise duty and CVD also.
114. Gold bars currently attract customs duty at the specific rate of Rs.100 per ten
grams while other forms of gold (excluding jewellery) are chargeable to a duty of Rs.250
per ten grams. These rates were fixed in 2004 and have not been reviewed even as the
price of gold has increased manifold. I propose to partially restore the incidence by
increasing these rates to Rs.200 per ten grams and Rs.500 per ten grams respectively.
Along the same lines, the customs duty on silver (excluding jewellery) will be increased
23
from Rs.500 per kg to Rs.1,000 per kg. These revised rates would also apply to gold and
silver, including ornaments that are not studded, when imported by a bona fide passenger
as baggage.
115. I will now come to central excise duties.
116. Hon’ble Members are aware that the Government announced a series of fiscal
stimulus packages, one of the key elements of which was the sharp reduction in the ad
valorem rates of Central Excise duty for non-petroleum products by 4 percentage points
across the board on 7th of December 2008 and by another 2 percentage points in the
mean CENVAT rate on the 24th of February, 2009.
117. One of the consequences of these cuts was that pure cotton textiles came to be
fully exempted from excise duty. We have received representations that full exemption
prevents manufacturers from availing of export rebate of the duty paid from CENVAT
credit. I propose to rectify this situation by restoring the erstwhile optional rate of 4 per
cent for cotton textiles beyond the fibre stage.
118. Ever since the revamp of the excise duty structure on textiles by my distinguished
predecessor in the 2004 budget, a differential in rates has been maintained between the
cotton sector and the manmade sector. In keeping with the integrity of the earlier
structure, I propose to restore the rate of 8 per cent Central Excise duty on manmade fibre
and yarn on a mandatory basis and on stages beyond fibre and yarn at that rate on
optional basis. These changes, together with duty changes on intermediates, would imply
that the duty on all types of manmade fibre and yarn and their intermediates would be the
same, easing the problem of credit accumulation.
119. Wool waste and cotton waste are chargeable to basic customs duty of 15 per cent.
These are used in the manufacture of cheaper varieties of textile articles such as blankets
and rugs. As a measure of relief to this sector, I propose to reduce the basic customs duty
on these items to 10 per cent.
120. With the Government’s proclaimed objective of introducing a Goods and Services
Tax (GST) both at the national and State level, some more steps in that direction are
necessary. One measure that would facilitate the process is the further convergence of
central excise duty rates to a mean rate - currently 8 per cent. I have reviewed the list of
items currently attracting the rate of 4 per cent, the only rate below the mean rate. There
is a case for enhancing the rate on many items appearing in this list to 8 per cent, which I
propose to do, with the following major exceptions:
• food items; and
• drugs, pharmaceuticals and medical equipment.
Some of the other items on which I propose to retain the rate of 4 per cent are:
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• paper, paperboard & their articles;
• items of mass consumption such as pressure cookers, cheaper electric bulbs, lowpriced
footwear, water filters/purifiers, CFL etc.;
• power driven pumps for handling water; and
• paraxylene.
The details are available in the relevant notifications.
121. Bio-diesel, obtained from vegetable oils and used for blending with petro-diesel,
is currently exempt from excise duty. I now propose to fully exempt petro-diesel blended
with bio-diesel from excise duty.
122. In order to encourage the use of this environment friendly fuel and augment its
availability in the country, I also propose to reduce basic customs duty on bio-diesel from
7.5 per cent to 2.5 per cent - at par with petro-diesel. With these proposals I hope to see a
smile on the faces of the green brigade!
123. My other proposals on central excise duties seek to address distortions that the
manufacturing industry has been complaining about.
124. The IT industry has pointed out that it is facing difficulties in the assessment of
software which involves transfer of the right to use after the levy of service tax on IT
software service. To resolve the matter, I propose to exempt the value attributable to the
transfer of the right to use packaged software from excise duty and CVD.
125. The construction industry has represented that they are facing difficulties on
account of withdrawal of exemption on goods manufactured at site. I propose to restore
full exemption to such goods, including pre-fabricated concrete slabs or blocks, when
used for further construction at site.
126. A specific component was added to the ad valorem duty of 24 per cent applicable
to large cars and utility vehicles in June last year. In the case of vehicles of engine
capacity below 2000 cc, this component was Rs.15,000/- per unit while for vehicles of
higher engine capacity it was Rs.20,000/- per unit. These rates are now being unified at
the lower level of Rs.15,000/- per unit.
127. Petrol driven trucks provide a useful means of transport within cities and across
short distances. These are chargeable to excise duty of 20 per cent. I propose to reduce
excise duty on these trucks to 8 per cent to equate the duty with similar vehicles run on
diesel.
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128. Madam Speaker, I fear that my proposals relating to gold and silver on the
customs side would somewhat dent my popularity with women. I propose to salvage this
by fully exempting branded jewellery from excise duty.
129. I now turn to my proposals on service tax.
130. It is an international practice to zero-rate exports. To achieve this objective, a
scheme was announced in 2007, granting refund of service tax paid on certain taxable
services used after the clearance of export goods from the factory. For some time now,
the exporting community has been expressing dissatisfaction over the difficulties faced in
obtaining such refunds. Several procedural simplifications attempted in the past have also
not yielded satisfactory results. The solution seems to lie in placing greater trust on the
claims filed by the exporters. Keeping this in view, I propose to make the following
changes in the scheme:
• Services received by exporters from goods transport agents and commission agents,
where the liability to pay service tax is ab initio on the exporter, would be exempted from
service tax. Thus, there would be no need for the exporter to first pay the tax and later
claim refund.
• For other services received by exporters, the exemption would be operated through
the existing refund mechanism based on self-certification of the documents where such
refund is below 0.25 per cent of fob value, and certification of documents by a Chartered
Accountant for value of refund exceeding the above limit.
131. The Export Promotion Councils and the Federation of Indian Export
Organizations (FIEO) provide a valuable service in augmenting our export effort. I
propose to exempt them from the levy of service tax on the membership and other fees
collected by them till 31st March, 2010 .
132. In the goods transport sector, service tax is currently levied on transport of goods
by road, by air, through pipelines and in containers. However, goods carried by Indian
railways or those carried as coastal cargo or through inland waterways are not charged to
service tax. In order to provide a level playing field in the goods transport sector, I
propose to extend the levy of service tax to these modes of goods transport. The new
levy is not likely to impact the prices of essential commodities or goods for mass
consumption, as suitable exemptions would be provided.
133. As the Hon’ble Members are aware, services provided by chartered accountants,
cost accountants, and company secretaries as well as by engineering and management
consultants are presently charged to service tax. Although there is a school of thought
that legal consultants do not provide any service to their client, I hold my distinguished
predecessor in high esteem and disagree! As such, I propose to extend service tax on
advice, consultancy or technical assistance provided in the field of law. This tax would
not be applicable in case the service provider or the service receiver is an individual.
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134. Vehicles having ‘Stage Carriage Permits’ and run by State undertakings are
exempted from service tax. However, transportation of passengers undertaken by private
enterprises in vehicles having ‘Contract Carriage Permits’ is, subjected to service tax. In
order to bring parity in tax treatment, I propose to exempt such transportation also from
the levy of service tax.
135. In July, 2008 goods transport agents (GTA) went on strike with several demands.
One of the demands that was accepted by the government was to exempt certain services,
such as packing, cargo handling and warehousing, provided to GTAs en route, from
service tax. For this purpose an exemption notification was issued. It was also demanded
by goods transport agents that the proceedings already initiated against such service
providers should be dropped. The Government has accepted this genuine demand.
Therefore, I propose to make certain legislative changes required to fulfill this promise.
136. Copies of notifications giving effect to the changes in customs, central excise and
service tax will be laid on the Table of the House in due course.
137. My tax proposals on direct taxes are revenue neutral. On indirect taxes, they are
estimated to yield a net gain of Rs.2,000 crore for a full year.
CONCLUSION
138. As we begin this five year journey, the road ahead will not be easy. We will have
to manage uncertainties and there will be as many problems as there would be solutions.
Mahatma Gandhi said and I quote, “Democracy is the art and science of mobilizing the
entire physical, economic and spiritual resources of various sections of the people in the
service of the common good of all.” This is precisely what we will have to do. With
strong hearts, enlightened minds and willing hands, we will have to overcome all odds
and remove all obstacles to create a brave new India of our dreams.
139. Madam Speaker, with these words I commend the budget to the House.

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Source:Hindustan times

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