Minister of Finance
February 28, 2006
Mr. Speaker, Sir
It is my privilege to present the Budget for the year
I AN OVERVIEW OF THE ECONOMY
2. Twenty months ago, when I presented the first Budget of
the UPA Government, I asked Honourable Members – and the people of this
country – to walk with us on the path of honour and courage. The final report
card on the first year of the UPA Government is out, and there are reasons to
celebrate. According to the Central Statistical Organization (CSO), the growth
rate in 2004-05 was 7.5 per cent, with the manufacturing sector growing at 8.1
per cent. More importantly, at current market prices, gross domestic saving
increased to 29.1 per cent of GDP and the rate of gross capital formation
increased to 30.1 per cent of GDP. I have no doubt in my mind that these results
were due to the political message conveyed by the National Common Minimum
Programme (NCMP); the perceptive leadership of the Prime Minister, Dr. Manmohan
Singh; the policy changes made by the Government; and the palpable confidence of
the Indian people that their future is in safe hands.
3. I am happy to report that the prospects for 2005-06 are
just as good, if not better. This year can be characterized as the best of times
and the worst of times. Nature has not been kind to us. Natural calamities took
a heavy toll on human lives besides causing extensive damage to crops, roads,
houses, and the infrastructure. Government provided immediate interim relief;
this was followed by releases from the CRF and NCCF totalling Rs. 5145.37 crore
to date. Obviously, this assistance will not be enough. The Planning Commission
will draw up a programme for rebuilding the damaged infrastructure, and I wish
to assure the House that the Government will provide the money for
rehabilitation and reconstruction.
4. It was also the best of times. Government has been able to
fulfil the first NCMP obligation of ensuring a high growth rate. According to
the CSO’s advance estimates, GDP growth is likely to be 8.1 per cent this
year, with the manufacturing sector expected to grow at 9.4 per cent.
Agricultural growth has bounced back to 2.3 per cent and, barring mining, all
other sectors are performing satisfactorily. Inflation, as on February 11, 2006
was 4.02 per cent. Non-food credit is growing by over 25 per cent. A large part
of the credit goes to our farmers, workers, service providers, traders and
business persons, and I would urge the House to join me in saluting them.
5. The assault on poverty and unemployment continues. I
believe that growth is the best antidote to poverty. The GDP growth target for
the Tenth Plan was set at 8 per cent. Thanks to three years of 7.5 per cent plus
growth, it is possible that the overall growth rate will be 7 per cent. In
recent speeches, the Prime Minister has raised the bar to 10 per cent, and the
Government is determined to take the country to that high growth path. Growth
will be our mount; equity will be our companion; and social justice will be our
II IMPLEMENTING THE NCMP MANDATE
6. Our success this year is due to our unrelenting emphasis
on fiscal prudence through enhanced revenues and expenditure control, monetary
stability and management of the external debt. However, our success should not
tempt us to stray from this path, and we shall not do so.
7. One of the important NCMP obligations was to focus on
agriculture: we have done so, and the output of food grains is expected to be
209.3 million tonnes, which is about 5 million tonnes more than in the previous
8. The NCMP mandates the Government to promote employment:
while creating permanent and quality jobs in the productive sectors, for
providing immediate relief to the poor, the National Rural Employment Guarantee
Scheme was launched on February 2, 2006. In the current year, under a clutch of
schemes including the Food for Work programme, a sum of Rs.11,700 crore is
expected to be spent on rural employment.
9. The NCMP mandates the Government to enhance investment:
the investment rate has increased steadily from 25.3 per cent in 2002-03 to 30.1
per cent in 2004-05. Several indicators point to continued buoyancy of capital
formation in the economy.
10. The NCMP also mandates the Government to augment
infrastructure. 5,083 MW of capacity will be added to power generation in
2005-06, and during the Tenth Plan period the total addition is estimated at
34,000 MW, which is a record. Until December, 2005, under the Rajiv Gandhi
Grameen Vidyutikaran Yojana, contracts have been placed for projects spanning 95
districts and covering 41,461 un-electrified and 9,379 electrified villages.
Work is on at full steam on the Golden Quadrilateral (GQ) and the North-South,
East-West Corridors. As against 1.86 kms per day completed prior to May, 2004,
the schemes are progressing at the rate of 4.48 kms per day. 96 per cent of the
GQ will be completed by June, 2006 and the Corridors will be completed by end
2008. There is also substantial and visible progress in improving our ports,
airports and rural roads.
11. As the year draws to a close, I look back with
satisfaction that the promises we made to the common citizen – the aam admi
– have been substantially redeemed.
III BHARAT NIRMAN
12. I would like to make special mention of Bharat Nirman. It
epitomizes the UPA’s approach to governance. It is a paradigm shift that will
enable us to use the resources thrown up by the engine of growth for building
infrastructure and bringing basic amenities to rural India. Honourable Members
are aware of the six components of Bharat Nirman and the ambitious targets to be
achieved by the year 2009. In the first year of its implementation, 2005-06:
• Rs.944.18 crore has been released so far as
grant under the Accelerated Irrigation Benefit Programme (AIBP) and the
target of 600,000 hectares of irrigation potential is expected to be
created this year.
• Against the physical target
of 56,270 habitations, 47,546 habitations have been covered until January,
2006 under the Accelerated Rural Water Supply Project (ARWSP)
• 5,337 habitations were
connected under the rural roads programme by September, 2005, and Rs.3,749
crore has been released so far.
• 870,000 rural houses have
been constructed and a sum of Rs.2,260 crore has been released till
• The entire allocation for
rural electrification of Rs.1,100 crore has been released and the target
of covering 10,366 villages is expected to be achieved in the current
• 17,182 villages have been
provided with a telephone till December, 2005 in the first year of the
three year programme.
These numbers are a complete answer to those who scoffed at
Bharat Nirman. We are determined to soldier on, and execute the programme in the
mission mode. Since the implementation of Bharat Nirman has gathered pace, I
propose to extend larger budgetary support to the programme. Including the North
East component, as against Rs.12,160 crore provided in the current year, the
corresponding budgetary provision will be Rs.18,696 crore in 2006-07, an
increase of 54 per cent.
IV THE FLAGSHIP PROGRAMMES
13. Let me now present an overview of the Budget. Obviously,
the bulk of the resources must go to the UPA Government’s eight flagship
programmes: Sarva Siksha Abhiyan, Mid-day Meal Scheme, Rajiv Gandhi Drinking
Water Mission, Total Sanitation Campaign, National Rural Health Mission,
Integrated Child Development Services, National Rural Employment Guarantee
Scheme and Jawaharlal Nehru National Urban Renewal Mission.
14. In 2005-06, Gross Budgetary Support (GBS) for the Plan
was Rs.143,497 crore. Of this, support to the Central Plan was Rs.110,385 crore.
I propose to increase both allocations substantially. GBS for 2006-07 has been
fixed at Rs.172,728 crore, representing an increase of 20.4 per cent. Out of
this, the Central Plan will receive a support of Rs.131,285 crore.
15. Education and health will continue to enjoy primacy. For
2006-07, the allocation for education has been enhanced by 31.5 per cent to
Rs.24,115 crore and for health and family welfare by 22.0 per cent to Rs.12,546
16. On the eight flagship programmes, the total allocation in
2005-06 was Rs.34,927 crore. In the ensuing fiscal year, the total allocation
will be Rs.50,015 crore, representing an additionality of Rs.15,088 crore or
43.2 per cent.
North Eastern Region (NER)
17. To this, however, we must add the allocation of 10 per
cent of the Plan Budget of each Ministry/Department for schemes and programmes
in the North Eastern Region (NER). For the flagship programmes alone, this would
amount to an additional allocation of Rs.4,870 crore in 2006-07. The total
budget allocation for the NER is Rs.12,041 crore which includes Rs.1,350 crore
provided to the Ministry of Development of North Eastern Region (DONER). From BE
2005-06 to BE 2006-07, the step up is 18 per cent.
Sarva Siksha Abhiyan
18. Sarva Siksha Abhiyan (SSA) has recorded remarkable
2005-06 in terms of new schools, additional class rooms and additional teachers.
Two independent surveys show that 93 per cent of the children in the age group
6-14 years are in school, and the number of children not in school has come down
to about one crore. Recognizing good performance, I propose to increase the
outlay for SSA from Rs.7,156 crore to Rs.10,041 crore in 2006-07. 500,000
additional class rooms will be constructed and 150,000 more teachers will be
19. In 2006-07, we shall transfer Rs.8,746 crore to the
Prarambhik Siksha Kosh from the revenues raised through the education cess.
Mid-day Meal Scheme
20. 12 crore children are now covered under the Mid-day Meal
Scheme, which is the largest school lunch programme in the world. I propose to
enhance the allocation from Rs.3,010 crore to Rs.4,813 crore in 2006-07.
Drinking Water and Sanitation
21. The target for the current year for drinking water supply
will be completed, and 56,270 habitations and 140,000 schools will be covered.
Apart from non-coverage, there is the persistent problem of slippage. The
strategy to tackle both includes conservation, better operational management,
and water quality monitoring and capacity building at the village level. The
Government will provide non-recurring assistance of Rs.213 crore in 2006-07 for
setting up district-level water testing laboratories and field-level water
testing kits. I propose to increase the provision for the Rajiv Gandhi National
Drinking Water Mission from Rs.3,645 crore to Rs.4,680 crore next year.
22. I also propose to increase the provision for the Rural
Sanitation Campaign from Rs.630 crore to Rs.720 crore in 2006-07.
National Rural Health Mission
23. The National Rural Health Mission was launched on April
12, 2005. I am confident that in 2006-07 more than 200,000 Associated Social
Health Activists (ASHA) will be fully functional and over 1,000 block level
community health centres will provide round the clock services. I have increased
the allocation for NRHM from Rs.6,553 crore to Rs.8,207 crore for the next year.
24. The WHO standard defining ‘elimination of leprosy’ is
one case per 10,000 population. I am happy to announce that the goal of
eliminating leprosy was reached in December, 2005. Continuing the vigorous
immunization programme, we hope to eliminate polio too from the country by
Integrated Child Development Services
25. We have expanded the Integrated Child Development
Services (ICDS) scheme and created an additional 188,168 centres. Supplementary
nutrition is the most important component of the scheme. Beginning this year,
the Centre is assisting the States to the extent of 50 per cent of the actual
expenditure incurred for supplementary nutrition or 50 per cent of the cost
norms, whichever is less. The cost to the Centre this year is estimated at
Rs.1,500 crore, and I propose to increase this assistance to Rs.1,700 crore for
2006-07. The total allocation for ICDS is being increased from Rs.3,315 crore to
National Rural Employment Guarantee Scheme
26. I have already referred to the Rural Employment scheme
the primary instrument to combat rural unemployment and hunger poverty. For
2006-07, the total allocation for rural employment will be Rs.14,300 crore. Of
this, Rs.11,300 crore (including NER component) will be under the NREG Act and
Rs.3,000 crore (including NER component) will be under SGRY. Since there is a
legal guarantee of employment under the NREG Act, more funds will be provided
according to need.
Jawaharlal Nehru National Urban Renewal Mission
27. The Jawaharlal Nehru National Urban Renewal Mission was
launched on December 3, 2005. For the next year, against the estimated outlay of
Rs.6,250 crore, I propose to provide a grant of Rs.4,595 crore. Apart from the
four projects, including Mumbai metro rail and Bangalore metro rail, mentioned
in my Budget speech last year, the projects under active consideration include
projects in Maharashtra, Madhya Pradesh and Gujarat.
28. Planned urbanization can act as a spur to growth,
employment and a better quality of life. Government will actively promote the
establishment of new towns, preferably focussed on a specific industry, for
example Information Technology, or a specific theme, for example education or
health. Some projects are on the anvil in West Bengal and Karnataka.
National Social Assistance Programme
29. Old age pensions are granted under the National Social
Assistance Programme (NSAP) to destitute persons above the age of 65 years at
Rs.75 per month. This is woefully inadequate. I propose to increase the pension
to Rs.200 per month. I have provided Rs.1,430 crore for 2006-07 and additional
funds, if required, will be provided during the course of the year. I would urge
State Governments to make an equal contribution from their resources so that a
destitute pensioner would get at least Rs.400 per month. I also propose to work
with the Department of Posts and the banks to establish, within two years, a
system under which the pension will be credited directly to the account of the
beneficiary in a post office or a bank.
Women and Children
30. Last year, I introduced a statement highlighting the
gender sensitivities of the budgetary allocations. I was able to cover 10
demands for grants. This time, I have been able to enlarge the statement on
gender budgeting to include schemes where 100 per cent of the allocation is for
the benefit of women as well as schemes where at least 30 per cent of the
allocation is targeted towards women. The statement now covers 24 demands for
grants in 18 Ministries/Departments and five Union Territories and schemes with
an outlay of Rs.28,737 crore.
31. Furthermore, several Ministries and Departments have
initiated an exercise to prepare a public expenditure profile of their budgets
from a gender perspective. 32 Ministries and Departments have set up Gender
Scheduled Castes and Scheduled Tribes
32. Government is committed to the welfare of Scheduled
Castes (SCs) and Scheduled Tribes (STs). Honourable Members will be happy to
know that this Budget, like last year’s, contains a separate statement on the
schemes for the welfare and development of SCs and STs. On a like to like basis,
the allocations for schemes benefiting only SCs and STs have been enhanced by
14.5 per cent to Rs.2,902 crore and the allocations for schemes with at least 20
per cent allocation for SCs and STs have been enhanced by 13.9 per cent to
33. The equity contribution to the National SC Finance and
Development Corporation is being increased to Rs.37 crore and to the National
Safai Karamchari Finance and Development Corporation to Rs.80 crore in 2006-07.
34. I propose to extend greater financial support to the
organizations actively involved in the welfare of the minorities. Accordingly, I
intend to double the corpus fund of the Maulana Azad Educational Foundation to
35. I propose to contribute Rs.16.47 crore to strengthen the
equity base of the National Minorities Development and Finance Corporation. In
line with the Prime Minister’s announcement on August 15, 2005, the
Corporation will intensify its efforts to reach out to artisans and weavers
living in urban and peri-urban centres, especially in districts with
concentration of minorities. The programme will focus on skill enhancement,
credit and techno-managerial support.
36. I propose to increase the allocation to the National
Council for Promotion of Urdu Language from Rs.10 crore to Rs.13 crore.
37. Merit-cum-means based scholarships encourage students to
pursue higher studies. Government will finance 20,000 such scholarships to
students belonging to the minority communities. Once the scheme is finalized in
2006-07, I intend to allocate the necessary funds.
Kasturba Gandhi Balika Vidyalaya Scheme
38. The initial results of the Kasturba Gandhi Balika
Vidyalaya Scheme launched in 2004 are encouraging. 1,000 new residential schools
for girls from SC, ST, OBC and minority communities will be opened in 2006-07. I
have provided Rs.128 crore, and I have agreed to provide an additional sum of
Rs.172 crore during the year. I propose to provide a further incentive to the
girl child who passes the VIII Standard Examination and enrols in a secondary
school. A sum of Rs.3,000 will be deposited in her name, and she would be
entitled to withdraw it on reaching 18 years of age.
39. Government has shifted the emphasis from sheer ‘quantity’
to the ‘quality’ of the outcome of the various social sector programmes. To
ensure value for public expenditure, an Outcome Budget was presented on August
25, 2005. Government intends to present a Performance Budget on the first
Outcome Budget before the end of the Budget Session. The Outcome Budget for
2006-07 will be placed before this House by March 17, 2006. This new approach
underscores our resolve to ensure that the intended services in the right
quantity and quality are delivered to the aam admi.
40. There is an investment boom in the country and it is
necessary to maintain the confidence of investors. It appears that India is
catching up with the high investment rates of East Asia and China. Honourable
Members will notice presently that, in every sector, the attempt is to promote
41. Government is committed to a strong and effective public
sector. Public Sector Enterprises (PSEs) have, through internal and
extra-budgetary resources, investment plans amounting to Rs.122,757 crore in
2006-07. I am happy to announce that Government will provide equity support of
Rs.16,901 crore and loans of Rs.2,789 crore to Central PSEs (including
Railways). Besides, I wish to point out that in the two years of this
Government, we have infused Rs.1,180 crore in cash and made non-cash sacrifices
of Rs.2,566 crore to restructure ten PSEs, including Indian Telephone Industries
Limited and Heavy Engineering Corporation Limited.
42. We believe that there is considerable scope for
developing India as a hub for the gems and jewellery industry. I, therefore,
propose to constitute an expert body that will look into the potential of this
sector and the prevalent taxation practices in India and abroad, and make its
recommendations in this behalf. I am sure this announcement will be welcomed by
Non Resident Indians who are looking to India as the place for future expansion
43. Foreign Direct Investment (FDI) continues to play an
important role. We have the opportunity to make India a manufacturing hub for
textiles, automobiles, steel, metals, petroleum products etc. for the world
market. In calendar 2005, up to November, 2005, FDI is estimated at $ 4 billion,
without counting reinvested earnings and other capital. I am confident that
recent policy changes will attract more foreign investment into the country,
especially in infrastructure.
44. Let me now turn to the productive sectors of the economy.
As always, our Government’s focus is on agriculture. Assured irrigation,
credit, diversification and creating a market for agricultural products are the
45. Out of an outlay of Rs.4,500 crore under AIBP in 2005-06,
the grant component is Rs.1,680 crore. The States are expected to spend about
Rs.2,520 crore from their resources, and 25 projects are expected to be
completed before the end of the year. The outlay for 2006-07 has been increased
to Rs.7,121 crore, and the Central Government will support the programme through
a grant of Rs.2,350 crore. The Ministry of Water Resources will revamp the
Command Area Development Programme to allow participatory irrigation management
through water users’ associations.
46. The programme for repair, renovation and restoration of
water bodies is being implemented through pilot projects in 23 districts in 13
States. The design of the programme has been finalized in consultation with the
States. 20,000 water bodies with a command area of 1.47 million hectares have
been identified in the first phase. The estimated cost is Rs.4,481 crore. The
funding pattern (Centre, States and external assistance) has been finalized, and
I intend to seek, and receive, funds from multi-lateral agencies. The
participating State Government will be requested to sign a memorandum of
understanding and the water bodies in that State will be taken up for repair,
renovation and restoration in 2006-07.
47. Farm credit increased to Rs.125,309 crore in 2004-05
(well above the target) and is again expected to cross the target of Rs.141,500
crore set for the current year. I propose to ask the banks to increase the level
of credit to Rs.175,000 crore in 2006-07 and also add another 50 lakh farmers to
their portfolio. We shall not only achieve but exceed the target of doubling
farm credit in three years. Since tenant farmers are not adequately served, I
have asked the banks to open a separate window for self-help groups or joint
liability groups of tenant farmers and ensure that a certain proportion of the
total credit is extended to them. I intend to monitor closely progress in this
48. I am aware of the severe difficulties faced by farmers in
the last two years. Ours is a compassionate Government. I also have severe
fiscal constraints. When faced with a dilemma, I usually turn to my favourite
poet-philosopher, Saint Tiruvalluvar. Writing over 2,000 years ago, he said:
"Karumam Sidhaiyamal Kannoda Vallarku
Urimai Udaithu Iv Ulagu"
(The world is his who does his job
I am prepared to go the extra mile to come to the aid of our
farmers. To begin with, I propose to grant some relief to the farmers who have
availed of crop loans from scheduled commercial banks, RRBs and PACS for Kharif
and Rabi 2005-06. Accordingly, an amount equal to two percentage points of the
borrower’s interest liability on the principal amount up to Rs.100,000, will
be credited to his/her bank account before March 31, 2006. I have provided a sum
of Rs.1,700 crore for this purpose. I hope the House will welcome this
exceptional gesture of the Government.
49. For our farmers, I have more. Farmers obtain short-term
credit from the cooperative credit structure and Regional Rural Banks (RRBs),
with refinance from NABARD. Increasingly, scheduled commercial banks are also
lending more to farmers. It is my intention to ensure that NABARD continues to
provide refinance at an economical rate, so that the farmer ultimately gets the
loan at a reasonable rate. Accordingly, after giving anxious consideration to
market conditions, Government has decided to ensure that the farmer receives
short-term credit at 7 per cent, with an upper limit of Rs.300,000 on the
principal amount. This would require a certain level of subvention to NABARD. I
propose to give the subvention. This policy will come into force with effect
from Kharif 2006-07, and I shall make a detailed statement in due course.
50. The Rural Infrastructure Development Fund (RIDF) has so
far disbursed funds in 11 tranches. RIDF XI sanctions have touched a level of
Rs.7,301 crore as on January 31, 2006. A special feature this year has been that
Rs.346 crore has been sanctioned to the North Eastern States. This sum is likely
to touch Rs.600 crore by the year end. Keeping in view the expanding
requirements for creating rural infrastructure, I propose to increase the corpus
of RIDF XII to Rs.10,000 crore, and I urge State Governments to make the best
use of these funds.
51. I also propose to allow specified projects under the
Public Private Partnership (PPP) model to access RIDF funds.
52. The rural roads component of Bharat Nirman requires large
funds. Hence, I propose to open a separate window under RIDF XII for rural roads
with a corpus of Rs.4,000 crore during 2006-07.
53. The National Agricultural Insurance Scheme (NAIS) will be
continued in its present form for Kharif and Rabi 2006-07.
54. In continuation of the announcement in the last Budget to
introduce a 15 year programme for massive re-plantation and rejuvenation of tea,
Ministry of Commerce has proposed to set up a Special Purpose Tea Fund. While
the details are being worked out, to signal my support to the idea, I propose to
make a levelized contribution every year to the Fund. For 2006-07, the
contribution is expected to be Rs.100 crore. When established, the Fund will
benefit growers in the tea growing States including Assam, West Bengal, Tamil
Nadu, Kerala and Uttaranchal.
55. I had proposed major initiatives in respect of micro
finance in the last Budget. RBI has since issued guidelines to enable banks to
appoint banking correspondents and banking agents. A window to access ECB funds
has also been opened. A Bill to provide a formal statutory framework for the
promotion, development and regulation of the micro finance sector will be
introduced in this session.
56. The Self Help Group (SHG) movement is making rapid
strides. In the two years of the UPA Government, we have credit-linked 801,000
SHGs. The credit disbursed to these SHGs is approximately Rs.4,863 crore. I
propose to ask the banking sector to credit-link another 385,000 SHGs in
2006-07. I shall also ask NABARD to open a separate line of credit for financing
farm production and investment activities through SHGs.
57. The findings of the NSS 59th Round
(2003) reveal that out of the total number of cultivator households only 27 per
cent receive credit from formal sources and 22 per cent from informal sources.
The remaining households, mainly small and marginal farmers, have virtually no
access to credit. With a view to bringing more cultivator households within the
banking fold, I propose to appoint a Committee on Financial Inclusion. The
Committee will be asked to identify the reasons for exclusion, and suggest a
plan for designing and delivering credit to every household that seeks credit
from lending institutions.
Horticulture and Fisheries
58. The PPP model will be employed to set up model terminal
markets in different parts of the country. A sum of Rs.150 crore has been
earmarked for this purpose in 2006-07 under the National Horticulture Mission. A
Central Institute of Horticulture will be established in Nagaland. The National
Fisheries Development Board will be constituted shortly.
59. The two sectors which have the potential to create a
large number of jobs are manufacturing and services. In manufacturing, we have
identified some industries which, with appropriate incentives, can throw up huge
job opportunities. These include textiles, food processing, petroleum, chemicals
and petro-chemicals, leather, and automobiles. In services, tourism and software
can offer a large number of jobs.
60. The last two Budgets have created an enabling environment
for the growth of the textile industry, especially cotton textiles. There has
been an encouraging response to the Technology Upgradation Fund (TUF) scheme. I
propose to enhance the allocation from Rs.435 crore to Rs.535 crore next year.
The Scheme for Integrated Textiles Parks (SITP) was launched in October 2005
with the intention of creating 25 textile parks. As on date, 7 parks have been
sanctioned and 10 parks have been identified for development. I propose to
provide Rs.189 crore for this scheme.
61. Government proposes to launch the Jute Technology Mission
in 2006-07 to harness the potential of the golden fibre. A National Jute Board
will be established. I propose to make a token provision with the assurance that
the funds required will be made available once the outlay is finalized.
62. Several schemes, including schemes for life insurance and
health insurance, were announced in the last Budget for the handloom sector.
They are being implemented. The Cluster Development approach will continue. It
is proposed to cover an additional 100 clusters at a cost of Rs.50 crore in
2006-07. Yarn depots will be established in different parts of the country to
ensure uninterrupted supply of yarn to weavers. Just as ‘woolmark’ has
gained recognition, it is proposed to launch a ‘handloom’ mark. A scheme
similar to TUFS will be introduced for the handloom sector to provide interest
subsidy on term loans. I propose to increase the provision for the handloom
sector from Rs.195 crore to Rs.241 crore next year.
Food Processing Industry
63. Recognizing the enormous benefits that the food
processing industry can bring to agriculture and job creation, and to consumers,
food processing will be treated as a priority sector for bank credit. NABARD
will create a separate window with a corpus of Rs.1,000 crore for refinancing
loans to the sector, especially for agro-processing infrastructure and market
development. Government will also set up the National Institute of Food
Technology Entrepreneurship and Management. The Paddy Processing Research Centre
at Thanjavur will be developed into a national-level institute.
Petroleum, Chemicals and Petro-chemicals
64. Petroleum, chemicals and petro-chemicals (PC&P) is a
sector with potential for large investment and employment. In order to promote
investment in this sector, Government has set up a Task Force to facilitate the
development of large PC&P Investment Regions. World class developers and
investors are being associated with the Task Force. It is expected that in
2006-07 at least three such Investment Regions will be developed.
65. With the spread of Information Technology (IT) and IT
Enabled Services (ITES), the time is ripe to make India a preferred destination
for the manufacture of semi-conductors and other high technology IT products
including Wafer; Assemble, Test and Manufacture of Semi-conductors; Flat LCD/OLED/Plasma
Panel Displays; and Storage Devices. To achieve this goal the Ministry of
Information Technology will announce a policy shortly. I propose to use the
existing vehicles of viability gap funding and the India Infrastructure Finance
Company Limited (IIFCL) to create a window to provide equity participation
and/or viability gap funding to the new ventures. The window will be open for
three years in order to accelerate investment.
Small and Medium Enterprises
66. The introduction of the Small and Medium Enterprises
(Development) Bill and the policy on credit announced on August 10, 2005 have, I
believe, triggered a change in the mindset of small and medium entrepreneurs.
The new thrust is towards up-scaling the size and technological upgradation.
After due consultation with the stakeholders and on the recommendation of the
Advisory Committee, the Ministry of Small Scale Industries has identified 180
items for dereservation.
67. In order to give a fresh impetus to lending by the Small
Industries Development Bank of India (SIDBI), I propose to:
• Recognize SMEs in the
services sector, and treat the small scale enterprises in the services
sector on par with the small scale enterprises in the manufacturing
• Raise the corpus of the
Credit Guarantee Fund from Rs.1,132 crore at end-March 2006 to Rs.2,500
crore in five years. In 2006-07, I propose to provide a sum of Rs.118
• Advise Credit Guarantee Trust
for Small Industries (CGTSI) to reduce the one time guarantee fee from 2.5
per cent to 1.5 per cent for all loans; and
• Extend insurance cover to
approximately 30,000 borrowers, identified as chief promoters, under the
CGTSI. The sum assured would be Rs.200,000 per beneficiary and the premium
will be paid by CGTSI.
68. The National Manufacturing Competitiveness Council (NMCC)
has finalized a five-year National Manufacturing Competitiveness Programme. Ten
schemes have been drawn up including schemes for promotion of ICT, mini tool
rooms, design clinics and marketing support for SMEs. Implementation will be in
the PPP model, and financing will be tied up during the course of the next year.
69. The Cluster Development model can be usefully adopted not
only to promote manufacturing but also to renew industrial towns and build new
industrial townships. The model is now being implemented, in one form or other,
in nine sectors falling under different Ministries. The sectors include khadi
and village industries, handlooms, handicrafts, textiles, agricultural products
and medicinal plants. It would be advantageous to empower a group to oversee
cluster development and monitor progress. Hence, the Prime Minister has decided
to constitute an Empowered Group of Ministers who will lay down the policy for
cluster development and oversee the implementation.
VIII SERVICES SECTOR
70. Foreign tourist arrivals increased to 3.92 million in
2005. It is still a fraction of India’s potential. During 2006-07, Ministry of
• Take up for development 15
tourist destinations and circuits following an integrated area development
• Identify 50 villages with
core competency in handicrafts, handlooms and culture, close to existing
destinations and circuits, and develop them for enhancing tourists’
• Establish 4 new institutes of
hotel management in the States of Chhattisgarh, Haryana, Jharkhand and
I propose to increase the Plan allocation from Rs.786 crore
to Rs.830 crore in 2006-07.
71. Merchandise exports are growing at the rate of over 18
per cent in the current year. Imports are high, but they are welcome because
they are a sign of enhanced capital investment and industrial activity. Ministry
of Commerce and Industry and Ministry of Finance have worked together to create
an environment that is supportive of our exporters, and we are determined to
double our share in world exports to 1.5 per cent by the year 2008-09.
72. The telecommunication sector in India is recording one of
the fastest growth rates in the world. Tele-density stood at 11.75 per hundred
at end-January, 2006. The ambitious target is to reach 250 million connections
by December, 2007, and I am confident of success. I propose to provide Rs.1,500
crore from the Universal Services Obligation Fund in 2006-07.
73. More than 50 million rural connections will be rolled out
in three years and, thereafter, a connection will be available on demand. The
digital divide between rural India and urban India will be bridged. In order to
extend financial support to infrastructure for cellular telephony in rural
areas, the Minister of Communications will bring a Bill in the Budget session to
amend the Indian Telegraph Act.
74. Power generation in 2005-06 has so far shown a modest
growth of 4.7 per cent because of shortage of fuel, mainly LNG and coal. The
demand-supply mismatch continues. More efforts are required to augment capacity
in generation, transmission and distribution. 82 projects are under construction
and, when completed in one to three years, will add 33,000 MW of capacity in the
public sector and 6,500 MW of capacity in the private sector. Of these, about
15,000 MW will come on stream by March 31, 2007.
75. Ministry of Power has invited bids for five ultra mega
power projects of 4,000 MW each, of which two will be pit-head (in Chhattisgarh
and Madhya Pradesh) and three will be coastal (in Gujarat, Karnataka and
Maharashtra). It is our intention to award these projects before December 31,
76. Capacity addition alone is not enough; we need deep and
durable reforms in transmission and distribution. In order to create an enabling
and empowered framework to carry out these reforms, the Prime Minister will
establish an Empowered Committee of Chief Ministers and Power Ministers.
77. A target of 3,075 MW of installed capacity for the Tenth
Plan was fixed for non-conventional energy sources, including wind power. By
December 31, 2005, that target had been exceeded and 3,650 MW of capacity
installed. I propose to provide a sum of Rs.597 crore next year for
non-conventional energy resources.
Rajiv Gandhi Grameen Vidyutikaran Yojana
78. All States have signed memoranda of understanding to
implement the Rajiv Gandhi Grameen Vidyutikaran Yojana. 10,000 villages will be
electrified in the current year and, in 2006-07, 40,000 more villages will be
electrified. The key to the success of this programme is the engagement of
franchisees and proper commercial and contractual arrangements for distribution,
billing and collection.
79. A comprehensive review of the coal policy is underway.
This year, 45 coal blocks have been allotted for captive consumption to the
power, cement and steel sectors and to the State Governments. After reserving
blocks for Coal India Limited and its subsidiaries for the period up to 2012, it
has been decided to de-block coal reserves of 20 billion tonnes for power
projects. The definition of captive consumption will also be amended to allow
coal mining by producers with firm supply contracts with steel, cement and power
companies. The capacity of Central Mines Planning and Development Institute
Limited (CMPDIL) to drill in order to prove reserves is now only 200,000 metres
per annum, and this will be expanded substantially.
80. Energy security is high on the Government’s agenda. In
five rounds of the New Exploration Licensing Policy (NELP), 110 production
sharing contracts have been awarded. Ministry of Petroleum and Natural Gas has
now made its biggest offer under NELP VI. 55 blocks and an area of 355,000 sq
kms, which is thrice as large as the previous round, have been offered. Besides
investment in the upstream and downstream segments, we are encouraging
investment in refining, pipelines and green fuel projects. In the refinery
sector alone, an investment of Rs.22,000 crore is expected in the next few
81. The National Highways Development Programme (NHDP)
continues to make impressive progress. The highest ever number and value of
contracts were awarded in calendar 2005. I propose to enhance the Budget support
for NHDP from Rs.9,320 crore to Rs.9,945 crore in 2006-07.
82. A special accelerated road development programme for the
North Eastern region at an estimated cost of Rs.4,618 crore has been approved.
For 2006-07, I propose to provide a sum of Rs.550 crore for this programme.
83. Government has also decided to develop 1,000 kms of
access-controlled Expressways. These will be on new alignment and built on the
Design, Build, Finance and Operate (DBFO) model. The sections that have been
identified are Vadodara-Mumbai, Delhi-Chandigarh, Delhi-Jaipur, Delhi-Meerut,
Delhi-Agra, Bangalore-Chennai and Kolkata-Dhanbad. The concessionaires will be
selected through an international competitive bidding process.
84. National Highway Authority of India (NHAI) will be
restructured and made more effective. It will be made into a multi-disciplinary
body with the capacity to handle a large number of PPP projects. New skill areas
in planning and quality assurance, standardization, arbitration, road-safety and
R&D will be created.
85. Honourable Members are aware that the National Maritime
Development Programme (NMDP) has been approved by the Government. The port
sector alone will require Rs.55,804 crore. Work is in progress in 101 projects
covering, inland waterways, shipping and ports which include deepening of
channels in Kandla, JNPT and Paradip. I propose to increase the Plan allocation
for the Department of Shipping by 37 per cent to Rs.735 crore.
86. A deep draft port is required in the eastern part of the
country. I am happy to announce that it is proposed to carry out a detailed
study to identify a suitable location for a new deep draft port in West Bengal.
The existing National Institute of Port Management, Chennai, has been renamed as
the National Maritime Academy, and it is proposed to upgrade it into a Central
University under an Act of Parliament. The University will have regional
campuses at Mumbai, Kolkata and Visakhapatnam.
87. The India Infrastructure Finance Company Limited (IIFCL)
has been incorporated, and the first proposal for funds has been received.
Several proposals have been received for viability gap funding for PPP projects.
In-principle approval has been granted to three road projects in Gujarat and a
final decision is likely to be taken before March 31, 2007.
X FINANCIAL SECTOR
Banking, Insurance and Pensions
88. As part of the reforms in the banking sector introduced
in 1993-94, capital was infused in the banks by issue of special securities. To
date, Government has injected Rs.16,809 crore into nationalised banks. Adding
the perpetual securities issued earlier, the total net capital support stands at
Rs.22,808 crore. Thanks to the capital support, a sound banking sector meeting
international norms has emerged. We have reached a stage when we can wind up the
special arrangements between Government and the banks. Accordingly, after
consulting the RBI, I propose to unwind the special securities through
conversion of these non-tradable special securities into tradable, SLR
Government of India dated securities. This will facilitate increased access of
the banks to additional resources for lending to the productive sectors in the
light of the increasing credit needs of the economy.
89. Honourable Members are aware that the K.P. Narasimhan
Committee was appointed to recommend a comprehensive law on insurance. The
report of the committee has been received, and is being examined by the
Insurance Regulatory and Development Authority and the Government. I intend to
introduce a comprehensive Bill on insurance in 2006-07.
90. Important Bills to amend the banking laws and for setting
up the Pension Fund Regulatory and Development Authority are before Parliament.
The Standing Committee on Finance has recommended these Bills. I would urge
Honourable Members to cooperate with the Government and pass these Bills.
91. In recent months, the capital market has attracted a
great deal of attention. The measures taken in the last year-and-a-half have
deepened, broadened and strengthened the market. It is necessary to take more
measures. Hence, I propose to
• Increase the limit on FII
investment in Government securities from $ 1.75 billion to $ 2 billion and
the limit on FII investment in corporate debt from $ 0.5 billion to $ 1.5
• To raise the ceiling on
aggregate investment by mutual funds in overseas instruments from $ 1
billion to $ 2 billion and to remove the requirement of 10 per cent
reciprocal share holding;
• To allow a limited number of
qualified Indian mutual funds to invest, cumulatively up to $ 1 billion,
in overseas exchange traded funds; and
• To set up an investor
protection fund under the aegis of SEBI, funded by fines and penalties
recovered by SEBI. This will bolster confidence among retail investors who
should be the key drivers of the capital market.
Consultations have been held in this behalf with RBI and SEBI,
who will issue the guidelines in due course.
92. RBI had introduced the anonymous electronic order
matching trading module called NDS-OM on its Negotiated Dealing System. In the
first phase, RBI-regulated entities, banks and primary dealers were allowed to
trade on the system. The system has now been extended to all insurance entities.
In view of the encouraging response of market participants and to further deepen
the Government securities market, it is proposed to extend access to qualified
mutual funds, provident funds and pension funds.
93. In my Budget speech last year, I had appointed a
high-level expert committee on corporate bonds. The committee has submitted its
report and Government has accepted the recommendations. We shall now take steps
to create a single, unified exchange-traded market for corporate bonds.
XI OTHER PROPOSALS
Research and Development
94. Our outstanding human resources have the capacity to make
India a Knowledge Society. Government accords high importance to research and
development. The National Agricultural Innovation Project for research at the
frontiers of agricultural science is expected to receive multilateral assistance
shortly, and will be launched in July, 2006.
95. The National S&T Entrepreneurship Board has set up a
number of Technology Business Incubators with seed funding from the Technology
Development Board. Government will be happy to provide enabling concessions to
Institutions of Excellence
96. Last year, I made a beginning with an unprecedented grant
of Rs.100 crore to the Indian Institute of Science (IISc), Bangalore to help
develop it into a world-class institution. I am happy to report that the IISc
has obtained approval for an ambitious programme of modernization, and is
implementing the same. This year, I must recognize another historical event.
Three great Universities have entered their 150th year.
These are the University of Calcutta, the University of Mumbai and the
University of Madras. I propose to mark the beginning of the 150th
year celebrations with a grant of Rs.50 crore to each University for a specified
research department or a research programme in that University. On the
conclusion of the year, I intend to make another grant of Rs.50 crore to each of
97. I propose to make the special grant of Rs.100 crore for
an institution of excellence to a distinguished institution, the Punjab
Agricultural University, Ludhiana, in acknowledgement of its pioneering
contribution to the green revolution.
98. If agriculture is an ancient Indian skill, biotechnology
is the new frontier that India will conquer. In order to foster research and
development in biotechnology, the Ministry of Science and Technology has decided
to accord the status of an autonomous National Institute to the Rajiv Gandhi
Centre for Biotechnology, Tiruvananthapuram, Kerala.
99. Honourable Members will recall that Government has taken
up a programme to upgrade 500 ITIs over five years. 100 ITIs are now covered
with the help of the private sector. Assistance has been sought from
multilateral agencies to cover the remaining 400 ITIs. I propose to allocate
Rs.97 crore for this purpose in 2006-07. The Skills Development Initiative (SDI)
announced last year has been taken up through a PPP scheme, and I propose to
make an initial provision of Rs.10 crore.
Backward Regions Grant Fund
100. Upon the establishment of a Backward Regions Grant Fund,
a sum of Rs.1,156 crore has been disbursed so far in the current year to the
districts identified as backward as well as under Rashtriya Sam Vikas Yojana (RSVY).
The Fund is being placed under the administrative control of the Ministry of
Panchayati Raj, and I propose to allocate Rs.5,000 crore in 2006-07.
Jammu and Kashmir
101. Government will continue to provide special assistance
to Jammu and Kashmir. The State Plan for 2006-07 has been fixed at Rs.2,300
crore. In addition, I propose to provide a sum of Rs.848 crore for the J&K
Reconstruction Plan, including Rs.230 crore for the Baglihar Project. I also
propose to provide special central Plan assistance of Rs.1,300 crore to enable
the State to undertake reforms in the power sector.
102. Government has fulfilled the long-standing need of
retired Armed Forces Personnel Below Officer Rank (PBOR) for better pensionary
benefits. About 12 lakh PBOR have benefited to the tune of Rs.460 crore with
effect from January 1, 2006, and I am sure the House will welcome this decision.
103. In view of the enhanced expenditure on modernisation of
defence forces, I propose to increase the allocation for defence from Rs. 83,000
crore to Rs. 89,000 crore in 2006-07, and this will include Rs. 37,458 crore for
104. The National e-Governance Plan will be approved shortly,
and 25 projects, in mission mode, will be launched in 2006-07. Among them is
Project MCA-21 to enable companies to file returns electronically and a project
for setting up common service centres and assigning unique ID to BPL families.
It is Government’s intention to bring a number of services online, in a
web-based mode, including applications under the Right to Information Act,
applications for house sites, ration cards, transfers of teachers, inclusion in
the electoral roll, filing of police complaint, and issue of birth/death
certificates and copies of land records.
Celebrating History and Heritage
105. In 2007, we will celebrate the 150th
anniversary of the First War of Indian Independence, an event that shaped the
destiny of the nation. To ensure that the event is observed in a befitting
manner, I propose to make a provision of Rs.10 crore for preparatory activities.
106. Two Gandhian institutions, the National Gandhi Museum,
Rajghat and the Kasturba Gandhi National Memorial Fund, Indore deserve support.
I intend to provide Rs.5 crore each to the corpus of these institutions in
107. I am happy to inform the House that Kuttiyattam, Vedic
Chanting and Ramlila have been declared ‘Oral and Intangible Heritage of
Humanity’ by the UNESCO. These old art forms and oral traditions need to be
safeguarded. Pending drawing up a detailed scheme, I propose to make an initial
provision of Rs.5 crore in 2006-07.
XII FISCAL CONSOLIDATION
Twelfth Finance Commission
108. The recommendations of the Twelfth Finance Commission (TFC)
are being implemented. Cumulatively, State loans amounting to Rs.103,710 crore
have been consolidated so far. Under the new scheme of tax devolution, Rs.94,402
crore will be released as the States’ share in the current year compared to
Rs.78,595 crore in 2004-05. As regards grants-in-aid, the amounts granted in
2004-05 and 2005-06 (RE) are Rs.12,081 crore and Rs.25,134 crore respectively.
In 2006-07, both the tax devolution and the grants will be substantially higher.
The States have never been so well provided, as you will find from the Budget
109. I may add that I have made appropriate provision in the
Budget for debt consolidation and relief. I have also provided Rs.3,000 crore
towards compensation for VAT losses, if any, in 2006-07.
110. The issue of subsidies is proving to be a divisive one,
but I would urge Honourable Members that it is imperative that we make progress
on this front if we are serious about targeting subsidies at the poor and the
truly needy. My Ministry has held extensive discussions with stakeholders on
three major subsidies, namely, food, fertilizer and petroleum. We have also
sought the views of the general public. Working groups/committees have gone into
the question of fertilizer and petroleum subsidies, the latest being the Dr. C.
Rangarajan Committee. I would urge Members to help the Government evolve a
consensus on the issue of subsidies.
Gross Budgetary Support and Gross Fiscal Deficit
111. Mr. Speaker, Sir, please allow me to draw your attention
to two path breaking developments on the fiscal front. Firstly, the strategy of
enhanced revenue mobilization through reasonable rates, better compliance and
widening of the tax base is yielding tangible results. For the Centre, the gross
tax-GDP ratio, after rising from 9.2 per cent in 2003-04 to 9.8 per cent in
2004-05, has increased further to 10.5 per cent in 2005-06 (RE). Government
estimates that, through better tax administration, it will increase to 11.2 per
cent in 2006-07(BE).
112. Secondly, the year 2004-05, for which the actuals are
available, has proved to be a turning point. After 20 years, the Gross Fiscal
Deficit is less than the Gross Budgetary Support for Plan in that year. What
does this mean? This means that Government is not financing the Plan entirely
through borrowing. Whether this trend continued in 2005-06 will be known only
after the actuals are available. However, in the BE for 2006-07, I have been
able to confine the gross fiscal deficit to a number much smaller than the gross
budgetary support for the Plan.
113. Last year, reluctantly, I pressed the ‘pause’ button
on fiscal correction. I had estimated the revenue deficit for 2005-06 at 2.7 per
cent and the fiscal deficit at 4.3 per cent. I am happy to report that I have
been proved wrong. We have improved upon both measures. According to revised
estimates, the revenue deficit for the current year will be only 2.6 per cent
and the fiscal deficit will be only 4.1 per cent.
XIII BUDGET ESTIMATES FOR 2006-07
114. I turn to the Budget Estimates for the next fiscal.
115. Plan expenditure for 2006-07 is estimated at Rs.172,728
crore, up by 20.4 per cent. As a proportion of total expenditure, Plan
expenditure has increased from 26.6 per cent in 2004-05 to 28.3 per cent in
2005-06 (RE) and further to 30.6 per cent in 2006-07 (BE). This points to the
improvement in the quality of Government expenditure.
116. Non-Plan expenditure in 2006-07 is estimated to be
Rs.391,263 crore. The increase of 5.5 per cent over non-plan expenditure in
2005-06 (BE) is due to normal growth and is one the smallest in recent years.
Revenue Deficit and Fiscal Deficit
117. Mr. Speaker, Sir, in the Budget Estimates for 2006-07,
the total expenditure is estimated at Rs.563,991 crore. I estimate total revenue
receipts of the Central Government at Rs.403,465 crore and the revenue
expenditure at Rs.488,192 crore. Consequently, the revenue deficit is estimated
at Rs.84,727 crore which is 2.1 per cent of the GDP. The fiscal deficit is
estimated at Rs.148,686 crore, which is 3.8 per cent of the GDP. I believe that
I have redeemed my promise that the process of fiscal correction will be resumed
XIV TAX PROPOSALS
118. Mr. Speaker, I shall now present my tax proposals. In
the UPA Government’s first Budget, and more so in the second, I had attempted
significant tax reforms. The results are encouraging. In 2004-05, gross tax
revenues (provisional actuals) increased by 19.9 per cent over the actuals of
the previous year and, according to Revised Estimates, in 2005-06, they are
expected to increase by 21.4 per cent over the provisional actuals of the
previous year. These figures confirm our belief that we should keep our tax
rates moderate and stable.
119. I shall begin with my proposals on indirect taxes.
Firstly, customs duties.
120. In line with the Government’s policy of reducing
customs duties, I propose to reduce the peak rate for non-agricultural products
from 15 per cent to 12.5 per cent. I believe that we are now only a short
distance away from East Asian rates.
121. As the peak rate comes down, there is a need to reduce
the duty on raw materials and intermediates.
122. The duty on primary steel is at 5 per cent. I propose to
reduce the duty on alloy steel and primary and secondary non-ferrous metals from
10 per cent to 7.5 per cent. This will also be the rate of duty for ferro
123. In 2004-05, in view of the high international prices of
steel, I had reduced the import duty on steel melting scrap to zero. With prices
of steel coming down, I propose to restore the duty to 5 per cent and bring it
on par with primary steel.
124. The duty on mineral products is now 15 per cent. I
propose to reduce it to 5 per cent, with a few exceptions.
125. I also propose to reduce the duty on ores and
concentrates from 5 per cent to 2 per cent.
126. Refractories attract a duty of 10 per cent. A number of
materials required for manufacture of refractories are also at 10 per cent or
higher rates. I propose to reduce these duties to 7.5 per cent.
127. Basic inorganic chemicals are crucial raw materials. I
propose to reduce the duty from 15 per cent to 10 per cent. On basic cyclic and
acyclic hydrocarbons and their derivatives, I propose to bring down the rate to
5 per cent. I also propose to reduce the duty on catalysts from 10 per cent to
7.5 per cent.
128. Plastics are important raw materials. Hence, I propose
to reduce the duty on major bulk plastics like PVC, LDPE and PP from 10 per cent
to 5 per cent. Simultaneously, the duty on naptha for plastics will be reduced
129. I propose to reduce the duty on styrene, EDC and VCM
which are raw materials for plastics to 2 per cent.
130. I propose to give some concessions to vital drugs. I
propose to reduce the customs duty on 10 anti-AIDS and 14 anti-cancer drugs to 5
per cent. I also propose to reduce the duty on certain life saving drugs, kits
and equipment from 15 per cent to 5 per cent. These drugs will also be exempt
from excise duty and countervailing duty (CVD).
131. Packaging machines serve a wide variety of industries,
including food processing. I propose to reduce the duty on packaging machines
from 15 per cent to 5 per cent.
132. I propose to extend the concessional project rate of 10
per cent to pipeline projects for transportation of natural gas, crude petroleum
and petroleum products.
133. Honourable Members would recall that last year I had
taken the power to impose a CVD on all imports to compensate for State level
taxes. This levy was applied only to imports of ITA bound items and their
inputs, except IT software. After the introduction of VAT in most States, I have
received representations from trade and industry that this levy should be
extended to all imports. The argument is persuasive, and I propose to impose a
CVD of 4 per cent on all imports with a few exceptions. Full credit of this duty
will be allowed to manufacturers of excisable goods.
134. In order to protect the domestic vanaspati industry, I
propose to increase the customs duty on vanaspati to 80 per cent, the rate
applicable to crude palm oil.
135. Export oriented units (EOUs) are allowed to clear their
goods to the Domestic Tariff Area (DTA) at a concessional rate. With declining
import duties, DTA units and EOUs should have a level playing field as regards
excise duty or CVD. Hence, I propose to adjust the duty rates on clearances by
EOUs to the DTA at 25 per cent of basic customs duty plus excise duty on like
goods. This will still give the EOU a tariff advantage or, at any rate, in most
cases, it will be on par with a DTA unit.
136. Finally, I have an important proposal that involves both
excise and customs duties. Cotton textile industry has greatly benefited from
the relief granted two years ago. The man-made textile industry is a growth- and
employment-driver. It deserves encouragement. Hence, I propose to reduce the
excise duty on all man-made fibre yarn and filament yarn from 16 per cent to 8
per cent. Simultaneously, I propose to reduce the import duty on all man-made
fibres and yarns from 15 per cent to 10 per cent. Consequently, the import duty
on raw materials such as DMT, PTA and MEG will also be reduced from 15 per cent
to 10 per cent. The import duty on paraxylene is proposed to be reduced to 2 per
137. I have a few proposals on the excise side. I reiterate
that it is our intention to converge all rates at the CENVAT rate which is now
at 16 per cent. There are only two items – aerated drinks and cars – that
still attract the higher rate of 24 per cent. I propose to correct this
substantially. I propose to reduce the excise duty on aerated drinks to 16 per
cent. On cars, I propose to reduce the excise duty to 16 per cent, but only for
small cars. A small car, for this purpose, will mean a car of length not
exceeding 4,000 mm and with an engine capacity not exceeding 1,500 cc for diesel
cars and not exceeding 1,200 cc for petrol cars. I am confident that industry
will seize the opportunity to make India a hub for the manufacture of small and
138. I propose to impose an 8 per cent excise duty on
packaged software sold over the counter. Customized software and software
packages downloaded from the internet will be exempt from this levy.
139. I propose to fully exempt from excise duty DVD Drives,
Flash Drives and Combo Drives.
140. Many food items, including packaged items, attract nil
excise duty. With a view to giving a fillip to the food processing industry, I
propose to fully exempt from excise duty condensed milk, ice cream, preparations
of meat, fish and poultry, pectins, pasta and yeast. Excise duty on ready-to-eat
packaged foods and instant food mixes, like dosa and idli mixes,
will be reduced from 16 per cent to 8 per cent.
141. Since leather and footwear are thrust sectors, I propose
to exempt from excise duty two vegetable tanning extracts, namely, quebracho and
chestnut. Footwear carrying a retail sale price up to Rs.250 is already exempt
from excise duty. I propose to reduce excise duty on footwear with a retail sale
price between Rs.250 and Rs.750 from 16 per cent to 8 per cent.
142. At present LPG stoves up to a value of Rs.2,000 attract
excise duty of 8 per cent. I propose to extend the concessional rate to all LPG
stoves without any value limit.
143. To promote the use of energy efficient lamps, I propose
to reduce the excise duty on compact fluorescent lamps from 16 per cent to 8 per
144. I propose to remove rate differences between different
kinds of tableware and kitchenware. Consequently, glassware will attract excise
duty of 16 per cent on par with ceramicware and plasticware.
145. Paper finds widespread use in education as well as in
packaging. In order to encourage capacity addition, I propose to reduce excise
duty on specified printing, writing and packing paper from 16 per cent to 12 per
146. Domestically produced petroleum crude is subject to a
cess under the Oil Industries Development Act. The rate of Rs.1,800 per metric
tonne was fixed in 2002. After consulting the Ministry of Petroleum and Natural
Gas, I propose to increase the cess to Rs.2,500 per MT. I have been assured that
this increase will be absorbed by the oil producing companies and have no impact
on retail prices of petroleum products.
147. There are two requests from trade and industry. I had
exempted computers from excise duty in order to boost the use of computers. That
purpose has been largely served. Domestic manufacturers have sought
re-imposition of excise duty at 12 per cent in order to enable them to take
CENVAT credit as well as to face competition from imports. I propose to accept
the request. Since the 12 per cent excise duty will be eligible for full input
tax credit, there should not be any impact on price.
148. The second request is to impose excise duty on set top
boxes. I propose to accept the request and levy an excise duty of 16 per cent
and, at the same time, reduce the customs duty from 15 per cent to nil. This
change will equalize the duty rates on various types of set top boxes.
149. To round off, I would be failing in my duty if I did not
raise the excise duty on cigarettes. Hence, I propose to increase the excise
duty on cigarettes by about 5 per cent.
150. The bane of excise and customs tariffs is the plethora
of exemptions. On the basis of a comprehensive review, I propose to remove many
exemptions that were granted through notifications. Broadly, exemptions that are
end-use based or have outlived their utility or need certification or give rise
to disputes are being rescinded, with only a few exceptions. The exemption for
the SSI sector will, however, remain unchanged.
151. We have also identified some more notifications which
need to be removed. However, before taking a final view, I propose to put a list
of such notifications on the Ministry’s website and invite comments.
152. This leaves service tax. In 2005-06, the services sector
is estimated to contribute 54 per cent of GDP. Naturally, it should also
contribute significantly to the exchequer. Continuing in the direction followed
in the last few years, I propose to bring more services under the service tax
net. The new services to be covered include ATM operations, maintenance and
management; registrars, share transfer agents and bankers to an issue; sale of
space or time, other than in the print media, for advertisements; sponsorship of
events, other than sports events, by companies; international air travel
excluding economy class passengers; container services on rail, excluding the
railway freight charges; business support services; auctioneering; recovery
agents; ship management services; travel on cruise ships; and public relations
153. I also propose to expand the coverage of certain
services now subject to service tax. I do not wish to burden the House with the
details which are available in the Budget papers.
154. The leasing and hire purchase industry has faced some
difficulty owing to the levy of service tax on all components of payments,
including interest. I propose to rectify the anomaly. Accordingly, interest and
instalments of the principal amount will be abated in calculating the value of
155. It is my sense that there is a large consensus that the
country should move towards a national level Goods and Services Tax (GST) that
should be shared between the Centre and the States. I propose that we set April
1, 2010 as the date for introducing GST. World over, goods and services attract
the same rate of tax. That is the foundation of a GST. People must get
used to the idea of a GST. Hence, we must progressively converge the service tax
rate and the CENVAT rate. I propose to take one step this year and increase the
service tax rate from 10 per cent to 12 per cent. Let me hasten to add that
since service tax paid can be credited against service tax payable or excise
duty payable, the net impact will be very small.
156. I shall now turn to my proposals on direct taxes.
157. The good news is that there will be no change in the
rates of personal income tax or corporate income tax.
158. The other piece of good news is that no new taxes are
159. The one-by-six scheme under the Income Tax Act obliging
certain categories of persons to file returns will stand abolished.
160. I propose to marginally revise certain tax rates in the
quest for equity. While the corporate tax rate is 30 per cent, the rate under
Minimum Alternate Tax (MAT) is only 7.5 per cent of book profits. I propose to
increase the rate to 10 per cent, which is still only one-third of the normal
rate. I also propose to include long-term capital gains arising out of
securities in calculating book profits. I have already allowed MAT-paying
companies to take credit for MAT over five years. I propose to extend the period
to seven years as well as adjust MAT credit while calculating interest
161. The rates for the Securities Transaction Tax (STT) were
fixed when prices of securities were much lower. Reflecting the increase in
implicit capital gains in securities transactions, I propose an increase of 25
per cent, across the board, on all rates of STT.
162. Section 80IA of the Income Tax Act applies to
infrastructure facilities. For developing an industrial park the terminal date
is March 31, 2006. I propose to extend the period to March 31, 2009. For the
power sector, in view of the ultra mega projects, I propose to extend the date
to March 31, 2010.
163. Last year, I recast the provisions relating to savings.
Fixed deposits were not included. There is a demand that fixed deposits of
certain tenure should qualify for tax exemption. I propose to include
investments in fixed deposits in scheduled banks for a term of not less than
five years in section 80C of the Income Tax Act. I also propose to remove the
limit of Rs.10,000 in respect of contribution to certain pension funds in
section 80CCC, subject to the overall ceiling of Rs.100,000.
164. I propose to align the definition of open-ended
equity-oriented schemes of mutual funds in the Income Tax Act with the
definition adopted by SEBI. I also propose to treat open-ended equity-oriented
schemes and close-ended equity-oriented schemes on par for the purpose of
exemption from dividend distribution tax.
165. I have revisited the exemptions in the Income Tax Act.
As a result, I propose to remove the exemption under section 10(23G) which is
not relevant when interest rates are moderate.
166. Cooperative banks, like any other bank, are lending
institutions and should pay tax on their profits. Primary Agricultural Credit
Societies (PACS) and Primary Cooperative Agricultural and Rural Development
Banks (PCARDB) stand on a special footing and will continue to be exempt from
tax under section 80P of the Income Tax Act. However, I propose to exclude all
other cooperative banks from the scope of that section.
167. Section 54EC and section 54ED are tax shelters. I
propose to restrict the scope of section 54EC to two institutions, viz., NHAI
and REC. For NABARD, SIDBI and NHB, which are banks, we have already opened the
route of zero coupon bonds to raise low cost funds. Government will, if needed,
provide appropriate support to these institutions to enable them to access
resources to fulfil their mandate effectively. I also propose to withdraw the
benefit of section 54ED, which has become virtually redundant, with effect from
April 1, 2006.
168. The Standing Committee on Finance has expressed concern
that many charitable institutions misuse the provisions of the Income Tax Act. I
propose to focus on one misuse, namely, receiving anonymous or pseudonymous
donations. Accordingly, I propose that anonymous or pseudonymous donations to
wholly charitable institutions will be taxed at the highest marginal rate. Such
donations to partly religious and partly charitable institutions/trusts will be
taxed only if the donation is specifically for an educational or medical
purpose. However, I make it clear that such donations to wholly religious
institutions and religious trusts will not be covered by the new provision.
169. Members of State Legislatures have complained that their
constituency allowances are taxed differently from the constituency allowance
received by Members of Parliament. I propose to remove the discrimination and
treat them equally.
170. The Permanent Account Number (PAN) of the Department of
Income Tax is the critical element in capturing incomes and expenditures.
Scrutiny of Annual Information Returns (AIR) on high-value transactions reveals
that 60 per cent of the transactions are without quoting PAN. Hence, I propose
to take the power to issue PAN suo motu in certain cases. I also propose
to take the power to direct persons to apply for PAN in certain cases. I propose
to notify, in due course, more transactions for which quoting of PAN will be
mandatory. I also propose to prescribe a few more transactions to be reported in
171. Last year, I introduced two new taxes. The Banking Cash
Transaction Tax (BCTT) has turned out to be a boon, not for the modest revenues
it brought which was never its purpose, but for the remarkable trails that it
has helped establish. To cite just one example, huge cash withdrawals in a bank
branch in Chandni Chowk, noticed through the BCTT, led the Department of Income
Tax to three entities which were carrying on the business of purchasing demand
drafts from traders at a discount and helping the traders to avoid both sales
tax and income tax. These entities would deposit the demand drafts in their own
accounts and withdraw the cash. In a period of 18 months, they had laundered
Rs.1,500 crore. BCTT has also helped the Department to detect bogus bills,
accommodation entries, artificial loss claims and dummy firms. I propose to
continue the BCTT for some more time until the AIR system is able to capture all
significant financial transactions.
172. Fringe Benefit Tax (FBT) was introduced as a revenue
raising measure. FBT can be justified on the principles of horizontal equity and
vertical equity. Nevertheless, I have reviewed it with an open mind. I have also
taken on board the views expressed by the apex chambers of commerce. I propose
to make the following changes in chapter XII-H of the Income Tax Act:
• Value the benefit in the form
of ‘tour and travel’ at 5 per cent instead of 20 per cent;
• Value the benefit in the form
of ‘hospitality’ and ‘use of hotel boarding and lodging facilities’,
in the case of airline companies and shipping industry, at 5 per cent
instead of 20 per cent;
• Exclude the expenses on free
samples of medicines and of medical equipment distributed to doctors;
• Exclude the expenses incurred
on brand ambassador and celebrity endorsement; and
• Prescribe a threshold of
Rs.100,000 under section 115WB(1)(c) so that only a contribution by an
employer to an approved superannuation fund in excess of Rs.100,000 per
year per employee will attract FBT. Under section 80C there is already an
exemption up to Rs.100,000 for contribution by an employee to an approved
superannuation fund. Honourable Members will note that, under these two
provisions, there can now be a tax-exempt contribution up to Rs.200,000
per year for the benefit of an employee. This allowance, I believe, is
generous enough in the case of an overwhelming majority of employees.
With these changes, I am confident that the debate on FBT
will draw to a close. Let me remind everyone concerned once again that FBT is
justified on the principle of equity.
Modernizing Tax Administration
173. I am glad to inform the House that technology is being
increasingly employed to modernize tax administration. The Departments of Income
Tax and Customs and Central Excise will undergo Business Process Reengineering (BPR).
Nationwide networks will connect 745 income tax offices in 510 cities and 550
customs and central excise offices in 245 cities, creating national databases.
National data centres, data warehousing facilities and disaster recovery sites
are being set up. Jurisdiction-free filing of returns, online tracking of status
of accounts and refunds of income tax will be possible. Introduction of a risk
management system and Electronic Data Interchange (EDI) in the Customs
Department will reduce dwell time for cargo. E-payments of customs and excise
duties will be possible. Both Departments will have fully computerised networks
by end 2006.
174. Our Government’s two Budgets have seen many
innovations – the Gender Budget, the Outcome Budget etc. Today, I place before
the House another innovation – a statement on revenue foregone, known
worldwide as tax expenditure statement. This statement captures the departures
from the normal tax regime. This exercise is a first attempt that will be fine
tuned in the years to come.
VAT and CST
175. The House is aware that most States have implemented VAT
with effect from April 1, 2005, and the unanimous opinion is that VAT has been a
resounding success. I hope that the non-VAT States will soon join the
mainstream, because the next stage of reform depends on all States implementing
VAT. The Empowered Committee of State Finance Ministers has recommended that
Central Sales Tax (CST) be phased out, and have requested the Centre to
compensate them for the expected loss of revenue. Government has proposed that
the loss of revenue may be compensated through monetary and non-monetary
measures which, taken together, will ensure that the States’ revenues remain
buoyant. Once the Empowered Committee and the Government reach an agreement, I
shall return to the House with firm proposals, including legislative changes and
a supplementary demand.
176. In the meanwhile, there is an urgent matter connected
with CST and VAT which has to be attended to. It has become imperative to
moderate the price of Liquified Petroleum Gas (LPG) for domestic use. States are
taxing LPG (domestic) at high rates. They should also bear a portion of the
burden of high prices of petroleum products. Hence, in order to moderate the
price of LPG (domestic), I propose to include LPG (domestic) in the list of ‘declared
goods’ under the CST Act.
177. My tax proposals on direct taxes are estimated to yield
a gain of about Rs.4,000 crore. On the indirect taxes side, the gain is
estimated at Rs.2,000 crore.
178. Mr. Speaker, Sir, I believe that the world has
recognized the potential of India. It is now for us, the generation to which has
been given the privilege of carrying the torch, to rediscover the greatness of
this country and the potential of its people. The young people of India are
building castles, it may appear that those castles are in the air, but as Henry
David Thoreau said: "If you have built castles in the air, your work need
not be lost; that is where they should be. Now put the foundations under
them." It is our duty to put the foundations on which the young can build
their castles. The UPA Government has pledged itself to that task.
179. Over a hundred years ago, a restless young man in his
quest for the core of all spirituality admonished his fellow men in the
following words: "We reap what we sow. We are the makers of our own fate.
The wind is blowing; those vessels whose sails are unfurled catch it, and go
forward on their way, but those which have their sails furled do not catch the
wind. Is that the fault of the wind?....... We make our own destiny." Those
are the immortal words of Swami Vivekananda. Let us believe in our destiny, let
us make our future.
180. Sir, with these words, I commend the Budget to the