July 6, 2009
I rise to present the Budget for 2009-10.
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.
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
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
. 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
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:
sustain a growth rate of at least 9 per cent
per annum over an extended period of time;
strengthen the mechanisms for inclusive growth for
creating about 12 million new work opportunities per year;
reduce the proportion of people living below poverty
line to less than half from current levels by 2014;
ensure that Indian agriculture continues to grow at an
annual rate of 4 per cent;
increase the investment in infrastructure to more than
9 per cent of
support Indian industry to meet the challenge of global
competition and sustain the growth momentum in exports;
improve the economic regulatory framework in the country;
expand the range and
reach of social safety nets by providing direct assistance to
strengthen the delivery mechanism for primary health
care facilities with a view to improve the preventive and
curative health care in the country;
create a competitive, progressive and well regulated
education system of global standards that meets the aspiration
of all segments of the society; and
move towards providing energy security by pursuing an
Integrated Energy Policy.
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
. 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.
The first challenge is to lead the economy back
to the high
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.
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.
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
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 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
The structure of
’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
at well over 50 per cent. The share of merchandise trade
(exports plus imports) as a proportion of
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
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.
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
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.
This fiscal accommodation led to an increase in
fiscal deficit from 2.7 per cent in 2007-08 to 6.2 per cent of
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
at current market prices for 2008-09 amounts to Rs.1,86,000
These measures were effective in arresting the fall in
growth rate of
in 2008-09 and we achieved a growth of 6.7 per cent. There are
signs of revival in the domestic 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.
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
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
‘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.
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
). 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.
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.
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 Railways
from Rs.10,800 crore made in the Interim Budget for 2009-10 to
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
Mumbai Storm Water Drainage Project (BRIMSTOWA)
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
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.
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
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
Gas Cracker Project
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
I now turn to Agricultural development.
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
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.
Relief for farmers
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
It is learnt that in some regions of
, 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.
Irrigation Benefit Programme
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
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:
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
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.
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 pre-shipment
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
September 30, 2009
March 31, 2010
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.
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
31st December, 2009
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.
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.
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.
and Diesel pricing policy
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.
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.
ownership of PSUs
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
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.
The average public float in Indian listed companies is
less than 15 per cent. Deep
non-manipulable markets require larger and diversified public
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.
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.
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 (
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.
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.
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.
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.
’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
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.
Rural Employment Guarantee Scheme (NREGS)
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.
Food Security Act (NFSA)
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
(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).
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.
Mantri Adarsh Gram Yojana (PMAGY)
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
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.
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
as members of SHGs over the next five years and link these
SHGs to banks.
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
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.
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
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
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
. It is estimated
that over 5 lakh students would avail of this benefit.
Welfare of Minorities
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.
Aligarh Muslim University has decided to establish its
campuses at Murshidabad in
and Malappuram in Kerala. I propose to make an allocation of
Rs.25 crore each for these two campuses.
Welfare of workers in the
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 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
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.
In the last Budget two mega handloom clusters at
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
and Tamil Nadu and one powerloom mega cluster in Rajasthan.
These will help preserve the magnificent textile
and Tamil Nadu and generate thousands of jobs in Rajasthan.
In addition, I propose to add new mega clusters for
(J&K) and Mirzapur (UP).
The National Rural Health
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.
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
and Climate Change
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
this, eight national
missions representing a multi-pronged, long term
and integrated approach are being launched. I propose
to provide necessary funds for these missions.
Our government has already set up a ‘National Ganga
River Basin Authority’ (NGRBA). I propose increasing the
budgetary outlay for the
and Lake Conservation Plans to Rs.562 crore in 2009-10 from
Rs.335 crore in 2008-09.
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.
BUILDING ACCOUNTABLE INSTITUTIONS
delivery of public services
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
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
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
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.
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.
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.
Rank One Pension for Ex-Servicemen (OROP)
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
The demographic advantage
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, ‘
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
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.
Union Territory of Chandigarh is the capital of
and Haryana. The facilities at
, 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
during the current financial year.
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.
Madam Speaker, the Government is committed to ensure
that Sri Lankan Tamils enjoy their rights and
legitimate aspirations within the territorial sovereignty and
’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
As Honourable Members are aware, Cyclone Aila struck
the coast of
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.
Madam Speaker, now I turn to the Budget Estimates for
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%.
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.
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 fiscal expansion
will go a long way in reversing the impact of economic
slowdown and accelerate our growth revival in the medium term.
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
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
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.
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
Madam Speaker, I shall now present my tax proposals.
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.
These tax reform initiatives have produced impressive
results. The Centre’s Tax-
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
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
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
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.
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.
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.
I shall now deal with direct taxes.
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 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.
In the past, surcharges on direct taxes have generally
been levied to meet the revenue needs arising from natural
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
this has to be balanced with the revenue needs of the
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.
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
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.
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.
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.
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.
The New Pension System (NPS) is an important milestone
in the development of a sustainable, efficient, voluntary and
defined contribution pension system in
. 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.
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.
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.
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.
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
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.
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.
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.
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.
Madam Speaker, I turn to my main proposals on indirect
I will first take up customs duties.
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 where distortions provide a
compelling reason or where relief would provide a healing
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.
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
Full exemption from
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.
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.
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.
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.
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
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 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
I will now come to central excise duties.
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.
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.
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.
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.
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:
paper, paperboard & their articles;
items of mass consumption such as pressure cookers,
cheaper electric bulbs, low-priced footwear, water
filters/purifiers, CFL etc.;
power driven pumps for handling water; and
The details are available in the relevant
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.
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!
My other proposals on central excise duties seek to
address distortions that the manufacturing industry has been
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.
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.
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.
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
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.
I now turn to my proposals on service tax.
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
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.
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
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.
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.
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.
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
Government has accepted this genuine demand. Therefore, I
propose to make certain legislative changes required to
fulfill this promise.
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.
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.
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
of our dreams.
Madam Speaker, with these words I commend the budget to