Budget 2010-2011: Pranab Mukherjee
Budget 2010-2011: Pranab Mukherjee
Budget 2010-2011: Pranab Mukherjee
Speech
Budget 2010-2011
Speech of
Pranab Mukherjee
Minister of Finance
February 26, 2010
Madam Speaker,
In 2009, when I presented the interim Budget in February and the regular
Budget in July in this august House, the Indian economy was facing grave uncertainties.
Growth had started decelerating and the business sentiment was weak. The economy's
capacity to sustain high growth was under serious threat from the widespread economic
slowdown in the developed world.
2. It was not clear to us, as also to the policy makers in many other countries, how
this crisis would eventually unfold. What would be its impact on the growth momentum
of the Indian economy? How soon will we be able to turnaround the fortunes of our
economy? The short term global outlook was bleak and the consensus was that year
2009 would face the brunt of this crisis across the world.
3. At home, there was added uncertainty on account of the delayed and sub-
normal south-west monsoon, which had undermined the kharif crop in the
country. There were concerns about production and prices of food items and its possible
repercussions on the growth of rural demand.
4. Today, as I stand before you, I can say with confidence that we have weathered
these crises well. Indian economy now is in a far better position than it was a year ago.
That is not to say that the challenges today are any less than what they were nine
months ago when UPA under the leadership of Mrs Sonia Gandhi was elected back to
power and Prime Minister Dr. Manmohan Singh formed the Government for the second
term.
5. The three challenges and the medium term perspective that I had outlined in
my last Budget Speech remain relevant, even today. These would continue to engage the
Indian policy-planners for the next few years.
6. The first challenge before us is to quickly revert to the high GDP growth path of
9 per cent and then find the means to cross the 'double digit growth barrier'. This calls
for imparting a fresh momentum to the impressive recovery in growth witnessed in the
past few months. In this endeavour, I seek Lord Indra's help to make the recovery more
broad-based in the coming months.
7. Growth is only as important as what it enables us to do and be. Therefore,
the second challenge is to harness economic growth to consolidate the recent gains in
making development more inclusive. The thrust imparted to the development of
infrastructure in rural areas has to be pursued to achieve the desired objectives within a
fixed time frame.
11. With development and economic reforms, the focus of economic activity has
shifted towards the non-governmental actors, bringing into sharper focus the role of
Government as an enabler.
12. An enabling Government does not try to deliver directly to the citizens
everything that they need. Instead it creates an enabling ethos so that individual
enterprise and creativity can flourish. Government concentrates on supporting and
delivering services to the disadvantaged sections of the society.
13. It is this broad conceptualisation of the Budget that informs my speech today. I
would now begin by presenting a brief overview of the economy.
14. Yesterday, I laid on the table of the House the Economic Survey, which gives a
detailed analysis of the economic situation of the country over the past twelve months. I
intend to highlight only a few salient features that form the backdrop of this Budget.
15. The fiscal year 2009-10 was a challenging year for the Indian economy. The
significant deceleration in the second half of 2008-09, brought the real GDP growth down
to 6.7 per cent, from an average of over 9 per cent in the preceding three years. We
were among the first few countries in the world to implement a broad-based counter-
cyclic policy package to respond to the negative fallout of the global slowdown. It
included a substantial fiscal expansion along with liberal monetary policy support.
16. The effectiveness of these policy measures became evident with fast paced
recovery. The economy stabilised in the first quarter of 2009-10 itself, when it clocked a
GDP growth of 6.1 per cent, as against 5.8 per cent in the fourth quarter of the
preceding year. It registered a strong rebound in the second quarter, when the growth
rate rose to 7.9 per cent. With the Advance Estimates placing the likely growth for 2009-
10 at 7.2 per cent, we are indeed vindicated in our policy stand. The final figure may well
turn out to be higher when the third and fourth quarter GDP estimates for 2009-10
become available.
17. This recovery is very encouraging for it has come about despite a negative
growth in the agriculture sector. More importantly, it is the result of a renewed
momentum in the manufacturing sector and marks the rise of this sector as the growth
driver of the economy. The growth rate in manufacturing in December 2009 was 18.5
per cent— the highest in the past two decades. There are also signs of a turnaround in
the merchandise exports with a positive growth in November and December 2009 after a
decline of about twelve successive months. Export figures for January are also
encouraging. Significant private investment can now be expected to provide the engine
for sustaining a growth of 9 per cent per annum. With some luck, I hope to breach the
10 per cent mark in not-too-distant a future.
18. A major concern during the second half of 2009-10 has been the emergence of
double digit food inflation. There was a momentum in food prices since the flare-up of
global commodity prices preceding the financial crisis in 2008, but it was expected that
the agriculture season beginning June 2009 would help in moderating the food inflation.
However, the erratic monsoons and drought like conditions in large parts of the country
reinforced the supply side bottlenecks in some of the essential commodities. This set in
motion inflationary expectations. Since December 2009, there have been indications of
these high food prices, together with the gradual hardening of the fuel product prices,
getting transmitted to other non-food items as well. The inflation data for January seems
to have confirmed this trend.
19. Government is acutely conscious of this situation and has set in motion steps, in
consultation with the State Chief Ministers, which should bring down the inflation in the
next few months and ensure that there is better management of food security in the
country.
CONSOLIDATING GROWTH
Fiscal Consolidation
23. In shaping the fiscal policy for 2010-11, I have acted on the recommendations
of the Thirteenth Finance Commission. It has recommended a calibrated exit strategy
from the expansionary fiscal stance of last two years. The Commission has recommended
a capping of the combined debt of the Centre and the States at 68 per cent of the GDP to
be achieved by 2014-15.
24. As a part of the fiscal consolidation process, it would be for the first time that
the Government would target an explicit reduction in its domestic public debt-GDP ratio.
I intend to bring out, within six months, a status paper giving a detailed analysis of the
situation and a road map for curtailing the overall public debt. This would be followed by
an annual report on the subject.
Tax reforms
25. I am happy to inform the Honourable Members that the process for building a
simple tax system with minimum exemptions and low rates designed to promote
voluntary compliance, is now nearing completion. On the Direct Tax Code the wide-
ranging discussions with stakeholders have been concluded. I am confident that the
Government will be in a position to implement the Direct Tax Code from April 1, 2011.
26. On Goods and Services Tax, we have been focusing on generating a wide
consensus on its design. In November, 2009 the Empowered Committee of the State
Finance Ministers placed the first discussion paper on GST in the public domain. The
Thirteenth Finance Commission has also made a number of significant recommendations
relating to GST, which will contribute to the ongoing discussions. We are actively
engaged with the Empowered Committee to finalise the structure of GST as well as the
modalities of its expeditious implementation. It will be my earnest endeavour to
introduce GST along with the DTC in April, 2011.
28. Since then, ownership has been broad based in Oil India Limited, NHPC, NTPC
and Rural Electrification Corporation while the process is on for National Mineral
Development Corporation and Satluj Jal Vidyut Nigam. The Government will raise about
Rs.25,000 crore during the current year. Through this process, I propose to raise a
higher amount during the year 2010-11. The proceeds will be utilised to meet the capital
expenditure requirements of social sector schemes for creating new assets.
Fertiliser subsidy
31. I had announced the intent of the Government for the fertiliser sector in my
Budget Speech of 2009. A Nutrient Based Subsidy policy for the fertiliser sector has since
been approved by the Government and will become effective from April 1, 2010. This
policy is expected to promote balanced fertilization through new fortified products and
focus on extension services by the fertiliser industry. This will lead to an increase in
agricultural productivity and consequently better returns for the farmers. Over time, the
policy is expected to reduce volatility in the demand for fertiliser subsidy in addition to
containing the subsidy bill. Government will ensure that nutrient based fertiliser prices
for transition year 2010-11, will remain around MRPs currently prevailing. The new
system will move towards direct transfer of subsidies to the farmers.
32. In the last Budget, the constitution of an Expert Group, to advise the
Government on a viable and sustainable system of pricing of petroleum products, was
announced. The Group headed by Shri Kirit Parikh has submitted its recommendations
to the Government. Decision on these recommendations will be taken by my colleague,
the Minister of Petroleum & Natural Gas, in due course.
33. I am very happy to inform the Honourable Members that we have not only
adhered to the fiscal roadmap that I had presented as a part of the Budget documents
last year, but we have improved upon it. Except for meeting the liabilities of the year
2008-09, we have not issued oil or fertiliser bonds. I shall come to the numbers when I
refer to the budget estimates a little later.
34. Foreign Direct Investment (FDI) inflows during the year have been steady in
spite of the decline in global capital flows. India received FDI equity inflows of US$ 20.9
billion during April-December, 2009 compared to US$ 21.1 billion during the same period
last year.
35. Government has taken a number of steps to simplify the FDI regime to make it
easily comprehensible to foreign investors. For the first time, both ownership and control
have been recognised as central to the FDI policy, and methodology for calculation of
indirect foreign investment in Indian companies has been clearly defined. A consistent
policy on downstream investment has also been formulated. Another major initiative has
been the complete liberalization of pricing and payment of technology transfer fee,
trademark, brand name and royalty payments. These payments can now be made under
the automatic route.
Banking Licences
38. The Indian banking system has emerged unscathed from the crisis. We need to
ensure that the banking system grows in size and sophistication to meet the needs of a
modern economy. Besides, there is a need to extend the geographic coverage of banks
and improve access to banking services. In this context, I am happy to inform the
Honourable Members that the RBI is considering giving some additional banking licenses
to private sector players. Non Banking Financial Companies could also be considered, if
they meet the RBI's eligibility criteria.
39. During 2008-09, the Government infused Rs.1900 crore as Tier-I capital in four
public sector banks to maintain a comfortable level of Capital to Risk Weighted Asset
Ratio. An additional sum of Rs.1200 crore is being infused now. For the year 2010-11, I
propose to provide a sum of Rs.16,500 crore to ensure that the Public Sector Banks are
able to attain a minimum 8 per cent Tier-I capital by March 31, 2011.
Recapitalisation of Regional Rural Banks
40. Regional Rural Banks (RRBs) play an important role in providing credit to rural
economy. The capital of these banks is shared by the Central Government, sponsor
banks and State Governments. The banks were last capitalised in
2006-07. I propose to provide further capital to strengthen the RRBs so that they have
adequate capital base to support increased lending to the rural economy.
Corporate Governance
Exports
43. The SEZs have attracted significant flows of domestic and foreign investments.
In first three quarters of 2009-10 exports from SEZs recorded a growth of 127 per cent
over the corresponding period last year. Government is committed to ensuring continued
growth of SEZs to draw investments and boost exports and employment.
Agriculture Growth
46. In the 60th year of the Republic, it is proposed to organise 60,000 "pulses and
oil seed villages" in rain-fed areas during 2010-11 and provide an integrated intervention
for water harvesting, watershed management and soil health, to enhance the
productivity of the dry land farming areas. I propose to provide Rs.300 crore for this
purpose. This initiative will be an integral part of the Rashtriya Krishi Vikas Yojana.
47. The gains already made in the green revolution areas have to be sustained
through conservation farming, which involves concurrent attention to soil health, water
conservation and preservation of biodiversity. I propose an allocation of Rs.200 crore for
launching this climate resilient agriculture initiative.
49. There is wastage of grain procured for buffer stocks and public distribution
system due to acute shortage of storage capacity in the Food Corporation of India. This
deficit in the storage capacity is met through an ongoing scheme for private sector
participation where the FCI has been hiring godowns from private parties for a
guaranteed period of 5 years. This period is now being extended to 7 years.
51. The Debt Waiver and Debt Relief Scheme for Farmers was a major initiative of
the UPA Government. In view of the recent drought in some States and the severe floods
in some other parts of the country, I propose to extend by six months the period for
repayment of the loan amount by farmers from December 31, 2009 to June 30, 2010.
52. In the last budget, I had provided an additional one per cent interest subvention
as an incentive to those farmers who repay their short-term crop loans as per schedule. I
propose to raise this subvention for timely repayment of crop loans from one per cent to
two per cent for 2010-11. Thus, the effective rate of interest for such farmers will now be
five per cent per annum. Necessary provision in the Budget has been made.
54. As a part of the farm to market initiative, External Commercial Borrowings will
henceforth be available for cold storage or cold room facility, including for farm level pre-
cooling, for preservation or storage of agricultural and allied produce, marine products
and meat. Changes in the definition of infrastructure under the ECB policy are being
made.
Infrastructure
56. To make a visible impact in the road sector, Government has targeted
construction of national highways (NHs) at the pace of 20 km per day. To push the pace
of implementation, changes have been made in the policy framework, especially in
respect of projects being executed through public private partnerships (PPPs). For the
year 2010-11, I propose to raise the allocation of road transport by over 13 per cent
from Rs.17,520 crore to Rs.19,894 crore.
57. Honourable Members have already heard from the Railway Minister about the
large investments required to modernise and expand the network. I have provided
Rs.16,752 crore in the Budget for 2010-11 for Railways to lend her a helping hand. This
is about Rs.950 crore more than last year, when a substantial increase was made in the
budgetary support for Railways.
Energy
61. Coal is the mainstay of India's energy sector and 75 per cent of the power
generation is currently coal based. It is proposed to introduce a competitive bidding
process for allocating coal blocks for captive mining to ensure greater transparency and
increased participation in production from these blocks.
64. The Ladakh region of Jammu and Kashmir faces an extremely harsh climate and
suffers from energy deficiency. To address this problem, it is proposed to set up solar,
small hydro and micro power projects at a cost of about Rs.500 crore.
66. There are many areas of the country where pollution levels have reached
alarming proportions. While we must ensure that the principle of "polluter pays" remains
the basic guiding criteria for pollution management, we must also give a positive thrust
to development of clean energy. I propose to establish a National Clean Energy Fund for
funding research and innovative projects in clean energy technologies. I shall outline the
mode of funding for this initiative in Part B of my speech.
67. The textile cluster for knitwear in Tirupur in Tamil Nadu is a major contributor to
the country's hosiery exports. I propose to provide a one-time grant of Rs.200 crore to
the Government of Tamil Nadu towards the cost of installation of a zero liquid discharge
system at Tirupur to sustain this industry, which provides livelihood to lakhs of persons,
without undermining the environment.
68. I propose to provide a sum of Rs.200 crore as a Special Golden Jubilee package
for Goa to preserve the natural resources of the State by restoring Goa's beaches which
are prone to erosion, and increasing its green cover through sustainable forestry.
69. The "Mission Clean Ganga 2020" under the National Ganga River Basin
Authority (NGRBA) with the objective that no untreated municipal sewage or industrial
effluent will be discharged into the national river has already been initiated. I propose to
double the allocation for NGRBA in 2010-11 to Rs.500 crore.
70. I am happy to inform the Honourable Members that schemes on bank protection
works along river Bhagirathi and river Ganga-Padma in parts of Murshidabad and Nadia
district of West Bengal have been included in the Centrally Sponsored Flood Management
Programme. I also propose to provide budgetary support for drainage scheme of
Kaliaghai-Kapaleswari Baghai basin in the district of Purba and Paschim Midnapore, and
Master Plan of Kandi sub-division in Murshidabad, West Bengal.
71. Recognising the need for developing an alternate port facility in West Bengal, it
is proposed to develop a project at Sagar Island. Necessary funds will be provided in due
course.
INCLUSIVE DEVELOPMENT
72. For the UPA Government, inclusive development is an act of faith. In the last
five years, our Government has created entitlements backed by legal guarantees for an
individual's right to information and her right to work. This has been followed-up with the
enactment of the right to education in 2009-10. As the next step, we are now ready with
the draft Food Security Bill which will be placed in the public domain very soon. To fulfil
these commitments the spending on social sector has been gradually increased to
Rs.1,37,674 crore which now stands at 37 per cent of the total plan outlay in 2010-
11. Another 25 per cent of the plan allocations are devoted to the development of rural
infrastructure. With growth and the opportunities that it generates, we hope to further
strengthen the process of inclusive development.
Education
73. The Right of Children to Free and Compulsory Education Act, 2009 creates a
framework for legal entitlements for all children in the age group of 6 to 14 years to
education of good quality, based on principles of equity and
non-discrimination. In recent years, Sarva Shiksha Abhiyan (SSA) has made significant
contribution in improving enrolment and infrastructure for elementary education. About
98 per cent of habitations are now covered by primary schools. I propose to increase the
plan allocation for school education from Rs.26,800 crore in 2009-10 to Rs.31,036 crore
in 2010-11. In addition, States will have access to Rs.3,675 crore for elementary
education under the Thirteenth Finance Commission grants for 2010-11.
Health
74. An Annual Health Survey to prepare the District Health Profile of all Districts
shall be conducted in 2010-11. The findings of the Survey should be of immense benefit
to major public health initiatives particularly the National Rural Health Mission, which has
successfully addressed the gaps in the delivery of critical health services in rural areas.
75. I propose to increase the plan allocation for the Ministry of Health and Family
Welfare, from Rs.19,534 crore to Rs.22,300 crore for 2010-11.
Financial Inclusion
76. To reach the benefits of banking services to the 'Aam Aadmi', the Reserve Bank
of India had set up a High Level Committee on the Lead Bank Scheme. After careful
assessment of the recommendations of this Committee, and in further consultation with
the RBI, it has been decided to provide appropriate Banking facilities to habitations
having population in excess of 2000 by March, 2012. It is also proposed to extend
insurance and other services to the targeted beneficiaries. These services will be
provided using the Business Correspondent and other models with appropriate
technology back up. By this arrangement, it is proposed to cover 60,000 habitations.
Financial Inclusion Fund (FIF) and the Financial Inclusion Technology Fund
77. In 2007-08 the Government had set up a Financial Inclusion Fund and a
Financial Inclusion Technology Fund in NABARD, to reach banking services to the
unbanked areas. To give momentum to the pace of financial inclusion, I propose an
augmentation of Rs.100 crore for each of these funds, which shall be contributed by
Government of India, RBI and NABARD.
Rural Development
78. In the words of Mahatma Gandhi "Just as the universe is contained in the self,
so is India contained in the villages". For UPA Government, development of rural
infrastructure remains a high priority area. For the year 2010-11, I propose to provide
Rs.66,100 crore for Rural Development.
80. Indira Awas Yojana is a popular rural housing scheme for weaker sections.
Taking note of the increase in the cost of construction, I propose to raise the unit cost
under this scheme to Rs.45,000 in the plain areas and to Rs.48,500 in the hilly areas.
For the year 2010-11, the allocation for this scheme is being increased to Rs.10,000
crore.
81. As a part of the strategy to bridge the infrastructure gap in backward districts of
the country, the Backward Region Grant Fund has proved to be an effective instrument. I
propose to enhance the allocation to this fund by 26 per cent from Rs.5,800 crore in
2009-10 to Rs.7,300 crore in 2010-11. I have also provided an additional central
assistance of Rs.1,200 crore for drought mitigation in the Bundelkhand region in the
Budget.
83. While presenting the Union Budget for the year 2009-10, I had announced a
Scheme of one per cent interest subvention on housing loans up to Rs.10 lakhs where
the cost of the house does not exceed Rs.20 lakhs. I propose to extend this Scheme up
to March 31, 2011. Accordingly, I propose to provide a sum of Rs.700 crore for this
Scheme for the year 2010-11.
84. The Rajiv Awas Yojana (RAY) for slum dwellers and urban poor was announced
last year to extend support to States that are willing to provide property rights to slum
dwellers. This scheme is now ready to take off. I propose to allocate Rs.1,270 crore for
2010-11 as compared to Rs.150 crore last year. This marks an increase of over 700 per
cent. The Government's efforts in the implementation of RAY would be to encourage the
States to create a slum free India at the earliest.
85. Micro, Small and Medium Enterprises (MSMEs) contribute 8 per cent of the
country's GDP, 45 per cent of the manufactured output and 40 per cent of our exports.
They provide employment to about 6 crore persons through 2.6 crore enterprises. To
resolve a number of issues which affect the growth of this sector, Prime Minister
constituted a High-Level Task Force which held detailed discussions with all stake holders
and drew up an agenda for action. A High Level Council on Micro and Small Enterprises
will monitor the implementation of the recommendations and the agenda for action. I
propose to raise the allocation for this sector from Rs.1,794 crore to Rs.2,400 crore for
the year 2010-11.
86. A loan agreement for US $ 150 million has been signed between the
Government of India and the Asian Development Bank on 22nd December, 2009 for
implementing the comprehensive Khadi Reforms Programme. This programme will cover
300 selected Khadi institutions.
Micro Finance
87. The programme for linking Self Help Groups (SHGs) with the banking system
has emerged as the major micro-finance initiative in the country. It was re-designated as
the 'Micro-Finance Development and Equity Fund' in 2005-06 with a corpus of Rs.200
crore. The fund corpus is being doubled to Rs.400 crore in 2010-11.
Unorganised Sector
88. Recognising the need for providing social security to the workers in the
unorganised sector, and as a follow up to the Unorganised Sector Workers Social
Security Act, 2008, it has been decided to set up a National Social Security Fund for
unorganised sector workers with an initial allocation of Rs.1,000 crore. This fund will
support schemes for weavers, toddy tappers, rickshaw pullers, bidi workers etc.
90. To encourage the people from the unorganised sector to voluntarily save for
their retirement and to lower the cost of operations of the New Pension Scheme (NPS)
for such subscribers, Government will contribute Rs.1,000 per year to each NPS account
opened in the year 2010-11. This initiative, "Swavalamban" will be available for persons
who join NPS, with a minimum contribution of Rs.1,000 and a maximum contribution of
Rs.12,000 per annum during the financial year 2010-11. The scheme will be available for
another three years. Accordingly, I am making an allocation of Rs.100 crore for the year
2010-11. It will benefit about 10 lakh NPS subscribers of the unorganised sector. The
scheme will be managed by the interim Pension Fund Regulatory and Development
Authority.
91. I also appeal to the State Governments to contribute a similar amount to the
scheme and participate in providing social security to the vulnerable sections of the
society.
Skill development
92. Prime Minister's Council on National Skill Development has laid down the core
governing principles for operating strategies for skill development. The Council has a
mission of creating 50 crore skilled people by 2022. Of these, the target for the National
Skill Development Corporation, which has started functioning from October, 2009, is 15
crore. It has completed a comprehensive skill gap study of 21 high growth sectors and
approved three projects worth about Rs.45 crore to create 10 lakh skilled manpower at
the rate of one lakh per annum. Other projects are in advanced stages of consideration.
Social Welfare
94. I propose to step up the plan outlay for Women and Child Development by
almost 50 per cent. Several new initiatives that were launched in 2009-10 are now ready
for implementation. A mission for empowerment of women is being set up. The ICDS
platform is being expanded for effective implementation of the Rajiv Gandhi Scheme for
Adolescent Girls.
95. To further improve female literacy rate, the Government has recast the earlier
National Literacy Mission as a new programme "Saakshar Bharat". It was launched in
September, 2009 with a target of 7 crore non-literate adults which includes 6 crore
women.
97. I am happy to inform the Honourable Members that I propose to enhance the
plan outlay of the Ministry of Social Justice and Empowerment to Rs.4500 crore. This
amounts to an increase of 80 per cent as compared to 2009-10. This will support the
programmes being implemented for the target population groups covering the Scheduled
Castes, Other Backward Classes, persons with disabilities, senior citizens and victims of
alcoholism and substance abuse. With this enhancement, the Ministry will be able to
revise rates of scholarship under its post-matric scholarship schemes for SCs and OBC
students, which is long overdue.
98. The allocation will also assist in establishing an Indian Sign Language Research
and Training Centre for the benefit of the hearing impaired. District Disability
Rehabilitation Centres are being set up in 50 additional districts along with two composite
regional centres for persons with disabilities.
99. I also propose to raise the plan allocation for the Ministry of Minority Affairs
from Rs.1,740 crore to Rs.2,600 crore for the year 2010-11. This marks an increase of
nearly 50 per cent. I am happy to inform the Honourable Members that we are close to
achieving the target of 15 per cent priority sector lending to minorities in the current
year. This will be maintained for the next three years.
101. Most of our legislations governing the financial sector are very old. Large
number of amendments to these Acts made at different points of time has also increased
ambiguity and complexity. The Government proposes to set up a Financial Sector
Legislative Reforms Commission to rewrite and clean up the financial sector laws to bring
them in line with the requirements of the sector.
103. In my last Budget Speech, I had announced the constitution of the Unique
Identification Authority of India, its broad working principles and the timelines for
delivery of the first UID numbers. I am happy to report that the Authority has been
constituted and it will be able to meet its commitments of issuing the first set of UID
numbers in the coming year. It would provide an effective platform for financial inclusion
and targeted subsidy payments. Since the UIDAI will now get into the operational phase,
I am allocating Rs.1,900 crore to the Authority for 2010-11.
104. An effective tax administration and financial governance system calls for
creation of IT projects which are reliable, secure and efficient. IT projects like Tax
Information Network, New Pension Scheme, National Treasury Management Agency,
Expenditure Information Network, Goods and Service Tax, are in different stages of roll
out. To look into various technological and systemic issues, I propose to set up a
Technology Advisory Group for Unique Projects under the Chairmanship of Shri Nandan
Nilekani.
106. In the ensuing year, we intend to formalise a symbol for the Indian Rupee,
which reflects and captures the Indian ethos and culture. With this, Indian Rupee will join
the select club of currencies such as the US Dollar, British Pound Sterling, Euro and
Japanese Yen that have a clear distinguishing identity.
107. Secure borders and security of life and property fosters development. I propose
to increase the allocation for Defence to Rs.1,47,344 crore. This would include Rs.60,000
crore for capital expenditure. Needless to say, any additional requirement for the security
of the nation will be provided for.
108. In 2009-10, the overall internal security and law and order situation in the
country remained largely under control. Several new measures were taken by the
Government to strengthen the security apparatus of the country. These include
operationalisation of the National Investigation Agency (NIA), establishment of four NSG
Hubs, augmentation of the Intelligence Bureau and its Multi-Agency Centre.
109. There was decline in violence in Jammu and Kashmir in the year 2009. We have
taken a number of confidence building measures. As one more such measure,
Government proposes to recruit about 2,000 youth as constables in five Central Para
Military Forces in the year 2010.
110. To address the development problems of the thirty three left wing extremism
affected districts, a Task Force headed by the Cabinet Secretary was formed for
promoting coordinated efforts across a range of development and security measures. It
has been decided that Planning Commission will prepare an integrated action plan for the
affected areas. Adequate funds will be made available to support the action plan. I
appeal to the misguided elements to eschew violence and join the development process.
111. To provide timely delivery of justice to all, the Government has approved the
setting up of the National Mission for Delivery of Justice and Legal Reforms. The
objective of the mission is to help reduce legal backlog in courts from an average of 15
years at present to 3 years by 2012. It would also help in improving the legal
environment for business. The Thirteenth Finance Commission has provided grants
amounting to Rs.5,000 crore for the States to improve the delivery of justice, including
strengthening of alternate dispute resolution mechanisms.
112. The Gross Tax Receipts are estimated at Rs.7,46,651 crore. The Non Tax
Revenue Receipts are estimated at Rs.1,48,118 crore. The net tax revenue to the Centre
as well as the expenditure provisions in 2010-11 have been estimated with reference to
the recommendations of the Thirteenth Finance Commission.
114. Honourable Members will agree that fiscal policy has to be guided by the
required framework for fiscal prudence. In the Medium Term Fiscal Policy Statement
presented along with Budget 2009-10, I had laid down a road map for fiscal deficit. I am
happy to report that in keeping with my commitment, I have been able to present the
Budget for 2010-11 with a fiscal deficit of 5.5 per cent. In the Medium Term Fiscal Policy
Statement being presented to the House today, along with other Budget documents, the
rolling targets for fiscal deficit are pegged at 4.8 per cent and 4.1 per cent for 2011-12
and 2012-13, respectively. These projections improve upon the recommendations of the
Thirteenth Finance Commission.
115. While presenting the Budget for 2009-10, I had expressed my concern about
the high level of fiscal deficit. I had also stated that the Government will address this
issue in right earnest to come back to the path of fiscal consolidation at the earliest. I
am happy to report that against a fiscal deficit of 7.8 per cent in 2008-09, inclusive of oil
and fertiliser bonds, the comparable fiscal deficit is 6.9 per cent as per the Revised
Estimates for 2009-10. Both these deficit figures are based on the revised GDP numbers
published by the Central Statistical Organisation and include what were earlier referred
to as below the line items. This marks an improvement of about one per cent in fiscal
deficit during the current year. I have made a conscious effort to avoid issuing bonds to
oil and fertiliser companies. I would like to continue with this practice of extending
Government subsidy in cash, thereby bringing all subsidy related liabilities into our fiscal
accounting.
116. The fiscal deficit of 5.5 per cent of GDP in 2010-11 works out to
Rs.3,81,408 crore. Taking into account the various other financing items for fiscal
deficit, the actual net market borrowing of the Government in 2010-11 would be of
the order of Rs.3,45,010 crore. There will be enough space to meet the credit needs
of the private sector. The Government will plan the borrowing programme in
consultation with the RBI.
PART - B
Madam Speaker,
117. While formulating them, I have been guided by the principles of sound tax
administration as embodied in the following words of Kautilya:
"Thus, a wise Collector General shall conduct the work of revenue
collection.... in a manner that production and consumption should not be
injuriously affected.... financial prosperity depends on public prosperity,
abundance of harvest and prosperity of commerce among other things."
118. I had stated last year that tax reform is a process and not an event. The
process I had outlined in the area of direct taxes was to release a draft Direct Taxes
Code along with a Discussion Paper. In the area of indirect taxes, the reform
initiative was the introduction of a Goods and Services Tax. I have presented the
developments in both reform initiatives in Part 'A' of my Speech.
121. To achieve the roll-out of GST by April 2011, the indirect tax
administrations at the Centre and the States need to revamp their internal work
processes based on the use of Information Technology. I am happy to inform
Honorable Members that project ACES - Automation of Central Excise & Service
Tax, has already been rolled out throughout the country this year. This will impart
greater transparency in tax administration and improve the delivery of taxpayer
services. Similarly, a Mission Mode Project for computerisation of Commercial
Taxes in States has been approved recently. With an outlay of Rs.1133 crore of
which the Centre's share is Rs.800 crore, the project will lay the foundation for the
launch of GST.
122. I mentioned last year, that the income tax return forms should be simple and
user friendly. The income tax department is now ready to notify SARAL-II form
for individual salaried taxpayers for the coming assessment year. This form will
enable individuals to enter relevant details in a simple format in only two pages.
124. Last year, amendments to the statute enabled Government to enter into tax
treaties with specified territories besides sovereign states. We have commenced bi-
lateral discussions to enhance the exchange of bank related and other information to
effectively track tax evasion and identify undisclosed assets of resident Indians lying
abroad.
Direct Taxes
Income above Rs.1.6 lakh and upto Rs.5 lakh 10 per cent
Income above Rs.5 lakh and upto Rs.8 lakh 20 per cent
127. To promote savings as well as to ensure their utilisation for the thrust area of
infrastructure, I propose to allow a deduction of an additional amount of Rs.20,000
for investment in long-term infrastructure bonds as notified by the Central
Government. This would be over and above the existing limit of Rs.1 lakh on tax
savings. I am sure that these reliefs will put more money in the hands of individual
taxpayers for both consumption as well as saving.
130. The President, in her address to the Parliament in June 2009, had declared
this decade as the Decade of Innovation. Last year, I extended the scope of weighted
deduction on expenditure incurred on in-house research and development (R&D) to
all manufacturing businesses except for a small negative list. To further encourage
R&D across all sectors of the economy, I now propose to enhance the weighted
deduction on expenditure incurred on in-house R&D from 150 per cent to 200 per
cent. I also propose to enhance the weighted deduction on payments made to
National Laboratories, research associations, colleges, universities and other
institutions, for scientific research from 125 per cent to 175 per cent.
132. In my Budget Speech last year, I stated that profit linked deductions are
inherently inefficient and liable to misuse. To incentivise businesses in priority
sectors, I introduced investment linked deduction as an alternative to profit linked
deduction. To give a boost to investment in the tourism sector which has high
employment potential, I propose to extend the benefit of investment linked
deduction under the Act to new hotels of two-star category and above anywhere
in India.
133. To provide one time interim relief to the housing and real estate sector which
was impacted by the global recession, I propose to allow pending projects to be
completed within a period of five years instead of four years for claiming a
deduction on their profits. I also propose to relax the norms for built-up area of
shops and other commercial establishments in housing projects to enable basic
facilities for their residents.
134. All businesses with a turnover exceeding Rs.40 lakh are currently required to
have their accounts audited. A similar provision also applies to all professions
whose receipts exceed Rs.10 lakh. I, as Finance Minister, had introduced these
limits in my budget of 1984. It is high time to reduce the compliance burden on
small taxpayers. I, therefore, propose to enhance these limits to Rs.60 lakh in the
case of businesses and Rs.15 lakh in the case of professions.
135. To facilitate the business operations of small taxpayers, I had extended the
scope of presumptive taxation to all small businesses with a turnover of up to Rs.40
lakh. To further reduce the compliance burden on small taxpayers, I now propose
to enhance this limit to Rs.60 lakh.
136. The threshold limits of payments below which tax is not deductible at source
have remained unchanged for a long time. I propose to rationalise these thresholds.
137. Relaxing the current provisions on disallowance of expenditure, I propose to
allow deduction of such expenditure, if tax has been deducted at any time during the
financial year and paid before the due date of filing the return. This will allow most
deductors additional time up to September of the next financial year. At the same
time, I propose to increase the interest charged on tax deducted but not deposited by
the specified date, from 12 per cent to 18 per cent per annum.
138. Last year, I had provided for the taxation of the newly introduced Limited
Liability Partnership (LLP) on the same lines as exists for a general partnership
firm. To facilitate the conversion of small companies into LLPs, I propose that this
will not be subject to capital gains tax.
139. Under the current provisions of the Act, "the advancement of any other
object of general public utility" cannot be considered as "charitable purpose" if it
involves carrying on of any activity in the nature of trade, commerce or business. I
have received representations from many organisations seeking some relaxation in
this restriction. I propose that this restriction would not be applicable if the receipts
from such activities do not exceed Rs.10 lakh in the year.
142. Unlike the time I presented the last Budget, symptoms of economic recovery
are more widespread and clear-cut now. The three fiscal stimulus packages that the
Government introduced in quick succession have helped the process of recovery
significantly. The improvement in our economic performance encourages a course
of fiscal correction even as the global situation warrants caution. Therefore, I
propose to partially roll back the rate reduction in Central Excise duties and enhance
the standard rate on all non-petroleum products from 8 per cent to 10 per cent ad
valorem. The specific rates of duty applicable to portland cement and cement clinker
are also being adjusted upwards proportionately. Similarly, the ad
valorem component of excise duty on large cars, multi-utility vehicles and sports-
utility vehicles which was reduced as part of the first stimulus package, is being
increased by 2 percentage points to 22 per cent.
144. Since I quit smoking many years ago, I would urge others to also follow suit,
as smoking is injurious to health. To this end, I am making some structural changes
in the excise duty on cigarettes, cigars and cigarillos coupled with some increase in
rates. I also propose to enhance excise duty on all non-smoking tobacco such as
scented tobacco, snuff, chewing tobacco etc. In addition, I propose to introduce a
compounded levy scheme for chewing tobacco and branded unmanufactured
tobacco based on the capacity of pouch packing machines.
150. Concessional import duty was provided to specified machinery for use in the
plantation sector in the year 2003. This exemption is to lapse in July 2010. The
modernization of this labour-intensive sector is yet to reach the expected level. I
propose therefore, to extend it up to March 31, 2011 along with a CVD exemption. I
hope this will provide sufficient time for the sector to achieve the desired objective.
152. I also propose to exempt the transportation by road of cereals and pulses
from service tax. Their transportation by rail would remain exempt.
153. I propose two measures under the Central Excise law to ease the cash flow
position for small-scale manufacturers hard hit by the economic slowdown. First,
they would be permitted to take full credit of Central Excise duty paid on capital
goods in a single instalment in the year of their receipt. Secondly, they would be
permitted to pay Central Excise duty on a quarterly, rather than monthly basis.
These measures that come into effect on the April 1, 2010 should provide them
considerable relief.
Environment
156. Wind energy has shown promising growth in the country in recent years. As
a measure of further relief, I propose to exempt a few more specified inputs required
for the manufacture of rotor blades for wind energy generators from Central Excise
duty.
157. LED lights are staging a debut as a highly energy-efficient source of lighting
for streets, homes and offices. Central Excise duty on these is being reduced from 8
per cent to 4 per cent at par with Compact Fluorescent Lamps.
158. Full exemption from Central Excise duty was provided to electric cars and
vehicles that offer an eco-friendly alternative to petrol or diesel vehicles. The
manufacturers of such vehicles have expressed difficulty in neutralising the duty
paid on their inputs and components. I propose to remedy this by imposing a
nominal duty of 4 per cent on such vehicles. I also propose to exempt some critical
parts or sub-assemblies of such vehicles from basic customs duty and special
additional duty subject to actual user condition. These parts would also enjoy a
concessional CVD of 4 per cent.
Infrastructure
162. Full exemption from import duty is available to specified machinery for road
construction projects on the condition that the machinery shall not be sold or
disposed of for a minimum period of five years. In view of representations that this
leads to idling of machinery, I propose to allow resale of such machinery on
payment of import duty at depreciated value. It is also being clarified that the
importer is free to relocate such machinery to other eligible road construction
projects.
163. With the subscriber base growing at 14 million per month, India is one of the
fastest growing markets for mobile phone connections in the world. Domestic
production of mobile phones is now picking up in view of exemptions from basic,
CVD and special additional duties granted to their parts, components and
accessories. To encourage the domestic manufacture of accessories, these
exemptions are now being extended to parts of battery chargers and hands-free
headphones. Also, the validity of the exemption from special additional duty is
being extended till March 31, 2011.
Medical Sector
164. Medical equipment, instruments and appliances are subjected to a very
complex import duty regime based on several long lists that describe individual
items. Multiple rates coupled with descriptions not aligned with tariff lines, result in
disputes and at times prevent state-of-art equipment from getting the benefit of
exemption. I propose to prescribe a uniform, concessional basic duty of 5 per cent,
CVD of 4 per cent with full exemption from special additional duty on all medical
equipment. A concessional basic duty of 5 per cent is being prescribed on parts and
accessories for the manufacture of such equipment while they would be exempt
from CVD and special additional duty. Full exemption currently available to
medical equipment and devices such as assistive devices, rehabilitation aids etc. is
being retained. The concession available to Government hospitals or hospitals set up
under a statute is also being retained.
Infotainment
Precious Metals
168. The prices of precious metals continue to rise. Since the customs duty is
levied on these at specific rates, I propose to index the rates as follows:
• On gold and platinum from Rs.200 per 10 grams to Rs.300 per 10
grams.
• On silver from Rs.1,000 per kg to Rs.1,500 per kg.
170. To encourage domestic refining capacity for gold, I propose to reduce the
basic customs duty on gold ore and concentrates from 2 per cent ad valorem to a
specific duty of Rs.140 per 10 grams of gold content with full exemption from
special additional duty. Further, the excise duty on refined gold made from such ore
or concentrate is being reduced from 8 per cent to a specific duty of Rs.280 per 10
grams.
Other Proposals
173. Presently, there is a value limit of Rs.1 lakh per annum on duty-free import
of commercial samples as personal baggage. I propose to enhance this limit to Rs.3
lakh per annum.
174. Industry has represented that the exemption from special additional duty of 4
per cent based on refunds leads to substantial blockage of funds. To ease this
difficulty, I propose to provide an outright exemption from special additional duty to
goods imported in a pre-packaged form for retail sale. This would also cover mobile
phones, watches and ready-made garments even when they are not imported in pre-
packaged form. The refund-based exemption is also being retained for cases not
covered by the new dispensation.
177. My proposals relating to customs and central excise are estimated to result in
a net revenue gain of Rs.43,500 crore for the year.
Service Tax
178. The service sector contributes nearly 60 per cent of the GDP. The service
tax to GDP ratio however, is only around 1 per cent. This sector thus, has significant
potential to augment revenue.
179. To bridge this gap, I had the option to raise the rate of service tax to 12 per
cent as it was before I introduced the third stimulus package. I am not resorting to
this option to maintain the growth momentum and also to bring about a convergence
in the rates of tax on goods and services. I, therefore, propose to retain the rate of
tax on services at 10 per cent to pave the way forward for GST.
180. I had another option - to bring all services under service tax. I am not opting
for this either at this stage. I propose, however, to bring certain services, hitherto
untaxed, within the purview of the service tax levy. These are being notified
separately.
183. Accredited news agencies which provide news feed online attract service tax.
Acknowledging the yeoman services of such news agencies in disseminating news, I
propose to exempt such news agencies that meet certain criteria, from service tax.
184. My proposals relating to service tax are estimated to result in a net revenue
gain of Rs.3,000 crore for the year.
187. We have emerged from the global slowdown faster than any other nation. I
did not hesitate in exercising my judgement on the course of action last year and I
have no hesitation in my mind now. Our actions today will determine our tomorrow.
189. Madam Speaker, with these words I commend the Budget to the House.