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
The Congress-led UPA Government has come back to power with a
renewed mandate. As Prime Minister, Dr. Manmohan Singh, said
recently “It is a mandate for continuity, stability and prosperity.
It is a mandate for inclusive growth and equitable development.” It
is a mandate that we accept with humility and a firm resolve to do
all that we can for the welfare of this nation.
I am deeply conscious of the faith reposed by the people in our
government and the responsibilities that come with it. I am
sensitive to the great challenge of rising expectations of a young
India . It reflects a population that is restless, yet engaged and
is ready to seize the opportunities that it is presented with. There
are new and powerful reasons for us to create, facilitate and
sustain those opportunities.
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;(e) increase the investment in infrastructure to more
than 9 per cent of GDP by 2014;(f) support Indian industry to meet
the challenge of global competition and sustain the growth momentum
in exports;(g) strengthen and improve the economic regulatory
framework in the country;(h) expand the range and reach of social
safety nets by providing direct assistance to vulnerable sections;(i)
strengthen the delivery mechanism for primary health care facilities
with a view to improve the preventive and curative health care in
the country;(j) create a competitive, progressive and well regulated
education system of global standards that meets the aspiration of
all segments of the society; and(k) move towards providing energy
security by pursuing an Integrated Energy Policy.
The Government recognizes the challenges that this task entails,
particularly at a time when the world is still struggling with an
unprecedented financial crisis and an economic slowdown that has
also affected India . While we are determined to convert our words
into deeds, Members would appreciate that a single Budget Speech
cannot solve all our problems, nor is the Union Budget the only
instrument to do so. Yet, it is an important means to share the
vision of the Government, particularly as we begin a new term. I
propose to do just that for the next hour or so, as I dwell on the
challenges and outline the approach of the government in the short
term and medium term perspectives.
The first challenge is to lead the economy back to the high GDP
growth rate of 9 per cent per annum at the earliest. Growth of
income is important in itself, but it is as important for the
resources that it brings in. These resources provide us with the
means to bridge the critical gaps that remain in our development
efforts, particularly with regard to the welfare of the vulnerable
segments of our population.
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 few aspects.
The structure of India ’s economy has changed rapidly in the last
ten years. External trade and external capital flows are an
important part of the economy and so is the contribution of the
services sector to the GDP at well over 50 per cent. The share of
merchandise trade (exports plus imports) as a proportion of GDP has
more than doubled over the past decade to 38.9 per cent in 2008-09.
Similarly, trade in goods and services taken together has also
doubled to 47 per cent during this period. Gross capital flows rose
to a peak of over 9 per cent of GDP in 2007-08 before falling in the
wake of the global financial crisis. The significant increase in the
inflow of foreign capital is important, not so much for bridging the
domestic savings-investment gap, but for facilitating the
intermediation of financial resources to meet the growing needs of
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
TOWARDS ECONOMIC REVIVAL
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 GDP in 2008-09. The
difference between the actuals of 2007-08 and 2008-09 constituted
the total fiscal stimulus. This fiscal stimulus at 3.5% of GDP at
current market prices for 2008-09 amounts to Rs.1,86,000 crore.
These measures were effective in arresting the fall in growth rate
of GDP in 2008-09 and we achieved a growth of 6.7 per cent. There
are signs of revival in the domestic 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 exercise.
To stimulate public investment in infrastructure, we had set up the
India Infrastructure Finance Company Limited (IIFCL) as a special
purpose vehicle for providing long term financial assistance to
infrastructure projects. We will ensure that IIFCL is given greater
flexibility to aggressively fulfil its mandate.
‘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
Government has had some success in attracting private investment in
a wide range of infrastructure sectors such as telecommunications,
power generation, airports, ports, roads and even in railways
through public private partnerships ( PPP ). To ensure that
infrastructure projects do not face financing difficulties arising
from the current downturn, as I indicated in my Interim Budget
Speech, the Government has decided that IIFCL will refinance 60 per
cent of commercial bank loans for PPP projects in critical sectors
over the next fifteen to eighteen months. The IIFCL and Banks are
now in a position to support projects involving a total investment
of Rs.100 thousand crore in infrastructure. Combined with the steps
we are taking to increase public investment in infrastructure, this
will provide a big boost to such investment.
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
Highway and Railways
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 Rs.15,800
The Jawaharlal Nehru National Urban Renewal Mission (JNNURM) has
been an important instrument for refocusing the attention of the
State governments on the importance of urban infrastructure. In
recognition of the role of JNNURM, the allocation for this scheme is
being stepped up by 87 per cent to Rs.12,887 crore in the current
budget. To improve the lot of the urban poor, I propose to enhance
the allocation for housing and provision of basic amenities to urban
poor to Rs.3,973 crore in the current year’s budget. This includes
the provision for Rajiv Awas Yojana (RAY), a new scheme announced in
the address of the President of India. This scheme, the parameters
of which are being worked out, is intended to make the country slum
free in the five year period.
Brihan Mumbai Storm Water Drainage Project (BRIMSTOWA)
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 upto2008-09. I have enhanced the provision for this
project from Rs.200 crore in Interim BE to Rs.500 crore to expedite
the completion of the project.
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 expanded.
Government proposes to develop a blueprint for long distance gas
highways leading to a National Gas Grid. This would facilitate
transportation of gas across the length and breadth of the country.
Assam Gas Cracker Project
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
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
2008-09. The target for agriculture credit flow for the year 2009-10
is being set at Rs.3,25,000 crore. To achieve this, I propose to
continue the interest subvention scheme for short term crop loans to
farmers for loans upto Rs.3 lakh per farmer at the interest rate of
7 per cent per annum. I am also happy to announce that, for this
year, the Government shall pay an additional subvention of 1 per
cent as an incentive to those farmers who repay their short term
crop loans on schedule. Thus, the interest rate for these farmers
will come down to 6 per cent per annum. For this, I am making an
additional Budget provision of Rs.411 crore over Interim BE.
Debt Relief for farmers
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 Maharashtra , a large number of
farmers had taken loans from private money lenders and the loan
waiver scheme did not cover them. The matter requires special
attention. To examine the matter in greater detail and suggest the
future course of action, I propose to set up a Taskforce.
Accelerated Irrigation Benefit Programme
I propose to provide an additional Rs.1,000 crore over Interim BE
for the Accelerated Irrigation Benefit Programme (AIBP), marking an
increase of 75 per cent over the allocation in 2008-09(BE). The
allocation for the Rashtriya Krishi Vikas Yojna (RKVY) is also being
stepped up by 30 per cent over Budget Estimates of 2008-09.
Restoring Export Growth
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 2010.
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 deadline of September 30, 2009 to
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 to 31st
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.
Petroleum 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.
People’s 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 remain competitive.
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
The average public float in Indian listed companies is less than 15
per cent. Deep non-manipulable markets require larger and
diversified public shareholdings. This requirement should be
uniformly applied to the private sector as well as listed public
sector companies. I propose to raise, in a phased manner, the
threshold for non-promoter public shareholding for all listed
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 ( SLB C) will
identify such areas and formulate an action plan for providing
banking facilities to all these areas in the next 3 years. I propose
to set aside Rs.100 crore during the current year as one-time
grant-in-aid to ensure provision of at least one centre/Point of
Sales (POS) for banking services in each of the unbanked blocks in
The 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
Private sector investment has been affected by the global macro
economic conditions. Our Government is committed to creating a
facilitating environment in which a competitive private sector can
thrive and play its rightful role in nation’s economic development.
India ’s high growth of 8.5% per annum from 2004 to 2008 was fuelled
in very large part by private investment. I look forward to working
closely with industry and our vibrant entrepreneurial community to
address their outstanding concerns.
TOWARDS INCLUSIVE DEVELOPMENT
Madam Speaker, the UPA government has gone for a paradigm shift for
making the development process more inclusive. It involves creating
entitlements backed by legal guarantee to provide basic amenities
and opportunities for livelihood to vulnerable sections. ‘Aam Admi’
is now the focus of all our programmes and schemes.
National Rural Employment Guarantee Scheme (NREGS)
(i) It is widely acknowledged that the National Rural Employment
Guarantee Act, (NREGA) first implemented in February 2006, has been
a magnificent success. During 2008-09, NREGA provided employment
opportunities for more than 4.47 crore households as against 3.39
crore households covered in 2007-08. We are committed to providing a
real wage of Rs.100 a day as an entitlement under the NREGA. To
increase the productivity of assets and resources under NREGA,
convergence with other schemes relating to agriculture, forests,
water resources, land resources and rural roads is being initiated.
In the first stage, a total of 115 pilot districts have been
selected for such convergence. Details of these measures and
convergence guidelines will be announced by my colleague, the
Minister of Rural Development. I propose an allocation of Rs.39,100
crore for the year 2009-10 for NREGA which marks an increase of 144%
over 2008-09 Budget Estimates.
National Food Security Act (NFSA)
(ii) I am happy to announce that the work on National Food Security
Act has begun in right earnest. This will ensure that every family
living below the poverty line in rural or urban areas will be
entitled by law to 25 kilos of rice or wheat per month at Rs.3 a
kilo. The Government proposes to put the draft Food Security Bill on
the website of the Department of Food and Public Distribution for
public debate and consultations very soon.
(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
(iv) The allocation for the Indira Awaas Yojana ( IAY) is proposed
to be increased by 63 per cent to Rs.8,800 crore in Budget Estimates
2009-10. To broaden the pace of rural housing, I propose to
allocate, from the shortfall in the priority sector lending of
commercial banks, a sum of Rs.2,000 crore for Rural Housing Fund in
the National Housing Bank (NHB). This will boost the resource base
of NHB for their refinance operations in rural housing sector.
Pradhan Mantri Adarsh Gram Yojana (PMAGY)
There are about 44,000 villages in which the population of Scheduled
castes is above 50 per cent. A new scheme called Pradhan Mantri
Adarsh Gram Yojana (PMAGY) is being launched this year on a pilot
basis, for the integrated development of 1000 such villages. I
propose an allocation of Rs.100 crore for this scheme. Each village
would be able to avail gap funding of Rs.10 lakh over and above the
allocations under Rural Development and Poverty Alleviation Schemes.
On successful implementation of the pilot phase, the Yojana would be
extended in coming years.
Empowerment of Weaker Sections
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 India 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 Services
Government is committed to universalisation of the Integrated Child
Development Services (ICDS) Scheme in the country. By March 2012,
all services under ICDS would be extended, with quality, to every
child under the age of six.
Student Loans to Weaker Sections
To enable students from economically weaker sections to access
higher education, it is proposed to introduce a scheme to provide
them full interest subsidy during the period of moratorium. It will
cover loans taken by such students from scheduled banks to pursue
any of the approved courses of study, in technical and professional
streams, from recognised institutions in India . It is estimated
that over 5 lakh students would avail of this benefit.
Welfare of Minorities
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 West Bengal and Malappuram in Kerala. I propose to
make an allocation of Rs.25 crore each for these two campuses.
Welfare of workers in the unorganised sector
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 these schemes.
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 Varanasi and
Sibsagar and two mega powerloom clusters at Erode and Bhiwandi were
approved. They are under successful implementation. I propose to add
one handloom mega cluster each in West Bengal and Tamil Nadu and one
powerloom mega cluster in Rajasthan. These will help preserve the
magnificent textile traditions in West Bengal and Tamil Nadu and
generate thousands of jobs in Rajasthan. In addition, I propose to
add new mega clusters for Carpets in Srinagar (J&K) and Mirzapur
The National Rural Health Mission is an essential instrument for
achieving our goal of Health for all. I propose an increase of
Rs.2,057 crore over and above Rs.12,070 crore provided in the
Rashtriya Swasthya Bima Yojana (RSBY) was operationalised last year.
The initial response has been very good. More than 46 lakh BPL
families in eighteen States and UTs have been issued biometric smart
cards. This scheme empowers poor families by giving them freedom of
choice for using health care services from an extensive list of
hospitals including private hospitals. Government proposes to bring
all BPL families under this scheme. An amount of Rs.350 crore,
marking 40% increase over the previous allocation, is being provided
in 2009-10 Budget Estimates.
Environment and Climate Change
The National Action Plan on Climate Change unveiled last year,
outlines our strategy to adapt to Climate Change and enhance the
ecological sustainability of our development path. Following this,
eight national missions representing a multi-pronged, 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 National River 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.
TOWARDS BUILDING ACCOUNTABLE INSTITUTIONS
Improving 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 decision-making process.
The setting up of the Unique Identification Authority of India (UIDAI)
is a major step in improving governance with regard to delivery of
public services. This project is very close to my heart. I am happy
to note that this project also marks the beginning of an era where
the top private sector talent in India steps forward to take the
responsibility for implementing projects of vital national
importance. The UIDAI will set up an online data base with identity
and biometric details of Indian residents and provide enrolment and
verification services across the country. The first set of unique
identity numbers will be rolled out in 12 to 18 months. I have
proposed a provision of Rs.120 crore for this project.
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 being liberalised.
The demographic advantage India has in terms of a large percentage
of young population needs to be converted into a dynamic economic
advantage by providing them the right education and skills. The
provision for the scheme, ‘ Mission in Education through ICT,’ has
been substantially increased to Rs.900 crore. Similarly, the
provision for setting up and up-gradation of Polytechnics under the
Skill Development Mission has been increased to Rs.495 crore. The
government shall take forward its intent of having one Central
University in each uncovered State and for this purpose I am
allocating Rs.827 crore. I am also allocating Rs.2,113 crore for
IITs and NITs, which includes a provision of Rs.450 crore for new
IITs and NITs. The overall Plan budget for higher education is
proposed to be increased by Rs.2,000 crore over Interim BE.
Union Territory of Chandigarh is the capital of Punjab and Haryana.
The facilities at Punjab University , Chandigarh , need to be
improved. I, therefore, propose to make an allocation of Rs.50 crore
for this university. To enable the Union Territory Administration to
provide better infrastructure to the people, I propose to suitably
enhance the Plan allocation for Chandigarh during the current
Commonwealth Games 2010
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 framework of Sri Lanka ’s Constitution.
The Ministry of External Affairs is working closely with the Sri
Lankan Government in this regard. I propose to allocate Rs.500 crore
for the rehabilitation of the internally displaced persons and
reconstruction of the northern and eastern areas of Sri Lanka .
As Honourable Members are aware, Cyclone Aila struck the coast of
West Bengal in the last week of May 2009. Extensive damage was
caused to roads, houses and infrastructure. While immediate interim
relief has been provided from the Calamity Relief Fund (CRF), it is
proposed to draw up a programme for rebuilding the damaged
infrastructure. For this purpose, I propose to allocate Rs.1,000
BUDGET ESTIMATES 2009-10
Madam Speaker, now I turn to the Budget Estimates for 2009-10.
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
Madam Speaker, given the possibility of the economic downturn
persisting in the current year, the gross tax receipts are budgeted
at Rs.6,41,079 crore in BE 2009-10, compared to Rs.6,87,715 crore in
BE 2008-09. The non tax revenue receipts are, however, likely to be
better and are estimated at Rs.1,40,279 crore in BE 2009-10 compared
to Rs.95,785 crore in BE 2008-09. The revenue deficit as a
percentage of GDP is projected at 4.8% compared to 1% in BE 2008-09
and 4.6% as per provisional accounts of 2008-09. The fiscal deficit
as a percentage of GDP is projected at 6.8% compared to 2.5% in BE
2008-09 and 6.2% as per provisional accounts 2008-09. This level of
deficit is a matter of concern and Government will address this
issue in right earnest to come back to the path of fiscal
consolidation at the earliest.
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
PART - B
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- GDP ratio has increased to 11.5 per cent in 2008-09
from a low of 9.2 per cent in 2003-04. The healthy growth in tax
revenues over the last five years is essentially attributable to
growth in direct taxes. Further, the share of direct taxes in the
Centre’s tax revenues has increased to 56 per cent in 2008-09 from
41 per cent in 2003-04, reflecting a sharp improvement in the equity
of our tax system. The Government is committed to furthering this
process of tax reform.
In the course of preparation of this budget, I have had the
opportunity to interact with large number of stakeholders and
receive valuable inputs. Most suggestions were for structural
changes in the tax system. Tax reform, like all reforms, is a
process and not an event. Therefore, I propose to pursue structural
changes in direct taxes by releasing the new Direct Taxes Code
within the next 45 days and in indirect taxes by accelerating the
process for the smooth introduction of the Goods and Services Tax (GST)
with effect from 1st April, 2010.
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
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
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
In the past, surcharges on direct taxes have generally been levied
to meet the revenue needs arising from natural calamities. The
Government has set up the National Calamity Contingency Fund to
build up resources to meet emergency situations. As a corollary,
surcharge on direct taxes should be removed. However, this has to be
balanced with the revenue needs of the Government. Therefore, in the
first instance, I propose to phase out the surcharge on various
direct taxes by eliminating the surcharge of 10 per cent on personal
Deduction in respect of export profits is available under sections
10A and 10B of the Income-tax Act. The deduction under these
sections would not be available beyond the financial year 2009-2010.
In order to tide over the slowdown in exports, I propose to extend
the sun-set clauses for these tax holidays by one more year i.e. for
the financial year 2010-11.
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
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
The New Pension System (NPS) is an important milestone in the
development of a sustainable, efficient, voluntary and defined
contribution pension system in India . While the NPS will continue
to be subjected to the Exempt-Exempt-Taxed (EET) method of tax
treatment of savings, it is proposed to provide necessary fiscal
support to the NPS for the establishment of this much needed social
security system. Accordingly, I propose to exempt the income of the
NPS Trust from income tax and any dividend paid to this Trust from
Dividend Distribution Tax. Similarly, all purchase and sale of
equity shares and derivatives by the NPS Trust will also be exempt
from the Securities Transaction Tax. I also propose to enable self
employed persons to participate in the NPS and avail of the tax
benefits available thereto.
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’
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 of schooling.
100. Anonymous donations to charitable institutions are presently
liable to tax so as to prevent unaccounted money being routed to
such entities in the garb of anonymous donations. However, some
organisations are facing genuine problems in complying with the
procedural requirements. In order to mitigate the practical
difficulties being faced by such charitable organisations, I propose
to grant relief to such organisations by not taxing anonymous
donations received to the extent of 5 per cent of their total income
or a sum of Rs.1 lakh, whichever is higher.
101. To facilitate the business operations of all small taxpayers
and reduce their compliance burden, I propose to expand the scope of
presumptive taxation to all small businesses with a turnover upto
Rs.40 lakh. All such taxpayers will have the option to declare their
income from business at the rate of 8 per cent of their turnover and
simultaneously enjoy exemption from the compliance burden of
maintaining books of accounts. As a procedural simplification, I
also propose to allow them to pay their entire tax liability from
business at the time of filing their return by exempting them from
paying advance tax. This new scheme will come into effect from the
financial year 2010-11.
102. Madam Speaker, in the context of the geo-political environment,
it is necessary for us to create our own facilities for energy
security. Accordingly, I propose to extend the tax holiday under
section 80-IB(9) of the Income Tax Act, which was hitherto available
in respect of profits arising from the commercial production or
refining of mineral oil, also to natural gas. This tax benefit will
be available to undertakings in respect of profits derived from the
commercial production of mineral oil and natural gas from oil and
gas blocks which are awarded under the New Exploration Licensing
Policy-VIII round of bidding. Further, I also propose to
retrospectively amend the provisions of the said section to provide
that “undertaking” for the purposes of section 80-IB(9) will mean
all blocks awarded in any single contract.
103. Under the present provisions of section 2 (15) of the Income
Tax Act, “charitable purpose” includes relief of the poor,
education, medical relief, and the “advancement of any other object
of general public utility”. However, the “advancement of any other
object of general public utility” cannot involve the carrying on of
any activity in the nature of trade, commerce or business. I propose
to provide the same tax treatment to trusts engaged in preserving
and improving our environment (including watersheds, forests and
wildlife) and preserving our monuments or places or objects of
artistic or historic interest, as is available to trusts engaged in
providing relief of the poor, education and medical relief.
104. Madam Speaker, I turn to my main proposals on indirect taxes.
105. I will first take up customs duties.
106. Although our domestic industry has weathered the impact of the
global financial crisis and the resultant slowdown with resilience,
it is yet to fully find its feet. Manufacturing growth, which had
turned negative in October 2008 on a year-on-year basis and remained
in that zone till March this year, appears to be barely turning the
corner. However, the global scenario remains worrisome and it is my
view that the paramount need is to provide industry with a stable
framework. My proposals on indirect taxes seek to achieve this by
maintaining the overall rate structure for customs and central
excise duties as well as service tax. I must hasten to add that I
have not hesitated to act where distortions provide a compelling
reason or where relief would provide a healing touch.
107. Full exemption from basic customs duty was provided to Set Top
Boxes in 2006 to enable their free import for the smooth
introduction of the Conditional Access System (CAS). Now that
production capacity has come up in the country, I propose to impose
a nominal basic customs duty of 5 per cent on such Set Top Boxes to
encourage domestic value addition.
108. The electronic hardware industry has a strong potential for
creating employment especially in the SME sector. I intend to reduce
the basic customs duty on LCD panels from 10 per cent to 5 per cent
to support indigenous production of LCD televisions.
109. Full exemption from CVD of 4 per cent was available to
accessories, parts and components imported for the manufacture of
mobile phones till the 30th of June, 2009 . I propose to reintroduce
this exemption for another year.
110. For reasons that are apparent, industry sectors having an
export-orientation have been adversely impacted by the demand
compression in global markets. Presently, exporters of leather
products, textile garments, footwear as well as sports goods are
permitted to import raw materials, consumables etc. upto 3 per cent
of the fob value of their exports free of duty. I propose to add a
few more items to these lists. Full exemption from basic customs
duty is being provided to rough corals for encouraging
value-addition and export.
111. It is imperative that the contribution of new and renewable
energy sources of power is enhanced if we have to successfully
combat the phenomena of global warming and climate change. I am
reducing the basic customs duty on permanent magnets - a critical
component for Wind Operated Electricity Generators - from 7.5 per
cent to 5 per cent.
112. On influenza vaccine and nine specified life saving drugs used
for the treatment of breast cancer, hepatitis-B, rheumatic arthritis
etc. and on bulk drugs used for the manufacture of such drugs, I
propose to reduce the customs duty from 10 per cent to 5 per cent.
They will also be totally exempt from excise duty and countervailing
113. Customs duty will also be reduced from 7.5 per cent to 5 per
cent on two specified life saving devices used in treatment of heart
conditions. These devices will be fully exempt from excise duty and
114. Gold bars currently attract customs duty at the specific rate
of Rs.100 per ten grams while other forms of gold (excluding
jewellery) are chargeable to a duty of Rs.250 per ten grams. These
rates were fixed in 2004 and have not been reviewed even as the
price of gold has increased manifold. I propose to partially restore
the incidence by increasing these rates to Rs.200 per ten grams and
Rs.500 per ten grams respectively. Along the same lines, the customs
duty on silver (excluding jewellery) will be increased from Rs.500
per kg to Rs.1,000 per kg. These revised rates would also apply to
gold and silver, including ornaments that are not studded, when
imported by a bona fide passenger as baggage.
115. I will now come to central excise duties.
116. Hon’ble Members are aware that the Government announced a
series of fiscal stimulus packages, one of the key elements of which
was the sharp reduction in the ad valorem rates of Central Excise
duty for non-petroleum products by 4 percentage points across the
board on 7th of December 2008 and by another 2 percentage points in
the mean CENVAT rate on the 24th of February, 2009.
117. One of the consequences of these cuts was that pure cotton
textiles came to be fully exempted from excise duty. We have
received representations that full exemption prevents manufacturers
from availing of export rebate of the duty paid from CENVAT credit.
I propose to rectify this situation by restoring the erstwhile
optional rate of 4 per cent for cotton textiles beyond the fibre
118. Ever since the revamp of the excise duty structure on textiles
by my distinguished predecessor in the 2004 budget, a differential
in rates has been maintained between the cotton sector and the
manmade sector. In keeping with the integrity of the earlier
structure, I propose to restore the rate of 8 per cent Central
Excise duty on manmade fibre and yarn on a mandatory basis and on
stages beyond fibre and yarn at that rate on optional basis. These
changes, together with duty changes on intermediates, would imply
that the duty on all types of manmade fibre and yarn and their
intermediates would be the same, easing the problem of credit
119. Wool waste and cotton waste are chargeable to basic customs
duty of 15 per cent. These are used in the manufacture of cheaper
varieties of textile articles such as blankets and rugs. As a
measure of relief to this sector, I propose to reduce the basic
customs duty on these items to 10 per cent.
120. With the Government’s proclaimed objective of introducing a
Goods and Services Tax (GST) both at the national and State level,
some more steps in that direction are necessary. One measure that
would facilitate the process is the further convergence of central
excise duty rates to a mean rate - currently 8 per cent. I have
reviewed the list of items currently attracting the rate of 4 per
cent, the only rate below the mean rate. There is a case for
enhancing the rate on many items appearing in this list to 8 per
cent, which I propose to do, with the following major exceptions:
food items; and
drugs, pharmaceuticals and medical equipment.
Some of the other items on which I propose to retain the rate of 4
per cent are:
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
details are available in the relevant notifications.
121. Bio-diesel, obtained from vegetable oils and used for blending
with petro-diesel, is currently exempt from excise duty. I now
propose to fully exempt petro-diesel blended with bio-diesel from
122. In order to encourage the use of this environment friendly fuel
and augment its availability in the country, I also propose to
reduce basic customs duty on bio-diesel from 7.5 per cent to 2.5 per
cent - at par with petro-diesel. With these proposals I hope to see
a smile on the faces of the green brigade!
123. My other proposals on central excise duties seek to address
distortions that the manufacturing industry has been complaining
124. The IT industry has pointed out that it is facing difficulties
in the assessment of software which involves transfer of the right
to use after the levy of service tax on IT software service. To
resolve the matter, I propose to exempt the value attributable to
the transfer of the right to use packaged software from excise duty
125. The construction industry has represented that they are facing
difficulties on account of withdrawal of exemption on goods
manufactured at site. I propose to restore full exemption to such
goods, including pre-fabricated concrete slabs or blocks, when used
for further construction at site.
126. A specific component was added to the ad valorem duty of 24 per
cent applicable to large cars and utility vehicles in June last
year. In the case of vehicles of engine capacity below 2000 cc, this
component was Rs.15,000/- per unit while for vehicles of higher
engine capacity it was Rs.20,000/- per unit. These rates are now
being unified at the lower level of Rs.15,000/- per unit.
127. Petrol driven trucks provide a useful means of transport within
cities and across short distances. These are chargeable to excise
duty of 20 per cent. I propose to reduce excise duty on these trucks
to 8 per cent to equate the duty with similar vehicles run on
128. Madam Speaker, I fear that my proposals relating to gold and
silver on the customs side would somewhat dent my popularity with
women. I propose to salvage this by fully exempting branded
jewellery from excise duty.
129. I now turn to my proposals on service tax.
130. It is an international practice to zero-rate exports. To
achieve this objective, a scheme was announced in 2007, granting
refund of service tax paid on certain taxable services used after
the clearance of export goods from the factory. For some time now,
the exporting community has been expressing dissatisfaction over the
difficulties faced in obtaining such refunds. Several procedural
simplifications attempted in the past have also not yielded
satisfactory results. The solution seems to lie in placing greater
trust on the claims filed by the exporters. Keeping this in view, I
propose to make the following changes in the scheme:
Services received by exporters from goods transport agents and
commission agents, where the liability to pay service tax is ab
initio on the exporter, would be exempted from service tax. Thus,
there would be no need for the exporter to first pay the tax and
later claim refund.
For other services received by exporters, the exemption would be
operated through the existing refund mechanism based on
self-certification of the documents where such refund is below 0.25
per cent of fob value, and certification of documents by a Chartered
Accountant for value of refund exceeding the above limit.
131. The Export Promotion Councils and the Federation of Indian
Export Organizations (FIEO) provide a valuable service in augmenting
our export effort. I propose to exempt them from the levy of service
tax on the membership and other fees collected by them till 31st
132. In the goods transport sector, service tax is currently levied
on transport of goods by road, by air, through pipelines and in
containers. However, goods carried by Indian railways or those
carried as coastal cargo or through inland waterways are not charged
to service tax. In order to provide a level playing field in the
goods transport sector, I propose to extend the levy of service tax
to these modes of goods transport. The new levy is not likely to
impact the prices of essential commodities or goods for mass
consumption, as suitable exemptions would be provided.
133. As the Hon’ble Members are aware, services provided by
chartered accountants, cost accountants, and company secretaries as
well as by engineering and management consultants are presently
charged to service tax. Although there is a school of thought that
legal consultants do not provide any service to their client, I hold
my distinguished predecessor in high esteem and disagree! As such, I
propose to extend service tax on advice, consultancy or technical
assistance provided in the field of law. This tax would not be
applicable in case the service provider or the service receiver is
134. Vehicles having ‘Stage Carriage Permits’ and run by State
undertakings are exempted from service tax. However, transportation
of passengers undertaken by private enterprises in vehicles having
‘Contract Carriage Permits’ is, subjected to service tax. In order
to bring parity in tax treatment, I propose to exempt such
transportation also from the levy of service tax.
135. In July, 2008 goods transport agents (GTA) went on strike with
several demands. One of the demands that was accepted by the
government was to exempt certain services, such as packing, cargo
handling and warehousing, provided to GTAs en route, from service
tax. For this purpose an exemption notification was issued. It was
also demanded by goods transport agents that the proceedings already
initiated against such service providers should be dropped. The
Government has accepted this genuine demand. Therefore, I propose to
make certain legislative changes required to fulfill this promise.
136. Copies of notifications giving effect to the changes in
customs, central excise and service tax will be laid on the Table of
the House in due course.
137. My tax proposals on direct taxes are revenue neutral. On
indirect taxes, they are estimated to yield a net gain of Rs.2,000
crore for a full year.
138. As we begin this five year journey, the road ahead will not be
easy. We will have to manage uncertainties and there will be as many
problems as there would be solutions. Mahatma Gandhi said and I
quote, “Democracy is the art and science of mobilizing the entire
physical, economic and spiritual resources of various sections of
the people in the service of the common good of all.” This is
precisely what we will have to do. With strong hearts, enlightened
minds and willing hands, we will have to overcome all odds and
remove all obstacles to create a brave new India of our dreams.
139. Madam Speaker, with these words I commend the budget to the