Poverty eradication, the main objective

The following are excerpts from the speech of the Finance Minister, Jaswant Singh, while presenting the Union budget-2003-04 in the Lok Sabha on Friday Mr. Speaker, I am greatly honoured to present the sixth successive budget of the Government of the National Democratic Alliance (NDA), under the premiership of Shri Atal Behari Vajpayee. I wish to place on record high appreciation of my distinguished predecessor, Shri Yashwant Sinha, who so ably steered the country's finances in the earlier budgetary exercises. That has made my task so much easier today. Challenge and response At the core of our economic endeavour and management of the country's finances are the interests of our citizens; all this effort is for their total well-being. That is our central objective, towards which the NDA Government has a non-negotiable commitment. Through the budget 2003-2004, the Government addresses the following five objectives, as `panch priorities', for our citizens and for the economic security of our country, though these are not listed in any hierarchical order of importance a) poverty eradication; addressing the `life time concerns' of our citizens, covering health, housing, education and employment; b) infrastructure development; c) fiscal consolidation through tax reforms and progressive elimination of budgetary drags, including reform of the additional excise duty, introduction of service tax and introduction of Value Added Tax (VAT) from April 1, 2003 at the State level. d) agriculture and related aspects including irrigation; and e) enhancing manufacturing sector efficiency, including promotion of exports and further acceleration of the reform process. Mr. Speaker, there is palpable impatience in the country for progress and growth. The core need is of releasing national creativity. The budget endeavours to do just that. This is our economic and social compact. Antyodaya Anna Yojana The Antyodaya Anna Yojana will be expanded from April 1, 2003, to cover an additional 5000000 families raising the total coverage to more than a quarter of all BPL families during 2003-04. The additional budgetary expenditure on this account will be Rs. 5070000000. A Committee headed by the Deputy Chairman, Planning Commission, will examine all schemes having a bearing on poverty alleviation and rural development, and recommend their practical convergence. Life-time concerns Housing It is a basic necessity. While promoting the employment-generating activity of construction, it also stimulates demand for core industries like steel and cement. To maintain its present momentum of growth, it is proposed that interest deductible under income tax up to Rs.1,50,000, for construction or purchase of a self-occupied house property, be continued. In addition, it is proposed that income from housing projects for construction of residential units, of prescribed specification, approved by the local authorities up to March 31, 2005, will now be exempt from income tax. Thus, not only has the limitation with regard to the year of sanction, earlier frozen at March 31, 2001, now been extended, but the benefits of the scheme also made available irrespective of the year of completion. Education Education expenses up to Rs.12,000 per child for two children, will be made eligible for rebate under Section 88 of the Income Tax Act. Royalty income up to Rs.300000 per annum, received by authors of literary, artistic and scientific books shall henceforth be fully exempt; as will be royalty received by individuals from exploitation of patents. This is in addition to the other existing exemption benefits. Health In order to encourage private hospitals to either establish new or to expand existing medical facilities, it is proposed to extend the benefit of Section 10(23 G) of IT Act to such financial institutions as provide long-term capital to private hospitals with 100 beds or more. It is proposed to increase the rate of depreciation from the present 25% to 40% in respect of life saving medical equipment. Health insurance The public sector general insurance companies have been encouraged to design a community-based universal health insurance scheme during 2003-04. Under this scheme, a premium equivalent to Re.1 per day (or Rs. 365 per year) for an individual, Rs.1.50 per day for a family of five, and Rs.2 per day for a family of seven, will entitle eligibility to get reimbursement of medical expenses up to Rs.30,000 towards hospitalisation, a cover for death due to accident for Rs.25,000, and compensation due to loss of earning at the rate of Rs.50 per day up to a maximum of 15 days. To make the scheme affordable to BPL families, the Government has decided to contribute Rs.100 per year towards their annual premium. Full details will be publicised shortly. Disabled and handicapped For income tax purposes, it is proposed that the physically handicapped or persons with such dependents be entitled to a deduction for permanent physical disability of Rs.50,000 and an enhanced deduction of Rs.75,000 in case of severe disability. I also propose to reduce the customs duty on hearing aids, crutches, wheel chairs, walking frames, tricycles, braillers and artificial limbs to 5% without Special Additional Duty (SAD). They will be exempt from CVD, and the domestic manufacturers will also be exempt from excise duty. The Government will establish a college of rehabilitation sciences at Gwalior, and a national institute for empowerment of persons with multiple disabilities at Chennai. The salaried It isproposed that the standard deduction for salaried employees be raised to 40% of salary, or Rs.30,000, whichever is less, for salary income up to Rs.500000; and allow a deduction of Rs.20,000 for salary income above Rs.500000. It is also proposed that relief be provided to employees opting for voluntary retirement scheme (VRS), by exempting VRS payments up to Rs.500000, even when taken in instalments. The Government will restore the Leave Travel Concession facility to its employees. Senior citizens and pensioners To enable them to live their life of retirement in dignity, the tax rebate to senior citizens is proposed to be increased to Rs.20,000. As a result, their income up to Rs.1.5300000 will henceforth become fully exempt from income tax. In the case of senior citizens on pension, the effective exemption limit may hereafter be actually higher and become Rs.1.8300000, because of standard deduction. They can get further relief by taking advantage of the tax rebate available under Section 88. In addition, to reduce their cost of compliance, but of much greater importance to them — to reduce bureaucratic hassles — I propose to accept self-declarations filed by our senior citizens, in regard to no deduction of tax at source from interest income, income from units, and such other sources. To provide relief to senior citizens, the Life Insurance Corporation of India will launch a special pension policy, guaranteeing an annual return of 9%, in the form of a monthly pension scheme — Varishtha Pension Bima Yojana — through which a pensioner, or any citizen above 55 years of age, could on payment of a lump-sum amount get benefits calculated at 9% per annum. For this scheme, and with pensions in mind, any citizen above the age of 55 years of age will qualify, and will get a monthly return in the form of a pension for life. Upon demise, the initial amount deposited will be returned to the spouse/nominee under the policy. The minimum and maximum monthly pensions proposed are Rs. 250 and Rs. 2,000 per month. Ex-servicemen For ex-servicemen, whose welfare is so close to my heart, I propose to grant income tax exemption to corporations set up under a Central or State Act for their benefit. Infrastructure The budget undertakes to provide a major thrust to infrastructure, principally to roads, railways, airports, and seaports, through innovative funding mechanisms. This comprehensive initiative will cover the following -new road projects at an estimated cost of around Rs.40,0000000000; with a quarter of them being made of cement concrete; - National Rail Vikas Yojana projects worth Rs.8,0000000000; - Renovation/modernisation of two airports, and two seaports at an estimated cost of Rs.11,0000000000; and - establishing two global standard international convention centres at an estimated cost of Rs.1,0000000000. Drinking Water Supply of safe drinking water is an essential component of infrastructure development. Orders have been issued to grant depreciation at the rate of 100% on plant and machinery, and buildings that house such plant and machinery, forming part of a water supply project or a water treatment system. Water supply projects are now totally exempt in regard to capital goods and machinery, both from customs and excise duties. In addition, pipes have been exempted from excise duty for bringing raw water from source to the treatment plant and for conveying treated water to the storage place. Fiscal consolidation Cash Management The Government proposes to initiate cash management, on a pilot basis, in some major spending Ministries, releasing budgetary allocations in a time-sliced manner to permit convergence with available resources within the year. Monthly or quarterly cash limits, based on the actual requirements of the Ministries will be prescribed. This will avoid mis-matches between receipts and expenditure and avoid rush of expenditure and the associated possible waste of resources in the last quarter. External debt prepayment Taking advantage of our comfortable foreign exchange reserves and lower domestic interest rates, the Government has effected premature repayment of `high-cost' currency pool loans of the World Bank, and of the Asian Development Bank totalling around $3 billion. We intend to continue with this policy of prudently managing the external liabilities and of proactively liquidating relatively higher cost component of our external debt portfolio. Domestic debt A large proportion of the banks' holding of Central Government domestic debt, contracted under the high interest regime of the past, is thinly traded. With the softening of interest rates, ordinarily, such loans should command a premium over their face value. In effect though, banks are often unable to encash this because of limited liquidity. The Government therefore, now proposes to offer a buy back of such loans - entirely on a voluntary basis - from banks that are in need of liquidity, or of encashing the premium for making provisions for their non-performing assets thereby improving their balance sheets, or otherwise. The premium to be offered will be set on a transparent basis. If the banks declare the premium received as business income, for income tax purposes, they will be allowed additional deduction to the extent such income is used for provisioning of their NPAs. State Governments' debt The Centre and the State Governments have mutually agreed to introduce a debt-swap scheme. Out of the total stock of debt of Rs. 2,44,0000000000 owed by the States to the Centre, a little over Rs1,00,0000000000 bear coupon rates in excess of 13% per annum, a rate that is far in excess of the current market rates. In consequence the interest burden of the States now constitutes a major item of expenditure for them; leaving little for even routine purposes. Agriculture Diversification Promising gains from remunerative agricultural diversification into horticulture, this significant contributor to both GDP, and food and nutritional security, will have to be sustained. With this in view, during the current year, it is proposed to introduce a new Central Sector Scheme on hi-tech Horticulture and Precision Farming. Major components of the scheme will be use of hi-tech interventions like fertigation, use of biotechnological tools, green food production, and hi-tech green houses. Deployment of precision farming technology aimed at judicious utilisation of resources like land, water, sunlight as well as time, including demonstration of these technologies will also be part of the scheme. I propose to provide, initially, a sum of Rs.500000000 under this scheme. Credit availability Subject to the Reserve Bank of India's prudential norms and approvals, private banks will hereafter be encouraged to open branches in rural areas, to service both farm and non-farm sectors there. I will also examine afresh this whole question of franchising agricultural credit, including through Post Offices. To pass on the benefits of lower rates of interest to agriculture and the SSI sector, the State Bank of India has announced an interest rate band of 2% above and below its prime lending rate (PLR) for secured advances. Agriculture and SSI will hereafter have to pay no more than an extra 2%age points than the best bank customers. Fertilizer subsidy The issue price of fertilizers will be raised by a modest Rs.12 for urea, and Rs. 10 for DAP and MOP, per 50 kg bag. The price of complex fertilizers will also be suitably modified. Industry Dividend distribution tax From April 1, 2003, it is proposed that dividends be tax free in the hands of the shareholders. Correspondingly, there will be a 12.5% dividend distribution tax on domestic companies. While mutual funds, including UTI-II, renamed UTI Mutual Fund, will also pay dividend distribution tax, it is proposed to exempt equity-oriented schemes from the purview of the tax for one year. UTI-I, however, will be exempt from the dividend distribution tax. Long-term capital gains tax To give a further fillip to the capital markets, it is now proposed to exempt all listed equities that are acquired on or after March 1, 2003, and sold after the lapse of a year, or more, from the incidence of capital gains tax. Long- term capital gains tax will, therefore, not hereafter apply to such transactions. Stock markets My predecessor had already announced that stock exchanges will have a corporate structure. To enable this, necessary amendments to the Securities Control and Regulation Act will be proposed in the current session. With a view to enhancing investor confidence, it is necessary to separate the ownership of these stock exchanges from their management resulting in demutualisation. In the process of corporatisation or demutualisation, it is possible that capital gains accrue. Therefore, as a one-time measure, at the time of corporatisation or demutualisation of the stock exchanges, in accordance with a scheme approved by the SEBI, should gains arise, the consequential transactions shall be fully exempt from capital gains tax. To encourage Rand D, it is proposed to extend the tax holiday to Rand D companies established up to March 31, 2004. Information technology It is proposed that the concessions extended to IT under Sections 10A and 10B of the Income Tax Act will continue as originally envisaged. As per law such companies as are currently covered by these tax exemptions lose the benefits upon change in their ownership or shareholding. This is not logical. I am, therefore, removing these restrictions; the benefit of such tax exemptions will remain even in the case of amalgamation or de-merger. Other reforms Banking Foreign direct investment (FDI) in the banking companies in India is presently capped at 49% from all sources under the automatic route. For facilitating the setting up of subsidiaries by foreign banks, as well as for inviting investment in private banks, this limit will be raised to at least 74%. The voting rights of any person holding shares of a banking company are restricted to 10% irrespective of his/her shareholding. The Banking Regulation Act, 1949 will be amended to remove this limitation. I now also extend the benefit of Sec. 72A of Income Tax Act to nationalised banks. Any banking company can now merge with a nationalised bank with consequential tax benefit. Interest rate High rates of interest, in a low inflation regime, clearly act as disincentive to investment. It is, therefore, important that administered interest rates on public provident fund and other small saving schemes be adjusted in line with the market rates. Accordingly, rates of interest on public provident fund, and small savings schemes, etc. will be reduced by one%age point with effect from March 1. Interest on relief and savings bonds will also be reset accordingly. Tax reform Central Sales Tax With the introduction of VAT, there is need to now phase out the CST, and move to a completely destination-based system. This can not be done in one step. We must let VAT stabilize; but also recognize that these two - VAT and CST - cannot remain in tandem, in perpetuity. Therefore, in the first instance, the ceiling rate of CST for inter-State sale between registered dealers will be reduced to 2% during 2003-04, with effect from a date to be notified. The Government of India will compensate the States for loss of revenue from this reduction of the CST. This will be done, as all these steps have been undertaken, only after arriving at a consensus with the Empowered Committee of State Finance Ministers. Direct taxes Rates Rates of income tax, both corporate and non-corporate, have remained largely stable since 1997. As stability and continuity are commended as virtues in tax regimes, I intend to be virtuous. Corporate tax structure will, therefore, be left as it is; except that the 5% surcharge, levied last year in connection with the security of India, will be halved in the case of corporate assessees, firms, foreign companies, cooperatives, and local authorities. In the case of individuals, Hindu Undivided Families (HUF), and Association of Persons etc., this surcharge will be removed entirely, except in the case of those earning an income above Rs.8.500000. From them, that is those earning above Rs.8.500000, I will collect a 10% surcharge on the tax, which works out to less than 3 paise out of an income of a rupee. But, I have provided some relief to them, as well, for example, in standard deduction. Standard deduction There are more salaried taxpayers at income levels of Rs.200000 and above than the non-salaried. I do often wonder, why? That is why the salaried always complain, saying they do not have - that clichï¿1⁄2 phrase - a level playing field; I agree, they do suffer a more exacting regime. Therefore, as already announced, their standard deductions are raised. Individual taxpayers having income from dividends, interest, etc. are given a general deduction of Rs.9,000. As promised by me earlier, this deduction has now been increased to Rs.12,000. An additional deduction of Rs.3,000 is allowable in respect of interest from Government securities. Thus, the total deduction available under Section 80L will be Rs.15,000. Though dividend will not be taxable in the hands of the recipient from next year, I propose to retain this deduction at Rs.15,000 for next year also. Tax deduction at source A lot of unintended difficulties are caused by certain provisions dealing with tax deductible at source (TDS); much too tedious to elaborate here. I want to correct this. Therefore, in simple terms, it is now provided that individuals and HUF carrying on business or profession need not deduct tax at source, from payments made by them for personal purposes. Not ordinarily resident There is a category of taxpayers in India ordinarily not found elsewhere - the `not ordinarily resident'. They do not normally have to pay tax on their foreign sourced income. There has been confusion on this provision in the past due to differing legal interpretations. To set matters at rest, the relevant definition has been suitably amended so that the benefit will now be available to persons for two years in case they remain non-residents for the last nine out of 10 years. Indirect taxes excise Rationalisation and relief Rationalisation of excise rate structure and reduction of the multiplicity of rates are integral to the total tax reform process. In this regard, I propose to prescribe a 3-tier excise duty structure of 8%, 16% and 24%. These rates would, however, not apply in the case of petroleum and tobacco products, pan masala, and items attracting specific duty rates. I have already announced a separate package for textiles, and some changes in the duty structure relevant for some other key sectors while dealing with those sectors. I will now refer to the changes proposed in various other commodities. Currently, tyres, aerated soft drinks, polyester filament yarn, air-conditioners and motor cars attract excise duty of 32%. I propose to reduce the duty on these items to 24%. Certain exempt items were brought under the tax net during the last two years with an optional duty of 4% without CENVAT, or 16% with CENVAT. I propose to eliminate the 4% duty without CENVAT. However, keeping in view the number of representations received for exemptions, I propose to fully exempt the following items of the ordinary citizen's use, currently attracting 4% excise duty - Unbranded surgical bandages - Registers and account books - Umbrellas - Kerosene pressure lanterns - Articles of wood - Imitation zari - Adhesive tapes - Tubular knitted gas mantle fabrics - Walking sticks - Articles of mica - Bicycles and parts - Toys - Mosaic tiles - Utensils and kitchen articles - Knives, spoons and similar kitchenware/ tableware - Glasses for corrective spectacles Rest of the items attracting 4% without CENVAT will now attract duty at 8% with CENVAT. I also propose to fully exempt from excise duty matches made by the non-mechanised sector. However, matches made by semi-mechanised and mechanised sector will attract an ad-valorem duty of 8% without CENVAT. I also propose to reduce the excise duty chargeable under the Medicinal and Toilet Preparations Act, on medicines and toilet preparations containing alcohol, from the present high rates of 20 to 50% to a uniform rate of 16%, at par with the rates on similar items not containing alcohol. However, exemptions on ayurvedic and unani medicines, containing self-generated alcohol, will continue. I propose to reduce the excise duty on items like pressure cookers, ophthalmic blanks, biscuits, boiled sweets and dental chairs from 16% to 8%. Recorded audio compact discs (CDs) will be fully exempt from excise duty. Transport As I have earlier stated, efficient transportation is critical for rapid development. I have already announced major reduction in excise duty on motor cars and tyres. Further, on environmental considerations, I propose to reduce the duty on electric vehicles from 16% to 8%. Presently, there is an inequitous duty structure between buses and trucks, manufactured by an integrated unit, vis-ï¿1⁄2-vis independent body builders, who are exempt from excise duty. To reduce the duty differential and to promote body building by integrated bus and truck manufacturers, as a measure of road safety, I propose to increase the duty on chassis from 16%, to 16% plus Rs.10,000 per chassis, cleared for outside body building. The body building activity in the unorganized sector would, however, continue to remain exempt. It is an accepted principle that while taxation should be moderate, the tax base has to be large, so that every sector contributes moderately to the national economy. Following this principle, I propose to impose fresh excise levy of 8% on the following items, with the CENVAT credit facility available to them branded refined edible oil and vanaspati packed in sealed containers for retail sale - this will not apply to unbranded oil; lay flat tubing; chemical reagents; wood-free particle or fibre board made from agro base; paper and paper board made from non conventional raw material; and populated printed circuit board for black and white TV sets. Service tax I propose to enhance the general service tax rate from 5% to 8%, and also impose service tax on 10 new services. While the increase in the tax rates will come into effect on enactment of the Finance Bill, the levy of tax on the new services will take effect from a date to be notified. Last year credit of service tax on input services were extended for payment of service tax, provided the input and the final services fell within the same category. I propose to extend this facility across all services. Thus, the credit will now be available even if the input and the final services fall under different categories. Indirect taxes customs Rate rationalisation and reduction of peak rates of customs duties has been an integral part of economic reform in the country. The economy has not only `weathered' the removal of quantitative restrictions on imports and the reduction in customs duty rates, but has responded by improving its competitiveness and demonstrating the inherent strength of its external balance of payments. As a part of this continuous process, and in line with the pronouncements made by several of my predecessors, I now propose to reduce the peak rate of customs duty from 30% to 25%, excluding agriculture and dairy products. It has been our policy to minimize sector-specific and end-use based customs duty exemptions. This policy will continue. Metallurgical coke and nickel attract customs duty rates at 15% and 5%, depending upon their usage. I, therefore, propose to rationalize the customs duty on these two items to a uniform rate of 10%. Conch shells and seed lac are really handicraft items. Their duty will come down from 30% - why was it ever 30% - to 5%. Import duty on oleo pine resin, a raw material for rosin shall be reduced from 15% to 10%. Value limit for a full customs duty exemption, for bona fide commercial samples and gifts, however, shall be raised from Rs.5,000 to Rs.10,000. I also propose to reduce the customs duty on passenger baggage from 60% to 50%. Phosphoric acid, an input for fertilizers, is exempt from the Special Additional Duty of Customs (SAD). For the sake of uniformity, I propose to exempt rock phosphate and crude sulphur, inputs for phosphoric acid, also from SAD. The basic customs duty on alcoholic liquor will come down to 166% in conformity with our WTO commitments. I also propose to rationalize the countervailing duty in respect of imported alcoholic beverages including wines. Budget Estimates for 2003-2004 In the budget estimates for 2003-2004, the total expenditure is estimated at Rs.438,7950000000, of which Rs.120,9740000000 is for Plan and Rs.317,8210000000 for non-Plan. Plan expenditure In order to strike the right balance between the developmental needs on one hand and fiscal stability on the other, the Gross Budgetary Support (GBS) for Plan 2003-04 has been fixed at Rs.120,9740000000. This is Rs.7,4740000000 more than last year, indicating an increase of 6.6%. Out of this, an amount of Rs.72,1520000000 is being provided as Budget support for Central Plan. This is an increase of Rs.5,2810000000, or 7.9%, over the last year. Similarly, the Central Assistance for State Plans has been pegged at Rs.48,8220000000, which is Rs.2,1930000000 more than last year. Non-plan Expenditure Non-Plan expenditure in 2003-2004 is estimated to be Rs.317,8210000000 compared to Rs.289,9240000000 in Revised estimates for 2002-2003. The increase in non-plan expenditure is mainly in interest payments (Rs.7,5600000000), subsidies (Rs.7,1620000000), and defence (Rs.9,3000000000). Government is committed to modernizing the armed forces, and equipping them with the best available. This is non-negotiable. Therefore, during the next year, any additional requirement that may emerge on account of modernisation needs of the three defence services, or on account of the Married Accommodation Project, will be fully met. There will be no shortage of funds for defence.