- The government headed by Prime
Minister Shri Deve Gowda completes 9 months today. When I
stood before this House on July 22, 1996, this House
received my proposals with a mixture of wonder, curiosity
and scepticism. I was, after all, the Finance Minister of
the first genuine coalition government at the Centre. I
was also the first Finance Minister who belonged to an
avowed regional party, albeit with a national outlook.
- Hon’ble Members will indulge me
for a few minutes while I reflect on those eventful days
in May 1996. One national party acknowledged that it had
lost its claim to form the government. Another tried, but
failed. It is in that situation that regional parties,
and certain parties with a larger national presence, came
together to form the United Front government. These
parties — long regarded as children of a lesser God
— have demonstrated that, given the opportunity,
they can form a government not only at the State level
but also at the Centre. Inspired by the idea of a truly
cooperative federal polity, Chief Ministers have
assembled, more often than ever before, at the
Inter-State Council, the National Development Council and
at Special Conferences to formulate national policies.
The formation of the government by the United Front and
our efforts to take decisions by a national consensus, in
the fiftieth year of India’s independence, have
deepened and broadened Indian democracy.
- Hon’ble Members will find that
there is a strong continuity between my first Budget and
the present one. The foundation of the Budget remains the
Common Minimum Programme. The experience of the last
eight months has demonstrated the enormous strengths of
the programme. Drawing on the CMP, my first Budget
articulated seven broad objectives. These objectives
embraced vital elements such as growth, basic minimum
services, employment, macroeconomic stability, investment
(particularly in infrastructure), human development and a
viable balance of payments. I believe these objectives
remain as valid today as they were eight months ago.
- July 1996 Budget Promises
- On the last occasion, I had made
over forty specific promises on policies and programmes.
I have carefully taken stock of the situation, and
Hon’ble members will be pleased to know that I have
fulfilled all these promises, save one, to which I shall
refer presently. To recall the more important ones, I am
happy to state that we have
• Provided an
additional sum of Rs.2466 crore to the States for seven
Basic Minimum Services;
• Funded the
Rural Infrastructure Development Fund (RIDF)-II with
Rs.2500 crore;
• Expanded the
list of industries eligible for automatic approval for
foreign equity investment;
• Set up the
Disinvestment Commission and the Tariff Commission;
• Introduced
the Jeevan Suraksha and the Jan Arogya insurance schemes;
and
• Launched the
Accelerated Irrigation Benefit Programme.
- The one commitment that I have been
unable to keep is to set up an Expenditure Management and
Reforms Commission. I failed because I wanted an A team
and I was not content with a B team. Key members of the A
team are in this House and in the Rajya Sabha, and they
still elude me. I shall keep trying. Meanwhile, I have
not let up on my resolve to keep expenditure within the
Budget, and I have achieved a fair measure of success.
- Current Economic Situation
- The Economic Survey 1996-97 was laid
in Parliament a few days ago. It provides a detailed and
balanced account of the state of the economy. There is
indeed much to be done, but there is also much to be
proud of. The outstanding feature of the economy is that
the GDP has been growing during the last three years at
an average rate of 7%. I salute the farmers, the workers,
the entrepreneurs and the service providers who have made
this possible.
- The positive features of our
economic performance in 1996-97 include:
• Continued
high economic growth at 6.8%;
• A strong
recovery of growth in agriculture and allied sectors to
3.7%, after a disappointing minus 0.1% in 1995-96;
• Rebound in
foodgrains production to 191 million tonnes;
• Manufacturing
sector growth at 10.6%; and
• A sizable
build up in our foreign currency reserves from US$ 17.0
billion to US$ 19.5 billion as on February 27, 1997.
- I shall not be true to myself or to
the country if I did not highlight the areas of weakness.
Two areas of great concern are the sharp drop in domestic
crude oil production and the sluggish performance of the
power sector. Other matters of concern include a
deceleration in the growth of exports, a rise in the rate
of inflation and a volatile capital market. Government
has addressed these concerns through some far-reaching
initiatives in the last three months. I have also fresh
proposals in this Budget.
- Macroeconomic management involves,
inevitably, striking a balance between various objectives
and considerations. As Hon’ble Members are aware, in
1995-96, the growth in money supply was reduced sharply
to 13.2%. Although this helped to contain inflation, it
also led to high real interest rates, a widespread
perception of a liquidity crunch and a slackening of
investment proposals. Since June 1996, corrective action
has been taken which has eased the availability of money
and brought down the interest rates. The long-delayed
increase in the prices of petroleum products and
supply-side problems, arising mainly out of lower
production and lower procurement of wheat in the last
season, exerted pressure on the price level. Government
has taken a number of steps to maintain price stability.
Paddy production and procurement in the Kharif season
have been satisfactory and we have adequate stocks of
rice. The Rabi wheat crop is also very promising
and steps will be taken to maximise procurement. At the
same time, I would like to make it clear that, if
necessary, government will not hesitate to import wheat
and other essential articles to counter the pressure on
prices. Maintaining price stability is high on the agenda
of this government.
- Apart from supply side management,
we have to adopt prudent fiscal and monetary policies
that will stabilise prices. For the year 1997-98,
government and the RBI will act in concert towards a
further reduction in the fiscal deficit, containment of
the growth of money supply within 16% and adoption of a
liberal import policy for essential commodities. Our goal
is to break inflationary expectations and reduce the rate
of inflation from the present level.
- Poverty Alleviation Programmes
- Our fight against poverty is not a
game in populism. It is a battle at the grassroots level.
It is a battle in which, I believe, all of us ought to be
on the side of the poor. Those who are poor are those who
do not have land or water or education or opportunity.
Our programmes, therefore, revolve around the concerns of
the poor. For example
• The flagship
programme of the Prime Minister is the Basic Minimum
Services plan. As against Rs.2466 crore in the current
year, I propose to provide Rs.3300 crore for this
programme in 1997-98. This will include Rs.330 crore for
slum development.
• The provision
for the Accelerated Irrigation Benefit Programme is being
enhanced from Rs.900 crore to Rs.1300 crore in 1997-98.
• The Ganga
Kalyan Yojana is intended to support farmers to take up
schemes for groundwater and surface water utilisation
through a mixture of subsidy, maintenance support and
credit arrangements. Rs.200 crore is being provided in
1997-98.
• On August 15,
1997, the Prime Minister will inaugurate the Kasturba
Gandhi Shiksha Yojana, a programme to establish special
schools for girl children in the districts which have a
particularly low female literacy rate. I have placed
Rs.250 crore in the Budget for 1997-98.
• All current
self-employment schemes, addressed to different target
groups such as PMRY, IRDP, NRY etc., will be
re-orientated to provide skill-based training,
entrepreneurship development and subsidy-linked bank
credit to 1 million youth to empower them to start viable
small businesses.
- Our government believes that poverty
alleviation programmes are important instruments in the
fight against poverty. While maintaining the large
outlays for these programmes, it is necessary to
rationalise their number and make them more focussed and
effective. The Planning Commission is now engaged in a
comprehensive exercise and the revised portfolio of
poverty alleviation programmes will be implemented with
effect from April 1, 1997.
- Rural Credit
- Agriculture is the lifeblood of our
economy. The CMP calls for a doubling of the flow of
credit to agriculture and agro-industries within five
years. In 1996-97, the first year of this government, it
is estimated that credit flow to agriculture will
increase from about Rs.22,000 crore to nearly Rs.28,600
crore—an increase of an unprecedented Rs.6,600
crore.
- Hon’ble Members will be glad to
know that the Rural Infrastructure Development Fund
(RIDF) has proved to be popular and successful. Under
RIDF-I, Rs.2,000 crore was sanctioned for 4,530 projects.
By March 1997, disbursements will amount to about
Rs.1,400 crore. Under RIDF- II, 8,387 projects worth over
Rs.2,500 crore have been sanctioned. RIDF III will be
launched in 1997-98 and Rs.2500 crore will be provided. I
urge the States to continue to make the best use of these
funds.
- The policy of recapitalising the
Regional Rural Banks (RRBs) will continue next year. I am
providing Rs.270 crore for this purpose. I also intend to
allow a greater role to sponsor banks in the ownership
and management of RRBs.
- NABARD is being strengthened. NABARD
has been given Rs.500 crore as advance additional share
capital—Rs.100 crore by government and Rs.400 crore
by RBI—in the current year. The share capital will
be augmented by a similar allocation in 1997-98. I am
also glad to announce that, as promised last year, NABARD
has promoted and incorporated this month state level
agricultural development finance institutions in three
States as joint ventures. More will be incorporated next
year.
- Controls on Agriculture
- The CMP said that all controls on
agricultural products will be reviewed and, wherever
found unnecessary, will be abolished. Only some
regulations are by the Central government, and a
beginning is being made by abolishing a few. The Rice
Milling Industries (Regulation) Act, 1958 and the Ginning
and Pressing Factories Act, 1925 will be repealed.
Licensing, price control and requisitioning under the
Cold Storage Order, 1964 will removed. The Edible Oils
and Edible Oil Seeds Storage Control Order, 1977 and the
Cotton Control Order, 1986 will be invoked only in
well-defined emergency situations. Domestic futures
trading would be resumed in respect of ginned and baled
cotton, baled raw jute and jute goods. An international
Castor Oil Futures Exchange will be set up. I urge State
governments to follow this lead and abolish as many
controls as possible.
- Small Scale Industry
- As Hon’ble Members are aware,
government has recently enhanced the investment ceiling
for plant and machinery of small scale industries (SSIs)
to Rs.3 crore and of tiny units to Rs.25 lakhs. In order
to ensure that credit is available to all segments of the
now-enlarged SSI sector, the RBI is issuing instructions
that out of the funds normally available to the SSI
sector, 40% will be reserved for units with investment in
plant and machinery upto Rs.5 lakhs, 20% for units with
investment between Rs.5 lakhs and Rs.25 lakhs and the
remaining 40% for other SSI units.
- Government also announced recently
that it will examine carefully the other recommendations
of the Abid Hussain Committee on the SSI sector. With a
view to reduce wastage in agricultural commodities,
improve quality and hygiene and promote exports, the
Advisory Committee on reservation and dereservation has
recommended that 14 items, now reserved for manufacture
in the SSI sector, may be dereserved. 822 items would
still remain reserved for production in the SSI sector.
Government has accepted these recommendations. The
dereserved items include rice milling, dal milling,
poultry feed, vinegar, synthetic syrups, biscuits, ice
cream, a variety of automobile parts and corrugated paper
and boards. It is expected that new investment and
improved technology will flow into these businesses.
- Housing
- A constraint on adding to the
housing stock of the country is the Urban Land (Ceiling
and Regulation) Act, 1976. It is the intention of the
government to move a Bill for amending the Act in this
session of Parliament.
- Indira Awas Yojana was launched to
build houses for the poor in rural areas. Housing finance
companies provide credit, but the bulk of such credit
flows into the urban and semi-urban areas. There are some
rural housing credit programmes but they lend meagre
amounts upto Rs.10,000. There is virtually no source of
credit for the farmer who wishes to build a modest house
on his freehold land or to improve or add to his old
dwelling. This gap must be filled. In consultation with
the National Housing Bank (NHB) and others, I have worked
out a plan. Loans, upto Rs.2 lakhs, will be given for
building houses on freehold land in rural areas at normal
rates of interest, subject to the borrower putting in
one-third of the value of the house. NHB has been
requested to prepare a scheme in which other
organisations will also participate. The Prime Minister
will launch the scheme on August 15, 1997 and it is our
goal to sanction 50,000 loans in the first year.
- Employees’ Provident Fund
& Gratuity
- The Central Board of Trustees of the
Employees’ Provident Fund (EPF) has made specific
proposals to make the EPF schemes financially more
attractive. Government has also looked at the matter from
the point of view of augmenting savings. I am happy to
announce the following decisions:
• The rate of
contribution in all industries and establishments will be
increased from 8.33% to 10% for both employers and
employees with effect from March 1, 1997.
• In the
scheduled industries where the rate of contribution is
now 10%, the Act will be amended to make the rate 12% for
both employers and employees.
• The
requirement of keeping 20% of incremental PF amounts in
the Special Deposit Scheme (SDS) will be withdrawn with
effect from April 1, 1997 and the Board of Trustees will
be free to invest this portion of the funds in any of the
other three kinds of permitted securities.
- In 1995, the Central government
enhanced the ceiling on the amount of gratuity payable
from Rs.1 lakh to Rs.2.5 lakh for Central government
employees. I am now pleased to announce that the benefit
will be extended to all employees covered under the
Payment of Gratuity Act, 1972, which will be amended for
this purpose.
- Public Sector Autonomy
- The CMP promised that "the
United Front government will identify public sector
companies that have comparative advantages and will
support them in their drive to become global
giants." To begin with, nine well-performing public
sector enterprises, the Navaratnas, have been
identified. These are IOC, ONGC, HPCL, BPCL, IPCL, VSNL,
BHEL, SAIL and NTPC. The Industry Minister will shortly
unveil a package of measures that will help them achieve
this objective. He will also make a full statement on
managerial and commercial autonomy to all PSUs.
- In the meanwhile, government has
decided to delegate more monetary powers to the Boards of
profit-making enterprises. For these PSUs, the existing
limits for capital expenditure that can be incurred
without the prior approval of the government is being
doubled straight-away, and where the gross block is over
Rs.500 crore, the limit will be Rs.100 crore.
- Disinvestment
- The Disinvestment Commission was
constituted in August, 1996 and 40 PSUs were referred to
the Commission for advice. The Commission has submitted
its first report. It has made specific recommendations in
respect of three companies. We intend to proceed with the
disinvestment in these companies along the lines
suggested by the Commission. While the Commission will
make further reports every month, a second batch of PSUs
has been referred to the Commission. As the Commission
has observed "The essence of a long-term
disinvestment strategy should be not only to enhance
budgetary receipts, but also minimise budgetary support
towards unprofitable units while ensuring their long-term
viability and sustainable levels of employment in
them." Government agrees with this view and I would
appeal to Hon’ble Members to take a positive view of
disinvestment.
- Oil and Gas
- The country’s demand for
petroleum products is growing at over 8% per annum, which
is faster than the growth of domestic supply. We cannot
choke this growth. At the same time, we must reduce our
dependence on imported petroleum products. There is no
real alternative to increasing the supply. Just 6 of the
26 basins that have potential for oil and gas in India
have been explored, and that too only partially. The
Minister of State for Petroleum and Natural Gas will be
making a detailed statement on the new exploration
licensing policy (NELP) shortly. The highlights of the
policy are the following:
• Companies,
including ONGC and OIL, will be paid the international
price of oil for new discoveries made under the NELP;
• Royalty
payments will be fixed on an ad valorem basis instead of
the present system of specific rates;
• Royalty
payments for exploration in deep waters will be charged
at half the rate for offshore areas for the first seven
years after commencement of commercial production;
• Freedom for
marketing crude oil and gas in the domestic market;
• Tax holiday
for seven years after commencement of commercial
production for blocks in the North-East region;
• ONGC and OIL
will get the same duty concessions on import of capital
goods under the NELP as private production sharing
contracts;
• Cess levied
under the Oil Industry Development Act, 1974 will be
abolished for the new exploration blocks; and
• A separate
petroleum tax code will be put in place as in other
countries to facilitate new investments.
It is my fervent hope that Indian
and foreign companies will respond positively to this
package of measures.
- In order to ensure that adequate
domestic refining capacity is created, I propose to allow
refineries to import capital goods during the Ninth Plan
period at a concessional duty on par with the fertiliser
sector. Domestic capital goods suppliers will also get
deemed export status.
- Infrastructure
- The Infrastructure Development
Finance Company has been incorporated. Section 80IA of
the Income Tax Act grants a five year tax holiday for
certain infrastructure projects. Last month, I announced
that telecommunication will qualify as infrastructure. I
now propose to add Oil Exploration and Industrial Parks
to this category.
- I am also glad to announce that the
vexed question of assignability of telecom licences has
been resolved and that tripartite agreements are proposed
to be entered into among the Department of
Telecommunications, the licencee and the lenders.
- As Commerce Minister, I proposed in
the Exim Policy that supply of goods to oil, gas and
power projects, if the supplies are made under the
procedure of international competitive bidding, should be
given the benefits of ‘deemed exports’. As
Finance Minister, I am glad to accept this wholesome
proposal. Details are being notified separately.
- The National Highway Authority of
India (NHAI) is now geared to implement the new policy on
roads and highways. I propose to enhance budget support
for NHAI to Rs.500 crore which is a significant step up
from Rs.200 crore provided in the current year.
- Foreign Investment
- Foreign Institutional Investors
(FIIs) continue to repose great confidence in India. Net
FII investment in India is now over US$ 7 billion. During
the course of this year I have expanded the opportunities
for such investments. I propose to take one more step at
the instance of Indian companies. The limit of aggregate
investment in a company by FIIs, NRIs and NRI-OCBs is now
24%. I propose to allow companies to raise this limit to
30%, subject to the condition that the Board of Directors
of the company approves the limit and the general body of
the company passes a special resolution in this behalf.
- Venture capital funds are important
vehicles for stimulating investments in new ventures.
Under the present guidelines they can invest upto 5% of
their corpus in the equity of any single company. This is
unduly restrictive. The limit is being increased to 20%.
- Capital Market
- Over 20 million Indians have
invested their savings in the capital market. The
establishment of the first Depository was an important
step taken to bring the Indian capital market upto world
standards and to protect the interests of the investors.
SEBI was asked to suggest more measures. The committee
appointed by me to draft a new Companies Bill has also
made valuable suggestions. After considering these
suggestions, I propose to accept five recommendations:
• The principle
of buy-back of shares by companies subject to certain
conditions will be introduced in the Companies Act;
• The
provisions of Sections 370 and 372 of the Companies Act
will be merged and an overall ceiling of 60% will be kept
for intercorporate investment and loans;
• The Companies
Act will be amended to provide for nomination facilities
for holders of securities;
• Companies
raising funds from the capital market will be required to
give an annual statement disclosing the end-use of such
funds; and
• One time
permission will be given to stockbrokers to corporatise
their businesses without attracting tax on capital gains,
which will be exempted.
- I am of the firm view that markets
will prosper when economic growth continues to be strong,
the fiscal deficit is reduced, interest rates decline and
investors are reassured that their interests are secure.
- FERA and Money Laundering
- As we progress towards a more open
economy with greater trade and investment linkages with
the rest of the world, the regulations governing foreign
exchange transactions also need to be modernised. It is
generally acknowledged that the Foreign Exchange
Regulation Act, 1973 needs to be replaced by a new law
consistent with full current account convertibility and
our objective of progressively liberalising capital
account transactions. Hence, I propose to introduce,
later this year, a Bill titled The Foreign Exchange
Management Act. An RBI-appointed group is expected to
complete the drafting of the Bill shortly.
- While FERA is being replaced, we
will not let up in our effort to curb the laundering of
ill-gotten money. A Bill dealing with money laundering is
under preparation and I propose to introduce it during
this session of Parliament.
- Capital Account Convertibility
- A little while ago I made a
reference to capital account convertibility. We are proud
of our foreign exchange earners. They have been given the
facility of the Export Earners Foreign Currency (EEFC)
Account. At present, the total amount in these accounts
is a modest Rs.2000 crore. I propose to expand the scope
of the account by allowing the following facilities:
• To open
offices abroad and to meet the expenses thereof; and
• To make
investments from the balance in the account in overseas
joint ventures upto the limit of US$ 15 million, without
reference to the RBI.
- I also believe that the time has
come for preparatory work towards capital account
convertibility. This is a cherished goal. It is also a
matter of great sensitivity. Hence, I shall not make any
commitment. For the present, I am asking RBI to appoint a
group of experts to lay out the road map towards capital
account convertibility, prescribe the economic parameters
which have to be achieved at each milestone and work out
a detailed time table for achieving the goal. I believe
the appointment of such a group will send a powerful
signal to the world about our determination to join the
ranks of front-line nations.
- Science and Technology
- My last budget was viewed in certain
quarters as science and technology-friendly. Flattery has
its rewards, and I intend to strengthen my friendship
with the scientific community. I propose to take the
following initiatives:
• The scheme to
match every additional commercial rupee earned by CSIR
and ICAR laboratories, as well as the IITs, will continue
on a permanent basis.
• The
Technology Development Board, established to accelerate
the commercialisation of indigenous technology, has
identified 16 projects that are commercially viable in
the fields of agriculture, health, chemicals and
pharmaceuticals. In 1996-97, I provided Rs.30 crore to
the Technology Development Fund. I propose to increase
the allocation in 1997-98 to Rs.70 crore.
- Tomorrow’s technology is based
on today’s science. I am concerned that there is
declining interest in the learning of sciences in schools
and colleges. I hold the view that an MBA — even if
he is from Harvard — is not a patch on a scientist.
On the occasion of the 50th anniversary of our
Independence, we will launch the
"Swarnajayanti" fellowships. Outstanding
scientists below the age of 45 will be assisted to attain
and sustain world class levels in science. A sum of Rs.50
crore in the Department of Education’s budget will
be used to create a corpus. The Minister of State for
Science and Technology will announce the details of the
scheme.
- Closer linkages have to be developed
between Indian industry and publicly-funded research
laboratories. Hence, I propose to allow
government-promoted societies recognised by the
Department of Scientific and Industrial Research and
notified under the Income Tax Act to invest in the equity
of private sector companies. These institutions will
invest not money but their knowledge and know-how as
their equity.
- Information Technology
- If there is one science that will
dominate the 21st century, it is information
technology. If there is one industry in which India can
emerge as a world leader, it is information technology.
However, for this potential to be realised, we need a
completely new policy for manufacturing and marketing IT
products. The Electronic Hardware Technology Park (EHTP)
Scheme, presently in force, gives limited flexibility.
There is an imperative need to increase production
volumes and attract foreign direct investment.
Accordingly, it has been decided that EHTP/EOU/EPZ units
in electronic hardware may be permitted to sell one half
of the value of their products, during any 12 month
period, in the domestic market and export the other half.
The sale in the domestic market will be on payment of
excise duty equivalent to full customs duty, including
the additional duty of customs. Details of the new
unified manufacturing scheme will be incorporated in the
new EXIM policy that will be effective from April 1,
1997.
-
Companies Act and Direct Taxes Act
- Hon’ble Members will recall
that I had set up an expert group to draft a new
Companies Bill and another expert committee to prepare a
new Direct Taxes Bill. Both groups have done splendid
work and have submitted their reports. Copies of the
reports will be placed in the Parliament Library next
week. They will also be distributed widely. A working
draft of each Bill will also be circulated as soon as it
is ready. It is my hope that there will be wide and
informed debate on the two Bills. It is my intention to
bring the new Companies Bill before this House in the
monsoon session and the new Direct Taxes Bill in the
winter session.
- Insurance
- The CMP accords high priority to
infrastructure. The India Infrastructure Report has been
published and it now remains for us to implement the
report. The critical need is funds, and that too
long-term funds. That is why the CMP said, "There is
a strong link between infrastructure development and
financial sector reforms. Infrastructure needs long-term
finances." Hon’ble Members are fully aware that
long-term funds are in the Pension and the Insurance
sectors.
- Our foremost companies in the
insurance sector are LIC and GIC. After a long interval
of time, LIC and GIC have been given the full complement
of Board members. We have also decided to grant
substantial autonomy to LIC and GIC, including the power
to make non-scheduled, non-consortium investments, to
determine the terms and conditions of service of their
employees and agents, to make regulations and some other
powers. LIC and GIC will be further strengthened in due
course.
- Under the present laws, pension
funds are, by an archaic definition, included in the
business of life insurance. However, it is self-evident
that pension and insurance are two different benefits and
two different businesses. While life insurance is the
monopoly of LIC, several pension funds have been rightly
exempted and allowed to operate independently. In 1995,
at the instance of my distinguished predecessor, UTI
floated the UTI Retirement Benefit Plan. It has attracted
about 80,000 subscribers. I propose to allow UTI to
expand the above plan into a full-fledged pension fund.
UTI has made a request to government in this regard; LIC
has no objection; and hence it is appropriate to amend
the laws.
- LIC has also requested government to
permit it to promote joint ventures in the pension
business. There is no reason to deny LIC this right. The
proposed amendment will permit LIC to enter into such
joint ventures. After the amendments, UTI’s pension
fund will compete with LIC’s pension schemes.
- Similarly, the penetration of health
insurance cover in our country is distressingly low. Just
about 20 lakh Indians have some kind of health cover. The
Jan Arogya scheme, launched barely six months ago, has
already attracted 4 lakh policy holders. Clearly, there
is a demand for health insurance products. GIC has
frankly admitted that its Mediclaim policy has not been
successful and that it would like to promote joint
ventures in this line of business. GIC is also confident
of facing competition in the health insurance business.
Accordingly, I propose to move necessary amendments to
enable GIC to float joint ventures and also to allow
entry of selected Indian players in the health insurance
sector.
- What I have outlined is a very
modest opening of one segment of the insurance sector.
LIC will continue to enjoy a monopoly in the life
insurance business and GIC will continue to enjoy a
monopoly in the non-life, non-health insurance business.
I would also like to make it clear that only a few Indian
companies, that is Indian-controlled and with majority
Indian ownership, will be permitted to enter the health
insurance business. Comprehensive regulations will be
made and enforced by the Insurance Regulatory Authority
(IRA) for all the service providers in the insurance
industry. They would also have to meet the prudential,
investment and social norms laid down by the IRA.
- Phasing out of Ad Hocs
- Hon’ble Members will recall
that in my last Budget speech I had promised to present
concrete proposals in this Budget to phase out the system
of ad hoc treasury bills by 1997-98. I am glad to
announce that the government and the RBI have worked out
the specific measures in this regard.
- The system of ad hoc treasury
bills to finance the budget deficit will be discontinued
with effect from April 1, 1997. A scheme of ways and
means advances (WMA) by the RBI to the Central government
is being introduced to accommodate temporary mismatches
in the government’s receipts and payments. This will
not be a permanent source of financing the
government’s deficit. Besides ways and means
advances, RBI’s support will be available for the
government’s borrowing programme. Details of the
scheme are being separately announced by the RBI.
- What I am effecting today is a bold
and radical change which will strengthen fiscal
discipline and provide greater autonomy to the RBI in the
conduct of monetary policy. With the discontinuance of ad
hoc treasury bills and tap treasury bills, and the
introduction of ways and means advances, the concept of
Budget deficit, as currently defined, will lose its
relevance either as an indicator of short-term
requirement of funds by the government or the extent of
monetisation. Therefore, it is proposed to discontinue
the practice of showing the ‘Budget deficit’;
instead Gross Fiscal Deficit (GFD) would become the key
indicator of deficit. The extent of RBI support to the
Central government’s borrowing programme will be
shown as "Monetised deficit" in the Budget
documents.
- Indexed Bonds
- Several countries have used a
variety of indexed bonds to provide investors an
effective hedge against inflation and to enhance the
credibility of anti-inflationary policies followed by the
government. I believe the time is ripe for India to
introduce such an instrument. I, therefore, propose to
introduce a capital indexed bond where the repayment of
the principal amounts will be indexed to inflation.
- New Devolution Formula
- I have already placed in the House a
discussion paper on the recommendations of the Tenth
Finance Commission (TFC) on the formula to be adopted for
devolution of resources from the Centre to the States.
The views of the States have been received. The Standing
Committee of the Inter-State Council has also considered
the matter. Based on these consultations, I propose to
accept the recommendation of the TFC to form a single,
divisible pool of taxes to be shared between the Centre
and the States. To begin with, we shall adopt the
proportion of 29% recommended by the TFC. This will be an
improvement on the present share of the States. However,
we are willing to discuss the matter further when we
bring the Constitution Amendment Bill to give effect to
the decision. We affirm our belief that the polity of
India requires a strong Centre and strong States and, if
I may add, strong local bodies.
- Revised Estimates for 1996-97
- I shall now briefly go over the
Revised Estimates for 1996-97.
- The Budget Estimates for 1996-97 had
placed the total expenditure at Rs.204,660 crore. This is
now expected to come down to Rs.202,298 crore. This is
the net effect of a decrease of Rs.2571 crore in
the non-Plan expenditure and an increase of Rs.209
crore in the Plan expenditure.
- Non-Plan expenditure in the current
year is placed at Rs.147,404 crore. This represents a
decrease of Rs.2571 crore over the Budget estimates
basically on account of saving of Rs.3000 crore in the
provision made for the likely impact of the
recommendations of the Fifth Pay Commission. On the other
hand, we have not got Rs.4500 crore of anticipated
receipts from disinvestment. Despite these constraints, I
made an additional provision of Rs.1700 crore for Defence
during the year. On balance, therefore, I believe we have
managed our receipts and expenditure within the Budget.
- My greatest satisfaction is on the
Plan side. We saved a considerable amount in the Plan
expenditure of the Central government. It was, therefore,
possible for me to provide an additional Rs.2500 crore to
the States as Additional Central Assistance for
externally-aided projects. I also provided Rs.663 crore
to Jammu and Kashmir during the year. As a result, total
Plan expenditure has increased by Rs.209 crore. If
I have robbed Peter, the Central government, it is only
to pay Paul, the States.
- In October, 1996, the Prime Minister
announced a package of initiatives for the North-East,
including adequate funding for on-going projects, which
will require over Rs.6,000 crore. Government will
allocate funds for these projects in the Ninth Plan. The
Numaligarh Refinery is making good progress. I have
provided Rs.100 crore for the project in the RE for
1996-97 and over the next two years adequate funds will
be found to ensure its completion on schedule.
- The overall gross tax revenue which
was estimated at Rs.132,145 crore in the Budget estimates
will be marginally higher by Rs.174 crore, although the
net tax revenue of the Centre would be marginally less by
about Rs.100 crore from the Budget estimate of Rs.97,310
crore.
- Taking into account the Revised
Estimates of revenues and expenditure, the Revenue
Deficit has come down from the Budget estimate of 2.5% of
GDP to 2.3% of GDP. There is no change in the Budget
estimate of the fiscal deficit which would remain at 5%
of GDP. I am profoundly sorry to disappoint my
well-meaning critics.
- What will we do without our critics?
As Saint Tiruvalluvar said:
"Idipparai Illatha Emara Mannan
Keduppar Ilanum Kedum"
( Behold the King who reposeth not on those who can
rebuke him/He will perish even when he hath no enemies.)
- Budget Estimates for 1997-98
- I now turn to the Budget Estimates
for 1997-98.
- The total expenditure is estimated
at Rs.232,481 crore of which Rs.62,852 crore has been
provided as budget support for Central, States and UT
Plans and the balance Rs.169,629 crore is for non-Plan
expenditure. Hon’ble Members will be pleased to note
that the increase in budget support for the Plan will be
Rs.7958 crore over RE 1996-97, which is the largest
increase ever.
- Budgetary support to the Central
Plan is being concentrated on rural development,
employment and poverty alleviation programmes and in the
human resource development sectors. For 1997-98, the
outlay for the Ministry of Rural Areas and Employment is
being increased to Rs.9096 crore, an increase of Rs.1271
crore over the RE for 1996-97. In 1997-98, Jawahar Rozgar
Yojana is estimated to generate about 520 million mandays
of employment. About 90,000 habitations will be provided
safe drinking water during 1997-98 under the Accelerated
Rural Water Supply Scheme.
- The outlay for the Social Services
sector is being substantially enhanced from Rs.11,785
crore in RE 1996-97 to Rs.15,707 crore in BE 1997-98.
Significant increases are under Urban Development (Rs.775
crore), General Education (Rs.1189 crore), Technical
Education (Rs.132 crore), Family Welfare (Rs.282 crore)
and Water Supply and Sanitation (Rs.312 crore).
- The Science and Technology sector is
being provided Rs.1870 crore as against Rs.1584 crore in
RE 1996-97.
- The Maulana Azad Education
Foundation is being given Rs.40 crore. The National
Minorities Development and Finance Corporation is being
provided Rs.41 crore.
- Rs.96 crore is being allocated to
the National SC and ST Finance and Development
Corporation. For the welfare of the handicapped, I am
providing Rs.90 crore and for the National Handicapped
Finance and Development Corporation I am giving Rs.28
crore.
- Total non-Plan expenditure in
1997-98 is estimated to be Rs.169,629 crore. The interest
payments are estimated to be Rs.68,000 crore.
- Fertiliser subsidy on indigenous
fertilisers is being enhanced to Rs.5240 crore in 1997-98
from Rs.4743 crore in RE 1996-97. In addition, subsidy on
imported fertilisers is being increased to Rs.1950 crore
in 1997-98, as against Rs.1350 crore in RE 1996-97. The
subsidy on sale of decontrolled fertilisers is being
enhanced to Rs.2000 crore in 1997-98 from Rs.1674 crore
in RE 1996-97.
- An amount of Rs.7500 crore is being
earmarked for foodgrains and sugar subsidies in 1997-98
representing an increase of Rs.1434 crore over RE
1996-97. When the dual card system under the Targeted PDS
takes effect throughout the country, if more funds are
required, I shall provide the same. I may not wear my
heart on my sleeve, but my heart is in the right place.
- I would like to make a special
mention of the outlay for Defence. Rs.35,620 crore is
being provided which includes Rs.3620 crore for
implementing the recommendations of the Fifth Pay
Commission. In the past, revenue expenditure of the
Defence Services had been routinely underprovided. This
year, I have requested the Ministry of Defence to fully
provide for the revenue expenditure. On the capital
account, for the present, I am providing Rs.8907 crore
which is Rs.402 crore more than RE 1996-97, with a clear
promise—and I make that solemn undertaking
here—that any additional requirement of Defence for
capital expenditure will be adequately provided for
during the course of the year. Mr Speaker, Sir, my head
is also in the right place.
- A provision of Rs.4205 crore is
being made for implementing the recommendations of the
Fifth Pay Commission for employees other than Defence and
Railway personnel for whom separate provisions have been
made in this Budget and in the Railway Budget. The
recommendations of the Pay Commission are being processed
expeditiously according to established procedure.
- The non-Plan provision for
assistance to the public sector units has been on the
increase. In 1996-97, we approved revival packages for
Bharat Yantra Nigam, Bharat Bhari Udyog Nigam, Hindustan
Paper Corporation, Scooters India, HEC and Bharat
Refractories. For 1997-98, I am providing Rs.1107 crore
as non-Plan loans, and I expect that we will approve more
restructuring proposals during the course of next year.
- Revenue Receipts
- I now turn to the revenue receipts.
- Gross tax revenues at the existing
rates of taxation are estimated at Rs.153,347 crore.
After providing Rs.40,254 crore as the States’ share
of taxes, the Centre’s net tax revenue will be
Rs.113,094 crore. Non-tax revenues have also shown
healthy buoyancy. The receipts under the head are
expected to be Rs.39,749 crore in 1997-98. I have taken
credit for Rs.3681 crore as license fee from private
operators of cellular and basic telecom services.
- The net revenue receipts for the
Centre, including non-tax receipts, are expected to
increase from Rs.130,783 crore in RE 1996-97 to
Rs.152,843 crore in 1997-98.
- In the area of capital receipts,
market borrowings are placed at Rs.34,425 crore. Net
external assistance will be Rs.2435 crore. I am also
taking credit for receipts from disinvestment of equity
in public sector enterprises of Rs.4800 crore. Total
receipts at the existing rates of taxation are estimated
at Rs.231,876 crore.
- I shall come to the gross fiscal
deficit in Part B of my speech.
