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KERALAMONITOR.COM BUDGET 2004
Manmohan Sing -- Prime Finance Minister Views on Budget Highlights
NO CHANGE IN INCOME TAX SLABS PERSONS HAVING TAXABLE INCOME UPTO RS. 1,00,000/- NOT TO PAY ANY TAX EDUCATION CESS @ 2% IS TO BE LEVIED ON THE TAX
- TAX TO BE DEDUCTED AT SOURCE FROM COMPENSATION PAID ON ACQUISITION OF IMMOVABLE PROPERTY
- TAX HOLIDAY FOR AGRO-PROCESSING INDUSTRY
- PROVISIONS IN THE NEW PENSION SCHEME
- SERVICE TAX RATES INCREASED BY TWO PERCENT
- INDIA’S TARIFF STRUCTURE TO BE ALLIGNED TO ASEAN COUNTRIES
- CUSTOMS DUTY ON NON-ALLOY STEEL REDUCED
- CUSTOMS DUTY ON REFINED PALM OIL INCREASED
INFRASTRUCTURE PROJECTS GET BIG BOOST THROUGH HIGHER ALLOCATIONS AND INNOVATIVE FINANCIAL INSTRUMENTS
Finance Minister Shri P. Chidambaram has given a big boost in his Budget to infrastructure projects through higher allocations and innovative financial arrangements. He laid a strong emphasis on removing the inadequacies in infrastructure facilities through a mix of policy and fiscal measures.
· Inter-Institutional Group : Noting the success of Inter-Institutional Group (IIG) in bringing several power projects to financial closure, the Finance Minister has announced the setting up of an Inter-Institutional Group consisting of IDBI, IDFC, ICICI Bank, SBI, LIC, Bank of Baroda and Punjab National Bank to ensure speedy conclusion of loan agreements and implementation of infrastructure projects. They will pool their resources on a callable basis and a sum of Rs.40,000 crore will be made available as and when necessary. The IIG will initially help projects in airports, seaports and tourism sectors.
· Sethusamudram Ship Canal Project : Shri Chidambaram has said that Environmental Impact Assessment study of the project has been completed and the techno-economic feasibility report is expected shortly. The Ministry of Shipping will establish a special purpose vehicle (SPV) to raise funds for the project and government will participate in the funding through a mix of equity support and debt-guarantee.
· International Container Transhipment Terminal (ICTT) at Vallarpadam : The Finance Minister has announced that the government will facilitate the construction of an International Container Transhipment Terminal (ICTT) at Vallarpadam in Kochi port on Build, Operate and Transfer (BOT) basis. This will enhance the draft and cargo handling infrastructure at Kochi port as it has locational advantages compared to other major Indian ports.
GOVERNMENT REAFFIRMS ITS COMMITMENT TO ACCELERATING FISCAL CONSOLIDATION AND REFORM
The Finance Minister Shri P. Chidambaram has said in his Budget speech that his government has reaffirmed its commitment to accelerating fiscal consolidation and reform by notifying the Fiscal Responsibility and Budget Management (FRBM) Act 2003 and the rules with effect from July 5, 2004. The salient features of the medium-term fiscal policy statement, the fiscal policy strategy statement and the macroeconomic framework statement presented along with the Budget are :· Revenue deficit will be eliminated by 2008-09. This step will open up fiscal space up to 3 per cent of GDP for enhanced public investment without undermining fiscal prudence. · Growth will be sustained by increasing production and value addition in agriculture, a marked improvement in industrial production and continued buoyancy in the performance of other service sector. · Government will follow a five year roadmap to achieve the National Common Minimum Programme (NCMP) objective of bringing about rapid growth with stability and equity.
FRESH INITIATIVES TO BOOST CAPITAL MARKETS
In order to make the Indian Capital Market strong and attractive, the Finance Minister Shri P. Chidambaram has proposed a series of measures to broaden and deepen the Capital Markets as well as to strengthen the regulatory regime. It is proposed to make the procedure for registration and operations simpler and quicker for Foreign Institutional Investors (FIIs), and to raise investment ceiling for FIIs in debt funds from US$ 1 billion to US$ 1.75 billion. Banks with strong risk management systems will be allowed greater latitude in their exposure to the capital market. In addition, an alternative trading platform is proposed to be created for small and medium enterprises to raise the equity and debt from the capital market and steps would be initiated to integrate the commodities markets and securities markets. RBI and SEBI will announce the necessary measures in respect of these matters. The Finance Minister also proposed to examine and implement the recommendations of an inter-ministerial committee for liberalisation of FII limits in certain specified sectors in consultation with the ministries concerned. He also announced that SEBI has been able to resolve the longstanding issue of brokers’ fees and decision in this regard would be announced by it shortly.
RURAL HOUSING AND WATER SUPPLY GET BIG BOOST THROUGH HIGHER FINANCIAL ALLOCATIONS
Finance Minister Shri P. Chidambaram displayed the commitment of his government to the concerns of common man by giving a big boost to rural housing and water supply schemes.
· Water Supply : The Finance Minister announced that all drinking water schemes will be brought under the umbrella of the Rajiv Gandhi Drinking Water Mission. The Accelerated Rural Water Supply Programme has been allocated Rs.2610 crore in the current year. The programme will focus on renewal of water sources and on serving uncovered and partially covered habitations, whose number exceeds more than 75,000. Funds will be devolved on Panchayatiraj institutions to plan, implement, own, operate and maintain the rural water supply schemes. For the Urban Water Supply Programme, a provision of Rs.151.25 crore has been made under which 2151 towns qualify for consideration. The Finance Minister also announced a proposal to install the first large desalination plant near Chennai in the State sector with a capacity of 300 million litres per day and an estimated cost of Rs.1000 crore. More such plants will be installed along the Coromandel coast.
· Rural Housing : In a major boost to rural housing, Shri Chidambaram has increased the allocation for Indira Awas Yojana (IAY) by Rs.537 crore to Rs.2247 crore. To facilitate the flow of funds to this sector, the National Housing Bank has offered to reduce the rate of refinance by 25 basis points this year and RBI has agreed to revise the norms of repayment for rural housing loans by banks, so as to coincide the installments with crop cycles. An enhanced target of 2,50,000 rural housing units per year is set against the achievement of 1,80,000 housing units per year in the last three years.
RS. 259 CRORES FOR PREVENTION AND CONTROL OF HIV/AIDS
Shri Chidambaram has allocated Rs. 259 crores for prevention and control of HIV/AIDS. The amount will be utilised, among other things, for improved surveillance through the setting up of more sentinel sites and use of primary health centres to monitor HIV/AIDS, public awareness campaigns, promotion of safe sex through the use of condoms, prevention of drug abuse and distribution of disposable syringes.EDUCATION CESS OF 2% TO BE LEVIED ON ALL TAXES 500 ITIS TO BE UPGRADED IN THE NEXT FIVE YEARS
To give a boost to primary education in the country and in conformity with the National Common Minimum Programme of the United Progressive Alliance, the Finance Minister , Shri P. Chidambaram has proposed to levy a cess of 2% on income tax, corporation tax, excise duties, customs duties and service tax. The new cess will yield about Rs. 4000-5000 crores per annum and the entire amount will be earmarked for education including provision for nutritious cooked mid-day meal.
Shri Chidambaram also proposed to launch a programme in central sector to upgrade 500 ITIs over the next five years at the rate of 100 institutes a year. He said that the schemes imparted by the ITIs must keep pace with the technological demands of industry and we have to produce world class technicians. Under the programme, appropriate infrastructure and equipment will be provided, the syllabi will be upgraded and new trades will be introduced. He called for the creation of a public-private partnership model for designing and implementing the scheme. The selection of ITIs will be done in consultation with the State Governments.
The Finance Minister also announced that commercial banks have agreed to waive the collateral for educational loans upto Rs. 7.5 lakhs if a satisfactory guarantee is provided on behalf of the student. This is to ensure that no student admitted to any professional course in IITs IIMs and medical colleges is deprived of the opportunity to study because of lack of funds
UNIVERSAL HEALTH INSURANCE SCHEME MADE EXCLUSIVE FOR BPL FAMILIES NEW GROUP HEALTH INSURANCE SCHEME INTRODUCED FOR CLGS
The Finance Minister, Shri P. Chidambaram has proposed to redesign Universal Health Insurance Scheme and make it exclusive for persons and families below the poverty line (BPL). The revised premium would be Rs. 165 for individuals, Rs. 248 for a family of five and Rs 330 for a family of seven, without any reduction in benefits. To offset the reduction in premium, he proposed to enhance the premium subsidy from Rs. 100 at present to Rs. 200 for an individual, Rs. 300 for a family of five and Rs. 400 for a family of seven. The cost to the exchequer will be Rs. 40 crores a year. The number of people insured will rise to about 10 lakhs.
The Finance Minister also proposed to introduce a new Group Health Insurance Scheme through public sector non-life insurance companies. The insured will be members of Self-Help Groups and other Credit Linked Groups (CLGs) who avail of loans from banks or cooperative institutions. Under the scheme, the premium will be Rs. 120 per person and the insurance cover would be for a sum of Rs. 10,000.
MAJOR BOOST FOR AGRICULTURE THROUGH IMPROVEMENT OF IRRIGATION FACILITIES TASK FORCE ON COOPERATIVE BANKING REFORMS PROPOSED
This year’s General Budget seeks to give a major boost to agriculture through improvement of irrigation facilities. The Accelerated Irrigation Benefit Programme introduced in 1996-97 is being restructured. The pending projects that can be completed by March next year will be given over-riding priority. Rs. 2800 crore has been provided for the Programme during the year. A massive scheme to repair, renovate and restore all the water bodies directly linked to agriculture has been proposed. In the current year, pilot projects will be taken up in at least five districts at a cost of Rs. 100 crore. A nation wide Water Harvesting Scheme has also been announced. It will cover one lakh irrigation units at an average cost of Rs. 20, 000 per unit.
Doubling of the agricultural credit in three years is a thrust area in the Budget. Regional rural banks which abide by prudential regulations and a new governance standard will qualify for receiving funds for restructuring from the Government. A Task Force will be appointed to examine the reforms required in the cooperative banking system. It will submit its report by 31st October this year.
The Rural Infrastructure Development Fund is being revived and Rs. 8,000 crore will be provided for the Fund during the year. A programme of flood control and anti-erosion will be launched during the year. The Government also proposes to launch a National Horticulture Mission to double the horticulture production from the current level of 150 million tonnes to 300 million tonnes by 2011-12. Farmers will be encouraged to diversify into oilseeds by promoting superior seed technology and through an appropriate policy of price support. The allocation for agricultural research and development has been raised to Rs. 1000 crore from Rs. 775 crore in the budget estimates for 2003-04. It has been proposed to provide the necessary additional capital to the Small Farmers Agri-business Consortium to aggressively promote agri-businesses. A weather insurance scheme is being introduced on a trial basis in 20 rain gauge stations in the current crop season .
Tractors, dairy machinery and hand tools such as spades, shovels and sickles which now attract a 16 per cent excise duty will be fully exempt from duty. Excise duty is proposed to be reduced from 16 per cent to 8 per cent on preparations of meat, poultry and fish.
NEW FOOD FOR WORK PROGRAMME TO BE LAUNCHED IN 150 MOST BACKWARD DISTRICTS
ANTYODAYA ANNA YOJANA TO COVER TWO CRORE FAMILIES
A new Food for Work programme in the most backward 150 districts of the country has been proposed in the Budget presented by the Finance Minister before Parliament today. Allocations under different schemes will be pooled together to support the programme. Additional funds will be provided to crucial programmes like Sarva Shiksha Abhiyan and Midday Cooked-Meal Scheme. The coverage of the Antyodaya Anna Yojana will be extended from the current 1.5 crore families to two crore families. The programme will receive a subsidy of about Rs. 3,500 crore out of the total allocation of Rs. 25,800 crore for food subsidy. Public distribution system will be strengthened. A pilot scheme will be introduced in two or three contiguous districts of a selected State for distributing food stamps instead of food through fair price shops.Finance Minister P. Chidambaram announced that the poor will have the first charge on the proposed additional Gross Budgetary Support of Rs. 10,000 crore and also on the entire plan funds which will be re-allocated by the Planning Commission.
An allocation of Rs. 1180 crore has been made for programmes concerning the Scheduled Castes and of Rs. 1146 crore for those concerning the Scheduled Tribes. An additional allocation of Rs. 50 crore has been made for the National Minorities Development and Finance Corporation. An indicative target of credit linking 5.85 lakh self-help groups has been set for the period up to 31st March, 2007. Work has begun on the National Employment Guarantee Act. The object is to guarantee 100 days of employment in a year to one person in every poor household. The thrust areas of the Budget include drinking water and electricity for all, more housing for the poor and access to medical care through health insurance.
FISCAL DEFICIT PEGGED AT 4.4 PER CENT OF GDP REVENUE RS. 309,322 CRORE; EXPENDITURE RS. 477,829 CR
The fiscal deficit is estimated at Rs. 137,407 crore, which is 4.4 per cent of the estimated GDP, whereas the revenue deficit is estimated at Rs. 76,171 crore equivalent to 2.5 per cent of GDP in 2003-04, which is one percentage point below the corresponding estimate of 3.5 per cent of GDP in 2003-04.Presenting the Budget for the year 2004-05 in Lok Sabha today, Finance Minister Shri P. Chidambaram said that the total expenditure is estimated at Rs. 477,829 crore, of which Rs. 145,590 crore is for Plan and Rs. 332,239 crore for non-Plan. Total revenue receipt of the central Government is estimated at Rs. 309,322 crore and the revenue expenditure at Rs. 385,493 crore. Plan expenditure for 2004-05 is estimated at Rs. 145,590 as against Rs. 122,149 crore in the provisional actuals for 2003-04, an increase of Rs. 23,441 crore over the previous year.
While there is an increase in plan revenue expenditure from Rs. 78,537 crore in 2003-04 to Rs. 91,843 crore, there is an even sharper and welcome increase in plan capital expenditure from Rs. 43,612 crore in 2003-04 to Rs. 53,747 crore, he said.
Non-plan expenditure in 2004-05 is estimated to be Rs. 332,239 crore, lower than Rs. 349,787 crore in the provisional actuals for 2003-04 which includes capital expenditure of Rs. 46,211 crore on repayment to the National Small Savings Fund, Shri Chidambaram stated.
The increase in non-plan expenditure from the interim budget is mainly on account of capital expenditure in defence to the tune of Rs. 11,000 crore and assistance to Indian Telephone Industries Ltd, he added.
BONANZA FOR SENIOR CITIZENS IN THE BUDGETNEW SAVINGS SCHEME TO OFFER 9% INTEREST
In a major relief to senior citizens, the Finance Minister, Shri P. Chidambaram, has proposed to introduce a new scheme called the Senior Citizens Savings Scheme offering an interest rate of 9 per cent per annum to senior citizens, which is above the market determined rate.
Recognizing the need for an instrument, bearing a slightly higher rate of interest that will provide a risk-free avenue to all citizens to save for a longer term, Shri Chidambaram further proposed to continue the Government Savings bond, carrying an interest rate of 8 per cent per annum.
Balancing these considerations, the Finance Minister did not make any change in the existing rates of interest on small savings instruments. Consequently, PPF, GPF and the Special deposit Scheme will attract 8 per cent interest this year. The Varishta Pension Bima Yojana may no longer be necessary since the new savings scheme will cover the senior citizens adequately, he added.
NATIONAL MANUFACTURING COMPETITIVE COUNCIL TO BE SET UP
For enhancing competitiveness in the manufacturing sector, the Government has proposed to set up a National Manufacturing Competitive Council. The Council will be a permanent forum for policy dialogue to energise and sustain the growth of manufacturing industries. It may also recommend industry-specific or sector-specific policy initiatives to enhance competitiveness.
SECTORAL CAP FOR FDI IN TELECOMMUNICATIONS, CIVIL AVIATION AND INSURANCE RAISED
Recognising the urgent need for infusing huge amounts of capital, the Government has proposed to raise the Sectoral cap for Foreign Direct Investment (FDI) in telecommunications from 49 per cent to 74 per cent, in civil aviation from 40 to 49 per cent and in insurance from 26 to 49 per cent.Announcing this, the Finance Minister Shri P. Chidambaram stated that the FDI has the potential to add a competitive edge, especially in the industrial sector. The National Common Minimum Programme declares that FDI will continue to be encouraged and actively sought, particularly in the areas of infrastructure, high technology and exports. Three sectors of the economy namely, telecommunications, civil aviation and insurance fully meet this description
EQUITY SUPPORT AND LOANS TO CENTRAL PSES PROPOSEDMAJOR INVESTMENTS PROPOSED IN PSES
The Government have proposed to provide equity support of Rs. 14,194 crore and loans of Rs. 2,132 crore to Central Public Sector Enterprises (PSEs) including Railways in the current Financial Year. Announcing the Budget proposals in the Lok Sabha today, the Finance Minister Shri P. Chidambaram stated that major investments will be made in PSEs falling in the sectors of power, telecommunications, railways, roads, petroleum, coal and civil aviation. He expressed deep commitment of Government to a strong and effective public sector operating in a competitive environment.
Emphasising the need to address the other problems of the Public Sector, the Finance Minister stated that disinvestments and privatisation are useful economic tools. The Government will selectively employ these tools consistent with the declared policies. He proposed to establish a Board for Reconstruction of Public Sector Enterprises (BRPSE). The Board will advise the Government on the measures to be taken to restructure PSEs including cases where disinvestments or closure or sale is justified.
Regarding disinvestment in Public Sector Enterprises, the Finance Minister stated that National Common Minimum Programme (NCMP) contains clear policy guidelines. As long as government retains control over the PSE, and its Public Sector character is not affected, the Government may dilute its equity and raise resources to meet the social needs of the people. He proposed to ask the BRPSE to examine each case objectively and make recommendations on disinvestments, consistent with NCMP.
Recognising the marginal dilution of Government’s holding in NTPC after Public Issue, the Finance Minister proposed to disinvest approximately 5 per cent of its holdings by piggy-back on the public issue. This and some other cases which are under examination are expected to yield a sum of Rs. 4000 crore in the current year. He further stated that along with Budget for 2005-06, a Report will be presented to the House indicating the manner in which the said revenues have been or will be applied for specified social sector schemes. The Finance Minister announced financial support for restructuring of Hindustan Antibiotics Limited. A rescue package of Rs. 508 crore for Indian Telephone Industries will be given for keeping it out of the net of the BIFR.
