BUDGET

SERVICE TAX

• Service Tax to be imposed on the following services:
  
  i) Service provided in relation to transport of goods by rail.
  
  ii) Service provided in relation to transport of coastal cargo; and goods through inland water including National Waterways.
  
  iii) Advice, consultancy or technical assistance provided in the field of law (this tax would not be applicable in case the service provider or service receiver is an individual).
  
  iv) Cosmetic and plastic surgery service
• Exemption from service tax being provided to inter-State or intra-State transportation of passengers in a vehicle bearing Contract Carriage Permit with specified conditions.
• Exemption from service tax (leviable under Banking and other financial services or under Foreign exchange broking service) being provided to inter-bank purchase and sale of foreign currency between scheduled banks.
• Two taxable services, namely, Transport of goods through road and Commission paid to foreign agents to be exempted from the levy of service tax, if the exporter is liable to pay service tax on reverse charge basis. However, present cap of 10% on commission agency charges is retained. Thus there would be no need for the exporter to first pay the tax and later claim refund in respect of these services. For other services received by exporters, service tax exemption to 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.
• Export Promotion Councils and the Federation of Indian Export Organizations (FIEO) to be exempt from service tax on the membership and other fees collected by them till 31st March 2010.

CENTRAL EXCISE

• Excise duty rate on items currently attracting 4% to be raised to 8% with following major exceptions:
  
  i) Specified food items including biscuits, sharbats, cakes and pastries.
  
  ii) Drugs and pharmaceutical products falling under Chapter 30. iii) Medical equipment.
  
  iv) Certain varieties of paper, paperboard and articles thereof. v) Paraxylene.
  
  vi) Power driven pumps for handling water.
  
  vii) Footwear of RSP exceeding Rs.250 but not exceeding Rs.750 per pair.
  
  viii) Pressure cookers.
  
  ix) Vacuum and gas filled bulbs of RSP not exceeding Rs.20 per bulb.
  
  x) Compact Fluorescent Lamps.
  
  xi) Cars for physically handicapped.
• Specific component of excise duty applicable to large cars/utility vehicles of engine capacity 2000 cc and above to be reduced from Rs. 20,000/- per vehicle to Rs.15,000 per vehicle.
• Excise duty on petrol driven trucks/lorries to be reduced from 20% to 8% Excise duty on chassis of such trucks/lorries to be reduced from 20% + Rs.10000 to 8% + Rs.10000.
• Excise duty on Special Boiling Point spirits to be reduced to 14%.
•  
• Excise duty on naphtha to be reduced to 14%.
• Duty paid High Speed Diesel blended with upto 20% bio-diesel to be fully exempted from excise duties.
• The ad valorem component of excise duty of 6% on petrol intended for sale with a brand name to be converted into a specific rate Consequently, such petrol would now attract total excise duty of Rs.14.50 per litre instead of 6% + Rs.13 per litre.
• The ad valorem component of excise duty of 6% on diesel intended for sale with a brand name to be converted into a specific rate Consequently, such diesel would now attract total excise duty of Rs.4.75 per litre instead of 6% + Rs.3.25 per litre.
• Excise duty on manmade fibre and yarn to be increased from 4% to 8%.
• Excise duty on PTA and DMT to be increased from 4% to 8%.
• Excise duty on polyester chips to be increased from 4% to 8%.
• Excise duty on acrylonitrile to be increased from 4% to 8%.
• The scheme of optional excise duty of 4% for pure cotton to be restored.
• Excise duty for man-made and natural fibres other than pure cotton, beyond the fibre and yarn stage, to be increased from 4% to 8% under the existing optional scheme.
• An optional excise duty exemption to be provided to tops of manmade fibre manufactured from duty paid tow at par with tops manufactured from duty paid staple fibre.
• Suitable adjustments to be made in the rates of duty applicable to DTA clearances of textile goods made by Export Oriented Units using indigenous raw materials/inputs for manufacture of such goods.
• Full exemption from excise duty to be provided on goods of Chapter 68 of Central Excise Tariff manufactured at the site of construction for use in construction work at such site.
• Excise duty exemption on recorded smart cards and recorded proximity cards and tags to be made optional. Manufacturers have the option to pay the applicable excise duty and avail the credit of duty paid on inputs.
• EVA compound manufactured on job work for further use in manufacture of footwear to be exempted from excise duty
• Benefit of SSI exemption scheme to be extended to printed laminated rolls bearing the brand name of others by excluding this item from the purview of the brand name restriction.
• On packaged or canned software, excise duty exemption to be provided on the portion of the value which represents the consideration for transfer of the right to use such software, subject to specified conditions.
• Excise duty on branded articles of jewellery to be reduced from 2% to Nil.

CUSTOMS DUTY

REDUCED

• On 10 specified life saving drugs/vaccine and their bulk drugs from 10% to 5% with Nil CVD (by way of excise duty exemption).
• On specified heart devices, namely artificial heart and PDA/ASD occlusion device, from 7.5% to 5% with Nil CVD (by way of excise duty exemption).
• On permanent magnets for PM synchronous generator above 500 KW used in wind operated electricity generators from 7.5% to 5%.
• On bio-diesel from 7.5% to 2.5%.
• On mechanical harvester for coffee plantation from 7.5% to 5%. CVD on such harvesters has also been reduced from 8% to nil, by way of excise duty exemption.
• On cotton waste from 15% to 10%.
• On wool waste from 15% to 10%.
• On rock phosphate from 5% to 2%.
• For manufacturing LCD Panels LCD televisions from10% to 5%.
• On un-worked corals from 5% to Nil.

OTHERS

• Customs duty of 5% to be imposed on Set Top Box for television broadcasting.
• Customs duty on serially numbered gold bars (other than tola bars) and gold coins to be increased from Rs.100 per 10 gram to Rs.200 per 10 gram. Customs duty on other forms of gold to be increased from Rs.250 per 10 gram to Rs.500 per 10 gram. Customs duty on silver to be increased from Rs.500 per Kg. to Rs.1000 per Kg. These increases also to be applicable when gold and silver (including ornaments) are imported as personal baggage.
• Full exemption from 4% special CVD on parts for manufacture of mobile phones and accessories to be reintroduced for one year.
• List of specified raw materials/inputs imported by manufacturer-exporters of sports goods which are exempt from customs duty, subject to specified conditions, to be expanded by including five additional items.
• List of specified raw materials and equipment imported by manufacturer-exporters of leather goods, textile products and footwear industry which are fully exempt from customs duty, subject to specified conditions, to be expanded.
• Concessional customs duty of 5% on specified machinery for tea, coffee and rubber plantations to be reintroduced for one year, upto 06.07.2010.
• Customs duty on serially numbered gold bars (other than tola bars) and gold coins to be increased from Rs.100 per 10 gram to Rs.200 per 10 gram. Customs duty on other forms of gold to be increased from Rs.250 per 10 gram to Rs.500 per 10 gram. Customs duty on silver to be increased from Rs.500 per Kg. to Rs.1000 per Kg. These increases also to be applicable when gold and silver (including ornaments) are imported as personal baggage.
• CVD exemption on Aerial Passenger Ropeway Projects to be withdrawn. Such projects will now attract applicable CVD.
• Customs duty exemption on concrete batching plants of capacity 50 cum per hour or more to be withdrawn. Such plants will now attract customs duty of 7.5%.
• On packaged or canned software, CVD exemption to be provided on the portion of the value which represents the consideration for transfer of the right to use such software, subject to specified conditions.
• Customs duty on inflatable rafts, snow-skis, water skis, surf-boats, sail-boards and other water sports equipment to be fully exempted.

KEY TO BUDGET DOCUMENTS

BUDGET 2009-2010

1. The Budget documents presented to Parliament comprise, besides the Finance Minister''''s Budget Speech, of the following:

A. Annual Financial Statement (AFS)

B. Demand for Grants (DG)

C. Appropriation Bill

D. Finance Bill

E. Memorandum Explaining the Provisions in the Finance Bill, 2009

F. Macro-economic framework for the relevant financial year

G. Fiscal Policy Strategy Statement for the financial year

H. Medium Term Fiscal Policy Statement

I. Expenditure Budget Volume -1

J. Expenditure Budget Volume -2

K. Receipts Budget

L. Budget at a glance

M. Highlights of Budget

The documents shown from Serial A, B, C and D are mandated by Art. 112, 113, 114(3) and 110(a) of the Constitution of India respectively while the documents at Serial F, G and H are presented as per the provisions of the Fiscal Responsibility and Budget Management Act 2003. Other documents are in the nature of explanatory statements supporting the mandated documents with narrative or other content in a user friendly format suited for quick or contextual references. Hindi version of all these documents is also presented to Parliament. with hyperlinks, intended to make surfing more efficient.

2. In addition to the above, individual Departments/Ministries also prepare and present to Parliament their Detailed Demands for Grants, Performance and Outcome Budget, and their Annual Reports. The Economic Survey which highlights the economic trends in the country and facilitates a better appreciation of the mobilization of resources and their allocation in the Budget is brought out by the Economic Division of Department of Economic Affairs, Ministry of Finance. The Economic Survey is presented to Parliament usually in advance of the Union Budget. The web versions of these documents are normally posted by the respective ministries/departments on their web sites.

3.1   A brief description of the Budget documents listed in para 1 is given below.

      3. (A) Annual Financial Statement (AFS), the core budget document, shows estimated receipts and disbursements by the Government of India for 2009-10 in relation to estimates for 2008-09 as also expenditure for the year 2007-08. The receipts and disbursements are shown under the three parts, in which Government Accounts are kept viz.,(i)Consolidated Fund, (ii)Contingency Fund and (iii) Public Account. Under the Constitution, Annual Financial Statement distinguishes expenditure on revenue account from other expenditure. Government Budget, therefore, comprises Revenue Budget and Capital Budget. The estimates of expenditure included in the Annual Financial Statement are for the net expenditure, i.e., after taking into account the recoveries, as will be reflected in the accounts.

      The significance of the Consolidated Fund, the Contingency Fund and the Public Account as well as the distinguishing features of Revenue and Capital Budget are given briefly below.

(i)    The existence of the Consolidated Fund of India (CFI) flows from Article 266 of the Constitution. All revenues received by Government, loans raised by it, and also its receipts from recoveries of loans granted by it form the Consolidated Fund. All expenditure of Government is incurred from the Consolidated Fund of India and no amount can be drawn from the Consolidated Fund without authorisation from Parliament.

(ii)    Article 267 of the Constitution authorises the Contingency Fund which is an imprest placed at the disposal of the President of India facilitate Government to meet urgent unforeseen expenditure pending authorization from Parliament. Parliamentary approval for such unforeseen expenditure is obtained, post-facto, and an equivalent amount is drawn from the Consolidated Fund to recoup the Contingency Fund. The corpus of the Contingency Fund as authorized by Parliament presently stands at Rs.500 crore.

(iii)   Moneys held by Government in Trust as in the case of Provident Funds, Small Savings collections, income of Government set apart for expenditure on specific objects like road development, primary education, Reserve/Special Funds etc. are kept in the Public Account. Public Account funds do not belong to Government and have to be finally paid back to the persons and authorities who deposited them. Parliamentary authorisation for such payments is, therefore, not required, except where amounts are withdrawn from the Consolidated Fund with the approval of Parliament and kept in the Public Account for expenditure on specific objects, in which case, the actual expenditure on the specific object is again submitted for vote of Parliament for drawl from the Public Account for incurring expenditure on the specific object.

(iv) Revenue Budget consists of the revenue receipts of Government (tax revenues and other revenues) and the expenditure met from these revenues. Tax revenues comprise proceeds of taxes and other duties levied by the Union . The estimates of revenue receipts shown in the Annual Financial Statement take into account the effect of various taxation proposals made in the Finance Bill. Other receipts of Government mainly consist of interest and dividend on investments made by Government, fees, and other receipts for services rendered by Government. Revenue expenditure is for the normal running of Government departments and various services, interest payments on debt, subsidies, etc. Broadly the expenditure which does not result in creation of assets for Government of India is treated as revenue expenditure. All grants given to State Governments/Union Territories and other parties are also treated as revenue expenditure even though some of the grants may be used for creation of assets.

(v)   Capital Budget consists of capital receipts and capital payments. The capital receipts are loans raised by Government from public, called market loans, borrowings by Government from Reserve Bank and other parties through sale of Treasury Bills, loans received from foreign Governments and bodies, and recoveries of loans from State and Union Territory Governments and other parties. Capital payments consist of capital expenditure on acquisition of assets like land, buildings, machinery, equipment, as also investments in shares, etc., and loans and advances granted by Central Government to State and Union Territory Governments, Government companies, Corporations and other parties. Capital Budget also incorporates transactions in the Public Account.

(vi) Accounting Classification

     The estimates of receipts and disbursements in the Annual Financial Statement and of expenditure in the Demands for Grants are shown according to the accounting classification prescribed under Article 150 of the Constitution, which enables Parliament and the public to make a meaningful analysis of allocation of resources and purposes of Government expenditures.

     The Annual Financial Statement shows separately, certain disbursements as charged on the Consolidated Fund of India, where the Constitution mandates such items of expenditure, like emoluments of the President, salaries and allowances of the Chairman and the Deputy Chairman of the Rajya Sabha and the Speaker and the Deputy Speaker of the Lok Sabha, salaries, allowances and pensions of Judges of the Supreme Court, Comptroller and Auditor-General of India and the Central Vigilance Commission, interest on and repayment of loans raised by Government and payments made to satisfy decrees of courts etc. These items of expenditure are charged on the Consolidated Fund of India and are not required to be voted by the Lok Sabha.

      3. (B) Demands for Grants

(i)    Article 113 of the Constitution mandates that the estimates of expenditure from the Consolidated Fund of India included in the Annual Financial Statement and required to be voted by the Lok Sabha are submitted in the form of Demands for Grants. The Demands for Grants are presented to the Lok Sabha along with the Annual Financial Statement. Generally, one Demand for Grant is presented in respect of each Ministry or Department. However, in respect of large Ministries or Departments more than one Demand is presented. In regard to UnionTerritories without Legislature, a separate Demand is presented for each of the Union Territories . In budget 2009-10 there are 105 Demands for Grants. Each Demand first gives the totals of ''''voted'''' and ''''charged'''' expenditure as also the ''''revenue'''' and ''''capital'''' expenditure included in the Demand separately and also the grand total of the amount of expenditure for which the Demand is presented. This is followed by the estimates of expenditure under different major heads of account. The breakup of the expenditure under each major head between ''''Plan'''' and ''''Non-Plan'''' is also given. The amounts of recoveries taken in reduction of expenditure in the accounts are also shown. A summary of Demands for Grants is given at the beginning of this document, while details of ''''New Service'''' or ''''New Instrument of Service'''' such as formation of a new company, undertaking or a new scheme, etc., if any, are indicated at the end of the document.

(ii)    Each Demand normally includes the total provisions required for a service, that is, provisions on account of revenue expenditure, capital expenditure, grants to State and Union Territory Governments and also loans and advances relating to the service. Where the provision for a service is entirely for expenditure charged on the Consolidated Fund of India, for example, interest payments (Demand for Grant No. 34), a separate Appropriation, as distinct from a Demand, is presented for that expenditure and it is not required to be voted by Lok Sabha. Where, however, expenditure on a service includes both ''''voted'''' and ''''charged'''' items of expenditure, the latter are also included in the Demand presented for that service but the ''''voted'''' and ''''charged'''' provisions are shown separately in that Demand.

      3. (C) Appropriation Bill

      After the Demands for Grants are voted by the Lok Sabha, Parliament''''s approval to the withdrawal from the Consolidated Fund of the amounts so voted and of the amount required to meet the expenditure charged on the Consolidated Fund is sought through the Appropriation Bill. Under Article 114(3) of the Constitution, no amount can be withdrawn from the Consolidated Fund without the enactment of such a law by Parliament.

      The whole process beginning with the presentation of the Budget and ending with discussions and voting on the Demands for Grants requires sufficiently long time. The Lok Sabha is, therefore, empowered by the Constitution to make any grant in advance in respect of the estimated expenditure for a part of the financial year pending completion of procedure for the voting of the Demands. The purpose of the ''''Vote on Account'''' is to keep Government functioning, pending voting of ''''final supply''''. The Vote on Account is obtained from Parliament through an Appropriation (Vote on Account) Bill.

      3. (D) Finance Bill

      At the time of presentation of the Annual Financial Statement before Parliament, a Finance Bill is also presented in fulfillment of the requirement of Article 110 (1)(a) of the Constitution, detailing the imposition, abolition, remission, alteration or regulation of taxes proposed in the Budget. A Finance Bill is a Money Bill as defined in Article 110 of the Constitution. It is accompanied by a Memorandum explaining the provisions included in it.

      3. (E) Memorandum Explaining the Provisions in the Finance Bill

      To facilitate understanding of the taxation proposals contained in the Finance Bill, the provisions and their implications are explained in the document titled Memorandum Explaining the Provisions of the Finance Bill.

      3. (F) Macro-economic Framework Statement

      The Macro-economic Framework Statement, presented to Parliament under Section 3(5) of the Fiscal Responsibility and Budget Management Act and the rules made thereunder contains an assessment of the growth prospects of the economy with specific underlying assumptions. It contains assessment regarding the GDP growth rate, fiscal balance of the Central Government and the external sector balance of the economy.

      3. (G) Fiscal Policy Strategy Statement

      The Fiscal Policy Strategy Statement, presented to Parliament under Section 3(4) of the Fiscal Responsibility and Budget Management Act, outlines the strategic priorities of Government in the fiscal area for the ensuing financial year relating to taxation, expenditure, lending and investments, administered pricing, borrowings and guarantees. The Statement explains how the current policies are in conformity with sound fiscal management principles and gives the rationale for any major deviation in key fiscal measures.

      3. (H) Medium-term Fiscal Policy Statement

      The Medium-term Fiscal Policy Statement, presented to Parliament under Section 3(2) of the Fiscal Responsibility and Budget Management Act 2003, sets out three-year rolling targets for four specific fiscal indicators in relation toGDP at market prices namely (i) Revenue Deficit, (ii) Fiscal Deficit, (iii) Tax toGDP ratio and (iv) Total out-standing Debt at the end of the year. The Statement includes the underlying assumptions, an assessment of sustainability relating to balance between revenue receipts and revenue expenditure and the use of capital receipts including market borrowings for generation of productive assets.

      3.2   To facilitate a more comprehensive understanding of the major features of the Budget, certain other explanatory documents are presented. These are briefly summarized below.

      3. (I) Expenditure Budget Volume-1

(i)    This document deals with revenue and capital disbursements of various Ministries/Departments and gives the estimates in respect of each under ''''Plan'''' and ''''Non-Plan''''. It also gives analysis of various types of expenditure and broad reasons for the variations in estimates.

(ii)    Under the present accounting and budgetary procedures, certain classes of receipts, like payments made by one department to another and receipts of capital projects or schemes, are taken in reduction of the expenditure of the receiving department. The estimates of expenditure included in the Demands for Grants are for the gross amounts. While the estimates of expenditure included in the Annual Financial Statement are for the net expenditure, after taking into account the recoveries. The document Expenditure Budget makes certain other refinements like netting expenditure of related receipts so that inflation of receipts and expenditure figures are avoided and there can be a better appreciation of the magnitudes of various expenditure. Contributions to International bodiesand estimated strength of establishment of various Government Departments and provision there forare shown in separate annexes. A statement each showing (i) Plan grants and loans released by Ministries/Departments directly to State and district level autonomous bodies, under various Central and Centrally Sponsored Plan schemes, (ii) Gender Budgeting and (iii) Schemes for development of Scheduled Castes and Scheduled Tribes are also included in this document.

      (iii)  Plan Outlay

        Plan expenditure forms a sizeable proportion of the total expenditure of the Central Government. The Demands for Grants of the various Ministries show the Plan expenditure under each head separately from the Non-Plan expenditure. The Expenditure Budget Vol. 1 also gives the total Plan provisions for each of the Ministries arranged under the various heads of development and highlights the budget provisions for the more important Plan programmes and schemes. A description of important schemes included in the Plan along with the objectives, targets and achievements is given in the Outcome Budget of the respective Ministry. Variations in the estimates of Plan expenditure are also explained.

      (iv) Public Sector Enterprises

        A large part of the Plan expenditure incurred by the Central Government is through public sector enterprises. Budgetary support for financing outlays of these enterprises is provided by Government either through investment in share capital or through loans. Expenditure Budget Vol. 1 shows the estimates of capital and loan disbursements to public sector enterprises in 2008-2009 and 2009-2010 for Plan and Non-Plan purposes and also the extra budgetary resources available for financing their Plans. A detailed report on the working of public sector enterprises is given in the document titled ''''Public Enterprises Survey'''' brought out separately by the Department of Public Enterprises. A report on the working of the enterprises under the control of the various administrative Ministries is also given in the Annual Reports of the various Ministries circulated to Members of Parliament separately. The annual reports along with the audited accounts of each of the Government companies are also separately laid before Parliament. Besides, the reports of the Comptroller and Auditor General of Indiaon the working of various public sector enterprises are also laid before Parliament.

      (v)   Commercial Departments

        Railways is the principal departmentally-run commercial undertaking of Government. The Budget of the Ministry of Railways and the Demands for Grants relating to Railway expenditure are presented to Parliament separately. The total receipts and expenditure of the Railways are, however, incorporated in the Annual Financial Statement of the Government of India. To portray the actual working and not inflate either receipts or expenditure, the expenditure as reflected in the Receipts Budget & Expenditure Budget Vol. 1 and Vol. 2 has been taken net of receipts. The Demands for Grants of the Department of Telecommunications, are presented along with other Demands of the Central Government.

(vi) The receipts and expenditure of the Defence Department shown in the Annual Financial Statement, are explained in greater detail in the document Defence Services Estimates presented along with the Detailed Demands for Grants of the Ministry of Defence.

(vii) The details of grants given to bodies other than State and Union Territory Governments are given in the statements of Grants-in-aid paid to non-Government bodies appended to Detailed Demands for Grants of the various Ministries. Annexure 5 to Expenditure Budget Vol.1 shows details of grants-in-aid exceeding Rs.5 lakhs (recurring) or Rs.10 lakhs (non-recurring) to private institutions, organizations and individuals sanctioned during the year 2007-08.

      3. (J) Expenditure Budget Volume-2

      The provisions made for a scheme or a programme may spread over a number of Major Heads in the Revenue and Capital sections in a Demand for Grants. In the Expenditure Budget Vol. 2, the estimates made for a scheme/programme are brought together and shown on a net basis at one place, by Major Heads. To understand the objectives underlying the expenditure proposed for various schemes and programmes in the Demands for Grants, suitable explanatory notes are included in this volume in which, wherever necessary, brief reasons for variations between the Budget estimates and revised estimates for the current year and requirements for the ensuing Budget year are also given.

      3. (K) Receipts Budget

      Estimates of receipts included in the Annual Financial Statement are further analysed in the document "Receipts Budget". The document provides details of tax and non-tax revenue receipts and capital receipts and explains the estimates. The document also provides the arrears of tax revenues and non-tax revenues, as mandated under the Fiscal Responsibility and Budget Management Rules, 2004. Trend of receipts and expenditure along with deficit indicators, statement pertaining to National Small Savings Fund (NSSF), statement of revenues foregone, statement of liabilities, statement of guarantees given by the government, statements of assets and details of external assistance are also included in Receipts Budget.

      3. (L) Budget at a Glance

(i)    This document shows in brief, receipts and disbursements along with broad details of tax revenues and other receipts. This document also exhibits broad break-up of expenditure - Plan and Non-Plan, allocation of Plan outlays by sectors as well as by Ministries/Departments and details of resources transferred by the Central Government to State and Union Territory Governments. This document also shows the revenue deficit, the gross primary deficit and the gross fiscal deficit of the Central Government. The excess of Government''''s revenue expenditure over revenue receipts constitutes revenue deficit of Government. Government mainly borrows through issue of dated securities, i.e. market borrowings. Apart from this, Government also borrows funds under many schemes which form part of capital receipts. The difference between the total expenditure of Government by way of revenue, capital and loans net of repayments on the one hand and revenue receipts of Government and capital receipts which are not in the nature of borrowing but which finally accrue to Government on the other, constitutes gross fiscal deficit. Gross primary deficit is measured by gross fiscal deficit reduced by gross interest payments. In the Budget documents ''''gross fiscal deficit'''' and ''''gross primary deficit'''' have been referred to in abbreviated form ''''fiscal deficit'''' and ''''primary deficit'''', respectively. This document also shows liabilities of the Government on account of securities (bonds) issued in lieu of oil and fertilizer subsidies.

(ii)    The document also includes a statement indicating the quantum and nature (share in Central Taxes, grants/loan) of the total Resources transferred to States and Union Territory Governments. Details of these transfers by way of share of taxes, grants-in-aid and loans are given in Expenditure Budget Volume.1. Bulk of grants and loans are disbursed by the Ministry of Finance and are included in the Demand ''''Transfers to State and Union Territory Governments''''. The grants and loans released to States and Union Territories by other Ministries/Departments are provided for in their respective Demands.

      3. (M)Highlights of Budget

      This document explains the key features of the Budget 2009-10, inter alia, indicating the prominent achievements in various sectors of the economy. It also explains, in brief, the budget proposals for allocation of funds to be made in important areas. The summary of tax proposals is also reflected in the document.

      3. (N) Detailed Demands for Grants

      The Detailed Demands for Grants are laid on the table of the Lok Sabha sometime after the presentation of the Budget, but before the discussion on Demands for Grants commences. Detailed Demands for Grants further elaborate the provisions included in the Demands for Grants as also actual expenditure during the previous year. A break-up of the estimates relating to each programme/organisation, wherever the amount involved is not less than Rs.10 lakhs, is given under a number of object heads which indicate the categories and nature of expenditure incurred on that programme, like salaries, wages, travel expenses, machinery and equipment, grants-in-aid, etc. At the end of these Detailed Demands are shown the details of recoveries taken in reduction of expenditure in the accounts.

      3. (O) Outcome Budget

(i)    With effect from Financial Year 2007-08, the Performance Budget and the Outcome Budget hitherto presented to Parliament separately by Ministries/Departments, are merged and presented as a single document titled "Outcome Budget" by each Ministry/Department in respect of all Demands/Appropriations controlled by them, except those exempted from this requirement. Outcome Budget broadly indicates physical dimensions of the financial budget of a Ministry/Department, indicating actual physical performance in the preceding year (2007-2008), performance in the first nine months (up to December) of the current year (2008-2009) and the targeted performance during the ensuing year (2009-2010).

(ii)    Outcome Budget contains a brief introductory note on the organization and function of the Ministry/Department, list of major programmes/schemes implemented by the Ministry/Department, its mandate, goal and policy framework, budget estimates, scheme-wise analysis of physical performance and linkage between financial outlays and outcome, review covering overall trends in expenditure vis-a-vis budget estimates in recent years, review of performance of statutory and autonomous bodies under the administrative control of the Ministry/Department, reform measures, targets and achievements and plan for future refinements.

(iii)   As far as feasible, coverage of women and SC/ST beneficiaries under various developmental schemes and schemes for the benefit of North Eastern Region are also separately indicated.

      3. (P) Annual Reports

      A descriptive account of the activities of each Ministry/Department during the year 2008-2009 is given in the document Annual Report which is brought out separately by each Ministry/Department and circulated to Members of Parliament at the time of discussion on the Demands for Grants.

      3. (Q) Economic Survey

      The Economic Survey brings out the economic trends in the country, which facilitates a better appreciation of the mobilisation of resources and their allocation in the Budget. The Survey analyses the trends in agricultural and industrial production, infrastructure, employment, money supply, prices, imports, exports, foreign exchange reserves and other relevant economic factors which have a bearing on the Budget, and is presented to the Parliament ahead of the Budget for the ensuing year.

            The Budget of the Central Government is not merely a statement of receipts and expenditure. Since Independence , with the launching of Five Year Plans, it has also become a significant statement of governmental policy. The Budget reflects and shapes, and is, in turn, shaped by the country''''s economic life. For a better appreciation of the impact of governmental receipts and expenditure on the other sectors of the economy, it is necessary to group them in terms of economic magnitudes, for example, how much is set aside for capital formation, how much is spent directly by the Government and how much is transferred by Government to other sectors of the economy by way of grants, loans, etc. This analysis is contained in the document Economic and Functional Classification of the Central Government Budget which is brought out by the Ministry of Finance separately.

Budget  2009-2010

Speech  of

Pranab Mukherjee

Minister of Finance

July 6, 2009

Madam Speaker,

            I rise to present the Budget for 2009-10.

2.         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 office.

3.         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.

4.         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.

5.         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:

(a)      sustain a growth rate of at least 9 per cent  per annum over an extended period of time;

(b)     strengthen the mechanisms for inclusive growth for creating about 12 million new work opportunities per year;

(c)      reduce the proportion of people living below poverty line to less than half from current levels by 2014;

(d)     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.

6.         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 affectedIndia . 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.

7.         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.

8.         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.

9.         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

10.       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.

11.       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 GDPat 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 the economy.

12.       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 Governments 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 feature. 

TOWARDS ECONOMIC REVIVAL

Short-term measures

13.       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.

14.       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.

15.       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.

16.       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.

Infrastructure Development

17.       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.

18.       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 sector.

19.       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.

20.       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 this sector.

Highway and Railways

21.       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 crore.

Urban Infrastructure

22.       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 years 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)

23.       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 upto

2008-09.  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.

Power

24.       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.

Gas

25.       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

26.       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 suitably.

Agricultural Development

            I now turn to Agricultural development.

27.       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

28.       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 .

29.       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

30.       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

31.       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:

(a)      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.

(b)     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.

(c)      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 .

(d)     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.

(e)      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 December, 2009 .

Medium-term sustainability

32.       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 Kautilyasadvice 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.

33.       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.

Fertilizer subsidy

34.       In the context of the nations 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

35.       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.

Taxation

36.       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.

Peoples ownership of PSUs

37.       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 peoples 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.

Financial sector

38.       The financial sector is the life blood of any economy. Our Governments 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 Gandhis 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 this sector.

39.       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 companies.

40.       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. 

41.       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 country.

42.       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.

43.       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 consumers.

Investment environment

44.       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 nations 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

45.       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)

46.       (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.

Bharat Nirman

            (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 (BE).

            (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)

            (v)        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

47.       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.

48.       The Womens 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.

49.       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.

Female literacy

50.       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

51.       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

52.       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

53.       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.

54.       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

55.       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.

Employment Exchanges

56.       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.

Handlooms

57.       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 inSrinagar (J&K) and Mirzapur (UP).

Health

58.       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 Interim Budget. 

59.       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

60.       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.

61.       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.

62.       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

63.       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.

64.       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.

National Security

65.       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.

66.       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.

67.       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 governments annual budgetary resources and create an innovative financing model.

One Rank One Pension for Ex-Servicemen (OROP)

68.       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 2009resulting 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.

Education

69.       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 CentralUniversity 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.

70.       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 financial year.

Commonwealth Games 2010

71.       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.

72.       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 .

73.       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 crore.

BUDGET ESTIMATES 2009-10

            Madam Speaker, now I turn to the Budget Estimates for 2009-10.

74.       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%.

75.       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.

76.       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 medium term.

77.       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.

78.       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 of revenue.

PART - B

TAX PROPOSALS

79.       Madam Speaker, I shall now present my tax proposals. 

80.       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.

81.       These tax reform initiatives have produced impressive results. The Centres 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 Centres 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.   

82.       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 . 

83.       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. 

84.       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 Indirect Taxes.

85.       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 Governments catalytic role to facilitate the introduction of GST by 1st April, 2010 after due consultations with all stakeholders.

DIRECT TAXES

86.       I shall now deal with direct taxes. 

87.       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 Tax rates.

88.       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 Rs.75,000. 

89.       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 income tax.

90.       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.

91.       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.

92.       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.

93.       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 as deduction.

94.       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 years.

95.       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.

96.       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 rules.

97.       The Finance Act, 2008 introduced the Commodity Transaction Tax (CTT) to be levied on taxable commodities transactions entered in a recognized association. The Prime Ministers Economic Advisory Council has recommended abolition of the CTT.  I, therefore, propose to abolish the Commodity Transaction Tax.

98.       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.

99.       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.

INDIRECT TAXES

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 duty.

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 CVD also.

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.     Honble 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 stage.

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 accumulation.

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 Governments 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

        paraxylene.

            The 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 excise duty.

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 about. 

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 and CVD.

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 diesel.  

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 March, 2010 . 

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 Honble 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 an individual.

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.

CONCLUSION

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 House.