Yashwant Sinha presents a tough budget

Finance Minister Yashwant Singh presented a tough Budget on Thursday with the aim of carrying economic reforms further.

Sinha increased the prices of liquefied petroleum gas, kerosene and sugar sold through the public distribution system. He also increased postal rates while cutting the interest rates for small savings, the subsidy on fertilisers and the income-tax rebate for higher income groups. He levied a 5 per cent national security surcharge on income tax while abolishing last year's 2 per cent Gujarat earthquake surcharge.

Promising to keep the fiscal deficit to 5.3 per cent in 2002-03, the finance minister made a number of changes in excise and customs duties and direct taxes to net an additional Rs 10,500 crore (Rs 105 billion) a year.

Service tax has been extended to 10 more areas, including life insurance, inland cargo handling, event management, rail travel agents, health clubs, fitness centres, beauty parlours and cable TV operators.

The Budget marginally raised the defence allocation by Rs 3,000 crore (Rs 30 billion) to Rs 65,000 crore (Rs 650 billion), but Sinha assured the nation that in case of need, the allocation would be increased.

The excise duty changes will result in a gain of Rs 6,700 crore (Rs 67 billion) while changes in customs duty will result in a loss of Rs 2,200 crore (Rs 22 billion). The direct tax changes will yield additional revenue of Rs 6,000 crore (Rs 60 billion), including the five per cent surcharge that will net Rs 2,750 crore (Rs 27.5 billion).

As promised, Sinha reduced peak customs duty by five per cent to 30 per cent, abolished special excise duties on all items excepting polyester filament yarn, motorcars, multi-utility vehicles, tyres for replacement, aerated soft drinks, air conditioners, pan masala, chewing tobacco and miscellaneous tobacco items.

The concessional eight per cent excise duty for LPG, kerosene, auto-CNG and engines up to 10 HP has been dispensed with and brought under 16 per cent central value added tax.

Following the dismantling of the Administered Price Mechanism and consequent reduction in subsidies, LPG will cost Rs 40 more per cylinder from March 1, 2002, and kerosene Rs 1.50 more. However, petrol will be cheaper by Re 1 and diesel will cost 50 paise less. But freight subsidy on LPG and kerosene will continue for far-flung areas.

The interest rate on contractual savings like provident fund and small savings has been reduced by 0.5 per cent from 9.5 per cent.

Sinha reduced excise duty on tea by half and exempted specified anti-AIDS drugs from excise duty.

He announced a tax package for the sagging textile industry and de-reserved 50 items from small-scale sector, including knitwear, certain agricultural implements, auto components, some chemicals and drugs.

Giving revised budget estimates for the current year, the finance minister said it showed a decrease in expenditure of Rs 10,787 crore (Rs 107.87 billion) against the original estimates.

Net tax revenues are estimated to be Rs 1,42, 348 crore (Rs 1423.48 billion) compared to the original estimate of Rs 1,63,031 crore (1630.31 billion), showing a shortfall of Rs 20,683 crore (Rs 206.83 billion) mainly due to the fall in customs and excise duty collections on account of industrial slowdown.

Non-tax revenue is estimated at Rs 70,224 crore (Rs 702.24 billion), Rs 1510 crore (Rs 15.1 billion) more than the estimated level of Rs 68,714 crore (Rs 687.14 billion). However, divestment receipts at Rs 5,000 crore (Rs 50 billion) are much lower than the budget estimate of Rs 12,000 crore (Rs 120 billion).

This has pushed up the fiscal deficit by 1 per cent from the budgeted level of 4.7 per cent of the GDP in the current year.

Referring to the budget estimate for 2002-03, Sinha said the total expenditure is estimated at Rs 4,10,309 crore (Rs 4103.09 billion), of which Rs 1,13,500 crore (Rs 1135 billion) is for Plan and Rs 2,96,809 (Rs 2968.09 billion) crore for non-Plan. The increase is mainly in interest payment [Rs 10,133 crore (Rs 101.33 billion)], subsidies [Rs 9,278 crore (Rs 92.78 billion)], defence [Rs 8,000 crore (Rs 80 billion)], and grants to state governments [Rs 2,196 crore (Rs 21.96 billion)].

The budget support for central, state and Union Territories have been placed at Rs 1,13,500 crore (Rs 1135 billion), an increase of Rs 18,400 crore (Rs 184 billion) over budget estimates for the current year. This amounts to an increase of 19.35 per cent over the last year, which is the highest in a decade.

Gross budgetary support for central plan is being enhanced from Rs 60,276 crore (Rs 602.76 billion) in the revised estimates for the current year to Rs 66,871 crore (Rs 668.71 billion) in the next year.

Central plan assistance to states and union territories in 2002-03 is also proposed to be increased to Rs 46,629 crore (Rs 466.29 billion) from Rs 38,878 crore (Rs 388.78 billion) in the revised estimates in the current year.

While the increase in central plan outlay is about 11 per cent, the increase in central assistance to states is nearly 20 per cent.

After the new tax proposals, the finance minister estimated the direct tax revenue in the coming year to be Rs 91,585 crore (Rs 915.85 billion).

With these proposals, he estimated the total tax revenue for the Centre at Rs 1,72,965 crore (Rs 1729.65 billion) and fiscal deficit at Rs 1,35,524 crore (Rs 1355.24 billion), which is 5.3 per cent of GDP.

The Budget also enhances public and private investment in infrastructure, strengthening the financial sectors and capital markets, deepening structural reforms and regenerating industrial growth.

It provides social security to the poor, consolidation tax reforms and continuing fiscal adjustments at both the central and state levels.

He proposed several measures to decontrol and deregulate agriculture, amendments to Agriculture Produce Marketing acts to enable farmers sell their produce directly to realise better prices.

Sinha announced a credit linked subsidy scheme for construction of cold storages. The total credit flow to the agriculture sector through institutional channels is expected to increase to Rs 75,000 crore (Rs 750 billion) in the next fiscal.

The minister proposed setting up of a new corporation for agricultural insurance and to increase allocation for accelerated irrigation benefit programme.

Proposing a substantial hike in the infrastructure outlay, he stepped it up by 22 per cent in power, 39 per cent in roads and 23 per cent in railways totalling Rs 37,919 crore (Rs 379.19 billion).

An infrastructure equity fund of Rs 1000 crore (Rs 10 billion) will be set up to help in providing in equity investment for infrastructure projects.

Indian companies wishing to invest abroad can now invest up to $100 million on annual basis through the automatic route and those making overseas investment in joint ventures abroad by market purchase may now do so without prior approval up to 50 per cent of their net worth.

As part of the measures to strengthen the capital markets and financial sector, Sinha said legislative changes would be introduced in the Budget Session for investor's protection.

A bill on banking sector reforms is proposed to be introduced to strengthen creditors' rights. The Industrial Development Bank of India will be corporatised to provide flexibility. Foreign banks will now have the option to either operate branches of the parent banks or to set up subsidiaries.

PTI

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