Minister of Finance
February 28, 2007
Mr. Speaker, Sir
It is my privilege to present the Budget
I. A MID-TERM REPORT CARD ON THE ECONOMY
2. In November 2006, the UPA Government
crossed the midpoint of its term of office. A midterm report
card can now be presented. There are many pluses and a few
minuses, and I shall deal with both candidly. The biggest plus
is that the growth rate of GDP has improved from 7.5 per cent
in 2004-05 to 9 per cent (Quick Estimate) in 2005-06 and,
according to Advance Estimate, to 9.2 per cent in 2006-07. The
average growth rate in the three years of the UPA Government
is, therefore, 8.6 per cent. Thanks to this impressive
performance, despite the poor start in 2002-03, the growth
target set for the Tenth Plan of 8 per cent will be nearly
3. Manufacturing is the main driver of
growth, and this augurs well for the future. In the three
years of the UPA Government, the growth rate in manufacturing
has accelerated from 8.7 per cent to 9.1 per cent and further
to 11.3 per cent. The services sector continues to maintain
impressive growth and has recorded, in the three years, a
growth rate of 9.6 per cent, 9.8 per cent and 11.2 per cent
4. On the other hand, the agriculture
sector has witnessed sharp ups and downs. Average growth
during the Tenth Plan period is estimated at 2.3 per cent,
which is below the desired level of 4 per cent a year. About
115 million families are classified as farming families.
Furthermore, a country with a large population has to be
nearly self-sufficient in essential food items; otherwise
supply constraints could upset macro economic stability and
growth prospects. Hence, agriculture must top the agenda of
the policy makers and must hold the first charge on our
resources. In a short while, I shall place before this House a
number of proposals in this regard.
Income and Savings
5. To continue with the report card, per
capita income in 2005-06, in real terms, increased by 7.4 per
cent, and the savings rate has been estimated at 32.4 per cent
and the investment rate at 33.8 per cent. Intuitively, I
believe that these high rates have continued in the current
6. The UPA Government has remained
committed to economic reforms, fiscal prudence and monetary
7. Revenues are buoyant for the third year
in succession. We have garnered additional revenues and, as
Honourable Members will notice presently, I have put these
revenues to good use to promote inclusive growth, equity and
social justice - goals that are at the core of the National
Common Minimum Programme (NCMP) and close to the hearts of the
UPA, its Chairperson and the Prime Minister.
Outlook on Inflation
8. Until February 2, 2007, bank credit,
year on year, had grown by 29.6 per cent. Money supply (M3)
had expanded by 21.3 per cent. Foreign exchange reserves stood
at US$ 180 billion. While these are concomitant features of
high growth, it cannot be denied that these monetary trends
have put pressure on prices. Global commodity prices have also
exerted pressure on domestic prices. At the same time, supply
constraints have emerged in some essential commodities such as
wheat, pulses and edible oils. Consequently, average inflation
2006-07 is estimated at between 5.2 and 5.4 per cent, which is
higher than 4.4 per cent last year. I wish to reiterate
Government's concern over inflation. Government has already
taken a number of measures on the fiscal, monetary and supply
sides to maintain price stability and, if required, will not
hesitate to take more measures. When the UPA Government
assumed office in 2004, the inflation graph was on the rise;
but we succeeded in moderating inflation and we are confident
that we can moderate the present inflationary trend too.
II. BHARAT NIRMAN AND THE FLAGSHIP
9. Bharat Nirman remains the cornerstone of
the Government's policy. I am glad to report that in the
current financial year:
irrigation potential of 2,400,000 hectares, including
900,000 hectares under AIBP, will be created;
• Drinking water
has been provided to 55,512 habitations until December 2006
against a target of 73,120 habitations;
• Until December
2006, 12,198 kilometres of rural roads have been completed.
The separate window under RIDF will augment funds for the
programme by Rs.4,000 crore a year;
• 783,000 rural
houses have been constructed up to December 2006 and 914,000
houses are under construction, and the annual target of
1,500,000 houses is likely to be exceeded;
• 19,758 villages
have been covered so far under the Rajiv Gandhi Grameen
• 15,054 villages
have been provided with a telephone against the target of
20,000 villages, and the balance will be covered by the end
of the year;
Honourable Members will note that Bharat
Nirman continues to make impressive progress.
10. The eight flagship programmes of the
UPA Government will continue to receive high priority.
Presently, I shall refer to these programmes in some detail.
III. HERALDING THE ELEVENTH FIVE YEAR PLAN
11. The year 2007-08 will mark the
beginning of the Eleventh Plan. The declared objective is
"Faster and More Inclusive Growth". I can state with
confidence that, on the eve of the Plan, the economy is in a
stronger position than ever before. It therefore behoves us to
set higher goals. The Approach Paper to the Eleventh Plan
states that the Plan "will aim at putting the economy on
a sustainable growth trajectory with a growth rate of
approximately 10 per cent by the end of its period."
Among the other objectives of the Plan are growth of 4 per
cent in the agriculture sector, faster employment creation,
reducing disparities across regions and ensuring access to
basic physical infrastructure as well as health and education
services to all. I have kept these objectives in mind while
allocating resources to various sectors.
Gross Budgetary Support
12. Notwithstanding some constraints, I
propose to increase substantially the Gross Budgetary Support
(GBS) for the Plan. In 2006-07, the GBS was fixed at
Rs.172,728 crore and, of this, support to the Central Plan was
Rs.131,284 crore. GBS for 2007-08 will be increased to
Rs.205,100 crore. Out of this, the Central Plan will receive
Allocations for Major Sectors
13. For Bharat Nirman, as against Rs.18,696
crore (including the NER component) in 2006-07, I propose to
provide Rs.24,603 crore in 2007-08, which marks an increase of
31.6 per cent.
14. The education and health sectors will
also receive substantial funds. In 2007-08, I propose to
enhance the allocation for education by 34.2 per cent to
Rs.32,352 crore and for health and family welfare by 21.9 per
cent to Rs.15,291 crore.
Sarva Shiksha Abhiyan and Mid-day Meal
15. In allocating resources, school
education must have primacy. Hence, I propose to increase the
allocation for school education by about 35 per cent from
Rs.17,133 crore in 2006-07 to Rs.23,142 crore in 2007-08.
16. Out of this amount, Sarva Shiksha
Abhiyan (SSA) will be provided Rs.10,671 crore. Further, I
propose to increase the provision for strengthening teachers
training institutions from Rs.162 crore to Rs.450 crore. Next
year, we will appoint 200,000 more teachers and construct
500,000 more class rooms.
17. The Mid-day Meal Scheme will be
provided Rs.7,324 crore next year. In addition to covering
children in primary classes, beginning 2007-08, we propose to
cover children in upper primary classes in 3,427 educationally
18. The transfer to Prarambhik Shiksha Kosh
will increase from Rs.8,746 crore to Rs.10,393 crore.
19. As more students complete upper primary
classes, it is necessary to increase access to secondary
education. Schemes for this purpose are under formulation, and
I propose to double the provision for secondary education from
Rs.1,837 crore in 2006-07 to Rs.3,794 crore in 2007-08.
20. While the SSA has improved the
enrolment ratio in schools to 96 per cent, the drop out ratio
continues to be high. The critical year appears to be
transition from class VIII to class IX. In order to arrest the
drop out ratio and encourage students to continue their
education beyond class VIII, I propose to introduce a National
Means-cum-Merit Scholarship Scheme. Selection will be made
through a national test from among students who have passed
class VIII. Each student will be given Rs.6,000 per year for
study in classes IX, X, XI and XII. I propose that 100,000
scholarships may be awarded every year. In order to fund this
programme, I intend to create a corpus fund of Rs.750 crore
this year, and add a like amount to the fund every year over
the next three years. Accordingly, a sum of Rs.750 crore will
be placed with the State Bank of India, and the yield from the
fund will be used for awarding the scholarships.
Drinking Water and Sanitation
21. 55,512 habitations and 34,000 schools
have been provided drinking water supply till December, 2006
under the Rajiv Gandhi Drinking Water Mission. More ambitious
targets have been set for 2007-08 to deal with both
non-coverage and slippage. I propose to enhance the allocation
for the Mission from Rs.4,680 crore in 2006-07 to Rs.5,850
crore in 2007-08.
22. As regards the Total Sanitation
Campaign, I propose to increase the provision from Rs.720
crore this year to Rs.954 crore next year.
Health Sector; National Rural Health
23. In the second year of its
implementation, the National Rural Health Mission (NRHM) is on
schedule to meet its timelines. The institutional integration
of all the health schemes at the district and lower levels has
been achieved. All districts in the country will complete
preparation of District Health Action Plans by March 2007. The
major emphasis will be on mother and child care and on the
prevention and treatment of communicable diseases such as
tuberculosis and malaria. Through Monthly Health Days (MHD)
organised at Anganwadi centres, convergence is sought to be
achieved among various programmes such as immunization, ante
natal care as well as nutrition and sanitation.
24. I am happy to report that 320,000
Associated Social Health Activists (ASHAs) have been recruited
and over 200,000 have received orientation training. Besides,
90,000 link workers have been selected by the States. With
trained ASHAs in place, I am confident there will be
significant improvement in health care in rural areas. The
Ayurveda, Yoga & Naturopathy, Unani, Sidha and Homeopathy
(AYUSH) systems are also being mainstreamed into the health
delivery system at all levels. I propose to increase the
allocation for NRHM from Rs.8,207 crore in 2006-07 to Rs.9,947
crore in 2007-08.
25. Government has brought HIV/AIDS out of
the closet and promised bold and determined efforts to achieve
zero-level growth of the disease. The epidemic will be deemed
'stabilised' if the prevalence rate is less than one per cent
of the population. National Aids Control Programme (NACP)-III,
starting in 2007-08 and building on NACP-I and NACP-II, will
target the high risk groups in all the States. We will expand
access to condoms and ensure universal access to blood
screening and safe blood. More hospitals will provide
treatment to prevent transmission of HIV/AIDS from mother to
child. Support will be given to the protocol on paediatric
dosage developed by Indian doctors and launched in November
2006. For the year 2007-08, I propose to step up the provision
for the AIDS control programme to Rs.969 crore.
26. Last year, I had expressed the hope
that polio will be eliminated from the country by December
2007. However, there was an outbreak in western Uttar Pradesh
in early 2006. The strategy for polio eradication has been
revised. The number of polio rounds will be increased,
monovalent vaccine will be introduced, and there will be
intensive coverage in the 20 high risk districts of Uttar
Pradesh and 10 districts of Bihar. The programme has been
integrated into the NRHM. The ASHAs and the Anganwadi workers
will visit every household and track every child for the
immunization programme. To achieve the goal of eliminating
polio, I propose to provide Rs.1,290 crore in 2007-08.
Integrated Child Development Services
27. In the second phase of expansion of the
Integrated Child Development Services (ICDS), Government has
sanctioned 173 ICDS projects, 107,274 Anganwadi centres and
25,961 mini-Anganwadi centres. Government is committed to
expand the scheme in order to cover all habitations and
settlements during the Eleventh Plan and to reach out to
pregnant women, lactating mothers and all children below the
age of six. I propose to increase the allocation for ICDS from
Rs.4,087 crore in 2006-07 to Rs.4,761 crore in 2007-08.
National Rural Employment Guarantee Scheme
28. The National Rural Employment Guarantee
Scheme (NREGS) was launched on February 2, 2006. The pace of
implementation varies from State to State. Since NREGS is a
demand-driven scheme carrying a legal guarantee of employment,
the budget allocation would have to be supplemented according
to need. I therefore propose to make an initial allocation of
Rs.12,000 crore (including NER component) for NREGS. I am also
happy to announce that NREGS will be expanded from the current
level of 200 districts to 330 districts. In addition, I have
provided Rs.2,800 crore for Sampoorna Gramin Rozgar Yojana (SGRY)
for rural employment in the districts not covered by NREGS.
29. Swaranjayanti Gram Swarozgar Yojana (SGSY)
is intended to promote self-employment among the rural poor
through Self Help Groups (SHG). I propose to strengthen this
programme by increasing the allocation from Rs.1,200 crore in
the current year to Rs.1,800 crore (including NER component)
30. The issue of urban unemployment and
poverty alleviation is equally critical. Hence, I propose to
increase the allocation for Swarna Jayanti Shahari Rojgar
Yojana from Rs.250 crore in 2006-07 to Rs.344 crore next year.
Jawaharlal Nehru National Urban Renewal
31. The Jawaharlal Nehru National Urban
Renewal Mission (JNNURM) has evoked a positive response from
State Governments. As on date, 538 projects with a total cost
of Rs.23,950 crore have been sanctioned in sectors such as
water supply, sanitation, transport, road and housing in many
cities spread over several States. I propose to enhance the
allocation from Rs.4,595 crore in
2006-07 to Rs.4,987 crore 2007-08.
Targeted Public Distribution System and
Antyodaya Anna Yojana
32. The issue prices of food grains under
the Public Distribution System (PDS) and for the beneficiaries
of the Antyodaya Anna Yojana have been retained. A Plan scheme
for evaluation, monitoring, management and strengthening of
the targeted PDS will be implemented in 2007-08, and this will
include computerisation of the PDS and an integrated
information system in the Food Corporation of India.
Scheduled Castes and Scheduled Tribes
33. Continuing the practice that was
started in 2005-06, a separate statement on the schemes for
the welfare of Scheduled Castes (SCs) and Scheduled Tribes (STs)
is placed in the Budget documents. The allocation in 2007-08
for SCs and STs has been substantially enhanced. In respect of
schemes benefiting only SCs and STs, I have increased the
allocation to Rs.3,271 crore. In respect of schemes with at
least 20 per cent of the benefits earmarked for SCs and STs, I
have increased the allocation to Rs.17,691 crore.
34. SC and ST students studying in M.Phil
and PhD courses are supported by the Rajiv Gandhi National
Fellowship Programme. I propose to enhance the allocation from
Rs.35 crore in 2006-07 to Rs.88 crore in 2007-08.
35. There is a post-matric scholarship
programme for SC and ST students. I propose to increase the
provision for these scholarships from Rs.440 crore in 2006-07
to Rs.611 crore in 2007-08. I also propose to make a separate
provision of Rs.91 crore for similar scholarships to be
awarded to students belonging to socially and educationally
36. Last year, I made a modest contribution
of Rs.16.47 crore to the equity of the National Minorities
Development and Finance Corporation (NMDFC). Following the
Sachar Committee report, NMDFC would be required to expand its
reach and intensify its efforts. Hence, I propose to provide a
further sum of Rs.63 crore to the share capital of NMDFC.
37. There are a number of districts with a
concentration of minorities. I propose to make a provision of
Rs.108 crore for a multi-sector development programme in these
38. Three scholarship programmes are being
implemented for students belonging to minority communities. I
propose to make the following allocations:
Pre-matric scholarships Rs.72 crore
Post-matric scholarships Rs.90 crore
Merit-cum-Means scholarships at
graduate and post-graduate levels Rs.48.60
39. There is growing awareness of gender
sensitivities of budgetary allocations. 50
ministries/departments have set up gender budgeting cells. For
2007-08, 27 ministries/departments and 5 Union Territories
covering 33 demands for grants have contributed to a statement
placed in the budget papers. The outlay for 100 per cent women
specific programmes is Rs.8,795 crore and for schemes where at
least 30 per cent is for women specific programmes is
Rs.22,382 crore. We have made a sincere effort to remove the
errors that were pointed out in last year's statement.
North Eastern Region (NER)
40. The total budget allocation in 2007-08
for the North Eastern Region, culled out from allocations
under different ministries/ departments, has increased from
Rs.12,041 crore in 2006-07 to Rs.14,365 crore in 2007-08. This
includes Rs.1,380 crore provided to the Ministry of
Development of North Eastern Region (DONER). The new
industrial policy for NER, with suitable fiscal incentives,
will be in place before March 31, 2007.
Supplement to the GBS
41. I have, so far, outlined the
allocations under what may be called Plan 'A' which has a
resource basket of Rs.205,100 crore. In consultation with the
Planning Commission, I have also drawn up Plan 'B'. Since the
Eleventh Plan will begin on April 1, 2007, we recognize that
there will be a need to take new initiatives in critical
areas. Additional resources will be needed once the proposals
are finalised and the pace of expenditure builds up.
Therefore, I shall endeavour to find additional resources
through better tax administration to the extent of Rs.7,000
crore during the course of the year. I have been advised by
the Planning Commission that these additional funds, once
voted by this House, will be allocated among sectors such as
agriculture, rural development, health, women and child
development, urban infrastructure, water resources, etc.
42. I also have Plan 'C'. Under Plan 'C', I
propose to tap into resources available outside the Budget and
leverage them for the purpose of investment, especially in the
infrastructure sector. I shall deal with this subject a little
43. I shall now take up our main challenge:
agriculture. I may recall the words of Jawaharlal Nehru, who
said "Everything else can wait, but not
44. The draft National Policy for Farmers
submitted by the National Commission on Farmers is under
consideration. Meanwhile, I have a number of proposals to
improve the economic viability of farming and ensure that
farmers earn a minimum net income.
45. Farm credit continues to grow at a
satisfactory pace. The goal of doubling farm credit in three
years was achieved in two years. The target of Rs.175,000
crore set for 2006-07 will be exceeded comfortably and is
likely to reach Rs.190,000 crore. This year, until December
2006, 53.37 lakh new farmers were brought into the
institutional credit system. For 2007-08, I propose to fix a
target of Rs.225,000 crore as farm credit and an addition of
50 lakh new farmers to the banking system.
46. The two per cent interest subvention
scheme for short-term crop loans will continue in 2007-08, and
I am making a provision of Rs.1,677 crore for that purpose.
47. A special plan is being implemented
over a period of three years in 31 especially distressed
districts in four States of the country involving a total
amount of Rs.16,979 crore. Of this, about Rs.12,400 crore will
be on water related schemes. In order to provide subsidiary
income to the farmer, the special plan includes a scheme for
induction of high yielding milch animals and related
activities. I propose to provide Rs.153 crore for this scheme.
48. Government had appointed a Committee
under Dr. R. Radhakrishna to examine all aspects of
agricultural indebtedness. The Committee has held wide ranging
consultations across the country and is in the process of
finalising its recommendations. Government will act on the
report as soon as it is received.
A Mission for Pulses
49. Government is concerned about the
stagnation in the production and productivity of pulses. A
critical deficiency is the availability and quality of
certified seeds. I therefore propose to expand the Integrated
Oilseeds, Oil palm, Pulses and Maize Development programme.
There will be a sharper focus on scaling up the production of
breeder, foundation and certified seeds. The Indian Institute
of Pulses Research (IIPR), Kanpur, the National and State
level seeds corporations, agricultural universities, ICAR
centres, KRIBHCO, IFFCO and NAFED as well as large private
sector companies will be invited to submit plans to scale up
the production of seeds. Government will fund the expansion of
IIPR, Kanpur, and offer the other producers a capital grant or
concessional financing in order to double the production of
certified seeds within a period of three years.
50. A Special Purpose Tea Fund has been
launched for re-plantation and rejuvenation of tea. Government
will soon put in place similar financial mechanisms for
coffee, rubber, spices, cashew and coconut.
Accelerated Irrigation Benefit Programme
51. The Accelerated Irrigation Benefit
Programme (AIBP) has been revamped in order to complete more
irrigation projects in the quickest possible time. 35 projects
are likely to be completed in 2006-07 and additional
irrigation potential of 900,000 hectares will be created. As
against an outlay of Rs.7,121 crore in 2006-07, the outlay for
2007-08 will be increased to Rs.11,000 crore. Of this, the
grant component to State Governments will be Rs.3,580 crore,
an increase from Rs.2,350 crore.
Rainfed Area Development Programme
52. The National Rainfed Area Authority was
established a few months ago to coordinate all schemes
relating to watershed development and other aspects of land
use. I propose to allocate Rs.100 crore for the new Rainfed
Area Development Programme.
Water Resources Management: Restoring Water
53. Honourable Members will recall that, in
March 2005, a pilot project to repair, renovate and restore
water bodies was launched in 13 States. I am happy to inform
the House that the World Bank has signed a loan agreement with
Tamil Nadu for Rs.2,182 crore to restore 5,763 water bodies
having a command area of 400,000 hectares. An agreement for
Andhra Pradesh is expected to be concluded in March 2007 and
will cover 3,000 water bodies with a command area of 250,000
hectares. Preparation of similar projects for Karnataka,
Orissa and West Bengal are at different stages and at least
two more agreements are likely to be concluded before June
2007. I would urge other State Governments to come forward
with proposals so that the whole country can be covered within
the next two years.
Ground Water Recharge
54. Depletion of ground water has assumed
grave proportions. The Central Ground Water Board has
identified 1,065 assessment blocks in the country as
'over-exploited' or 'critical'. Over 80 per cent of these
blocks are in 100 districts in seven States. The strategy for
ground water recharge is to divert rain water into 'dug
wells'. Each structure will cost about Rs.4,000. The
requirement is seven million structures, including about two
million structures on land belonging to small and marginal
farmers. I propose to provide 100 per cent subsidy to small
and marginal farmers and 50 per cent subsidy to other farmers.
Ministry of Water Resources will finalise the scheme shortly.
In anticipation, I intend to transfer a sum of Rs.1,800 crore
to NABARD. The amount will be held in escrow and will be
disbursed through the lead bank of the district concerned to
Training of Farmers
55. With minimum instruction and training,
our farmers will easily absorb good water management
practices. I therefore propose that the Indian Council of
Agricultural Research (ICAR) may set up one
teaching-cum-demonstration model of water harvesting in each
of 32 selected State Agricultural Universities and ICAR
institutes. Each institution will train 100 trainers and 1,000
farmers every year in two-week and one-week programmes
respectively. Based on estimates of recurring costs, I intend
to provide an interest free loan of Rs.3 crore to each
institution to create a corpus fund. The yield from the fund
will be used for implementing the training programme. The
total cost is estimated at Rs.100 crore.
56. The green revolution of the 1960s was
brought about by thousands of agricultural extension workers
who worked side by side with our farmers under a programme
called Training and Visit (T&V). Sadly, the extension
system seems to have collapsed. In order to revive extension
work, the Ministry of Agriculture will, in consultation with
State Governments, draw up a new programme that will replicate
T&V with suitable changes.
57. The Agriculture Technology Management
Agency (ATMA) that is now in place in 262 districts will be
extended to another 300 districts in 2007-08. I propose to
enhance the provision for ATMA from Rs.50 crore to Rs.230
crore next year.
58. I had budgeted Rs.17,253 crore for
fertiliser subsidies in 2006-07. According to Revised
Estimates, this will rise to Rs.22,452 crore, and there is a
demand for more money. While fertilisers should indeed be
subsidised, we must find an alternative method of delivering
the subsidy directly to the farmer. The fertiliser industry
has agreed to work with the Department of Fertilisers to
conduct a study and find a solution. Based on the report,
Government intends to implement a pilot programme in at least
one district in each State in 2007-08.
59. The National Agricultural Insurance
Scheme (NAIS) will be continued in its present form for Kharif
and Rabi 2007-08. I propose to make a provision of Rs.500
crore for the scheme.
60. Agricultural Insurance Corporation (AIC)
has been running a pilot weather insurance scheme since Kharif
2004 and it appears to be a more promising risk mitigation
scheme. Hence, Government will ask AIC to start a weather
based crop insurance scheme on a pilot basis in two or three
States, in consultation with the State Governments concerned,
as an alternative to the NAIS. The scheme will be operated on
an actuarial basis with an element of subsidy. I intend to
allocate Rs.100 crore for this purpose in 2007-08.
National Bank for Agriculture and Rural
61. NABARD provides refinance to
cooperative institutions. As the volume of farm credit
increases and the Vaidyanathan Committee recommendations for
reform of rural credit cooperatives are implemented, the
demand for refinance will increase. In order to augment its
resources, I propose to allow NABARD to issue rural bonds to
the extent of Rs.5,000 crore. These bonds will be guaranteed
by the Government and will be eligible for suitable tax
Rural Infrastructure Development Fund
62. The Rural Infrastructure Development
Fund (RIDF) continues to sanction and disburse funds to State
Governments. In 2006-07, out of a corpus of Rs.10,000 crore,
NABARD has so far issued sanctions for Rs.8,440 crore and will
achieve its target. Keeping in view the growing demand for
these funds, I propose to raise the corpus of RIDF-XIII in
2007-08 to Rs.12,000 crore. I would urge State Governments to
use these funds primarily in the distressed districts of the
63. A separate window for rural roads under
RIDF was opened with Rs.4,000 crore. Against this, projects
for Rs.2,311 crore have been sanctioned in 2006-07. I propose
to continue the separate window under RIDF-XIII in 2007-08
with a corpus of Rs.4,000 crore.
64. One of the commitments made in the NCMP
is that Government will introduce a social security scheme for
unorganised workers. A committee chaired by Dr. Arjun Sengupta
has given its report which is under consideration. Pending a
decision, in order to signal the UPA Government's concern for
the welfare of unorganised workers, I propose to make a
beginning. I propose to extend death and disability insurance
cover through Life Insurance Corporation of India (LIC) to
rural landless households under a new scheme called 'Aam Admi
Bima Yojana' (AABY). According to NSS Report No. 491, the
estimate of such households is about 1.5 crore. By end March
2007, 70 lakh households will be covered through existing
schemes of the LIC with the support of some State Governments
and the social security fund with the LIC. Under AABY, I
propose to cover the rural landless households which enjoy no
cover at all today, and the number may be actually more than
what is indicated in the NSS report. The head of the family or
one earning member in the family will be insured. The Central
Government will bear 50 per cent of the premium of Rs.200 per
year per person and I would urge the State Governments to come
forward to bear the other 50 per cent on behalf of the
beneficiaries. Taking into account the annual cost to the
Central Government, I intend to place a sum of Rs.1,000 crore
in a fund that will be maintained by LIC. I propose to
finalise the scheme in consultation with State Governments and
begin to implement it in 2007-08.
65. Mr. Speaker, Sir, I have devoted the
last 15 minutes or so to agriculture. There is no dearth of
schemes; there is no dearth of funds. What needs to be done is
to deliver the intended outcomes. Saint Tiruvalluvar watches
over us and warns:-
"Uzhavinar Kai Madangin Illai Vizhaivathoom
Vittame Enbarkum Nilai"
[ If ploughmen keep their hands
Even sages claiming renunciation cannot find salvation]
66. All indicators point to an accelerating
rate of investment in the economy. For example, gross domestic
capital formation (GDCF) in 2005-06 grew by 23.7 per cent over
the previous year to Rs.11,47,254 crore. I believe that this
trend continues in 2006-07. In April-January, 2006-07, foreign
direct investment amounted to US$12.5 billion and outpaced
portfolio investment which was US$6.8 billion.
67. Central Public Sector Enterprises (CPSEs)
will, through internal and extra budgetary resources, invest
Rs.165,053 crore in 2007-08. Government will provide equity
support of Rs.16,361 crore and loans of Rs.2,970 crore to
68. Further, in the current year, we have
restructured eight CPSEs with a cash infusion of Rs.1,590
crore and non-cash sacrifices of Rs.1,612 crore.
69. Electricity generation has recorded a
growth rate of 7.5 per cent in April-December this year.
However, as we complete the Tenth Plan, we would have added
only 23,163 MW of additional capacity in the five year period
including 16,339 MW added in the three years beginning
2004-05. Hence, it is imperative that we take new initiatives.
70. The Ministry of Power has awarded two
Ultra Mega Power Projects (UMPP) in Sasan and Mundra. Seven
more UMPPs are under process and we are confident that at
least two more will be awarded by July, 2007. Other
initiatives taken by the Ministry of Power include
facilitating setting up of merchant power plants by private
developers and private participation in transmission projects.
71. Besides, the Accelerated Power
Development and Reforms Project (APDRP) has reduced
significantly Aggregate Technical and Commercial (ATC) losses
in 213 towns. APDRP is being restructured to cover all
district headquarters and towns with a population of more than
50,000. I propose to increase the budgetary support for APDRP
from Rs.650 crore in 2006-07 to Rs.800 crore next year.
Rajiv Gandhi Grameen Vidyutikaran Yojana
72. Having regard to the pace of
implementation under the Rajiv Gandhi Grameen Vidyutikaran
Yojana and the annual target, I propose to increase the
allocation from Rs.3,000 crore in 2006-07 to Rs.3,983 crore in
73. Following the announcement last year,
26 coal blocks with reserves of 8,581 million tonnes and four
lignite blocks with reserves of 755 million tonnes have been
allotted, up to December 2006, to Government companies and
approved end users. The definition of specified end use will
be enlarged to include underground coal gasification and coal
74. Work on the golden quadrilateral is
nearly complete and there is considerable progress in the
North-South, East-West corridor project which is expected to
be completed by 2009. NHDP-III, NHDP-V and NHDP-VI are in
advanced stages of planning or implementation. So far,
National Highways Authority of India (NHAI) has given Rs.2,072
crore as viability gap funding but has also received Rs.1,900
crore as negative grant. The private sector investment
leveraged under NHDP is Rs.25,366 crore. Under the programme
for the North Eastern Region (SARDP-NE), 450 kilometres have
been awarded in 2006-07 and the balance will be awarded in
2007-08. I propose to increase the provision for the National
Highway Development Programme (NHDP) from Rs.9,945 crore in
2006-07 to Rs.10,667 crore next year.
75. The road-cum-rail bridge at Munger,
Bihar, over the Ganga, has been taken up as a national
project. Likewise, the road-cum-rail bridge at Bogibeel,
Assam, over the Brahmaputra, will be taken up as a national
Public Private Partnership and Viability
76. The Public Private Partnership (PPP)
model has enabled greater private sector participation in the
creation and maintenance of infrastructure. So far, under the
viability gap funding scheme, 37 proposals have been received
of which 21 proposals have been granted 'in-principle'
approval with a total project cost of Rs.9,842 crore and an
estimated viability gap funding of Rs.2,521 crore. The pace is
slow, and there is a need to adopt a more aggressive approach
for preparing a shelf of bankable projects that can be offered
for competitive bidding. Apart from the steps already taken
for capacity building and engaging consultants, I intend to
set up a revolving fund with a corpus of Rs.100 crore to
quicken project preparation. The fund will contribute up to 75
per cent of the preparatory expenditure in the form of
interest free loan that will be eventually recovered from the
successful bidder. Guidelines for operating the fund will be
announced in due course.
Petroleum and Natural Gas
77. Energy security is high on the
Government's agenda. In the six rounds of New Exploration
Licensing Policy (NELP) so far, 162 production sharing
contracts have been awarded. Indian and foreign companies have
already made an investment of Rs.97,000 crore in exploration.
Similarly, after three rounds of bidding, 23 coal bed methane
blocks have been awarded for exploration.
78. A rejuvenated textile industry is
geared to meet the global challenge. 26 parks have been
approved so far out of 30 sanctioned under the Scheme for
Integrated Textiles Parks (SITP). I propose to increase the
provision for these parks from Rs.189 crore in 2006-07 to
Rs.425 crore in 2007-08.
79. I am also glad to announce that the
Technology Upgradation Fund (TUF) scheme will be continued
during the Eleventh Plan. Against a provision of Rs.535 crore
in 2006-07, I propose to provide Rs.911 crore in 2007-08. As
before, handlooms will be covered under the TUF scheme.
80. A cluster approach for the development
of the handloom sector was introduced in 2005-06 and 120
clusters have been selected. 273 new yarn depots have been
opened in the current year and the Handloom Mark was launched.
Government proposes to take up an additional 100-150 clusters
in 2007-08. The 12 schemes that are now implemented will be
grouped into five schemes in the Eleventh Plan period. The
health insurance scheme has so far covered 300,000 weavers and
will be extended to more weavers. The scheme will also be
enlarged to include ancillary workers. I propose to enhance
the allocation for the sector from Rs.241 crore in 2006-07 to
Rs.321 crore next year.
Small and Medium Enterprises
81. Following the credit policy for small
and medium enterprises (SME) announced in August 2005,
outstanding credit to the SME sector increased from Rs.135,200
crore at end December 2005 to Rs.173,460 crore at end December
2006. While encouraging banks to lend more to the SME sector,
I propose to ask banks to have regard to the credit rating
acquired by an SME while fixing the interest rate.
82. Coir is an eco-friendly fibre. The coir
industry provides employment to a large number as well as
earns valuable foreign exchange. I am happy to announce a
scheme for the modernisation and technology upgradation of the
coir industry with special emphasis to major coir producing
States such as Kerala, Karnataka, Tamil Nadu, Andhra Pradesh
and Orissa. I propose to make a provision of Rs.22.50 crore.
VIII. SERVICES SECTOR
83. Our merchandise exports crossed the
milestone of US$100 billion in 2005-06 and are expected to
cross another milestone of US$125 billion by the end of the
current fiscal. Foreign trade is growing at a rate more than
twice the growth rate of GDP. Government will continue to
follow export friendly policies.
84. I propose to increase the provision for
building tourist infrastructure from Rs.423 crore in 2006-07
to Rs.520 crore in 2007-08.
IX. FINANCIAL SECTOR
85. In addition to the important
legislative measures now before Parliament, Government
proposes to take a number of initiatives in banking and
86. Government proposes to acquire RBI's
equity holding in State Bank of India. I have provided a sum
of Rs.40,000 crore for this purpose, but the transaction will
be deficit neutral to the Government.
87. The Differential Rate of Interest (DRI)
scheme provides finance at a rate of 4 per cent to the weaker
sections of the community engaged in gainful occupations. I
propose to raise the limit of the loan from Rs.6,500 to
Rs.15,000 and the limit of the housing loan from Rs.5,000 to
Rs.20,000 per beneficiary.
Regional Rural Banks
88. Regional Rural Banks (RRBs) have
emerged as the third arm for delivering rural credit, and the
sponsor banks have assured me that RRBs are willing to take on
greater responsibilities. The Committee on Financial
Inclusion, chaired by Dr. C. Rangarajan, has also made certain
recommendations concerning RRBs. I, therefore, propose to:
• ask RRBs to
undertake an aggressive branch expansion programme and, in
2007-08, open at least one branch in the 80 uncovered
districts of the country;
• extend the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Securitisation of Interest (SARFAESI) Act to
loans advanced by RRBs;
• permit RRBs to
accept NRE/FCNR deposits; and
in a phased programme, the RRBs which have a negative net
89. The National Housing Bank (NHB) will
shortly introduce a novel product for senior citizens: a
'reverse mortgage' under which a senior citizen who is the
owner of a house can avail of a monthly stream of income
against the mortgage of his/her house, while remaining the
owner and occupying the house throughout his/her lifetime,
without repayment or servicing of the loan.
90. Our people want housing loans. Banks
and housing finance companies that lend against mortgages
would have greater comfort if the mortgage can be guaranteed
through a three way contract among borrower, lender and
guarantor. Regulations will be put in place to allow the
creation of mortgage guarantee companies.
91. On December 6, 2006, Rashtrapatiji
launched an exclusive health insurance scheme for senior
citizens offered by National Insurance Company. I have asked
the other three public sector insurance companies to offer a
similar product to senior citizens, and they have agreed to do
so in 2007-08.
92. The Micro Financial Sector (Development
and Regulation) Bill as well as a comprehensive Bill to amend
the insurance laws will be introduced in the Budget Session.
93. Financial inclusion is the process of
ensuring access to timely and adequate credit and financial
services by vulnerable groups at an affordable cost. The
Committee on Financial Inclusion has given an interim report.
While we await the final report, Government has decided to
implement, immediately, two recommendations. The first is to
establish a Financial Inclusion Fund with NABARD for meeting
the cost of developmental and promotional interventions. The
second is to establish a Financial Inclusion Technology Fund
to meet the costs of technology adoption. Each fund will have
an overall corpus of Rs.500 crore, with initial funding to be
contributed by the Central Government, RBI and NABARD.
94. The capital market is an important
instrument for intermediating financial resources. Recognising
the strength of the Indian capital market, the International
Organisation of Securities Commissions (IOSCO) has decided to
hold its annual conference in Mumbai in April 2007. In line
with measures announced every year to strengthen the market, I
• make PAN the
sole identification number for all participants in the
securities market with an alpha-numeric prefix or suffix to
distinguish a particular kind of account;
• take forward
the idea of Self Regulating Organisations (SRO) for
different market participants under regulations that will be
made by SEBI and, if necessary, supported by an enabling
• promote the
flow of investment to the infrastructure sector by
permitting mutual funds to launch and operate dedicated
• converge the
different regulations that allow individuals and Indian
mutual funds to invest in overseas securities by permitting
individuals to invest through Indian mutual funds;
• allow short
selling settled by delivery, and securities lending and
borrowing to facilitate delivery, by institutions;
• put in place an
enabling mechanism to permit Indian companies to unlock a
part of their holdings in group companies for meeting their
financing requirements by issue of Exchangeable Bonds.
Innovative Financing for Infrastructure
95. The minimum obligation of States to
borrow from the National Small Savings Fund (NSSF) has been
brought down to 80 per cent of net collections. Repayments of
past NSSF loans by the Central and State Governments have also
commenced from 2005-06, making available resources for
long-term lending. I therefore propose that these funds may
also be borrowed from NSSF by India Infrastructure Finance
Company Limited (IIFCL).
96. An initiative that has borne fruit is
the launch of the US$5 billion infrastructure financing
initiative by Citigroup, Blackstone, IDFC and IIFCL.
97. A committee chaired by Shri Deepak
Parekh has made a number of recommendations for financing
infrastructure. One of the recommendations is to use a small
part of the foreign exchange reserves without the risk of
monetary expansion. The Committee has suggested the
establishment of two wholly-owned overseas subsidiaries of
IIFCL with the following objectives:
(i) to borrow funds from the RBI and lend
to Indian companies implementing infrastructure projects in
India, or to co-finance their ECBs for such projects, solely
for capital expenditure outside India; and
(ii) to borrow funds from the RBI, invest
such funds in highly rated collateral securities, and
provide 'credit wrap' insurance to infrastructure projects
in India for raising resources in international markets.
The loans by RBI to these two subsidiary
companies will be guaranteed by the Government of India and
the RBI will be assured of a return higher than the average
rate of return on its incremental investment. Government
proposes to examine the legal and regulatory aspects of the
recommendation, in consultation with RBI, in order to find an
innovative method of enhancing the financial resources for
X. OTHER PROPOSALS
98. I propose to increase the allocation
for Defence to Rs.96,000 crore. This will include Rs.41,922
crore for capital expenditure. Needless to say, any additional
requirement for the security of the nation will be provided.
99. Government has launched an ambitious
programme for e-governance. The goal is to improve efficiency,
convenience, accessibility and transparency in Government
functions and take Government services to the common citizen.
I propose to increase the allocation for e-governance from
Rs.395 crore in
2006-07 to Rs.719 crore in 2007-08. The Central Government
e-governance action plans at State levels, and I propose to
increase the allocation for such support from Rs.300 crore in
2006-07 to Rs.500 crore in 2007-08. I also propose to provide
Rs.33 crore for a new scheme of manpower development for the
software export industry.
Backward Regions Grant Fund
100. The Backward Regions Grant Fund
received Rs.5,000 crore in 2006-07. I propose to increase the
allocation to Rs.5,800 crore in 2007-08. This will finance two
components, one pertaining to 250 districts and the other
pertaining to the special plan for Bihar. KBK districts of
Orissa, which are included in the 250 districts, will continue
to receive the same quantum of assistance as they have been
receiving in the past.
Mumbai as a Financial Centre
101. The High Powered Expert Committee to
make Mumbai a regional financial centre has submitted its
report recently. I intend to place the report in the public
domain and obtain feedback. It is my hope that we would be
able to build a consensus on the key recommendations of the
Committee, promote a world class financial centre in Mumbai,
and realise the objective of making 'financial services' the
next growth engine for India.
Vocational Education Mission
102. To sustain a high level of economic
growth, it is essential to have a reservoir of skilled and
trained manpower. Shortages have already emerged in a number
of sectors. Moreover, we can take advantage of the demographic
dividend thrown up by an increase in the working age
population only if our young men and women have the required
skills. The Prime Minister spoke of a Vocational Education
Mission in his Independence Day address in 2006. A taskforce
in the Planning Commission is chalking out strategies for
vocational education programmes. Alternate models may be
adopted, but the approach will be based on public-private
partnership. I propose to make an initial provision of Rs.50
crore for beginning work on this mission.
Upgradation of ITIs
103. Honourable Members will recall that
Government had taken up a programme for upgradation of 500
ITIs over five years beginning 2005. Revised courses in the
first lot of 100 upgraded ITIs were started in August 2005 and
in the second lot of 100 upgraded ITIs in August 2006. I
expect that another 300 ITIs will be covered by August 2009.
That would still leave 1,396 Government ITIs.
104. I propose that the 1,396 ITIs be
upgraded into centres of excellence in specific trades and
skills under public-private partnership. Under the proposed
scheme, the State Government, as the owner of the ITI, will
continue to regulate admissions and fees; the new management
will be given academic and financial autonomy; and the Central
Government will provide financial assistance by way of seed
money. ITIs will be encouraged to start a second shift. Once a
tripartite MoU is signed among the three stakeholders, I
propose to grant an interest free loan up to Rs.2.5 crore to
each ITI for upgradation and revision of courses. I seek the
cooperation of State Governments in upgrading at least 300
ITIs every year, beginning 2007-08, under the PPP mode. I have
kept aside Rs.750 crore for this purpose.
Employment for the Physically Challenged
105. Among the disadvantaged sections of
the society are physically challenged persons. They face
difficulties in obtaining regular employment. In order to
incentivise employers in the organised sector to provide
regular employment, I propose a scheme whereunder Government
will reward the employer once the physically challenged
employee is regularised and is enrolled under the Employees
Provident Fund (EPF) and the Employees State Insurance (ESI).
Under the scheme, Government will reimburse the employer's
contribution to the EPF and ESI for the first three years.
Government is ready to support the creation of about 100,000
jobs every year for physically challenged persons with a
salary limit of Rs.25,000 per month. I estimate the cost to
Government at Rs.150 crore per annum rising to Rs.450 crore
per annum when the scheme is fully rolled out. I have
therefore earmarked Rs.1,800 crore.
Debt Management Office
106. World over, debt management is
distinct from monetary management. The establishment of a Debt
Management Office (DMO) in the Government has been advocated
for quite some time. The fiscal consolidation achieved so far
has encouraged us to take the first step. Accordingly, I
propose to set up an autonomous DMO and, in the first phase, a
Middle Office will be set up to facilitate the transition to a
107. In keeping with India's growing
stature in international affairs, we must willingly assume
greater responsibility in promoting development in other
developing countries. At present, India extends development
cooperation through a number of Ministries and agencies and
the total sum is about US$ 1 billion per annum. It is felt
that all activities relating to development cooperation should
be brought under one umbrella. Accordingly, Government
proposes to establish the India International Development
Cooperation Agency (IIDCA). The Ministries of External
Affairs, Finance and Commerce and other stakeholders will be
represented on IIDCA.
108. India is not a significant contributor
to green house gas (GHG) emissions, nor will it be so in the
foreseeable future. Nevertheless, in line with the principle
of "common but differentiated responsibility", India
has taken important steps to mitigate GHG emissions and adapt
to climate change impact. India has also strongly promoted the
clean development mechanism (CDM) under the Kyoto Protocol and
has the world's largest number of CDM projects. Nevertheless,
India is among the countries more vulnerable to climate
change. Hence, Government proposes to appoint an expert
committee to study the impact of climate change on India and
identify the measures that we may have to take in the future.
109. India bid for and won for the city of
Delhi the Commonwealth Games 2010. The nation was filled with
pride when, under the guidance of Shri Rajiv Gandhi, we
successfully hosted the Asian Games in 1982. We owe it to our
people to make the Commonwealth Games an equally memorable
event. I propose to provide in 2007-08 Rs.150 crore to the
Ministry of Youth Affairs and Sports and Rs.350 crore to the
Delhi Government for the Games. Similarly, I propose to
provide Rs.50 crore for the Commonwealth Youth Games 2008 to
be held in Pune.
History and Culture
110. As we celebrate the 150th year of the
First War of Independence and the centenary year of the
Satyagraha Movement, our thoughts go to the institutions that
continue the work of Gandhiji and other constructive work. I
intend to set apart Rs.30 crore for four institutions whose
work we gratefully acknowledge. These are Sabarmati Ashram,
Ahmedabad; Sevagram Ashram, Wardha; Bhandarkar Oriental
Research Institute, Pune; and Rajendra Smriti Sanghrahalaya,
Patna. I also intend to provide Rs.20 crore to reposition the
Nehru Memorial Museum and Library, Delhi, as a major centre of
111. The Ministry of Culture proposes to
engage scholars from Indian and foreign institutions to work
on specific projects. The terms of engagement will provide
freedom and flexibility to the scholars. I intend to make an
initial grant of Rs.5 crore to encourage this effort.
Institutions of Excellence
112. As in the last two years, I propose to
make a special grant of Rs.100 crore to recognise excellence.
Government has selected the Govind Ballabh Pant University of
Agriculture & Technology, Pantnagar and the Tamil Nadu
Agricultural University, Coimbatore, and each will be given
XI. PUBLIC FINANCE
113. Thanks to the Fiscal Responsibility
legislations, the Central Government and the State Governments
have regained lost fiscal ground. Rs. 110,268 crore of States'
debt has been consolidated. Twenty States have availed of the
benefit of debt waiver to the tune of Rs.8,575 crore.
114. In 2006-07, the Centre will give to
the States as their share of taxes and duties Rs.120,377 crore.
In 2007-08, this amount will increase to Rs.142,450 crore.
Besides, total grants and loans, both under Plan and non-Plan,
to States and Union Territories will increase from Rs.90,521
crore in 2006-07 to Rs.106,987 crore in 2007-08.
VAT, CST and a Roadmap towards GST
115. VAT has proved to be an unqualified
success. VAT revenues of the implementing States increased by
13.8 per cent in 2005-06 and by 24.3 per cent in the first
nine months of 2006-07. The next logical step is to phase out
Central Sales Tax (CST). I am glad to report that the Central
Government has reached an agreement with State Governments to
phase out CST. Consequently, the CST rate will be reduced from
4 per cent to 3 per cent with effect from April 1, 2007. I
have provided Rs.5,495 crore for compensation for losses, if
any, on account of VAT and also on account of CST.
116. I wish to record my deep appreciation
of the spirit of cooperative federalism displayed by State
Governments and especially their Finance Ministers. At my
request, the Empowered Committee of State Finance Ministers
has agreed to work with the Central Government to prepare a
roadmap for introducing a national level Goods and Services
Tax (GST) with effect from April 1, 2010.
117. So far as the Central Government is
concerned, the fiscal consolidation is proceeding according to
the FRBM Act. Based on Revised Estimates, I am happy to report
that the revenue deficit for the current year will be 2.0 per
cent (against a BE of 2.1 per cent) and the fiscal deficit
will be 3.7 per cent (against a BE of 3.8 per cent).
XII. BUDGET ESTIMATES FOR 2007-08
118. I turn to the Budget Estimates for
119. I estimate Plan expenditure for
2007-08 at Rs.205,100 crore. As a proportion of total
expenditure (net of the SBI share acquisition), Plan
expenditure will be 32.0 per cent.
120. Non-Plan Expenditure in 2007-08 (net
of the SBI share acquisition) is estimated at Rs.435,421. The
increase over 2006-07 is only 6.5 per cent.
Revenue Deficit and Fiscal Deficit
121. Mr. Speaker, Sir, in the Budget
Estimates for 2007-08, the total expenditure is estimated at
Rs.680,521 crore (including Rs.40,000 crore for the SBI share
acquisition). The total revenue receipts of the Central
Government are projected to be Rs.486,422 crore and the
revenue expenditure to be Rs.557,900 crore. Consequently, the
revenue deficit is estimated at Rs.71,478 crore which is 1.5
per cent of the GDP. The fiscal deficit is estimated at
Rs.150,948 crore, which is 3.3 per cent of the GDP. I am happy
to report that we are on course to achieve the FRBMA targets.
Part - B
XIII. TAX PROPOSALS
122. Mr. Speaker, I shall now present my
123. The UPA Government promised that
"tax rates will be stable and conducive to growth,
compliance and investment". The increase in gross tax
revenue is proof of a promise fulfilled. While we have raised
more tax revenue, we have also left more money in the hands of
the people as savings and for investment.
124. Gross tax revenue has grown by 19.9
per cent, 20.0 per cent and 27.8 per cent in the first three
years of this Government. The tax to GDP ratio has increased
from 9.2 per cent in 2003-04 to 11.4 per cent in 2006-07. We
intend to keep our tax rates moderate and stable and
administer the tax laws in a tax payer-friendly manner.
125. I shall begin with indirect taxes.
Firstly, customs duties.
126. In January 2007, Government announced
wide ranging reductions in tariffs. Import duties on capital
goods, project imports, metals and specified inorganic
chemicals were reduced by 2.5 percentage points and, in some
cases, by 5 percentage points. Duties on some edible oils were
reduced by 10 to 12.5 percentage points.
127. In order to take one more step towards
comparable East Asian rates, I propose to reduce the peak rate
for non-agricultural products from 12.5 per cent to 10 per
128. I propose to reduce the duties on most
chemicals and plastics from 12.5 per cent to 7.5 per cent.
129. The duty on prime steel is 5 per cent.
Seconds and defectives augment supply. Keeping in mind the
need for a differential, I propose to reduce the duty on
seconds and defectives of steel from 20 per cent to 10 per
130. I propose to fully exempt from duty
all coking coal irrespective of the ash content.
131. Last year, I reduced the excise duty
on all man-made fibres and yarns from 16 per cent to 8 per
cent. To further encourage this industry, I propose to reduce
the customs duty on polyester fibres and yarns from 10 per
cent to 7.5 per cent. Consequently, the customs duty on
raw-materials such as DMT, PTA and MEG will also be reduced
from 10 per cent to 7.5 per cent.
132. Another industry that is a growth- and
employment- driver is gem and jewellery. I propose to bring
down the duty on cut and polished diamonds from 5 per cent to
3 per cent; on rough synthetic stones from 12.5 per cent to 5
per cent; and on unworked corals from 30 per cent to 10 per
133. I propose to fully exempt dredgers
from import duty.
134. To augment irrigation facilities and
processing of agricultural products, I propose to reduce the
duty on drip irrigation systems, agricultural sprinklers and
food processing machinery from 7.5 per cent to 5 per cent.
135. While specified medical equipment
attract a concessional duty of 5 per cent, other equipment are
taxed at 12.5 per cent. I propose to bring down the general
rate of import duty on medical equipment to 7.5 per cent.
136. In order to make edible oils more
affordable, I propose to exempt crude as well as refined
edible oils from the additional CV duty of 4 per cent. I also
propose to reduce the duty on sunflower oil, both crude and
refined, by 15 percentage points.
137. I have good news for cat and dog
lovers. I propose to reduce the duty on pet foods from 30 per
cent to 20 per cent.
138. I propose to reduce the duty on watch
dials and movements as well as umbrella parts from 12.5 per
cent to 5 per cent.
139. In order to promote research and
development, I propose to extend the concessional rate of 5
per cent duty available to public funded research institutions
to all research institutions registered with the Directorate
of Scientific and Industrial Research. For the pharmaceutical
and biotechnology sector, I propose to reduce the duty on 15
specified machinery from 7.5 per cent to 5 per cent.
140. Import of aircraft, including
helicopters, by Government and scheduled airlines is, at
present, exempt from all duties, and that position will
continue. However, there is no reason to allow the exemption
to other private importers. Hence, I propose to levy an import
duty of 3 per cent, which is the WTO bound rate, on all
private import of aircraft including helicopters. Such import
will also attract countervailing duty and additional customs
141. The Hoda Committee has submitted a
report on mineral policy. Taking a leaf out of the report, and
in order to conserve our natural resources as well as to raise
revenue, I propose to impose an export duty of Rs.300 per
metric tonne on export of iron ores and concentrates and
Rs.2,000 per metric tonne on export of chrome ores and
142. I shall now turn to my proposals on
excise duties and service tax.
143. There will be no change in the general
CENVAT rate or in the service tax rate.
144. On February 15, 2007, Government
reduced the price of petrol and diesel by Rs.2 per litre and
Re.1 per litre, respectively. I had agreed that the Revenue
will bear a part of the burden. Hence, I propose to reduce the
ad valorem component of excise duty on petrol and diesel from
8 per cent to 6 per cent.
145. Keeping in mind the special needs of
several sectors and the interest of the consumers, I propose
to grant relief from excise duty in deserving cases,
especially job creating sectors:
• I propose to
raise the exemption limit for small scale industry (SSI)
from Rs.1 crore to Rs.1.5 crore.
• The food
processing sector is poised to achieve high growth.
Concessions were extended last year to several items of
food. This year, I propose to fully exempt from excise duty
biscuits whose retail sale price does not exceed Rs.50 per
kilogram. I also propose to fully exempt from excise duty
all kinds of food mixes including instant mixes. I can no
longer be accused of being partial to idli and dosa mixes.
• I propose to
reduce excise duty on umbrellas and parts of footwear from
16 per cent to 8 per cent.
• Plywood helps
to save wood. Hence, I propose to reduce excise duty on
plywood from 16 per cent to 8 per cent.
• Biodiesel will
greatly reduce our dependence on fossil fuels. Hence, I
propose to fully exempt biodiesel from excise duty.
146. To provide access to pure drinking
water for households and communities, I propose to fully
exempt from excise duty water purification devices operating
on specified membrane based technologies as well as domestic
water filters not using electricity.
147. Pipes used for carrying water from a
water supply plant to a storage facility are exempt from
excise duty. I propose to extend the exemption to all pipes of
diameter exceeding 200 mm used in water supply systems.
148. There has been a significant increase
in the retail price of cement. Last year, at this time, a bag
of 50 kilogram was sold at a Maximum Retail Price (MRP) of
Rs.190 or less which, I understand, is a remunerative price. I
propose to reward cement manufacturers who hold the price line
and tax those who do not. Accordingly, I propose to reduce the
present rate of excise duty of Rs.400 per metric tonne to
Rs.350 per metric tonne on cement which is sold in retail at
not more than Rs.190 per bag. On cement that has a higher MRP,
the excise duty will be Rs.600 per metric tonne.
149. I strongly support the campaign
"say no to tobacco". Hence, I propose to increase
the specific rates of excise duty on cigarettes by about 5 per
cent. Similarly, excise duty (excluding cess) on biris, which
was last fixed in 2001, will be raised from Rs.7 to Rs.11 per
thousand for non-machine made biris and from Rs.17 to Rs.24
per thousand for machine made biris. There is an exemption
from excise duty for unbranded biris up to 20 lakh biris in a
year. Complaints have been received of misuse of the
exemption. This exemption will henceforth be available subject
to fulfilment of the condition of declaration with the
Department of Central Excise and regular monitoring.
150. Pan masala containing tobacco will
continue to bear an excise duty of 66 per cent. However, in
the case of pan masala not containing tobacco, the duty will
be reduced from 66 per cent to 45 per cent. I also propose to
withdraw the exemption for pan masala containing tobacco and
other tobacco products that is now given to units in the North
151. Based on a comprehensive review of
exemptions and having posted them on the website and having
invited comments, I propose to remove certain excise duty
exemptions which are redundant or have outlived their utility.
152. I propose to raise the exemption limit
for small service providers from Rs.400,000 to Rs.800,000.
Consequently, 200,000 assessees out of a total of 400,000
assessees will go out of the service tax net. The revenue loss
will be Rs.800 crore, but I am happy to give away this sum in
the interest of the small service provider and the consumer.
153. While I bid goodbye to 200,000
assessees, I welcome the new assessees who will be brought
into the fold. I propose to extend service tax to:
outsourced for mining of mineral, oil or gas;
• Renting of
immovable property for use in commerce or business; however,
residential properties, vacant land used for agriculture and
similar purposes, land for sports, entertainment and parking
purposes, and immovable property for educational or
religious purposes will be excluded;
• Development and
supply of content for use in telecom and advertising
management services provided by individuals; and
154. State Governments levy a tax on the
transfer of property in goods involved in the execution of a
works contract. The value of services in a works contract
should attract service tax. Hence, I propose to levy service
tax on services involved in the execution of a works contract.
However, I also propose an optional composition scheme under
which service tax will be levied at only 2 per cent of the
total value of the works contract.
155. I propose to exempt service tax on
services provided by Resident Welfare Associations to their
members who contribute Rs.3000 or less per month for services
156. In order to encourage innovation, I
propose to exempt from service tax all services provided by
technology business incubators. Similarly, their incubatees
whose annual business turnover does not exceed Rs.50 lakhs
will be exempt from service tax for the first three years.
157. To make India a preferred destination
for drug testing, I propose to exempt clinical trial of new
drugs from service tax.
158. The scope of some services that are
currently taxed is being expanded or redefined. However, I
shall not burden the House with the details.
159. The telecommunications industry has
repeatedly requested that the multifarious taxes, charges and
fees applicable to the industry should be unified and a single
levy on revenue should be collected. The request merits
consideration. Hence, I propose to request the Department of
Telecommunications to constitute a committee to study the
present structure of levies and make suitable recommendations
160. I shall now move to direct taxes.
161. In the current year, there has been
better tax compliance by individuals. I hope this trend will
162. The current slabs and rates of
personal income tax (PIT) were introduced only two years ago.
They constitute a moderate tax regime. A comprehensive review
should await the proposed Income Tax code which will be
introduced in Parliament this year. Nevertheless, without
altering the rates, I am inclined to consider giving some
relief to tax payers, especially in view of the cooperation
they have extended to the Department of Revenue. Accordingly,
I propose that:
• the threshold
limit of exemption in the case of all assessees be increased
by Rs.10,000, thus giving every assessee a relief of
in the case of a woman assessee, the threshold limit be
increased from Rs.135,000 to Rs.145,000, giving her a relief
• the threshold
limit of exemption in the case of a senior citizen be
increased from Rs.185,000 to Rs.195,000, giving him or her a
relief of Rs.2,000; and
• the deduction
in respect of medical insurance premium under section 80D be
increased to a maximum of Rs.15,000 and, in the case of a
senior citizen, a maximum of Rs.20,000.
163. On the corporate income tax (CIT) side
too, there has been better compliance. Consequently, I propose
to keep the same rate of CIT with one important modification.
In order to encourage small and medium enterprises to invest
and grow, I propose to remove the surcharge on income tax on
all firms and companies with a taxable income of Rs.1 crore or
less. This will benefit about 1,200,000 firms and companies.
164. Profit-making cooperative banks, other
than primary societies and primary banks (i.e., PACs and
PCARDBs), have been brought on par with other banks. However,
I have noticed some anomalies and I propose to correct them in
the interest of the cooperative banks. Accordingly, the
benefit of Section 36(1)(viii) will be available to
cooperative banks. Likewise, cooperative banks will also be
allowed deduction in respect of provision for bad and doubtful
debts under section 36(1)(viia). Amalgamation and de-merger of
banking companies is tax neutral and this benefit will be
extended to cooperative banks.
165. Section 80IA of the Income Tax Act
lists the infrastructure facilities that are entitled to tax
concessions. There are some obvious claimants to this benefit.
One is cross country natural gas distribution network,
including gas pipeline and storage facilities integrated to
the network. The second is navigation channel in the sea. I
propose to extend the tax concession to these two facilities.
166. In order to facilitate the creation of
urban infrastructure, I propose to allow issue of tax-free
bonds through State Pooled Finance Entities formed for raising
funds for a group of urban local bodies.
167. Last year, I had constituted an expert
body to advise the Government on tax policy in respect of the
gem and jewellery industry. Taking into account its
recommendations, the best international practices and the need
for a simple tax regime, I propose to introduce a benign
assessment procedure for assessees engaged in diamond
manufacturing and trading who declare profits from such
activities at 8 per cent or more of the turnover. Instructions
in this regard will issue shortly.
168. We will require 20,000 more hotel
rooms for the Commonwealth Games. Hence, I propose a five year
holiday from income tax for two, three or four star hotels as
well as for convention centres with a seating capacity of not
less than 3,000. They should be completed and begin operations
in the National Capital Territory of Delhi or in the adjacent
districts of Faridabad, Gurgaon, Ghaziabad or Gautam Budh
Nagar during the period April 1, 2007 to March 31, 2010.
169. Section 35(2AB) allows a weighted
deduction of 150 per cent for expenditure relating to in-house
research and development. I propose to extend the concession
for five more years until March 31, 2012.
170. Undertakings in Jammu & Kashmir
presently enjoy a tax holiday that is due to end on March 31,
2007. Considering the importance of promoting further
investment in that State, I propose to extend the benefit for
another five years up to March 31, 2012.
171. E-filing of corporate returns
introduced this financial year has been a resounding success.
Until January 31, 2007, 301,736 returns were electronically
filed by corporates. Our analysis shows that the effective
rate of tax paid by all corporates, thanks to numerous tax
concessions and exemptions - several of them well-intended -
was only 19.2 per cent. In 1996-97, we introduced the Minimum
Alternate Tax (MAT) for companies with book profits, and its
purpose is to bring about horizontal equity in taxation. MAT
should therefore apply, as far as possible, to all corporate
incomes. Hence, I propose to extend MAT to income in respect
of which deduction is claimed under sections 10A and 10B of
the Income Tax Act.
172. I also propose to partially modify a
deduction that is available to certain companies. Without
altering the overall limit of the special reserve equal to
twice the net worth under section 36(1)(viii) of the Income
Tax Act, I propose to stretch out the period by restricting
the deduction to 20 per cent of the profits each year and
limit the benefit to banks and certain financial corporations.
173. Venture capital funds are a useful
source of risk capital, especially for start-up ventures in
the knowledge-intensive sectors. Since such funds enjoy a
pass-through status, it is necessary to limit the tax benefit
to investments made in truly deserving sectors. Accordingly, I
propose to grant pass-through status to venture capital funds
only in respect of investments in venture capital undertakings
in biotechnology; information technology relating to hardware
and software development; nanotechnology; seed research and
development; research and development of new chemical entities
in the pharmaceutical sector; dairy industry; poultry
industry; and production of bio-fuels. In order to promote
business tourism, I also propose to allow this benefit to
venture capital funds that invest in hotel-cum-convention
centres of a certain description and size.
174. In December 2006, I put a limit of
Rs.50 lakh per investor per year with respect to capital gains
bonds issued by NHAI and REC under section 54EC of the Income
Tax Act. As a result, many small investors could obtain these
bonds and save on capital gains. I propose to continue this
provision and, accordingly, I propose to amend section 54EC to
175. I propose to expand the tax base of
capital gains to include certain works of art.
176. I believe that my direct tax proposals
have brought about more horizontal equity. It is also
necessary to improve vertical equity. Having regard to the
capacity to pay, I propose to raise the rate of dividend
distribution tax from 12.5 per cent to 15 per cent on
dividends distributed by companies.
177. Dividends distributed by money market
mutual funds and liquid mutual funds enjoy concessional tax
rates giving rise to huge arbitrage opportunities. I propose
to address this distortion by raising the dividend
distribution tax on dividends paid by such entities to 25 per
cent for all investors.
178. Fringe Benefit Tax (FBT) has now
stabilized. I have received a few representations regarding
some aspects of sales promotion. Hence, I propose to clarify
the doubts by excluding expenditure on free samples as well as
expenditure on displays from the scope of FBT.
179. A number of companies provide fringe
benefits to employees through Employees' Stock Option Plan
(ESOP). I propose to bring ESOPs under FBT. The value of the
fringe benefit will be determined, in accordance with a
prescribed method, on the date of exercise of the option.
180. The Banking Cash Transactions Tax (BCTT)
continues to be an extremely useful tool to track unaccounted
monies and trace their source and destination. It has led the
Income Tax Department to many money laundering and hawala
transactions. Having regard to the experience gained, I
propose to exclude cash withdrawals by the Central and State
Governments from the scope of BCTT. Further, I propose to
raise the exemption limit for individuals and HUFs from
Rs.25,000 to Rs.50,000. As other instruments become more
effective, I think it would be possible to review BCTT next
181. I have a proposal regarding the cess
for education. While the cess of 2 per cent on all taxes to
fund basic education will remain, I propose to levy an
additional cess of 1 per cent on all taxes to fund secondary
education and higher education and the expansion of capacity
by 54 per cent for reservation for socially and educationally
182. Finally, there is a small matter which
has large beneficial consequences. In 2001, 'Aviation Turbine
Fuel sold to turbo-prop aircraft' was included in the list of
declared goods under section 14 of the CST Act. Turbo-prop
aircraft have been replaced by new generation small aircraft
which have taken air services to smaller airports and to the
remote parts of the country. Hence, I propose to amend the
provision to cover all small aircraft with maximum takeoff
mass of less than 40,000 kgs operated by scheduled airlines.
183. Along with tax reforms, the Government
has laid great emphasis on tax administration. The cost of
collection of taxes in India is among the lowest in the world.
A number of administrative goals have been set for 2007-08.
These include expanding the coverage of Annual Information
Returns, extending the Refund Banker System to more areas,
extending the e-payment facility through more banks, making
electronic filing of returns mandatory for more categories of
assessees and creating new Large Tax Payer Units.
184. My tax proposals on direct taxes are
estimated to yield a gain of Rs.3,000 crore. On the indirect
taxes side, the proposals are revenue neutral.
185. Mr. Speaker, Sir, our human and gender
development indices are low not because of high growth but
because growth is not high enough. Faster economic growth has
given us, once again, the opportunity to unfurl the sails and
catch the wind. Without growth, I could not have given a new
thrust to agriculture. I could not have given relief to the
small tax payer, the small service provider and to small scale
industry. I could not have promised 100,000 scholarships or
100,000 jobs for the physically challenged. I could not have
promised a massive ground water recharge programme or social
security for rural landless households.
186. The UPA Government has delivered on
the promise of savings and investment, and will deliver on the
promise of encouraging more savings and translating the
savings into more investment. It has delivered on the promise
of growth, and will deliver on the promise of making growth
more inclusive. I believe that, given a right mix of policies,
the poor will benefit from growth that is driven by savings
and investment and that is more inclusive. As Dr. Muhammad
Yunus, the Nobel laureate, said, "Faster growth rate is
essential for faster reduction in poverty. There is no other
trick to it."
187. Sir, with these words, I commend the
Budget to the House.