Budget Speech of P. Chidambaram

Budget 2013-2014
Speech of
P. Chidambaram
Minister of Finance
February 28, 2013

Madam Speaker,
I rise to present the Budget for the year 2013-14.
2. I recall my last tenure as Finance Minister and acknowledge with gratitude
the splendid support that I received from all sections of the House as well as the
people of India. Today, more than ever, I seek the same support as we navigate
the Indian economy through a crisis that has enveloped the whole world and
spared none.
3. I intend to keep my speech simple, straight forward and reasonably short.
I. THE ECONOMY AND THE CHALLENGES
4. I shall begin by setting the context. Global economic growth slowed
from 3.9 percent in 2011 to 3.2 percent in 2012. India is part of the global
economy: our exports and imports amount to 43 percent of GDP and two-way
external sector transactions have risen to 108 percent of GDP. We are not
unaffected by what happens in the rest of the world and our economy too has
slowed after 2010-11. In the current year, the CSO has estimated growth at 5
percent while the RBI has estimated growth at 5.5 percent. Whatever may be
the final estimate, it will be below India’s potential growth rate of 8 percent.
Getting back to that growth rate is the challenge that faces the country.
5. Let me say, however, there is no reason for gloom or pessimism. Even
now, of the large countries of the world, only China and Indonesia are growing
faster than India in 2012-13. And in 2013-14, if we grow at the rate projected by
many forecasters, only China will grow faster than India. Between 2004 and
2008, and again in 2009-10 and 2010-11, the growth rate was over 8 percent
and, in fact, crossed 9 percent in four of those six years. The average for the 11th
Plan period, entirely under the UPA Government, was 8 percent, the highest
ever in any Plan period. Achieving high growth, therefore, is not a novelty or
beyond our capacity. We have done it before and we can do it again.
Budget 2013-2014
Speech of
P. Chidambaram
Minister of Finance
February 28, 20132
6. I acknowledge that the Indian economy is challenged, but I am absolutely
confident that, with your cooperation, we will get out of the trough and get on to
the high growth path. I shall now outline our plans and priorities.
7. Our goal is ‘higher growth leading to inclusive and sustainable
development’. That is the mool mantra.
8. Growth is a necessary condition and we must unhesitatingly embrace
growth as the highest goal. It is growth that will lead to inclusive development,
without growth there will be neither development nor inclusiveness. However,
I may sound a note of caution. Owing to the plurality and diversity of India, and
centuries of neglect, discrimination and deprivation, many sections of the people
will be left behind if we do not pay special attention to them. As Joseph Stiglitz,
Nobel prize-winning economist, said, “There is a compelling moral case for
equity; but it is also necessary if there is to be sustained growth. A country’s
most important resource is its people.” We have examples of States growing at
a fast rate, but leaving behind women, the scheduled castes, the scheduled tribes,
the minorities, and some backward classes. The UPA does not accept that model.
The UPA Government believes in inclusive development, with emphasis on
improving human development indicators. I hope this Budget will be yet another
testimony to that commitment.
Fiscal Deficit, Current Account Deficit and Inflation
9. The purpose of a Budget – and the job of a Finance Minister – is to create
the economic space and find the resources to achieve the socio economic
objectives. At present, the economic space is constrained because of a high
fiscal deficit; reliance on foreign inflows to finance the current account deficit;
lower savings and lower investment; a tight monetary policy to contain inflation;
and strong external headwinds. During the course of my speech, I shall spell out
measures that will address each of these issues.
10. In September, 2012, Government accepted the main recommendations
of the Dr. Vijay Kelkar Committee. A new fiscal consolidation path was
announced. Red lines were drawn for the fiscal deficit at 5.3 percent of GDP
this year and 4.8 percent of GDP in 2013-14. I know there is a lot of scepticism.
In a little while, I shall tell you how we have fared.
11. My greater worry is the current account deficit (CAD). The CAD
continues to be high mainly because of our excessive dependence on oil imports,
the high volume of coal imports, our passion for gold, and the slow down in
exports. This year, and perhaps next year too, we have to find over USD 75
billion to finance the CAD. There are only three ways before us: FDI, FII or
External Commercial Borrowing (ECB). That is why I have been at pains to
state over and over again that India, at the present juncture, does not have the
choice between welcoming and spurning foreign investment. If I may be frank,
foreign investment is an imperative. What we can do is to encourage foreign
investment that is consistent with our economic objectives.3
12. Finally, the development must be sustainable – economically and
ecologically. The development model must have democratic legitimacy and
approval.
13. Looming large over our efforts to stimulate growth is inflation. Some
inflation is imported. Supply demand mismatch, for example in oilseeds and
pulses, also pushes up inflation. Aggregate demand is another cause of inflation.
The battle against inflation must be fought on all fronts. Our efforts in the past
few months have brought down headline WPI inflation to about 7.0 percent and
core inflation to about 4.2 percent. It is food inflation that is worrying, and we
shall take all possible steps to augment the supply side to meet the growing
demand for food items.
14. Government expenditure boosts aggregate demand and it has both good
and bad consequences. Wisdom lies in finding the correct level of government
expenditure. In the budget for 2012-13, the estimate of Plan Expenditure was
too ambitious and the estimate of non-Plan Expenditure was too conservative.
Faced with a huge fiscal deficit, I had no choice but to rationalise expenditure.
We took a dose of bitter medicine. It seems to be working. We also took some
policy decisions that had been deferred for too long, corrected some prices, and
undertook a review of certain tax policies. We have retrieved some economic
space. As I outline our plans and priorities, Hon’ble Members will find that I
have used that economic space to advantage – and to advance the UPA
Government’s socio-economic objectives.
II. THE PLAN AND BUDGETARY ALLOCATIONS
15. The 12th Five Year Plan began in 2012-13. Anticipating a global and
domestic recovery, total expenditure had been fixed at `14,90,925 crore. Due to
the slowdown and the austerity measures, the revised estimate is `14,30,825
crore or 96 percent of the budget estimate. The economic space that we have
gained has given me the confidence to be more ambitious in 2013-14. I have
been able to set the BE of total expenditure at `16,65,297 crore and of plan
expenditure at `5,55,322 crore. Hon’ble Members will be happy to know that
plan expenditure in 2013-14 will be 29.4 percent more than the revised estimate
of the current year. All flagship programmes have been fully and adequately
funded. I dare say I have provided sufficient funds to each Ministry or Department
consistent with their capacity to spend the funds. Now, it is over to the Ministries
and Departments to deliver the outcomes through good governance, prudent
cash management, close monitoring and timely implementation.
16. Madam Speaker, on the one side is economic policy. On the other side is
economic welfare. We are a developing country. The link between policy and
welfare can be expressed in a few words: opportunities, education, skills, jobs
and incomes. Every mother understands this. Every young man and woman
understands this. My budget for 2013-14 has before it one overarching goal: to
create opportunities for our youth to acquire education and skills that will get4
them decent jobs or self-employment that will bring them adequate incomes that
will enable them to live with their families in a safe and secure environment.
SC, ST, Women and Children
17. Let me assure Hon’ble Members that their concerns are my concerns
too. I know their concern for the welfare and progress of the scheduled castes
and the scheduled tribes for whom the Budget has sub plans. I also know their
concern that adequate funds must be provided for programmes that benefit
women, children and the minorities. I have tried to meet these concerns as fully
as possible. I propose to allocate `41,561 crore to the scheduled caste sub plan
and `24,598 crore to the tribal sub plan. The total represents an increase of 12.5
percent over the BE and 31 percent over the RE of the current year. I reiterate
the rule that the funds allocated to the sub plans cannot be diverted and must be
spent for the purposes of the sub plans.
18. I have made sufficient allocations to programmes relating to women and
children. Hon’ble Members will find from the budget documents that the gender
budget has `97,134 crore and the child budget has `77,236 crore in
2013-14.
19. Women belonging to the most vulnerable groups, including single women
and widows, must be able to live with self-esteem and dignity. Young women
face gender discrimination everywhere, especially at the work place. Ministry
of Women and Child Development has been asked to design schemes that will
address these concerns. I propose to provide an additional sum of `200 crore to
that Ministry to begin work in this regard.
Minorities
20. I have allocated `3,511 crore to the Ministry of Minority Affairs. This is
an increase of 12 percent over the BE and 60 percent over the RE of 2012-13.
21. The Maulana Azad Education Foundation is the main vehicle to
implement educational schemes and channelize funds to non-government
organisations for the minorities. Its corpus stands at `750 crore. With the objective
of raising it to `1,500 crore during the 12th Plan period, I propose to allocate
`160 crore to the corpus fund. The Foundation wishes to add medical aid to its
objectives. I have accepted that a beginning can be made by providing medical
facilities such as an infirmary or a resident doctor in the educational institutions
run or funded by the Foundation. I propose to allocate `100 crore to launch this
initiative.
Disabled Persons
22. Government is committed to provide support to persons with disabilities.
I propose to allocate a sum of `110 crore to the Department of Disability Affairs
for the ADIP Scheme in 2013-14, as against the RE of `75 crore in the current
year.5
Health and Education
23. Health for all and education for all remain our priorities.
24. I propose to allocate `37,330 crore to the Ministry of Health and Family
Welfare. Of this, the new National Health Mission that combines the rural mission
and the proposed urban mission will get `21,239 crore, an increase of 24.3 percent
over the RE.
25. I propose to provide `4,727 crore for medical education, training and
research.
26. The National Programme for the Health Care of Elderly is being
implemented in 100 selected districts of 21 States. Eight regional geriatric centres
are being funded for the development of dedicated geriatric departments. I
propose to provide `150 crore for this programme.
27. Ayurveda, Unani, Siddha and Homoeopathy are being mainstreamed
through the National Health Mission. I propose to allocate `1,069 crore to the
Department of AYUSH.
28. The six AIIMS-like institutions have admitted their first batch of students
in the academic session that commenced in September 2012. The hospitals
attached to the colleges will be functional in 2013-14. I propose to provide a
sum of `1,650 crore for these institutions.
29. Education is the other high priority. I propose to allocate `65,867 crore
to the Ministry of Human Resource Development, which is an increase of 17
percent over the RE of the previous year. The Sarva Shiksha Abhiyan (SSA) and
the Right to Education Act are firmly in place. I propose to provide `27,258
crore for SSA in 2013-14.
30. Investment in the Rashtriya Madhyamik Shiksha Abhiyan (RMSA) cannot
be postponed any longer. Hence, I propose to provide `3,983 crore for RMSA,
which is an increase of 25.6 percent over the RE of the current year.
31. Hon’ble Members will be happy to know that thousands of scholarships
will be given to students belonging to Scheduled Castes, Scheduled Tribes, Other
Backward Classes and Minorities, and girl children, in 2013-14. I propose to
allocate `5,284 crore to the various Ministries for the purpose, as compared
`4,575 crore in the RE of the current year.
32. The Mid-Day Meal Scheme (MDM) will be provided `13,215 crore.
33. The reconstruction of the Nalanda University has gathered momentum.
The Government is committed to the creation of Nalanda University as a centre
of educational excellence.6
ICDS
34. I commend the ICDS for being able to spend the entire amount of `15,850
crore provided in 2012-13. In recognition of the needs of children, I propose to
allocate `17,700 crore in 2013-14, representing an increase of 11.7 percent. The
focus will continue to be on early childhood care and education.
35. Maternal and child malnutrition in a country with abundant foodgrains is
a shame that we must overcome. A multi-sectoral programme that was announced
last year will be implemented in 100 districts during 2013-14 and it will be
scaled up to cover 200 districts the year after. I propose to allocate a sum of
`300 crore for the programme in 2013-14.
Drinking Water
36. Clean drinking water and sanitation have a number of beneficial
externalities. I propose to allocate `15,260 crore to the Ministry of Drinking
Water and Sanitation, as against the RE of `13,000 crore in the current year.
37. There are still 2,000 arsenic- and 12,000 fluoride-affected rural habitations
in the country. I propose to provide `1,400 crore towards setting up water
purification plants.
Rural Development
38. The Ministry of Rural Development steers a number of flagship
programmes. We estimate that they will be able to spend `55,000 crore before
the end of the current year, and I propose to allocate `80,194 crore in 2013-14,
marking an increase of 46 percent. MGNREGS will get `33,000 crore, PMGSY
will get `21,700 crore, and IAY will get `15,184 crore.
39. The objectives of PMGSY have been substantially fulfilled in several
States. Naturally, these States wish to do more. Hence, it is proposed to carve
out PMGSY-II and allocate a portion of the funds to the new programme that
will benefit States such as Andhra Pradesh, Haryana, Karnataka, Maharashtra,
Punjab and Rajasthan. Details of PMGSY-II will be announced by the Minister
of Rural Development in due course.
JNNURM
40. The Jawaharlal Nehru National Urban Renewal Mission (JNNURM) is
being continued in the 12th Plan. The 14,000 buses sanctioned during 2009 to
2012 have made a big contribution to urban transport. I propose to provide
`14,873 crore for JNNURM, as against the RE of `7,383 crore in the current
year. Out of this, a significant portion will be used to support the purchase of
upto 10,000 buses, especially by the hill States.7
III. AGRICULTURE
41. Thanks to our hard working farmers, agriculture continues to perform
very well. The average annual growth rate of agriculture and allied sector during
the 11th Plan was 3.6 percent as against 2.5 percent and 2.4 percent, respectively,
in the 9th and 10th Plans. In 2012-13, total foodgrain production will be over 250
million tonnes. Minimum support price of every agricultural produce under the
procurement programme has been increased significantly under the UPA
Government. Farmers have responded to the price signals and produced more.
Agricultural exports from April to December, 2012 have crossed `138,403 crore.
42. I propose to allocate `27,049 crore to the Ministry of Agriculture, an
increase of 22 percent over the RE of the current year. Of this, agricultural
research will be provided `3,415 crore.
Agricultural Credit
43. Agricultural credit is the driver of agricultural production. We will exceed
the target of `575,000 crore fixed for 2012-13. For 2013-14, I propose to increase
the target to `700,000 crore.
44. The interest subvention scheme for short-term crop loans will be continued
and a farmer who repays the loan on time will be able to get credit at 4 percent
per annum. So far, the scheme has been applied to loans extended by public
sector banks, RRBs and cooperative banks. I propose to extend the scheme to
crop loans borrowed from private sector scheduled commercial banks in respect
of loans given within the service area of the branch concerned.
Green Revolution
45. Bringing the green revolution to eastern India has been a remarkable
success. Assam, Bihar, Chhattisgarh and West Bengal have increased their
contribution to rice production. I propose to continue to support the eastern
Indian States with an allocation of `1000 crore in 2013-14.
46. The original Green Revolution States face the problem of stagnating yields
and over-exploitation of water resources. The answer lies in crop diversification.
I propose to allocate `500 crore to start a programme of crop diversification that
would promote technological innovation and encourage farmers to choose crop
alternatives.
47. The Rashtriya Krishi Vikas Yojana is intended to mobilise higher
investment in agriculture and the National Food Security Mission is intended to
bridge yield gaps. I propose to provide `9,954 crore and `2,250 crore, respectively,
for these two programmes.
48. Small and marginal farmers are vulnerable everywhere, and especially
so in drought prone and ecologically-stressed regions. Watershed management8
is crucial to improve productivity of land and water use. I propose to increase
the allocation for the integrated watershed programme from `3,050 crore in
2012-13 (BE) to `5,387 crore.
49. Eminent agricultural scientists have suggested that we start a pilot
programme on Nutri-Farms for introducing new crop varieties that are rich in
micro-nutrients such as iron-rich bajra, protein-rich maize and zinc-rich wheat.
I propose to provide a sum of upto `200 crore to start the pilots. Ministry of
Agriculture will formulate a scheme and I hope that agri businesses and farmers
will come together to start a sufficient number of pilots in the districts most
affected by malnutrition.
50. The National Institute of Biotic Stress Management for addressing plant
protection issues will be established at Raipur, Chhattisgarh. The Indian Institute
of Agricultural Bio-technology will be established at Ranchi, Jharkhand and will
serve as a centre of excellence in agricultural bio-technology.
51. A pilot scheme to replant and rejuvenate coconut gardens that was
implemented in some districts of Kerala and the Andaman & Nicobar Islands
will be extended to the entire State of Kerala, and I propose to provide an
additional sum of `75 crore in 2013-14.
Farmer Producer Organizations
52. Farmer Producer Organizations (FPO), including Farmer Producer
Companies (FPC), have emerged as aggregators of farm produce and link farmers
directly to markets. To signal our support to them, I intend to provide matching
equity grants to registered FPOs upto a maximum of `10 lakh per FPO to enable
them to leverage working capital from financial institutions. I propose to provide
`50 crore for this purpose. Besides, a Credit Guarantee Fund will also be created
in the Small Farmers’ Agri Business Corporation with an initial corpus of `100
crore. I urge State Governments to support such FPOs through necessary
amendments to the APMC Act and in other ways.
National Livestock Mission
53. The National Livestock Mission will be launched in 2013-14 to attract
investment and to enhance productivity taking into account local agro-climatic
conditions. I propose to provide `307 crore for the Mission. There will be a sub
Mission for increasing the availability of feed and fodder.
Food Security
54. Food security is as much a basic human right as the right to education or
the right to health care. The National Food Security Bill is a promise of the UPA
Government. I sincerely hope that Parliament will pass the Bill as early as
possible. Hon’ble Members will be happy to know that I have set apart `10,000
crore, over and above the normal provision for food subsidy, towards the
incremental cost that is likely under the Act.9
IV. INVESTMENT, INFRASTRUCTURE AND INDUSTRY
55. The growth rate of an economy is correlated with the investment rate.
The key to restart the growth engine is to attract more investment, both from
domestic investors and foreign investors. Investment is an act of faith. We will
improve communication of our policies to remove any apprehension or distrust
in the minds of investors, including fears about undue regulatory burden or
application of tax laws. ‘Doing business in India’ must be seen as easy, friendly
and mutually beneficial.
56. While every sector can absorb new investment, it is the infrastructure
sector that needs large volumes of investment. The 12th Plan projects an investment
of USD 1 trillion or `55,00,000 crore in infrastructure. The Plan envisages that
the private sector will share 47 percent of the investment. Besides, we need new
and innovative instruments to mobilise funds for this order of investment.
Government has taken or will take the following measures to increase investment
in infrastructure:
 Infrastructure Debt Funds (IDF) will be encouraged. These funds will
raise resources and, through take-out finance, credit enhancement and
other innovative means, provide long-term low-cost debt for infrastructure
projects. I am happy to report that four IDFs have been registered with
SEBI so far and two of them were launched in the month of February,
2013.
 India Infrastructure Finance Corporation Ltd (IIFCL), in partnership with
the Asian Development Bank, will offer credit enhancement to
infrastructure companies that wish to access the bond market to tap long
term funds.
 In the last two years, a number of institutions were allowed to issue tax
free bonds. They raised `30,000 crore in 2011-12 and are expected to
raise about `25,000 crore in 2012-13. I propose to allow some institutions
to issue tax free bonds in 2013-14, strictly based on need and capacity to
raise money in the market, upto a total sum of `50,000 crore.
 Multilateral Development Banks are keen to assist in efforts to promote
regional connectivity. Combining the ‘Look East’ policy and the interests
of the North Eastern States, I propose to seek the assistance of the World
Bank and the Asian Development Bank to build roads in the North Eastern
States and connect them to Myanmar.
 NABARD operates the Rural Infrastructure Development Fund (RIDF).
RIDF has successfully utilised 18 tranches so far. I propose to raise the
corpus of RIDF-XIX in 2013-14 to `20,000 crore.10
 Pursuant to the announcement made last year, a sum of `5000 crore will
be made available to NABARD to finance construction of warehouses,
godowns, silos and cold storage units designed to store agricultural
produce, both in the public and the private sectors. This window will
also finance, through the State Governments, construction of godowns
by panchayats to enable farmers to store their produce.
Road Construction
57. The road construction sector has reached a certain level of maturity. But
it faces challenges not envisaged earlier, including financial stress, enhanced
construction risk and contract management issues, that are best addressed by an
independent authority. Hence, Government has decided to constitute a regulatory
authority for the road sector. Bottlenecks stalling road projects have been
addressed and 3,000 kms of road projects in Gujarat, Madhya Pradesh,
Maharashtra, Rajasthan and Uttar Pradesh will be awarded in the first six months
of 2013-14.
Cabinet Committee Investment
58. Revival of investment in the industrial sector, especially manufacturing,
is a key challenge. Many projects are stalled because they are unable to clear
regulatory hurdles. The Cabinet Committee on Investment (CCI) has been set
up to monitor investment proposals as well as projects under implementation,
including stalled projects, and guide decision-making in order to remove
bottlenecks and quicken the pace of implementation. Two meetings of the CCI
have been held already and decisions were taken in respect of a number of oil
and gas, power, and coal projects. CCI will take up some more projects shortly.
New Investment
59. To attract new investment and to quicken the implementation of projects,
I propose to introduce an investment allowance for new high value investments.
A company investing `100 crore or more in plant and machinery during the
period 1.4.2013 to 31.3.2015 will be entitled to deduct an investment allowance
of 15 percent of the investment. This will be in addition to the current rates of
depreciation. There will be enormous spill-over benefits to small and medium
enterprises.
60. The National Electronics Policy 2012 is intended to promote manufacture
of electronic goods in India. We recognise the pivotal role of semiconductor
wafer fabs in the eco-system of manufacture of electronics. I propose to provide
appropriate incentives to semiconductor wafer fab manufacturing facilities,
including zero customs duty for plant and machinery.
Savings
61. Increasing savings and their optimal allocation for productive uses lead
to higher economic growth. After touching a high of 36.8 percent in 2007-08,11
gross domestic saving fell by 6 percentage points in 2011-12. The private sector,
comprising households and corporates, remains the main contributor to saving.
The household sector must be incentivised to save in financial instruments rather
than buy gold. Hence, I propose the following measures:
 Firstly, the Rajiv Gandhi Equity Savings Scheme will be
liberalised to enable the first time investor to invest in mutual
funds as well as listed shares and she can do so, not in one year
alone, but in three successive years. The income limit will be
raised from `10,00,000 to `12,00,000;
 Secondly, a person taking a loan for his first home from a bank or
a housing finance corporation upto `25,00,000 during the period
1.4.2013 to 31.3.2014 will be entitled to an additional deduction
of interest of upto `100,000. This will promote home ownership
and give a fillip to a number of industries like steel, cement, brick,
wood, glass etc. besides jobs to thousands of construction workers.
 Thirdly, in consultation with RBI, I propose to introduce
instruments that will protect savings from inflation, especially
the savings of the poor and middle classes. These could be
Inflation Indexed Bonds or Inflation Indexed National Security
Certificates. The structure and tenor of the instruments will be
announced in due course.
Industrial Corridors
62. The Delhi Mumbai Industrial Corridor (DMIC) project has made rapid
progress. Plans for seven new cities have been finalised and work on two new
smart industrial cities at Dholera, Gujarat and Shendra Bidkin, Maharashtra will
start during 2013-14. We acknowledge the support of the Government of Japan.
In order to dispel any doubt about funding, I wish to make it clear that we shall
provide, if required, additional funds during 2013-14 within the share of the
Government of India in the overall outlay for the project.
63. The Department of Industrial Policy and Promotion (DIPP) and the Japan
International Cooperation Agency (JICA) are currently preparing a comprehensive
plan for the Chennai Bengaluru Industrial Corridor. The corridor will be
developed in collaboration with the Governments of Tamil Nadu, Andhra Pradesh
and Karnataka.
64. The next corridor will be the Bengaluru Mumbai Industrial Corridor on
which preparatory work has started.
Leh-Kargil Transmission Line
65. To improve power supply in the Leh-Kargil region and connect the Ladakh
region to the northern grid, the Government will construct a transmission system
from Srinagar to Leh at a cost of `1,840 crore. I propose to provide `226 crore
in 2013-14 for the project.12
Ports
66. Two new major ports will be established in Sagar, West Bengal and in
Andhra Pradesh to add 100 million tonnes of capacity. In addition, a new outer
harbour will be developed in the VOC port at Thoothukkudi, Tamil Nadu through
PPP at an estimated cost of `7,500 crore. When completed, this will add 42
million tonnes of capacity.
National Waterways
67. Five inland waterways have been declared as national waterways. I am
happy to announce that the Minister of Water Resources will move a Bill in
Parliament to declare the Lakhipur – Bhanga stretch of river Barak in Assam as
the sixth national waterway. Preparatory work is underway to build a grid
connecting waterways, roads and ports. The 12th Plan has an adequate outlay for
capital works, including dredging, on the national waterways. The objective is
to choose barge operators, through competitive bidding, to transport bulk cargo
on the national waterways. The first transport contract has been awarded in
West Bengal from Haldia to Farakka.
Oil and Gas
68. The oil and gas exploration policy will be reviewed to move from profit
sharing to revenue sharing contracts. A policy to encourage exploration and
production of shale gas will be announced. The natural gas pricing policy will
be reviewed and uncertainties regarding pricing will be removed. NELP blocks
that were awarded but are stalled will be cleared. The 5 MMTPA LNG terminal
in Dabhol, Maharashtra will be fully operational in 2013-14.
Coal
69. Despite abundant coal reserves, we continue to import large volumes of
coal. Coal imports during the period April-December, 2012 have crossed 100
million tonnes. It is estimated that imports will rise to 185 million tonnes in
2016-17. If the coal requirements of the existing power plants and the power
plants that will come into operation by 31.3.2015 are taken into account, there is
no alternative except to import coal and adopt a policy of blending and pooled
pricing. In the medium to long term, we must reduce our dependence on imported
coal. One of the ways forward is to devise a PPP policy framework, with Coal
India Limited as one of the partners, in order to increase the production of coal
for supply to power producers and other consumers. These matters are under
active consideration and the Minister of Coal will announce Government’s
policies in this behalf in due course.
Power
70. Hon’ble Members are aware that the Government has approved a scheme
for the financial restructuring of DISCOMS to restore the health of the power
sector. I would urge State Governments to prepare the financial restructuring
plans quickly, sign the MOU, and take advantage of the scheme.13
Micro, Small and Medium Enterprises
71. Micro, small and medium enterprises (MSME) have a large share of jobs,
production and exports. Too many of them do not grow because of the fear of
losing the benefits associated with staying small or medium. To encourage them
to grow, I propose that the benefits or preferences enjoyed by them will stay with
them for upto three years after they grow out of the category in which they obtained
the benefit. To begin with, I propose that the non-tax benefits may be made
available to a MSME unit for three years after it graduates to a higher category.
72. To provide greater support to MSMEs, I propose to enhance the
refinancing capability of SIDBI from the current level of `5,000 crore to `10,000
crore per year.
73. SIDBI set up the India Microfinance Equity Fund in 2011-12 with
budgetary support of `100 crore to provide equity and quasi-equity to Micro
Finance Institutions (MFI). An amount of `104 crore has been committed to 37
MFIs. I have allocated `100 crore to the IME Fund in the budget and I now
propose to provide another sum of `100 crore to the Fund.
74. The Factoring Act 2011 has been passed by Parliament. I propose to
provide a corpus of `500 crore to SIDBI to set up a Credit Guarantee Fund for
factoring.
75. Tool Rooms and Technology Development Centres set up by the Ministry
of Micro, Small and Medium Enterprises have done well in extending technology
and design support to small businesses. I propose to provide, with World Bank
assistance, a sum of `2,200 crore during the 12th Plan period to set up 15 additional
Centres.
76. Incubators play an important role in mentoring new businesses which
start as a small or medium business. The new Companies Bill obliges companies
to spend 2 percent of average net profits under Corporate Social Responsibility
(CSR). I am glad to announce that the Ministry of Corporate Affairs will notify
that funds provided to technology incubators located within academic institutions
and approved by the Ministry of Science and Technology or Ministry of MSME
will qualify as CSR expenditure.
Textiles
77. I propose to continue the Technology Upgradation Fund Scheme (TUFS)
for the textile sector in the 12th Plan with an investment target of `151,000 crore.
The major focus would be on modernisation of the powerloom sector. I propose
to provide `2,400 crore in 2013-14 for the purpose.
78. Textile parks have been set up under Scheme for Integrated Textile Parks
(SITP). It is proposed to set up Apparel Parks within the SITPs to house apparel
manufacturing units. To incentivise such Apparel Parks, I propose to allocate14
`50 crore to the Ministry of Textiles to provide an additional grant of upto `10
crore to each Park.
79. A new scheme with an outlay of `500 crore called the Integrated
Processing Development Scheme will be implemented in the 12th Plan to address
the environmental concerns of the textile industry, including improving the
effluent treatment infrastructure. I propose to provide `50 crore in 2013-14 for
the scheme.
80. The handloom sector is in distress. A very large proportion of handloom
weavers are women and belong mainly to the backward classes. I propose to
accept their demand for working capital and term loans at a concessional interest
of 6 percent. 150,000 individual weavers and 1,800 primary cooperative societies
will benefit in 2013-14. I propose to allocate an additional sum of `96 crore in
2013-14 to the Ministry of Textiles for interest subvention.
81. India has a rich heritage of traditional industries. Khadi, village industries
and coir were taken up for development during the 11th Plan under the Scheme
of Fund for Regeneration of Traditional Industries (SFURTI). The 12th Plan has
provided an outlay of `850 crore. I propose to leverage assistance from
Multilateral Development Banks to extend SFURTI to 800 clusters during the
12th Plan. 400,000 artisans are expected to be benefited.
Foreign Trade
82. I look forward to the changes that will be made to the Foreign Trade
Policy next month and I assure my support to measures that will be taken to
boost exports of goods and services.
V. FINANCIAL SECTOR
83. The financial sector is at the heart of the economy.
84. Hon’ble Members are aware that Government constituted the Financial
Sector Legislative Reforms Commission (FSLRC) in 2011. I am informed that
the report will be presented next month. It is our intention to examine the
recommendations and act quickly and decisively so that our financial sector stands
on sound legal foundations and remains well-regulated, efficient and
internationally competitive. I propose to constitute a Standing Council of Experts
in the Ministry of Finance to analyse the international competitiveness of the
Indian financial sector, periodically examine the transaction costs of doing
business in the Indian market, and provide inputs to Government for necessary
action.
Banking
85. Our public sector banks are well regulated, they must also be adequately
capitalised. Before the end of March, 2013, we shall provide `12,517 crore to
infuse additional capital into 13 public sector banks. In 2013-14, I propose to15
provide a further amount of `14,000 crore for capital infusion. We shall ensure
that public sector banks always meet the Basel III regulations as they come into
force in a phased manner.
86. Financial inclusion has made rapid strides. All scheduled commercial
banks and all RRBs are on core banking solution (CBS) and on the electronic
payment systems (NEFT and RTGS). We are working with RBI and NABARD
to bring all other banks, including some cooperative banks, on CBS and e-payment
systems by 31.12.2013. Public sector banks have assured me that all their
branches will have an ATM in place by 31.3.2014.
87. Women are at the head of many banks today, including two public sector
banks, but there is no bank that exclusively serves women. Can we have a bank
that lends mostly to women and women-run businesses, that supports women
SHGs and women’s livelihood, that employs predominantly women, and that
addresses gender related aspects of empowerment and financial inclusion? I
think we can. I therefore propose to set up India’s first Women’s Bank as a
public sector bank and I shall provide `1,000 crore as initial capital. I hope to
obtain the necessary approvals and the banking licence by October, 2013, and I
invite all Hon’ble Members to the inauguration of the bank shortly thereafter.
88. The Rural Housing Fund set up through the National Housing Bank is
used to refinance lending institutions, including RRBs, that extend loans for
rural housing. So far, 400,000 rural families have taken loans. In the last Budget,
we provided `4,000 crore to the Fund. In consultation with RBI, I propose to
provide `6,000 crore to the Rural Housing Fund in 2013-14.
89. Similarly, it is proposed to start a fund for urban housing to mitigate the
huge shortage of houses in urban areas. I propose to ask National Housing Bank
to set up the Urban Housing Fund and, in consultation with RBI, I propose to
provide `2,000 crore to the Fund in 2013-14.
Insurance
90. A multi-pronged approach will be followed to increase the penetration
of insurance, both life and general, in the country. I have a number of proposals
that have been finalised in consultation with the regulator, IRDA.
 Insurance companies will be empowered to open branches in Tier
II cities and below without prior approval of IRDA.
 All towns of India with a population of 10,000 or more will have
an office of LIC and an office of at least one public sector general
insurance company. I propose to achieve this goal by 31.3.2014.
 KYC of banks will be sufficient to acquire insurance policies.16
 Banks will be permitted to act as insurance brokers so that the entire
network of bank branches will be utilised to increase penetration.
 Banking correspondents will be allowed to sell micro-insurance
products.
 Group insurance products will now be offered to homogenous
groups such as SHGs, domestic workers associations, anganwadi
workers, teachers in schools, nurses in hospitals etc.
 There are about 10,00,000 motor third party claims that are pending
before Tribunals/Courts. Public sector general insurance companies
will organise adalats to settle the claims and give relief to the affected
persons/families.
91. The Insurance Laws (Amendment) Bill and the PFRDA Bill are before
this House. I sincerely hope that Government and the Opposition can arrive at a
consensus and pass the two Bills in this session.
92. The Rashtriya Swasthiya Bima Yojana covers 34 million families below
the poverty line. It will now be extended to other categories such as rickshaw,
auto-rickshaw and taxi drivers, sanitation workers, rag pickers and mine workers.
93. A comprehensive and integrated social security package for the
unorganised sector is a measure that will benefit the poorest and most vulnerable
sections of society. The package should include life-cum-disability cover, health
cover, maternity assistance and pension benefits. The present schemes such as
AABY, JSBY, RSBY, JSY and IGMSY are run by different ministries and
departments. I propose to facilitate convergence among the various stakeholder
ministries/departments so that we can evolve a comprehensive social security
package.
Capital Market
94. I believe that India’s capital market is among the best regulated markets.
This year is SEBI’s silver jubilee year and I offer the regulator our congratulations.
A proposal to amend the SEBI Act to strengthen the regulator is under
consideration.
95. I have a number of proposals relating to the capital market that have
been finalised in consultation with SEBI:
 There are many categories of foreign portfolio investors such as
FIIs, sub-accounts, QFIs etc. and there are also different avenues
and procedures for them. Designated depository participants,
authorised by SEBI, will now be free to register different classes of
portfolio investors, subject to compliance with KYC guidelines.
 SEBI will simplify the procedures and prescribe uniform registration
and other norms for entry of foreign portfolio investors. SEBI will17
converge the different KYC norms and adopt a risk-based approach
to KYC to make it easier for foreign investors such as central banks,
sovereign wealth funds, university funds, pension funds etc. to invest
in India.
 In order to remove the ambiguity that prevails on what is Foreign
Direct Investment (FDI) and what is Foreign Institutional Investment
(FII), I propose to follow the international practice and lay down a
broad principle that, where an investor has a stake of 10 percent or
less in a company, it will be treated as FII and, where an investor
has a stake of more than 10 percent, it will be treated as FDI. A
committee will be constituted to examine the application of the
principle and to work out the details expeditiously.
 FIIs will be allowed to participate in the exchange traded currency
derivative segment to the extent of their Indian rupee exposure in
India.
 FIIs will also be permitted to use their investment in corporate bonds
and Government securities as collateral to meet their margin
requirements.
 Angel investors bring both experience and capital to new ventures.
SEBI will prescribe requirements for angel investor pools by which
they can be recognised as Category I AIF venture capital funds.
 Small and medium enterprises, including start-up companies, will
be permitted to list on the SME exchange without being required
to make an initial public offer (IPO), but the issue will be restricted
to informed investors. This will be in addition to the existing SME
platform in which listing can be done through an IPO and with
wider investor participation.
 With the object of developing the debt market, stock exchanges
will be allowed to introduce a dedicated debt segment on the
exchange. Banks and primary dealers will be the proprietary trading
members. In order to create a complete market, insurance
companies, provident funds and pension funds will be permitted to
trade directly in the debt segment with the approval of the sectoral
regulator.
 Mutual fund distributors will be allowed to become members in
the Mutual Fund segment of stock exchanges so that they can
leverage the stock exchange network to improve their reach and
distribution.
 The list of eligible securities in which Pension Funds and Provident
Funds may invest will be enlarged to include exchange traded funds,
debt mutual funds and asset backed securities.18
VI. ENVIRONMENT
96. India tosses out several thousand tonnes of garbage each day. We will
evolve a scheme to encourage cities and municipalities to take up waste-to-energy
projects in PPP mode which would be neutral to different technologies. I propose
to support municipalities that will implement waste-to-energy projects through
different instruments such as viability gap funding, repayable grant and low cost
capital.
97. Clean and Green energy is a priority of the Government. However, despite
cost advantages in labour, land and construction, the consumer pays a high price
for renewable energy. One of the reasons is high cost of finance. In order to
provide low cost finance, Government will provide low interest bearing funds
from the National Clean Energy Fund (NCEF) to IREDA to on-lend to viable
renewable energy projects. The scheme will have a life span of five years.
98. The non-conventional wind energy sector deserves incentives. Hence, I
propose to reintroduce ‘generation-based incentive’ for wind energy projects
and provide `800 crore to the Ministry of Non Renewable Energy for the purpose.
VII. OTHER PROPOSALS
Backward Regions Grant Fund
99. The Backward Regions Grant Fund (BRGF) is a vital source of gap
funding. I propose to allocate `11,500 crore in 2013-14 as well as another sum
of `1,000 crore for LWE affected districts. BRGF will include a State component
for Bihar, the Bundelkand region, West Bengal, the KBK districts of Odisha and
the 82 districts under the Integrated Action Plan. The present criteria for
determining backwardness are based on terrain, density of population and length
of international borders. It may be more relevant to use a measure like the distance
of the State from the national average under criteria such as per capita income,
literacy and other human development indicators. I propose to evolve new criteria
and reflect them in future planning and devolution of funds.
Skill Development
100. Hon’ble Members will recall that in 2008-09 I had proposed the
establishment of the National Skill Development Corporation. The Corporation
has since been set up and has done good work, but there is a long way to go. We
have set an ambitious target of skilling 50 million people in the 12th Plan period,
including 9 million in 2013-14. We have to pull out all stops to achieve this
objective. Funds will be released by the National Rural Livelihood Mission and
the National Urban Livelihood Mission to be spent on skill development activities.
5 percent of the Border Area Development Programme Fund, 10 percent of the
Special Central Assistance to the Scheduled Caste sub plan and the Tribal sub
plan, and some other funds will also be used for skill development.19
Defence
101. I propose to increase the allocation for Defence to `203,672 crore. This
will include `86,741 crore for capital expenditure. The Minister of Defence has
been most understanding, and I assure him and the House that constraints will
not come in the way of providing any additional requirement for the security of
the nation.
Science & Technology
102. Despite our constraints, we must find resources for science and technology
and for Space, Atomic Energy etc. I propose to allocate `6,275 crore to the
Ministry of Science & Technology; `5,615 crore to the Department of Space;
and `5,880 crore to the Department of Atomic Energy. Hon’ble Members will
be happy to know that these amounts are substantial enhancements.
103. While we extol the virtues of science and technology (S&T), I think we
do not pay enough attention to science and technology for the common man.
With the help of the Ministry of Science and Technology and the Principal
Scientific Adviser to the Government, I have identified a few amazing S&T
innovations. I propose to set apart `200 crore to fund organisations that will
scale up and make these products available to the people. I propose to ask the
National Innovation Council to formulate a scheme for the management and
application of the fund.
Institutions of Excellence
104. Continuing the tradition of supporting institutions of excellence, I propose
to make a grant of `100 crore each to:
 Aligarh Muslim University, Aligarh campus
 Banaras Hindu University, Varanasi
 Tata Institute of Social Sciences, Guwahati campus
 Indian National Trust for Art and Cultural Heritage (INTACH)
Sports
105. Sports of all kind deserve our support. We have many sportsmen and
sportswomen but few coaches. Hence, I propose to set up the National Institute
of Sports Coaching at Patiala at a cost of `250 crore over a period of three years.
Broadcasting
106. Government proposes to expand private FM radio services to 294 more
cities. About 839 new FM radio channels will be auctioned in 2013-14 and,
after the auction, all cities having a population of more than 100,000 will be
covered by private FM radio services.
Panchayati Raj
107. The Rajiv Gandhi Panchayat Sashaktikaran Abhiyan (RGPSA) was started
in the current year with a modest allocation of `50 crore. Keeping in view the20
importance of building capacity in panchayati raj institutions, I had allocated
`455 crore to the Ministry of Panchayati Raj in 2013-14. I propose to provide an
additional `200 crore .
Post Offices
108. Government has initiated an ambitious IT driven project to modernise
the postal network at a cost of `4,909 crore. Post offices will become part of the
core banking solution and offer real time banking services. I propose to provide
`532 crore for the project in 2013-14.
Ghadar Memorial
109. To mark the centenary of the Ghadar movement, the Government will
fund the conversion of the Ghadar Memorial in San Francisco into a museum
and library.
Central Schemes
110. Government is concerned about the proliferation of Centrally Sponsored
Schemes (CSS) and Additional Central Assistance (ACA) schemes. They were
173 in number at the end of the 11th Plan. I am glad to announce that the schemes
will be restructured into 70 schemes. Each scheme will be reviewed once in two
years. Central funds for the schemes will be given to the States as part of central
plan assistance. Hon’ble Members will be glad to know that, in 2013-14, I expect
to transfer resources to the tune of `5,87,082 crore to the States and UTs under
share of taxes, non-plan grants and loans, and central assistance.
I make three promises
111. Madam Speaker, before I close this part of my speech, I wish to draw a
picture of three faces that represent the vast majority of the people of India. The
first is the face of the woman. She is the girl child, the young student, the
sportswoman, the homemaker, the working woman, and the mother. The second
is the face of the youth. He is impatient, she is ambitious, and both represent the
aspirations of a new generation. The third is the face of the poor who look to the
government for a little help, a scholarship or an allowance or a subsidy or a
pension. To each of them, on behalf of the Government, the Prime Minister and
the Chairperson of the UPA, I make a promise.
112. To the women of India: We have a collective responsibility to ensure the
dignity and safety of women. Recent incidents have cast a long, dark shadow on
our liberal and progressive credentials. As more women enter public spaces –
for education or work or access to services or leisure – there are more reports of
violence against them. We stand in solidarity with our girl children and women.
And we pledge to do everything possible to empower them and to keep them
safe and secure. A number of initiatives are under way and many more will be
taken by Government as well as non-government organisations. These deserve
our support. As an earnest of our commitment to these objectives, I propose to
set up a fund – let us call it the Nirbhaya Fund – and Government will contribute
`1,000 crore. Ministry of Women and Child Development and other ministries21
concerned will be requested to work out the details of the structure, scope and
application of the fund.
113. To the youth of India: A large number of youth must be motivated to
voluntarily join skill development programmes. I propose to ask the National
Skill Development Corporation to set the curriculum and standards for training
in different skills. Any institution or body may offer training courses. At the end
of the training, the candidate will be required to take a test conducted by authorised
certification bodies. Upon passing the test, the candidate will be given a certificate
as well as a monetary reward of an average of `10,000 per candidate. Skilltrained youth will give an enormous boost to employability and productivity.
On the assumption that 10,00,000 youth can be motivated, I propose to set apart
`1,000 crore for this ambitious scheme. I hope that this will be the trigger to
extend skill development to all the youth of the country.
114. To the poor of India: The Direct Benefit Transfer scheme has captured
the imagination of the people, especially the poor. The Government is the
government of the people. The money is the money belonging to the people.
When we say “Aapka paisa aapke haath”, why should anyone oppose it? We
have made a modest and cautious beginning on the 1st of January, 2013. Nearly
11 lakh beneficiaries have received the benefit directly into their bank accounts.
All around us, we see the smiles on the faces of the dalit girls and the tribal boys
who have received their scholarships. We see the happiness on the faces of the
pregnant women who are assured that the Government cares for the mother and
the child before and after child birth. We are redoubling our efforts to ensure
that the digitized beneficiary lists are available; that a bank account is opened
for each beneficiary; and that the bank account is seeded with Aadhaar in due
course. I assure the House and the people of India that the DBT scheme will be
rolled out throughout the country during the term of the UPA Government.
Budget Estimates
115. I shall now turn to the Budget Estimates for 2013-14.
116. The estimate of Plan Expenditure is placed at `5,55,322 crore. As a
proportion of total expenditure, it will be 33.3 percent.
117. Non Plan Expenditure is estimated at `11,09,975 crore.
118. When we accepted the main recommendations of the Kelkar report, I
had drawn some red lines and promised that I would not cross those lines. I am
glad to report that I have kept my promise. The fiscal deficit for the current year
has been contained at 5.2 percent and the fiscal deficit for the year
2013-14 is estimated at 4.8 percent. The revenue deficit for the current year will
be 3.9 percent and the revenue deficit for the year 2013-14 is estimated at 3.3
percent. We must redeem our promise by 2016-17 and bring down the fiscal
deficit to 3 percent, the revenue deficit to 1.5 percent and the effective revenue
deficit to zero.22
PART B
VIII. TAX PROPOSALS
119. Madam Speaker, I shall now present my tax proposals.
120. When I took over in August, 2012, I made a statement that “clarity in tax
laws, a stable tax regime, a non-adversarial tax administration, a fair mechanism
for dispute resolution, and an independent judiciary will provide great assurance”.
That statement is the underlying theme of my tax proposals, both on the direct
taxes side and on the indirect taxes side.
121. An emerging economy must have a tax system that reflects best global
practices. I propose to set up a Tax Administration Reform Commission to review
the application of tax policies and tax laws and submit periodic reports that can
be implemented to strengthen the capacity of our tax system.
122. In 2011-12, the tax GDP ratio was 5.5 percent for direct taxes and 4.4
percent for indirect taxes. These ratios are one of the lowest for any large
developing country and will not garner adequate resources for inclusive and
sustainable development. I may recall that in 2007-08, the tax GDP ratio touched
a peak of 11.9 percent. In the short term, we must reclaim that peak.
Direct Taxes
123. Let me begin with direct taxes.
124. In a constrained economy, there is little room to raise tax rates or large
amounts of additional tax revenues. Equally, there is little room to give away
tax revenues or the tax base. It is a time for prudence, restraint and patience.
125. The rates of personal income tax have survived four Finance Ministers
and four Governments. The current slabs were introduced only last year. Hence,
I am afraid, there is no case to revise either the slabs or the rates. Besides, even
a moderate increase in the level of threshold exemption will mean that hundreds
of thousands of tax payers will go out of the tax net and the tax base will be
severely eroded. Nevertheless, I am inclined to give some relief to the tax payers
in the first bracket of `2 lakh to `5 lakh. Assuming an inflation rate of 10 percent
and a notional rise in the threshold exemption from `2,00,000 to `2,20,000, I
propose to provide a tax credit of `2,000 to every person who has a total income
upto `5 lakh. 1.8 crore tax payers are expected to benefit to the value of `3,600
crore.
126. Fiscal consolidation cannot be effected only by cutting expenditure.
Wherever possible, revenues must also be augmented. When I need to raise23
resources, who can I go to except those who are relatively well placed in society?
There are 42,800 persons – let me repeat, only 42,800 persons – who admitted to
a taxable income exceeding `1 crore per year. I propose to impose a surcharge
of 10 percent on persons whose taxable income exceeds `1 crore per year. This
will apply to individuals, HUFs, firms and entities with similar tax status.
127. I also propose to increase the surcharge from 5 percent to 10 percent on
domestic companies whose taxable income exceeds `10 crore per year. In the
case of foreign companies, who pay the higher rate of corporate tax, the surcharge
will increase from 2 percent to 5 percent.
128. In all other cases, such as dividend distribution tax or tax on distributed
income, I propose to increase the current surcharge of 5 percent to 10 percent.
129. The additional surcharges will be in force for only one year, that is
Financial Year 2013-14.
130. I believe there is a little bit of the spirit of Mr. Azim Premji in every
affluent tax payer. I am confident that when I ask the relatively prosperous to
bear a small burden for one year, just one year, they will do so cheerfully.
131. The education cess for all tax payers shall continue at 3 percent.
132. In part A of my speech, I had referred to the tax benefit to the first-home
buyer who takes a loan for an amount not exceeding `25,00,000. I propose to
allow such home buyers an additional deduction of interest of `100,000 to be
claimed in AY 2014-15. If the limit is not exhausted, the balance may be claimed
in AY 2015-16. This deduction will be over and above the deduction of `150,000
allowed for self-occupied properties under section 24 of the Income-tax Act.
133. I propose to relax the eligibility conditions of life insurance policies for
persons suffering from disability or certain ailments by increasing the permissible
premium rate from 10 percent to 15 percent of the sum assured. This relaxation
shall be available in respect of policies issued on or after 1.4.2013.
134. Contributions made to the Central Government Health Scheme are eligible
for deduction under section 80D of the Income-tax Act. I propose to extend the
same benefit to similar schemes of the Central Government and State
Governments.
135. Donations made to the National Children’s Fund will now be eligible for
100 percent deduction.
136. No large economy can become truly developed without a robust
manufacturing sector. Hence, as stated in part A of my speech, I propose to
provide an investment allowance at the rate of 15 percent to a manufacturing
company that invests more than `100 crore in plant and machinery during the
period 1.4.2013 to 31.3.2015.24
137. I propose to extend the ‘eligible date’ for projects in the power sector to
avail of the benefit under section 80-IA of the Income-tax Act, from 31.3.2013
to 31.3.2014.
138. In order to encourage repatriation of funds from overseas companies, I
propose to continue for one more year the concessional rate of tax of 15 percent
on dividend received by an Indian company from its foreign subsidiary. Further,
the Indian company shall not be liable to pay dividend distribution tax on the
distribution to its shareholders of that portion of the income received from its
foreign subsidiary.
139. With a view to attract investment in long term infrastructure bonds in
foreign currency, the rate of tax on interest paid to non-resident investors was
reduced last year from 20 percent to 5 percent. I propose to extend the same
benefit to investment made through a designated bank account in rupeedenominated long term infrastructure bonds.
140. In order to facilitate financial institutions to securitise their assets through
a special purpose vehicle, I propose to exempt the Securitisation Trust from
income tax. Tax shall be levied only at the time of distribution of income by the
Securitisation Trust at the rate of 30 percent in the case of companies and at the
rate of 25 percent in the case of an individual or HUF. No further tax will be
levied on the income received by the investors from the Securitisation Trust.
141. Investor Protection Fund set up by a depository for the protection of
interest of beneficial owners will be exempt from income tax.
142. I propose to provide parity in taxation between an IDF-Mutual Fund that
distributes income and an IDF-NBFC that pays interest, when the payment is
made to a non-resident. The rate of tax on such distributed income or interest
will be 5 percent.
143. Venture Capital Funds have been allowed pass through status under the
Income-tax Act. The relevant regulations of SEBI have been replaced by
Alternative Investment Fund Regulations. Hence, I propose to extend, subject
to certain conditions, pass through status to category I Alternative Investment
Funds registered with SEBI as venture capital funds. Angel Investors who are
recognised as category I AIF venture capital funds will also get pass through
status.
144. I propose to modify the Rajiv Gandhi Equity Saving Scheme, details of
which I had mentioned in part A of my speech.
145. Transactions in immovable properties are usually undervalued and
underreported. One-half of the transactions do not carry the PAN of the parties
concerned. With a view to improve the reporting of such transactions and the
taxation of capital gains, I propose to apply TDS at the rate of one percent on the25
value of the transfer of immovable property where the consideration exceeds
`50 lakhs. However, agricultural land will be exempt.
146. Some tax avoidance arrangements have come to notice, and I propose to
plug the loopholes. Some unlisted companies have avoided dividend distribution
tax by arrangements involving buyback of shares. I propose to levy a final
withholding tax at the rate of 20 percent on profits distributed by unlisted
companies to shareholders through buyback of shares.
147. Another case is the distribution of profits by a subsidiary to a foreign
parent company in the form of royalty. Besides, the rate of tax on royalty in the
Income-tax Act is lower than the rates provided in a number of Double Tax
Avoidance Agreements. This is an anomaly that must be corrected. Hence, I
propose to increase the rate of tax on payments by way of royalty and fees for
technical services to non-residents from 10 percent to 25 percent. However, the
applicable rate will be the rate of tax stipulated in the DTAA.
148. Securities Transaction Tax (STT) has a stabilizing effect on transactions,
although it adds to the transaction cost. Taking note of the changes and shifts in
the market, I propose to make the following reductions in the rates of tax:
Equity futures: from 0.017 to 0.01 percent
MF/ETF redemptions at fund counters: from 0.25 to 0.001 percent
MF/ETF purchase/sale on exchanges: from 0.1 to 0.001 percent, only on
the seller
149. There is no distinction between derivative trading in the securities market
and derivative trading in the commodities market, only the underlying asset is
different. It is time to introduce Commodities Transaction Tax (CTT) in a limited
way. Hence, I propose to levy CTT on non-agricultural commodities futures
contracts at the same rate as on equity futures, that is at 0.01 percent of the price
of the trade. Trading in commodity derivatives will not be considered as a
‘speculative transaction’ and CTT shall be allowed as deduction if the income
from such transaction forms part of business income. As I said, agricultural
commodities will be exempt.
150. Hon’ble Members are aware that the Finance Act, 2012 introduced the
General Anti Avoidance Rules, for short, GAAR. A number of representations
were received against the new provisions. An expert committee was constituted
to consult stakeholders and finalise the GAAR guidelines. After careful
consideration of the report, Government announced certain decisions on
14.1.2013 which were widely welcomed. I propose to incorporate those decisions
in the Income-tax Act. The modified provisions preserve the basic thrust and
purpose of GAAR. Impermissible tax avoidance arrangements will be subjected
to tax after a determination is made through a well laid out procedure involving26
an assessing officer and an Approving Panel headed by a Judge. I propose to
bring the modified provisions into effect from 1.4.2016.
151. The Rangachary Committee was appointed to look into tax matters
relating to Development Centres & IT sector and Safe Harbour rules for a number
of sectors. We have issued a circular covering IT sector exports and will shortly
issue a circular covering Development Centres. Rules on Safe Harbour will be
issued after examining the reports of the Committee, the last of which is expected
by 31.3.2013.
152. The fifth Large Tax payer Unit will be opened at Kolkata shortly.
153. I have also taken a number of administrative measures in the last few
months. I propose to expand the scope of annual information returns, extend epayment facility through more banks, extend the refund banker system to refunds
of more than `50,000, and make e-filing mandatory for more categories of
assessees. The Income-tax department is rapidly moving towards technologybased processing as would be evident from the Central Processing Cell set up at
Bengaluru and the Central Processing Cell-TDS inaugurated a few days ago at
Vaishali, Ghaziabad.
154. The Direct Taxes Code (DTC) is work in progress. The DTC is not
intended to be an amended version of the Income-tax Act, 1961 but a new code
based on the best international practices that will be compatible with the needs
of a fast developing economy. The Standing Committee on Finance has submitted
its report and we attach great weight to its recommendations. My team in the
Ministry of Finance is examining the recommendations and I intend to work
with the Standing Committee and its Chairman in order to finalise the official
amendments. I shall endeavour to bring the Bill back to this House before the
end of the Budget Session.
Indirect Taxes
155. I shall now deal with indirect taxes.
156. There will be no change in the peak rate of basic customs duty of 10
percent for non-agricultural products. There will also be no change in the normal
rate of excise duty of 12 percent and the normal rate of service tax of 12 percent.
157. I have a few proposals on customs duties.
158. To encourage manufacture of environment-friendly vehicles, I propose
to extend the period of concession now available for specified parts of electric
and hybrid vehicles upto 31.3.2015.
159. Leather and leather goods is a thrust sector for exports. I propose to
reduce the duty on specified machinery for manufacture of leather and leather
goods, including footwear, from 7.5 percent to 5 percent.27
160. To encourage exports, I propose to reduce the duty on pre-forms of
precious and semi-precious stones from 10 percent to 2 percent.
161. Export duty on de-oiled rice bran oil cake has made our exports
uncompetitive. Hence, I propose to withdraw the said duty.
162. Prices of unprocessed ilmenite have gone up several fold in the export
market. Considering the need to conserve our natural resources, I propose to
impose a duty of 10 percent on export of unprocessed ilmenite and 5 percent on
export of upgraded ilmenite.
163. The aircraft manufacture, repair and overhaul (MRO) industry is at a
nascent stage. Encouraging the MRO sector will generate employment besides
other benefits. Hence, I propose to provide certain concessions to the MRO
industry, details of which are in the budget documents.
164. To encourage domestic production of set top boxes as well as value
addition, I propose to increase the duty from 5 percent to 10 percent.
165. In order to give a measure of protection to domestic sericulture, I propose
to increase the duty on raw silk from 5 percent to 15 percent.
166. Steam coal is exempt from customs duty but attracts a concessional CVD
of one percent. Bituminous coal attracts a duty of 5 percent and CVD of 6
percent. Since both kinds of coal are used in thermal power stations, there is
rampant misclassification. I propose to equalise the duties on both kinds of coal
and levy 2 percent customs duty and 2 percent CVD.
167. There is an affluent class in India that consumes imported luxury goods
such as high end motor vehicles, motorcycles, yachts and similar vessels. I am
sure they will not mind paying a little more. Hence, I propose to increase the
duty on such motor vehicles from 75 percent to 100 percent; on motorcycles
with engine capacity of 800cc or more from 60 percent to 75 percent; and on
yachts and similar vessels from 10 percent to 25 percent.
168. The baggage rules permitting eligible passengers to bring jewellery was
last amended in 1991. Gold prices have risen since, and passengers have
complained of harrasment. Hence, I propose to raise the duty-free limit to `50,000
in the case of a male passenger and `100,000 in the case of a female passenger,
subject to the usual conditions.
169. Next, I shall deal with excise duties.
170. The readymade garment industry is in the throes of a crisis. The industry
needs a lifeline. There is a demand to restore the ‘zero excise duty route’ for
cotton and manmade sector (spun yarn) at the yarn, fabric and garment stages. I28
propose to accept the demand. In the case of cotton, there will be zero duty at
the fibre stage also and, in the case of spun yarn, there will be a duty of 12
percent at the fibre stage. The ‘zero excise duty route’ will be in addition to the
CENVAT route now available.
171. I propose to totally exempt handmade carpets and textile floor coverings
of coir or jute from excise duty.
172. As a measure of relief to the ship building industry, I propose to exempt
ships and vessels from excise duty. Consequently, there will be no CVD on
imported ships and vessels.
173. What does a Finance Minister turn to when he requires resources? The
answer is cigarettes. I propose to increase the specific excise duty on cigarettes
by about 18 percent. Similar increases are proposed on cigars, cheroots and
cigarillos.
174. SUVs occupy greater road and parking space and ought to bear a higher
tax. I propose to increase the excise duty on SUVs from 27 percent to 30 percent.
However, the increase will not apply to SUVs registered as taxis.
175. The excise duty rate on marble was fixed in 1996. Keeping in view the
increase in prices of marble, I propose to increase the duty from `30 per sq. mtr
to ` 60 per sq mtr.
176. I propose to levy 4 percent excise duty on silver manufactured from
smelting zinc or lead, to bring the rate on par with the excise duty applicable to
silver obtained from copper ores and concentrates.
177. About 70 percent of imported mobile phones and about 60 percent of
domestically manufactured mobile phones are priced at `2000 or below. Mobile
phones enjoy a concessional excise duty of one percent and I do not propose to
change that in the case of low priced mobile phones. However, on mobile phones
priced at more than `2000, I propose to raise the duty to 6 percent.
178. To reduce valuation disputes, I propose to provide for MRP based
assessment in respect of branded medicaments of Ayurveda, Unani, Siddha,
Homeopathy and bio-chemic systems of medicine. There will be an abatement
of 35 percent.
179. As regards service tax, I have only a few proposals. The negative list
became effective after the last Budget. Stability in the tax regime is important.
Hence, I propose to include only two services which deserve to be in the negative
list. They are vocational courses offered by institutes affiliated to the State Council
of Vocational Training and testing activities in relation to agriculture and
agricultural produce.29
180. Last year, at the request of the film industry, full exemption of service
tax was granted on copyright on cinematography. The industry has now requested
to limit the benefit of exemption to films exhibited in cinema halls. I propose to
accept the request.
181. At present, service tax does not apply to air conditioned restaurants that
do not serve liquor. The distinction is artificial, and I propose to levy service tax
on all air conditioned restaurants.
182. Homes and flats with a carpet area of 2,000 sq.ft. or more or of a value of
`1 crore or more are high-end constructions where the component of ‘service’ is
greater. Hence, I propose to reduce the rate of abatement for this class of buildings
from 75 percent to 70 percent. Existing exemptions from service tax for low
cost housing and single residential units will continue.
183. While there are nearly 17,00,000 registered assessees under service tax,
only about 7,00,000 file returns. Many have simply stopped filing returns. We
cannot go after each of them. I have to motivate them to file returns and pay the
tax dues. Hence, I propose to introduce a one-time scheme called ‘Voluntary
Compliance Encouragement Scheme’. A defaulter may avail of the scheme on
condition that he files a truthful declaration of service tax dues since 1.10.2007
and makes the payment in one or two instalments before prescribed dates. In
such a case, interest, penalty and other consequences will be waived. I hope to
entice a large number of assessees to return to the tax fold. I also hope to collect
a reasonable sum of money.
184. There are a few more decisions which entail small gains or losses of
revenue. They are reflected in the budget documents.
185. My tax proposals on the direct taxes side are estimated to yield `13,300
crore and on the indirect taxes side `4,700 crore.
Goods and Services Tax
186. Hon’ble Members will recall that I had first mentioned the Goods and
Services Tax (GST) in the Budget speech for 2007-08. At that time, it was
thought that GST could be brought into effect from 1.4.2010. Alas, that was not
to be, although all States swear by the benefit of GST. However, my recent
meetings with the Empowered Committee of State Finance Ministers has led me
to believe that the State Governments – or, at least, the overwhelming majority –
are agreed that there is need for a Constitutional amendment; there is need for
State Governments and the Central Government to pass a GST law that will be
drafted by the State Finance Ministers and the GST Council; and there is need
for the Centre to compensate the States for loss due to the reduction in the CST
rate. I hope we can take this consensus forward in the next few months and
bring to this House a draft Bill on the Constitutional amendment and a draft Bill30
on GST. Hope inspires courage. I propose to take the first decisive step by
setting apart, in the Budget, a sum of `9,000 crore towards the first instalment of
the balance of CST compensation. I appeal to the State Finance Ministers to
realise the serious intent of the Government to introduce GST and come forward
to work with the Government and bring about a transformational change in the
tax structure of the country.
Conclusion
187. Madam Speaker, the last day of February is another day in the life of a
nation. We pause today, to reflect on the past and the future, and we shall resume
our work tomorrow. Our work will be seen in our actions. How shall we act? I
turn to my favourite poet, Saint Tiruvalluvar, who said:
“Kalangathu Kanda Vinaikkan Thulangkathu
Thookkang Kadinthu Seyal”
(What clearly eye discerns as right, with steadfast will
And mind unslumbering, that should man fulfil)
188. Any economist will tell us what India can become. We are the tenth
largest economy in the world. We can become the eighth, or perhaps the seventh,
largest by 2017. By 2025, we could become a $ 5 trillion economy, and among
the top five in the world. What we will become depends on us and on the choices
that we make. Swami Vivekananda, whose 150th birth anniversary we celebrate
this year, told the people: “All the strength and succour you want is within yourself.
Therefore, make your own future.”
As a resolute step towards that future, Madam Speaker, I commend the
Budget to the House.