Budget 2003 Highlights
The Finance Minister, Mr Jaswant Singh has introduced the Finance Act,
2003 in the Parliament. This article aims to present the importance changes proposed by
the FM in his speech. This article has been prepared on the basis of the Budget speech of
the FM and therefore, readers are advised to read it along with the Finance Bill, 2003
tabled in Parliament.
Direct Tax Proposals
It has been proposed that interest deductible under income tax up to
Rs.1,50,000 for construction or purchase of a self-occupied house property, be continued.
It has also been proposed that income from housing projects for
construction of residential units, of prescribed specification, approved by the local
authorities up to March 31, 2005, be exempt from income tax.
The FM has proposed a rebate u/s 88 for education expenses up to
Rs.12,000 per child for two children for citizens.
The FM has proposed that royalty income up to Rs.3,00,000 per annum,
received by authors of literary, artistic and scientific books be fully exempt from Income
Tax. Similarly, royalty received by individuals from exploitation of patents will also be
exempt up to Rs.3,00,000.
In order to encourage private hospitals to either establish new or to
expand existing medical facilities, it is proposed to extend the benefit of Section
10(23G) of the Income Tax, 1961 to such financial institutions as provide long-term
capital to private hospitals with 100 beds or more.
It has been proposed to increase the rate of depreciation from the
present 25 % to 40 % in respect of life saving medical equipment.
It is proposed that physically handicapped or persons with such
dependents be entitled to a deduction for permanent physical disability of Rs.50,000 and
an enhanced deduction of Rs.75,000 in case of severe disability.
The FM has proposed to enhance standard deduction on salary earned by
employees to 40 % of salary or Rs.30,000 whichever is less, for salary income up to
Rs.5,00,000 and allow a deduction of Rs.20,000 for salary income above Rs.5,00,000. It is
also proposed that relief be provided to employees opting for voluntary retirement scheme
(VRS) by exempting VRS payments up to Rs.5,00,000 even when taken in installments.
The Government will restore the Leave Travel Concession (LTC)
facility to its employees.
The FM has proposed to increase the tax rebate to senior citizens to
Rs.20,000.
The FM has proposed to accept self-declarations filed by senior
citizens in regard to no deduction of tax at source from interest income, income from
units, and such other sources.
The FM proposes to grant income tax exemption to corporations set up
under a Central or State Act for the benefit of ex-servicemen.
Orders have been issued to grant depreciation at the rate of 100 % on
plant and machinery, and buildings that house such plant and machinery, forming part of a
water supply project or a water treatment system.
It is proposed to extend the benefit of section 33AB of the Income
Tax Act, 1961 to coffee plantations and be eligible for income tax deduction of sums
deposited in a development account, as in the case of tea.
From April 1, 2003, it is proposed that dividend be tax free in the
hands of the shareholders. Correspondingly, there will be a 12.5 % dividend distribution
tax on domestic companies. Similar scheme will apply to mutual funds and UTI units. While
mutual funds, including UTI-II, renamed UTI Mutual Fund, will also pay dividend
distribution tax, it is proposed to exempt equity oriented schemes from the purview of the
tax for one year. UTI-I, however, will be exempt from the dividend distribution tax.
In order to give a further fillip to the capital markets, it is now
proposed to exempt all listed equities that are acquired on or after March 1, 2003, and
sold after the lapse of a year, or more, from the incidence of capital gains tax. Long
term capital gains tax will, therefore, not hereafter apply to such transactions.
It is proposed to exempt corporatization / demutualization of stock
exchanges from capital gains tax as a one time measure provided such corporatization /
demutualization is in accordance with a scheme approved by the SEBI. Necessary amendments
to the Securities Control and Regulation Act will be proposed in the current session of
Parliament.
To encourage R&D, the FM proposes to extend the tax holiday u/s
80IB of the Income Tax Act, 1961 to R&D companies established up to March 31, 2004.
It is proposed that the concessions extended to the Information
Technology sector under Sections 10A and 10B of the Income Tax Act will continue as
originally envisaged. As per law, such companies as are currently covered by these tax
exemptions lose the benefits upon change in their ownership or shareholding. The FM
proposes to remove such these restrictions. Accordingly, the benefit of such tax
exemptions will remain even in the case of amalgamation or de-merger.
Telecom and domestic satellite service companies enjoy the benefit of
tax holiday under section 80 IA of the Income Tax Act, 1961. The FM proposes to extend the
deadline of setting up the units by one more year to March 31, 2004.
The FM has proposed the following incentives to the tourism industry
:-
Withdrawal of the expenditure tax;
Extension of benefit of Section 10(23G) to financial institutions
that advance long-term capital to hotels in three-star and above categories;
Extension of benefit of set-off of unabsorbed loss and depreciation
on amalgamation to hotels under Section 72A of the Income Tax Act;
Continuation of the exemption for the hotel industry from the levy of
service tax; and
Reduction of basic customs duty on imported equipment for ropeway
projects to 5 % without payment of CVD and SAD.
The FM has assured the gem and jewellery industry that withdrawal of
benefits under Sections 10A and 10B of the Income Tax Act is not being contemplated. It is
also proposed to extend the benefits under Sections 10A and 10B of the Income Tax Act to
cutting and polishing of diamonds and gems.
The FM has proposed to extend the benefit of Sec. 72A of Income Tax
Act to nationalized banks. Any banking company can now merge with a nationalized bank with
consequential tax benefit of carry forward of unabsorbed depreciation and business losses.
Surcharge on corporate tax is proposed to be halved to 2.5 % in the
case of corporate assessees, firms, foreign companies, cooperatives, and local
authorities. In the case of individuals, Hindu Undivided Families (HUF), and Association
of Persons etc., this surcharge will be removed entirely, except in the case of those
earning an income above Rs.8.5 lakhs. From them, that is those earning above Rs.8.5 lakhs,
surcharge is proposed to be 10 %.
It is proposed that individuals and HUF carrying on business or
profession need not deduct tax at source, from payments made by them for personal
purposes.
The status of not-ordinarily resident assessees has been clarified
and the relevant definition is proposed to be suitably amended so that the benefit will
now be available to persons for two years in case they remain non-residents for the last
nine out of 10 years.
In the area of tax administration, Government has initiated a whole
basket of reforms, mainly on the basis of the recommendations of the Kelkar Committee.
Some of the principal ones are:
outsourcing of non-core activities of Income Tax Department, such as
allotment of PAN, and creation of data bank of high value transactions through tax
information network;
immediate abolition of present discretion-based system for selection
of returns for scrutiny; this will be replaced by a computer generated random selection of
only 2 % of the returns, annually;
expanding the scope of taxpayer services, including extension of
interactive voice response system to more cities and software for preparation of returns;
ECS crediting of all refunds to the bank account of the taxpayer;
reduce the compliance cost of the taxpayer, through halving the
number of forms presently used in furnishing of applications, returns, etc., for the
purposes of tax deduction and tax collection at source, from the present 42 to just 22.
immediate introduction of a one-page only return form for individual
tax payers, having income from salary, house property and interest, etc. from April 1
onwards;
the Income Tax Act is being amended to enable electronic filing of
returns;
abolition of tax-clearance certificates currently needed by a person
leaving India, or any person submitting a tender for a government contract. Henceforth,
only expatriates who come to India in connection with business, profession or employment
would have to furnish a guarantee from their employer, etc. in respect of the tax payable
before they leave India. An Indian citizen, before leaving India, will only have to give
his/her permanent account number, and the period of his/her intended visit abroad to the
emigration authorities; and
simplifying the procedure and methods employed during search and
seizure, and during survey by the Income Tax department. First, hereafter, stocks found
during the course of a search and seizure operation will not be seized under any
circumstances. Second, no confession shall be obtained during such search and seizure
operations. Third, no survey operation will be authorized by an officer below the rank of
Joint Commissioner of Income Tax. Finally, books of account impounded during survey will
not be retained beyond ten days, without the prior approval of the Chief Commissioner.
Indirect Tax Proposals
To assist citizens with impaired vision, the basic customs and excise
duties on rough ophthalmic blanks is proposed to be reduced from 25 % to 5 % and from 16 %
to 8 % respectively.
It is proposed to reduce excise duty on Nicotin Polacrilex gum from
16 % to 8 %.
It is also proposed to reduce the customs duty on specified life
saving equipment from 25 % to 5 % and also exempt them from CVD (additional duty of
customs).
In respect of life saving equipment already exempt from CVD, it is
proposed to exempt them from excise duty as well, so as to encourage indigenous
manufacturers.
It is proposed to extend concessional duty rate of 5 % to some more
drugs. It is also proposed to exempt from excise duty life saving drugs currently
attracting nil or 5 % customs duty.
It is proposed to reduce basic customs duty on glucometers and
glucometer strips used by diabetics from 10 % to 5 %. In addition, it is proposed to
exempt them from excise duty as well. It is proposed to exempt cyclosporine be exempted
from excise duty.
The FM has also proposed to reduce the customs duty on hearing aids,
crutches, wheel chairs, walking frames, tricycles, braillers and artificial limbs to 5 %
without Special Additional Duty (SAD). It is also proposed to exempt them from CVD, and
domestic manufacturers will also be exempt from excise duty. Further, it is proposed to
reduce customs duty on parts of hearing aids and wheel chairs to 5 % without CVD and SAD.
It is proposed to reduce customs duty on specific equipment for high
voltage transmission projects from 25 % to 5 %.
Water supply projects are now totally exempt in regard to capital
goods and machinery, both from customs and excise duties. In addition, pipes have been
exempted from excise duty for bringing raw water from source to the treatment plant and
for conveying treated water to the storage place.
The FM has proposed to reduce the basic customs duty on specified
veterinary drugs from 15 % to 10 %.
The FM has also proposed to reduce the customs duty on shrimp larvae
feed from 15 % to 5 % , and exempt it from CVD.
The FM has proposed the following changes for the Textile industry :-
reduce excise duty on polyester filament yarn from 32 % to 24 %;
reduce excise duty on all spun and other filament yarns from 16 % to
12 %;
retain the 8 % excise duty rate for pure cotton yarn only;
reduce excise duty on knitted cotton fabrics and garments from 12% to
8%;
reduce excise duty on woven fabrics & other knitted fabrics from
12% to 10%;
reduce excise duty on garments from 12 % to 10 %;
withdraw exemption for all knitted and unprocessed woven fabrics;
remove the scheme of deemed credit so as to complete the CENVAT
chain;
retain exemption for hand processed fabrics but only if no power or
steam is used in any process;
continue the existing exemptions for handloom fabrics, silk, khadi
and polyvastra; and
reduce the basic customs duty on paraxylene from 10 % to 5 %.
The procedure for the decentralized sector will be simplified so as to
exempt job workers from maintaining any central excise records or even from central excise
registration. Garments and fabrics manufactured by non-profit charitable institutions
will, however, be exempt from excise duty. It is proposed to reduce customs duty on
apparel grade raw wool shall now be reduced from 15 % to 5 %. Further, to encourage
modernisation of the textile industry, it is proposed that the customs duty on a large
number of textile machinery and their parts be reduced from the existing 25 % to just 5 %.
For the power loom sector, it is proposed to strengthen the existing programme for
Induction of Technology in the Weaving Sector further by offering a ‘Power-loom
Package for Modernisation’. This package will have the following three features :-
The Technology Up-gradation Fund Scheme will be enlarged to cover
modernisation of power-looms.
A new Power-loom Workshed Scheme will be introduced by the Ministry
of Textiles together with the State Governments. Improvement of other infrastructure of
existing power-loom clusters will be taken up under the revised Textile Sector
Infrastructure Development Scheme.
All powerloom workers will be covered under the Special Insurance
Scheme, which will provide them insurance cover against death, accident and disability.
Recognising the need to prevent sickness in the textile industry,
Government is considering a mechanism for restructuring the debt portfolios of viable and
potentially viable textile units.
It is proposed to exempt from customs and excise duty all drugs and
materials imported or produced domestically for clinical trials. Customs duty on import of
Reference Standards by the industry has been reduced from 25 % to 5 %.
It is proposed to exempt pre-loaded software from the levy of excise
duty in the case of computers.
Customs duty on specified electronic components for IT industry is
being reduced in conformity with India’s WTO commitment.
It is proposed to reduce customs duty on a number of capital goods
used by the telecom and IT sector for manufacture of components from 25 % to 15 %. For
optical fibre cables, used widely for networking to provide bandwidth to the IT community,
the customs duty is also being reduced from 25 % to 20 %. To help the domestic industry to
manufacture e-glass roving used for making optical fibres, it is proposed to reduce the
import duty on specified raw materials for the manufacture of e-glass roving from 30 % to
15 %.
The Government, to facilitate units engaged in R&D in
bio-technology and pharmaceutical sector, has decided to remove the existing restriction
of minimum export obligation of Rs.20 crore for availing exemption from customs duty for
specified equipment. Further, the restriction of full exemption being limited to only 1 %
of last year’s export turnover is also lifted for R&D units. Moreover, in respect
of R&D units with manufacturing facilities, the benefit of full customs duty exemption
for specified equipment will also be available for their manufacturing activity to the
extent of 25 % of the previous year’s export turnover.
It is proposed to reduce the customs duty on rough, coloured gem
stones from 5 %, and on semi-processed, half-cut or broken diamonds from 15 % to nil.
Customs duty on cut and polished diamonds and gem stones will also be reduced from the
present 15 % to 5 %.
It is proposed to reduce the customs duty on imported gold to Rs.100
per 10 grams from the present level of Rs.250 per 10 grams, but only when it is brought in
the form of serially numbered bars, or in the form of gold coins and not as
‘tola’ bars.
The FM proposes to switching over to a Value Added Tax (VAT). This
will involve an amendment to the Additional Excise Duty Act. However, in view of the
apprehensions expressed by a large number of States, about possible revenue loss, in the
initial years of introduction of VAT, the Central Government has agreed to compensate 100
% of the loss in the first year, 75 % of the loss in second year and 50 % of the loss in
the third year of the introduction of VAT; this loss being computed on the basis of an
agreed formula. While continuing to give States the additional 1.5 % of all shareable
taxes and duties, in order to enable them to generate more revenues, the Additional Duties
of Excise (Goods of Special Importance) Act, 1957 is being amended, from a date to be
notified. This will allow the States to levy sales tax on textiles, sugar and tobacco
products at a rate not exceeding 4 %. This will also enable the States to integrate these
three important products in the VAT chain.
To enable levy of tax on services as a specific and important source
of revenue, an amendment to the Constitution is proposed in order to give the Central
Government the power to levy service tax and both the Central and the State Governments
sufficient powers to collect the proceeds.
The ceiling rate of CST for inter-State sale between registered
dealers is proposed to be reduced to 2 % during 2003-04, with effect from a date to be
notified. The Government of India will compensate the States for loss of revenue from this
reduction of the CST.
The FM proposes to introduce a 3-tier excise duty structure of 8 %,
16 % and 24 %. These rates would, however, not apply in the case of petroleum and tobacco
products, pan masala, and items attracting specific duty rates.
The excise duty on tyres, aerated soft drinks, polyester filament
yarn, air-conditioners and motor cars is proposed to be reduced from 32 % to 24 %.
Certain exempt items were brought under the tax net during the last
two years with an optional duty of 4 % without CENVAT or 16 % with CENVAT. The FM proposes
to eliminate the 4 % duty without CENVAT. However, the FM proposes to fully exempt the
following items of the ordinary citizen’s use, currently attracting 4 % excise duty
:-
Unbranded surgical bandages
Registers and account books
Umbrellas
Kerosene pressure lanterns
Articles of wood
Imitation zari
Adhesive tapes
Tubular knitted gas mantle fabrics
Walking sticks
Articles of mica
Bicycles and parts
Toys
Mosaic tiles
Utensils and kitchen articles
Knives, spoons and similar kitchenware/tableware
Glasses for corrective spectacles
Rest of the items attracting 4 % without CENVAT will now attract duty
at 8 % with CENVAT.
The FM proposes to fully exempt from excise duty matches made by the
non-mechanized sector. However, matches made by semi-mechanized and mechanized sector will
attract an ad-valorem duty of 8 % without CENVAT.
The FM proposes to reduce the excise duty chargeable under the
Medicinal and Toilet Preparations Act, on medicines and toilet preparations containing
alcohol, from the present rates of 20 to 50 % to a uniform rate of 16 %, at par with the
rates on similar items not containing alcohol. However, exemptions on ayurvedic and unani
medicines, containing self-generated alcohol, will continue.
The FM proposes to reduce the excise duty on items like pressure
cookers, ophthalmic blanks, biscuits, boiled sweets and dental chairs from 16 % to 8 %.
Recorded audio compact discs (CDs) will be fully exempt from excise duty.
The FM proposes to reduce excise duty on electric vehicles from 16 %
to 8 %.
The FM proposes to increase the excise duty on chassis from 16 % to
16 % plus Rs.10,000 per chassis, cleared for outside body building. The body building
activity in the unorganized sector would, however, continue to remain exempt.
The FM proposes to impose fresh excise levy of 8 % on the following
items, with the CENVAT credit facility available to them :-
branded refined edible oil and vanaspati packed in sealed containers
for retail sale (this will not apply to unbranded oil)
lay flat tubing
chemical reagents
wood-free particle or fibre board made from agro base
paper and paper board made from non conventional raw material
populated printed circuit board for black and white TV sets.
The FM proposes to increase the excise duty by Rs.50 per tonne on
cement and clinker. This will mean an increase of Rs.2.50 per 50 kg. bag of cement.
The FM proposes to impose additional excise duty of Rs.1.50 per litre
on light diesel oil to further discourage its use as an adulterant.
For trade facilitation in excise, the FM has proposed the following
measures :-
The present system of fortnightly payment of excise duty will be
liberalized to permit payment of duty at the end of the month. Further, the excise duty
will be considered to have been paid on the date the cheque is presented to the bank
subject to realisation.
Deduction from the transaction value is allowed on actual freight
incurred, provided that is clearly shown in the invoice. This facility will now be
extended to cases where freight is worked out on an equalized basis also.
Over the years, the Maximum Retail Price (MRP) based excise levy has
proved to be an effective measure of simplification by reducing valuation disputes. The FM
proposes to extend the MRP-based excise levy to chewing tobacco and insecticides.
It is proposed to impose a 1 % National Calamity Contingent Duty on
polyester filament yarn, motor cars, multi utility vehicles and two-wheelers. Similarly,
crude, domestic or imported, will also be subjected to a duty of Rs.50 per metric tonne
for this purpose. However, these new levies will be limited to one year only.
The FM has proposed to withdraw Small Scale Exemption Scheme facility
available to labour intensive units in case of a few items and rationalize the eligibility
limit of Rs.3 crore under the general SSI scheme.
The FM has proposed to enhance the general service tax rate from 5 %
to 8 %, and also impose service tax on 10 new services. While the increase in the tax
rates will come into effect on enactment of the Finance Bill, the levy of tax on the new
services will take effect from a date to be notified. The 10 new services falling under
the purview of service tax are :-
Commercial Training or coaching center
Franchise services
Internet Café
Testing and analysis agency
Technical inspection and certification agency
Authorized service station for maxicab
Foreign Exchange Broker
Maintenance and repair services
Commercial concern in respect of business auxilliary sevices
Commissioning and installation agency
The FM proposes to extend this service tax credit facility across all
services. Credit will now be available even if the input and the final services fall under
different categories.
The FM proposes to reduce the peak rate of customs duty from 30 % to
25 %, excluding agriculture and dairy products.
Metallurgical coke and nickel attract customs duty rates at 15 % and
5 %, depending upon their usage. The FM proposes to rationalize the customs duty on these
two items to a uniform rate of 10 %.
Customs duty on conch shells and seed lac will come down from 30 % to
5 %.
Import duty on oleo pine resin, a raw material for rosin shall be
reduced from 15 % to 10 %.
Value limit for a full customs duty exemption, for bona fide
commercial samples and gifts, however, shall be raised from Rs.5,000 to Rs.10,000.
The FM proposes to reduce the customs duty on passenger baggage from
60 % to 50 %.
Phosphoric acid, an input for fertilizers, is exempt from the Special
Additional Duty of Customs (SAD). It is also proposed to exempt rock phosphate and crude
sulphur, inputs for phosphoric acid, also from SAD.
The basic customs duty on alcoholic liquor will come down to 166 % in
conformity with WTO commitments. The FM also proposes to rationalize the countervailing
duty in respect of imported alcoholic beverages including wines.
The FM proposes to reduce the customs duty on LNG regassification
plants from 25 % to 5 %.
For trade facilitation in customs, the FM has proposed the following
measures :-
The FM proposes to reduce the customs duty on components of membrane
cell technology used in the caustic soda industry from 15 % to 5 %.
The FM proposes to reduce customs duty on spares for diesel
locomotives, parts for conversion of locomotives from DC to AC from 25 % to 15 %, and loco
simulators for training of drivers from 25 % to 5 %.
The FM proposes to reduce customs duty on refrigerated trucks from 25
% to 20 %.
faster clearance hereafter of cargo and fewer procedures, by reducing
the transaction cost, thus facilitating exports and imports.
Simplification and modernization of customs clearance procedures,
Introducing computerisation in customs clearances.
Increase in interest-free period for warehoused goods from 30 to 90
days and reduction in rate of interest for the period beyond 90 days
Self-assessment scheme for importers and exporters. The importer
himself / herself will determine the classification of goods, including claim for any
exemption benefit, and the system will calculate the duty based on his/her declaration.
Physical inspection of imported goods will be done by using risk-assessment and management
techniques on a computer-based system and not on the orders of customs examining staff.
Replacing the existing system of concurrent audit of import documents
by post-clearance audit
Foreign Investment
Foreign direct investment (FDI) in the banking companies in India is
presently capped at 49 % from all sources under the automatic route. For facilitating the
setting up of subsidiaries by foreign banks, as well as for inviting investment in private
banks, this limit is proposed to be raised to at least 74 %.
The voting rights of any person holding shares of a banking company
are restricted to 10 % irrespective of his/her shareholding. It is proposed to amend The
Banking Regulation Act, 1949 to remove this limitation.
Over the last few months, Government has taken a number of steps to
ease restrictions on capital account mobility. The FM has announced the following
additional steps:
To enable diversification, overseas investment under the automatic
route will be permitted to corporates with a proven track record, even where the
investment is not in the same core activity. Further, the current restriction, limiting
such investment to 50 % of the net worth of the Indian company, will now be raised to 100
%.
Prepayment of ECB dues under the automatic route will be permitted by
removing the current ceiling of US $100 million.
The Government is already considering a major review of sectoral
limits for investments by Foreign Institutional Investors. In order to facilitate their
easy entry into the stock markets, the process of their registration will be further
streamlined.
Other Proposals
The Antyodaya Anna Yojana has been expanded from April 1, 2003, to
cover an additional 50 lakh families raising the total coverage to more than a quarter of
all BPL families during the year 2003-04.
The FM has instructed the public sector general insurance companies
to design a community-based universal health insurance scheme during 2003-04. Under this
scheme, a premium equivalent to Re.1 per day (or Rs.365 per year) for an individual,
Rs.1.50 per day for a family of five, and Rs.2 per day for a family of seven, will entitle
eligibility to get reimbursement of medical expenses up to Rs.30,000 towards
hospitalisation, a cover for death due to accident for Rs.25,000, and compensation due to
loss of earning at the rate of Rs.50 per day up to a maximum of 15 days. To make the
scheme affordable to BPL families, the Government has decided to contribute Rs.100 per
year towards their annual premium.
The Government will establish a college of rehabilitation sciences at
Gwalior and a national institute for empowerment of persons with multiple disabilities at
Chennai.
Life Insurance Corporation of India (LIC) will launch a special
pension policy, guaranteeing an annual return of 9 %, in the form of a monthly pension
scheme. This scheme will be called: Varishtha Pension Bima Yojana, through which a
pensioner, or any citizen above 55 years of age, could on payment of a lump-sum amount get
benefits calculated at 9 % p.a. The policy holder will get a monthly return in the form of
a pension for life. Upon demise, the initial amount deposited will be returned to the
spouse / nominee under the policy. The minimum and maximum monthly pensions proposed are
Rs.250 and Rs.2,000 per month. This monthly pension will start from the month following
the payment of the lump-sum amount by the citizen. The difference between the actual yield
earned by the LIC, on the funds invested under the scheme, and the assured return of 9 %
will be reimbursed to the LIC annually by the Government.
A re-structured pension scheme is now ready. It will apply only to
new entrants to Government service, except to the armed forces, and upon finalisation,
offer a basket of pension choices. It will also be available, on a voluntary basis, to all
employers for their employees, as well as to the self-employed. This new pension system,
when introduced, will be based on defined contribution, shared equally in the case of
Government employees between the Government and the employees. There will be no
contribution from the Government in respect of individuals who are not Government
employees. The new pension scheme will be portable, allowing transfer of the benefits in
case of change of employment, and will go into "individual pension accounts"
with Pension Funds. The Ministry of Finance will oversee and supervise the Pension Funds
through a new and independent Pension Fund Regulatory and Development Authority. \\
Budget 2003-04 undertakes to provide a major thrust to
infrastructure, principally to roads, railways, airports, and seaports, through innovative
funding mechanisms. This comprehensive initiative will cover the following :-
48 new road projects at an estimated cost of around Rs.40,000 crore;
with a quarter of them being made of cement concrete
National Rail Vikas Yojana projects worth Rs.8,000 crore
Renovation / modernization of two airports, and two seaports at an
estimated cost of Rs.11,000 crore
establishing two global standard international convention centers at
an estimated cost of Rs.1,000 crore
The FM proposes to levy a cess of 50 paise per liter of diesel and
motor spirit to fund the North-South and East-West corridors and to fund development of
rural roads.
The FM has identified 48 projects, with a total length of over 10,000
kms over and above the NHDP. They have been identified where the traffic volume justifies
four-laning. These projects will be funded on a build-operate-and-transfer (BOT) basis,
with the Government providing a subsidy in the form of an annuity flow to meet only the
shortfall between anticipated revenue and loan repayment liabilities. It is proposed to
take up for four-laning in the first year (2003-04) at least 3,000 kms of roads.
Ministry of Railways has established a special purpose vehicle (SPV)
to take up projects worth Rs.8,000 crore for the Golden Quadrilateral. It is proposed to
fund these projects through Rs.3,000 crore worth of equity, provided by the Government,
and Rs.5,000 crore worth of loans. This SPV will raise debt from the market. Repayment of
debt will be done by earmarking Railway receipts over the period of amortization. Further,
safety upgradation programme on the Golden Quadrilateral will be taken up simultaneously
under this mechanism.
In addition to the existing initiatives for leasing of major
airports, as well as of setting up two private airports in Bangalore and Hyderabad, it has
been proposed to take up the Delhi and Mumbai airports, as the principal hubs of
international travel to India, for modernisation to international standards. Two separate
companies will be formed with initial equal equity participation from the Airports
Authority. These two companies could also take joint venture partners. On completion, the
management will be leased out.
It is proposed to facilitate the implementation of comprehensive
modernisation projects for Jawaharlal Nehru Port Trust (JNPT), Navi Mumbai and Cochin
Port, designed to bring them up to international standards. The user charges levied by the
two port authorities, and the additional custom flowing in after dredging and
modernisation is completed, are expected to cover the debt service obligations. Here, too,
the Government will provide only the viability gap funding to bridge any possible
shortfall.
The Government proposes to establish two convention centres of
international standards centers through public-private partnership with the Government
covering the viability funding gaps only.
The Government had earlier, in 1999, notified 18 power projects as
mega projects, conferring upon them various duty and licensing benefits. The Government
now proposes to liberalise the mega power project policy further by extending all these
benefits to any power project that fulfills the conditions already prescribed for mega
power projects.
To further research in solar energy, wind turbines, and hydrogen fuel
as alternatives to fossil fuels, the Government is allocating Rs.20 crore to the Council
for Scientific and Industrial Research, for launching incentive-driven research in these
fields.
The Government proposes to initiate cash management, on a pilot
basis, in some major spending ministries, releasing budgetary allocations in a time-sliced
manner to permit convergence with available resources within the year. Monthly or
quarterly cash limits, based on the actual requirements of the Ministries will be
prescribed. This is being proposed to avoid mis-matches between receipts and expenditure
and avoid rush of expenditure and the associated possible waste of resources in the last
quarter.
The Government proposes to offer a buy back of banks’ holding of
Central Government domestic debt loans – entirely on a voluntary basis – from
banks that are in need of liquidity or of encashing the premium for making provisions for
their non-performing assets (NPAs). The premium to be offered will be set on a transparent
basis. If the banks declare the premium received as business income, for income tax
purposes, they will be allowed additional deduction to the extent such income is used for
provisioning of their NPAs.
The debt swap scheme introduced by the Government of India will
enable States to prepay high cost debt and substitute them by current, low-coupon-bearing
small savings and Open Market Loans.
It is proposed to introduce a new Central Sector Scheme on Hi-tech
Horticulture and Precision Farming. Major components of the scheme will be use of hi-tech
interventions like fertigation, use of biotechnological tools, green food production, and
hi-tech green houses. Deployment of precision farming technology aimed at judicious
utilisation of resources like land, water, sunlight as well as time, including
demonstration of these technologies will also be part of the scheme. The FM has proposed
to provide initially a sum of Rs.50 crore under this scheme.
With a view to providing stability in terms of income for the small
growers, from 2003-04 onwards, the Government has announced a Price Stabilisation Fund of
Rs.500 crore for the benefit of tea, coffee, and natural rubber growers. The Fund will
become operational in 2003-04.
The FM has proposed to abolish the excise duty of Re. 1 per kg. on
tea and replace it by a cess of Re.1 per kg., for creating a separate fund for
development, modernisation and rehabilitation of the tea plantation sector.
The FM has proposed that the lending rates for the agricultural and
small scale sector be not more than 200 basis points over the PLR of banks for secured
advances.
The FM has proposed to raise the issue price of fertilizers by a
modest amount of Rs.12 for urea, and Rs.10 for DAP and MOP per 50 kg bag. The price of
complex fertilizers is also proposed to be suitably modified.
In order to enable ECGC to provide adequate underwriting support to
such projects, the Government has decided to increase its share capital to Rs.80 crore.
After consultations with stakeholders in respect of certain items in
the reserved list for the Small Scale sector, it is proposed to withdraw SSI reservation
from another 75 items of laboratory chemicals and reagents, leather and leather products,
plastic products, chemicals and chemicals products and paper products.
To help further investment in the SSI sector, Government will examine
the question of a limited partnership act.
An initiative to promote India as both a production centre and an
investment destination, called ‘India Development Initiative’, shall be
established in the Ministry of Finance, with an allocation of Rs.200 crore for 2003-04.
Rates of interest on public provident fund, and small savings
schemes, etc. will be reduced by one percentage point with effect from March 1. Interest
on relief and savings bonds will also be reset accordingly.
By Pritesh Mehta
Chartered Accountant
pritesh@laws4india.com
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