KEY FEATURES OF THE UNION BUDGET 2003-2004

The year 2002-2003 has been a very eventful year. The situation in Iraq and North Korea has caused great alarm the world over. The economies of USA, Europe and Japan are all undergoing a period of difficulty after the September 11 attack on the World Trade Centre. In addition, India has faced one of the worst drought during the year. Agricultural output has shown a marked decline. The fiscal deficit is already at an alarming level of 5.6 % of GDP and after considering the deficits of states, it may be well over 10 % of GDP. Capital markets have not given much reason for optimism. Inspite of all these adverse factors, GDP has grown by 4.4 %. It is against this backdrop that the Finance Minister has presented the Finance Bill, 2003

Budget Priorities

The Finance Minister has declared that the priorities of the Finance Bill, 2003 are :-

• Poverty eradication; addressing the life time concerns covering health, housing, education and employment

• Infrastructure development

• Fiscal consolidation through tax reforms and progressive elimination of budgetary drags, including reform of the additional excise duty, introduction of service tax and introduction of Value Added Tax (VAT) from April 1, 2003 at the State level.

• Agriculture and related aspects including irrigation.

• Enhancing manufacturing sector efficiency, including promotion of exports and further acceleration of the reform process.

Budget Estimates

• Estimated expenditure for 2003-2004 is budgeted at Rs.4,38,795 crores as compared to the revised budgeted expenditure for 2002-2003 of Rs.4,04,013 crores, showing a increase in budgeted expenditure of Rs.34,782 crores.

• Net tax revenues for the Center are estimated to be Rs.1,64,177 crores for 2002-2003 as compared to the Budget estimate of Rs.1,84,169 crores for 2003-2004.

Budget Estimates for 2003-2004

• In the budget estimates for 2003-2004, the total expenditure is estimated at Rs.4,38,795 crores, of which Rs.1,20,974 crores is for Plan and Rs.3,17,821 crores for non-Plan.

• Fiscal deficit is estimated at 5.6% of GDP at Rs.1,53,637 crores for 2003-2004 and the revenue shortfall is estimated at Rs.8,788 crores. Revenue estimate for 2003-2004 is put at Rs.2,53,935 crores.

• Non-plan expenditure in 2003-2004 is estimated to be Rs.3,17,821 crores compared to Rs.2,89,924 crores in revised estimates for 2002-2003.

BUDGET AT A GLANCE

We have endeavored to present in brief a broad overview of the various budget proposals.

Antyodaya Anna Yojana

The Finance Minister has proposed to expand the scope of the Antyodaya Anna Yojana from April 1, 2003 to cover an additional 50 lakh families raising the total coverage to more than a quarter of all Below Poverty Line Families (BPL) during the year 2003-04.

Health Insurance Scheme for masses

A community-based universal health insurance scheme will be designed during 2003-04. 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 reimbursement of hospitalization expenses up to Rs.30,000, 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, Government to contribute Rs.1 00 per year towards their annual premium.

Insurance pension scheme

A special pension policy to be called Varishtha Pension Bima Yojana, guaranteeing an annual return of 9 %, in the form of a monthly pension scheme is proposed to be launched by Life Insurance Corporation of India (LIC). The minimum and maximum monthly pensions proposed are Rs.250 and Rs.2,000 per month.

Restructured pension scheme

A restructured pension scheme for new Central Government employees, (except in the armed forces) and for the general public is proposed to be introduced. The scheme will be based on defined contribution, shared equally in the case of Government employees between the Government & the employees.

Roads, Railways, Airports and Seaports

A major thrust through innovative funding mechanisms is proposed to be provided covering the following :-

• 48 new road projects at an estimated cost of around Rs.40,000 crores with a quarter of them being made of cement concrete.

• National Rail Vikas Yojana projects worth Rs.8,000 crores funded through Rs.3,000 crores worth of equity, provided by the Government, and Rs.5,000 crores worth of loans.

• Renovation / modernization of two airports and two seaports at an estimated cost of Rs.11,000 crores

• Establishing two global standard international convention centres at an estimated cost of Rs.1,000 crores.

• Apart from allocating the anticipated Rs.2,325 crores from the existing cess on diesel for 2003-04, additional funds will be made available for rural roads from the proposed additional cess on diesel of 50 paise.

Power

The mega power project policy is proposed to be liberalized further by extending all the relevant benefits to any power project that fulfills the conditions already prescribed for mega power projects. A special allocation of Rs.20 crores is proposed to be made to the Council for Scientific and Industrial Research, for launching incentive-driven research in the fields of solar energy, wind turbines and hydrogen fuel as alternatives to fossil fuels.

Drinking Water

Water supply projects are proposed to be totally exempt in regard to capital goods and machinery, both from customs and excise duties. In addition, pipes are to be exempted from excise duty for bringing raw water from source to the treatment plant and for conveying treated water to the storage place.

Cash Management

It is proposed to introduce a cash management on a pilot basis, in some major spending ministries, releasing budgetary allocations in a time-sliced manner.

External debt prepayment

The Government has already effected premature repayment of 'high-cost' currency pool loans of the World Bank and of the Asian Development Bank totaling around $ 3 billion.

Domestic debt of the Central Government

It is proposed to introduce a scheme for buy-back of bank’s holding of Central Government domestic debt, contracted under the high interest regime of the past on a voluntary basis.

State Government Debt

A debt swap scheme has been introduced to enable States to prepay high cost debt. States will save an estimated Rs.81,000 crores in interest and deferred loan repayments over the residual maturity period of the loans.

Diversification into horticulture, floriculture, etc

A new Central Sector Scheme on Hi-tech Horticulture and Precision Farming is proposed to be introduced. 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.

Plantations

With a view to providing stability in terms of income for the small growers, a Price Stabilization Fund of Rs.500 crores for the benefit of tea, coffee, and natural rubber growers will become operational in 2003-04. Excise duty of Re. 1 per kg. of tea is proposed to be replaced by a cess of Re.1 per kg for creating a separate fund for development, modernization and rehabilitation of the tea plantation sector.

Credit availability

In order to pass on the benefits of lower rates of interest to agriculture and the SSI sector, the State Bank of India has announced an interest rate band of 2 % above and below its prime lending rate (PLR) for secured advances. By January 2003, bank credit of Rs.598 crores was provided to about 25 lakh poor families through 1.50 lakh new Self-Help Group (SHGs) under the SHG-Bank Linkage Programme propagated by NABARD. It is proposed to examine afresh the question of franchising agricultural credit, including through Post Offices.

Fertilizer subsidy

Issue price of fertilizers to be raised 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 are also to be suitably modified.

Water management and irrigation

A bipartisan Task Force, headed by the Chief Minister of Andhra Pradesh and with a Minister of Agriculture from another State as one of the members is proposed to be constituted to recommend measures needed to be adopted to expand the coverage of drip and sprinkler irrigation and to suggest safeguards so that the intended benefits actually reach the target groups. A Task Force has been appointed to suggest modalities for arriving at a consensus amongst the States on transfer of water to deficit areas and for identifying the priority links which could be implemented early, as well as a mechanism for their clearance and funding. A special programme, Maru Gochar Yojana is proposed to be taken up for the desert districts of Rajasthan for rehabilitation of traditional pastures - 'Oran' or 'Gauchar' - by developing at least one large pasturage nursery in each of the identified districts as a Central scheme, for restoration of traditional water courses and other measures so as to provide effective drought proofing.

Modernisation package for power-loom sector

A new Power-loom Workshed Scheme is proposed to be introduced by the Ministry of Textiles together with State Governments. As a welfare measure, all power-loom workers will be covered under a Special Insurance Scheme.

Strengthening ECGC

In order to enable the Export Credit Guarantee Corporation (ECGC) to provide adequate underwriting support to project exports, the Government has decided to increase its share capital to Rs.80 crores.

Small scale industry

SSI reservation will be withdrawn from 75 items of laboratory chemicals and reagents, leather and leather products, plastic products, chemicals and chemicals products and paper products.

Disinvestment

It is proposed to finalize in early 2003-2004, details about the Disinvestment Fund and Asset Management Company to hold residual shares post disinvestment.

Banking

Foreign direct investment (FDI) limit in banking companies will be raised from 49 % to 74 %. The limit of 10 % irrespective of shareholding, on the voting rights of any person holding shares of a banking company is proposed to be removed.

Interest rate

Rates of interest on public provident fund and small savings schemes will be reduced by 100 basis points with effect from March 1. Interest on relief and savings bonds issued by RBI will also be reset accordingly.

Capital account

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. Limit on such investment will be raised from 50 % of the net worth of the Indian company to 100 %. Prepayment of ECB dues under the automatic route will be permitted by removing the current ceiling of US $100 million.

External aid

The Government of India has declared that it would prefer to give relief to certain bilateral partners with smaller assistance packages. A debt relief package for the Heavily Indebted Poor Countries (HIPCs) will be announced.

Tax Reform

Additional Duties of Excise Act, 1957 is being amended to allow States to levy sales tax on textiles, sugar and tobacco products at a rate not exceeding 4 %. The Government has proposed a Constitutional amendment to give the Central Government power to levy service tax and both the Central and the State Governments powers to collect the proceeds. It is proposed to reduce the ceiling rate of CST for inter-State sale between registered dealers to 2 %. The Government also proposes to outsource non-core activities of the Income Tax Department, such as allotment of PAN, etc. A system for computer generated, random selection of only 2 % of the returns, annually for scrutiny is proposed to be initiated. It is also proposed to introduce ECS credit of refunds, reduce number of forms used for purposes of tax deduction and tax collection at source from 42 to 22, introduce a one-page return form for individual tax payers, having income from salary, house property and interest etc. A scheme for electronic filing of returns is proposed to be introduced. Further, it is proposed to abolish tax-clearance certificates currently needed by a person leaving India, or any person submitting a tender for a government contract.

A 3-tier excise duty structure of 8 %, 16 % and 24 % will be prescribed. It is proposed to increase the general service tax rate from 5 % to 8 %, and impose service tax on 10 new services. Facility of credit of service tax on input services has been extended across all services, even if the input and the final services fall under different categories.

The peak rate of customs duty has been reduced from 30 % to 25 % excluding agriculture and dairy products.