>>BUDGET 2005 AN ANALYSIS BY LAWS 4 INDIA

KEY FEATURES OF THE UNION BUDGET 2005-2006

The Finance Minister, Mr. P Chidambaram has presented the second budget of the UPA Government. There were expectations of a dream budget from the Dream Team comprising of the Prime Minister, Mr. Manmohan Singh, the Finance Minister Mr.P Chidambaram and the Chairman of the Planning Commission, Mr. Montek Singh Ahluwalia. These expectations have been partly met and partly not met by the budget.

The National Common Minimum Programme (NCMP) of the UPA Government has mandated the Government to maintain a growth rate of 7 - 8 % per annum, to promote investment, to generate employment, to accelerate fiscal consolidation, to ensure a higher fiscal devolution, and to focus on agriculture, manufacturing and infrastructure. The NCMP has also mandated the Government to provide universal access to education and health care and to assure one hundred days of employment to one person in each family.

It is no secret that India is one of the fastest growing economies in the world today. India has been named as part of the so-called BRIC countries comprising of Brazil, Russia, India and China which are expected to drive world economic growth in the next 50 years. Our capital markets are booming and our foreign exchange reserves are at record levels. Inflation is reasonably within control. We must however remember that  in today’s competitive world, no nation can afford to become complacent. Our leadership in software and business process outsourcing services is already under threat from other economies such as East Europe, Philippines, Sri Lanka, etc. Besides, China’s cost competitiveness need not be reiterated. In a very short time span, Chain has become our second largest trading partner.

This budget has addressed only some of the requirements that a growing economy like India needs in order to live upto its potential. The fiscal deficit continues to remain a cause for concern. International rating agencies have not rated India as Investment Grade mainly on account of the huge fiscal deficit which is obstructing  investment.

Budget Estimates

1. Estimated expenditure for 2005-2005 is budgeted at Rs.5,14,344 crores as compared to the revised budget expenditure for 2004-2005 of Rs.5,05,791 crores, showing an increase in budgeted expenditure of Rs.8,553 crores.

2. Net tax revenues for the Center are estimated to be Rs.2,73,466 crores as compared to the revised budget net tax revenues for 2004-2005 of Rs.2,25,804 crores.

3. Fiscal deficit for 2004-2005 as per revised budget estimated is 4.5 %. This is expected to come down to 4.3 % as per the budget estimates for 2005-2006.

4. In absolute terms, the fiscal deficit is estimated to be Rs.1,51,144 crores for 2005-2006 as compared to Rs.1,39,231 crores for 2004-2005.

Budget at a Glance
				(In crores of Rupees)
		2003-2004	2004-2005	2004-2005	2005-2006
		Actuals	Budget Estimates	Revised Estimates	Budget Estimates
1.	Revenue Receipts	263,878	309,322	300,904	351,200
2.	Tax Revenue (net to centre)	186,982	233,906	225,804	273,466
3.	Non-Tax Revenue	76,896	75,416	75,100	77,734
4.	Capital Receipts (5+6+7) *	207,490	168,507	204,887	163,144
5.	Recoveries of Loans	67,265	27,100	61,565	12,000
6.	Other Receipts	16,953	4,000	4,091	-
7.	Borrowings and other liabilities	123,272	137,407	139,231	151,144
8.	Total Receipts (1+4) *	471,368	477,829	505,791	514,344
9.	Non-Plan Expenditure	349,088	332,239	368,404	370,847
10. 10.	On Revenue Account of which,	283,502	293,650	296,396	330,530
11.	Interest Payments	124,088	129,500	125,905	133,945
12.	On Capital Account	65,586	38,589	72,008	40,317
13.	Plan Expenditure	122,280	145,590	137,387	143,497
14.	On Revenue Account	78,638	91,843	89,673	115,982
15.	On Capital Account	43,642	53,747	47,714	27,515
16.	Total Expenditure (9+13)	471,368	477,829	505,791	514,344
17.	Revenue Expenditure (10+14)	362,140	385,493	386,069	446,512
18.	Capital Expenditure (12+15)	109,228	92,336	119,722	67,832
19.	Revenue Deficit (17-1)	98,262	76,171	85,165	95,312
		(3.6)	(2.5)	(2.7)	(2.7)
20.	Fiscal Deficit {16-(1+5+6)}	123,272	137,407	139,231	151,144
		(4.5)	(4.4)	(4.5)	(4.3)
21.	Primary Deficit (20-11)	(816)	7,907	13,326	17,199
		-	(0.3)	(0.4)	(0.5)
(a) Based on provisional Actuals for 2003-2004.
(b) Recoveries of Loans for 2003-2004 and 2004-2005 includes receipts from States on account of Debt Swap Scheme.
(c) Non-plan Expenditure on capital account for 2003-2004 and 2004-2005 includes repayment to National Small Savings Fund.
*	Does not include Rs.60,000 crore in BE 2004-05, Rs.65,481 crore in RE 2004-05 and Rs.80,500 crore in BE 2005-06 in respect of Market Stabilization Scheme, which will remain in the cash balance of Central Government and will not be used for expenditure.

The Finance Minister has done a balancing act between promoting growth and curbing fiscal profligacy.

The Macroeconomic Backdrop

¨ Growth rate in 2004-05 is estimated to be 6.9 %, with the manufacturing sector expected to grow at 8.9 %.

¨ Inflation has been reined in.

¨ Investments in 2004-05 have been buoyant

¨ Non-food credit has increased by 21.2 %.

Tackling Poverty and Unemployment

¨ Allocation for National Food for Work programme has been increased from Rs.4,020 crores in 2004-05 to Rs.11,000 crores in 2005-06. The Programme is proposed to be converted into the National Rural Employment Guarantee Scheme.

¨ National Rural Health Mission : The NRHM is proposed to be launched in the next fiscal with components like training of health volunteers, providing more medicines and strengthening the primary and community health centre system. Work on six AIIMS-like institutions is expected to start next year.

¨ Antyodaya Anna Yojana : The coverage of the scheme is proposed to be increased to 2.5 crore families.

¨ ICDS : The scheme is proposed to be expanded with creation of 1,88,168 additional anganwadi centres; supplementary nutrition norms are to be doubled; The Center has proposed to share one-half of the States’ costs.

¨ Mid-day Meal Scheme : It is proposed to increase the allocation for the scheme from Rs.1,675 crore in BE 2004-05 to Rs.3,010 crore in 2005-06.

¨ Sarva Shiksha Abhiyan : A non-lapsable fund called “Prarambhik Shiksha Kosh” has been created for funding the programme; It is proposed to increase the allocation for the programme to Rs.7,156 crore in 2005-06.

¨ Drinking Water and Sanitation : All drinking water schemes are to be brought under the Rajiv Gandhi National Drinking Water Mission; Emphasis will be on providing drinking water facilities in the remaining uncovered rural habitations and on tackling water quality in about 2.16 lakh habitations. It is proposed to extend the Total Sanitation Campaign to all districts.

¨ Scheduled Castes and Scheduled Tribes : A new window is proposed to be added to scholarship schemes. Any student securing admission in one of the short listed institutes of excellence will be awarded a larger scholarship for tuition fees, living expenses, books and a computer. The Rajiv Gandhi National Fellowship is proposed to be introduced for SC and ST students for pursuing M.Phil and Ph.D. courses in selected universities.

¨ Women and Children : In course of time, departments will be required to present gender budgets as well as make benefit-incidence analysis.

¨ Minorities : It is proposed to increase the equity support for the National Minorities Development and Finance Corporation; a certain percentage of new schools under the Sarva Shiksha Abhiyan and the Kasturba Balika Vidyalaya Scheme and new anganwadi centres will be located in districts, blocks or villages with a substantial minority population; Assistance will be provided for recruitment and posting of Urdu language teachers in primary and upper-primary schools; The schemes for pre-examination coaching are being extended to include reputed private coaching institutes.

¨ Backward Regions Grant Fund : It is proposed to establish a Backward Regions Grant Fund with an allocation of Rs.5,000 crore in 2005-06. It is further proposed to allocate an equal amount every year in the next four years.

¨ Bihar : It is proposed to continue till 2006-2007 the transition arrangements under Rashtriya Sam Vikas Yojana (RSVY); Further assistance to Bihar will be made available from the Backward Regions Grant Fund; Grants amounting to Rs 7,975 crore will be made by TFC for the period 2005-10.

¨ Jammu & Kashmir : Special plan assistance is proposed to be provided under a Reconstruction Plan in addition to the normal State Plan; It is proposed to provide adequate funds for the Baglihar project; The Udhampur - Baramulla rail line will be implemented as a project of national importance.

¨ North Eastern Region: The Kumarghat-Agartala and Lumding-Silchar-Jiribam-Imphal projects will be supported with additional funds outside the railway budget; A special package for highway development (Rs.450 crores) has also been proposed.

¨ Rural Infrastructure Development Fund : It is proposed to allocate a corpus of Rs.8000 crores in 2005-06 to the Rural Infrastructure Development Fund.

Bharat Nirman

The Finance Minister has proposed an ambitious Bharat Nirman Programme. The goals of the programme are :-

¨ to bring an additional one crore hectares under assured irrigation;

¨ to connect all villages that have a population of 1000 (or 500 in hilly/tribal areas) with a road;

¨ to construct 60 lakh additional houses for the poor;

¨ to provide drinking water to the remaining 74,000 habitations that are uncovered;

¨ to reach electricity to the remaining 1,25,000 villages and offer electricity connection to 2.3 crore households; and

¨ to give telephone connectivity to the remaining 66,822 villages.

Investment

¨ The finance Minister has proposed Equity support of Rs.14,040 crores and loans of Rs.3,554 crores to Central Public Sector Enterprises (including Railways) in 2005-06. It is hoped that such support is extended only in cases which are financially justified.

Agriculture

¨ Roadmap for Agricultural Diversification : The Finance Minister has proposed to formulate a road map for agricultural diversification with focus on fruits, vegetables, flowers, dairy, poultry, fisheries, pulses and oilseeds.

¨ National Horticulture Mission : An amount of Rs.630 crores has been allocated in 2005-06 to the National Horticulture Mission. The NHM will cover research, production, post-harvest management, processing and marketing in an integrated manner.

¨ Agricultural Marketing Infrastructure : A new scheme for Development / Strengthening of Agricultural Marketing Infrastructure, Grading and Standardization is proposed to be introduced in order to incentivize large investments from the private and co-operative sectors for setting up agricultural markets, marketing infrastructure and support services such as grading, standardization and quality certification. The scheme is proposed to be implemented through NABARD and NCDC in those States which amend their APMC Acts.

¨ Water Resources, Flood Management and Erosion Control : It is proposed to launch a National Project for the repair, renovation and restoration of water bodies in March 2005. It is proposed to have a pilot project for 16 districts in 9 States to cover nearly 700 water bodies. It is also proposed to bring 20,000 hectares of additional land under irrigation. An outlay of Rs.180 crores has been proposed in 2005-06 for flood management and erosion control in the Ganga basin and in the Brahmaputra and Barak valleys and an amount of Rs.52 crore for the Farakka Barrage Project. It is proposed to increase the outlay for AIBP to Rs.4,800 crores in 2005-06.

¨ Micro Irrigation : It is proposed to increase the coverage of micro irrigation to 3 million hectares in the Tenth Plan and to 14 million hectares in the Eleventh Plan.

¨ Rural Credit and Indebtedness : The Reserve Bank of India will examine the issue of allowing banks to adopt the agency model by using the infrastructure of civil society organizations, rural kiosks and village knowledge centers to provide credit support; agricultural credit of Rs.108,500 crores to be disbursed in the current year. It is proposed to increase the flow of credit by another 30 % in 2005-06. It is proposed that Public sector banks will increase the number of borrowers by another 50 lakh.

¨ Farm Insurance : It is proposed to continue the National Agricultural Insurance Scheme (NAIS) for the kharif and rabi crop 2005-06.

¨ Micro Finance : The target for credit-linking is enhanced from 2 lakh Self Help Groups (SHGs) to 2.5 lakh SHGs. The Micro Finance Development Fund will be redesignated as the “Micro Finance Development and Equity Fund” with an increased corpus of Rs.200 crores. It is proposed that RBI will open a window to enable qualified NGOs to use the External Commercial Borrowing (ECB) window for fund requirements.

¨ Micro Insurance : NGOs, SHGs, cooperatives and MFIs will be invited to become micro insurance agents to promote insurance coverage.

¨ It is proposed to have a Knowledge Centre in Every Village. The Government will join Mission 2007 - a national initiative launched by an alliance comprising nearly 80 organizations including civil society organizations, with the goal to set up a Knowledge Centre in every village by the 60th anniversary of Independence Day. Support for such centers will be routed through NABARD and Rs.100 crores will be provided out of the RIDF.

¨ Agricultural Research : An initial provision of Rs.50 crore for the National Fund for Strategic Agricultural Research has been proposed by the Finance Minister.

Manufacturing

¨ It is proposed to launch a “Manufacturing Competitiveness Programme” to help small and medium enterprises. The design for the same will be worked out by the National Manufacturing Competitiveness Council in consultation with industry.

¨ Textiles : An allocation of Rs.435 crores has been proposed for the Technology Upgradation Fund (TUF). A 10 % capital subsidy scheme is proposed to be introduced for the textile processing sector. Cluster development approach will be adopted for the production and marketing of handloom products. 20 clusters will be taken up in the first phase at a cost of Rs.40 crores. Coverage of life insurance scheme for handloom weavers is proposed to be enlarged to 20 lakh weavers in two years at a cost of Rs.30 crores per year when fully rolled out. Coverage of the health insurance package for weavers is proposed to be increased to 2 lakh weavers at a recurring cost of Rs.30 crores per year.

¨ Sugar industry : NABARD, in consultation with State Governments, RBI, banks and financial institutions will work out a scheme for providing a financial package with a moratorium for two years, on both principal and interest, and a schedule of payment having regard to the commercial viability of each unit; interest rate of 2 % points below the bank rate will be made applicable to outstanding loans as on October 21, 2004. Indian Banks’ Association (IBA) and NABARD will work out a scheme under which factories may renegotiate their past high interest loans.

¨ Pharmaceuticals and Biotechnology : It is proposed to increase the corpus for the research and development fund in phases. A stable policy environment and incentives has been promised to help the two industries become world leaders.

¨ Small and Medium enterprises : 108 items have been identified for de-reservation. It is proposed to enhance the provision for “Promotion of SSI Schemes” to Rs.173 crores in 2005-06. Units in knowledge-based industries such as pharma, biotech, and IT will to be provided equity support through the SME Growth Fund.

¨ Skills Training : 100 ITIs have been identified for upgradation. Out of them, 67 ITIs in 15 States / Union Territories linked with industry will be upgraded at a cost of Rs.1.6 crores each. Skills Development Initiative (SDI) is proposed to be introduced as Public-Private Partnership.

¨ Foreign Trade : A target of US$ 150 billion in exports by the year 2008-09 has been fixed in order to double India’s share in world exports to 1.5 %.

Infrastructure

¨ Telecommunications : A provision of Rs.1,200 crores for Universal Service Obligation (USO) Fund has been for 2005-06. It is proposed that 1,687 subdivisions will get support for rural household telephones. BSNL will provide public telephones in the next three years to the remaining 66,822 revenue villages.

¨ National Highway Development Project : It is proposed to launch NHDP III in 2005-06 to target selected high density highways not forming part of the Golden Quadrilateral or the North-South and East-West corridors. Rs.1,400 crores has been provided in 2005-06 to four-lane 4000 kms. A special package for the North Eastern region has been proposed with an allocation of Rs.450 crores.

¨ Rural Electrification : It is proposed to cover 1.25 lakh villages in five years. The focus will be on deficient States. Creation of a rural electricity distribution backbone has been envisaged with a 33/11 KV substation in each block and at least one distribution transformer in each village. A sum of Rs.1,100 crores has been provided in 2005-06 for this purpose.

¨ Indira Awas Yojana : The allocation for the scheme has been increased to Rs.2,750 crore in 2005-06. It is proposed to construct about 15 lakh houses during the next year.

¨ Special Purpose Vehicle: A financial Special Purpose Vehicle (SPV) will be established to finance infrastructure projects that are financially viable. The SPV will lend funds, especially debt of longer term maturity directly to eligible, appraised projects to supplement other loans. The limit for 2005-06 has been fixed at Rs.10,000 crores for this purpose.

¨ Provision of Urban Amenities in Rural Areas (PURA) clusters : The National Commission on Enterprises in the Unorganized / Informal Sector has proposed pilot projects for ‘growth poles’ applying the PURA principles. It is proposed to create a few growth poles as pilot projects in 2005-06.

¨ National Urban Renewal Mission : The Mission will cover the seven-mega cities, with a population of over a million and some other towns. An outlay of Rs.5,500 crores has been proposed for 2005-06 including a grant component of Rs.1,650 crores.

Banking

o It is proposed to introduce amendments to the Banking Regulation Act, 1949 :-

o to remove the lower and upper bounds to the statutory liquidity ratio (SLR) and provide flexibility to RBI to prescribe prudential norms;

o to allow banking companies to issue preference shares;

o to introduce specific provisions to enable the consolidated supervision of banks and their subsidiaries by RBI;

o It is also proposed to introduce amendments to the Reserve Bank of India Act, 1934 :-

o to remove the limits of the cash reserve ratio (CRR) to facilitate more flexible conduct of monetary policy; and

o to enable RBI to lend or borrow securities by way of repo, reverse repo or otherwise.

Capital Markets

• FIIs will be permitted to submit appropriate collateral, in cash or otherwise, as prescribed by SEBI, when trading in derivatives on the domestic market. This relaxation would enable FIIs trading in F&O segment to submit collateral by way of bank guarantees and / or approved securities and would make F & O trading cost effective for them.
• It is proposed to amend the definition of ‘securities’ under the Securities Contracts (Regulation) Act, 1956 so as to provide a legal framework for trading of securitized debt including mortgage backed debt;
• A high level Expert Committee on corporate bonds and securitization will be appointed to look into the legal, regulatory, tax and market design issues in the development of the corporate bond market.
• It is proposed to grant a one-time exemption from stamp duty on the notional transfer of assets to the three stock exchanges that are not yet corporatized.
• A high powered Expert Committee will be appointed in consultation with RBI, to advise on how to make Mumbai a regional financial centre.
• SEBI has been asked to permit, in consultation with RBI, mutual funds to introduce Gold Exchange Traded Funds (GETFs) with gold as the underlying asset, in order to enable any household to buy and sell gold in units for as little as Rs.100.
• It is proposed that SEBI would set up a National Institute of Securities Market for providing training to intermediaries in the securities market and promote research.
• It is proposed to increase the rates of Securities Transaction Tax (STT) as under:-

• It is proposed to amend the Income Tax Act, 1961 to provide that income from F&O operations will not be treated as speculative income. It is also proposed to provide that trading in Derivatives in specified stock exchanges would not be treated as ‘Speculative Transaction’.

100%  FDI  IN  CONSTRUCTION AND REAL  ESTATE

On 24th February 2005 the cabinet committee on Economic affairs approved in principle 100% FDI in the construction Sector to foreign investment under the automatic route. The construction industry is a major source of economic growth in any country . In India the construction accounts for 6% of GDP as compared to 11% of Dubai. There are very few big time players in this sector. With the result of the construction industry is not very well organised. In the developed countries Real Estate Stock market Mutual funds known as REITs (Real Estate Investment  Trusts ) are also common. But in India Real Estate Mutual funds are not yet known. This whole scenario could change once the foreign investors with huge financial resources participate in this sector. With this announcement the industry is now expecting major investments from foreign entrepreneurs.

Although detailed guidelines are yet to be worked out, the move is aimed to permit foreign investment in this sector with adequate inbuilt safeguards to allay the apprehensions expressed by the opponents, including some of the alliance partners, and to avoid speculative deals so that the move is not abused to make profit without contributing to the development of the sector.

2.The decision is the outcome of gradual evolution of the thinking on the subject. Whereas 100% FDI under Automatic route was permitted for investment by NRIs and OCBs in housing sector, the sector was, for the first time, opened up for other, in a limited way by the Press Note 3 (2002 Series) in January 2002. The FDI in such cases was limited to development of integrated township and was beset with number of restrictions which, interalia, included necessity to be registered as Indian company; minimum area of land for development to be 100 acres;  minimum 2000 dwelling units for population of every 10000, if there are no norms under local bylaws;  minimum capitalisation norms of US $ 10 million for W.O.S and US $ 5 million for joint ventures with Indian partners and,  minimum lock-in-period of 3 years from completion of minimum capitalisation for repatriation of original investment. Each case was to be considered by FIPB on recommendation of Ministry of Urban Development and Poverty Alleviation and other concerned ministries. The foreign investor was required to be in the core business of integrated township development with a record of successful execution of such projects elsewhere.

3.         Development of integrated township was to include housing, commercial premises, hotels, resorts, city and regional level urban infrastructure facilities such as roads and bridges, mass rapid transit systems, manufactures of building materials, development of land and provision of allied infrastructure.

4.         The Scheme of development of townships, as framed,  failed to induce many investors due mainly to large number of restrictions and requirement of developing minimum 100 acres of land area.  The scheme was confined to development of integrated townships only, which excluded other forms of housing, commercial premises including those required for hotels, hospitals, educational institutions etc. for development as segment delinked from integrated township.  The absence of automatic route for investment in the sector also deterred investors.

5.         The construction sector being highly capital intensive and housing being the prime need to be attended to amongst the promised socially desirable and vital infrastructure projects, the need for liberalising the F.D.I. policy in regard to construction sector was being felt and debated for quite sometime.  The CCEA has now cleared 100% FDI in construction and development sector under automatic route.

6.         Several restrictive provisions under earlier dispensation have either been relaxed or given up.  Broadly stated the clearance has material impact in undernoted aspects: -

(i)    FDI is not now confined to development of integrated townships alone.  It is also permissible to invest in construction projects of housing, built up infrastructure and construction development projects, which would include housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities and city/regional level infrastructure.  Such construction development project will, however, not be restricted to construction of  hotels, resorts etc. but construction of these can be part of development projects.

(ii) Foreign investors are now allowed to come in through the automatic route.  Projects will, however, have to conform to the norms and standard, including land use requirements and provision of community amenities,  as per the rules and regulations of the State government and the municipal bodies.  Approval from State and local bodies will, therefore, be required.

(iii)           The minimum area to be developed which was 100 acres under the earlier regime for integrated township is now 10 hectares (app. 25 acres) in the case of development of serviced housing plots and a minimum built up area of 50000 sq. mtrs for construction -development projects.  In case of combination projects, it can be anyone of the above requirement.  The earlier requirement of construction of 2000 dwelling units per 10,000 population no longer exists.

(iv)    The capitalisation norm has been retained at US$10 million for WOS and US$5 million for joint ventures.  A period of six months has been allowed to bring in funds to India as against upfront payment earlier.

(v)     The lock-in-period of three years from completion of minimum capitalisation for repatriation of original investment has been retained with permission to exit earlier with prior approval of FIPB.

(vi)    As a safeguard against speculative transactions,  it has now been provided that undeveloped plots cannot be sold.  Sale of land will be permissible only after infrastructure by way of roads, water supply, street lighting, drainage, sewerage and other conveniences as required by local bodies is provided and completion certificate in respect thereof is obtained.

(vii)    In order to allay apprehensions about discrimination, it has been provided that the projects under FDI will be accorded national treatment on par with local developers.

(viii)   The condition that the foreign investor should be in the core business of township development having a successful tract record,  no longer exists.

7.         With FDI restricted to integrated township the response was not quite bright.  Still approval was accorded to nine projects of townships.  Developers from UAE, Singapore, Malaysia are already in the country developing townships around Delhi, Bangalore and other big cities.

8.         With sub-segments - delinked from township project  - permitted,  there will be more players in the market who will,  besides pumping lot of money in construction activities, are expected to bring advance technology.  Competition generated will break away the near monopoly of local developers particularly big ones and,  in all likelihood,  result in lowering the prices of residential houses which have spiralled in recent times reaching all time high,  particularly in metros like Delhi and Bombay.  The competition generated and expertise brought in is likely to result in better quality construction resulting in overall benefits to customers.  Indian developers acting in joint ventures with foreign developers are also likely to be benefited by the resources including technology made available as a result of participation.

9.         Construction industry besides being capital intensive, is also labour intensive Boost to this sector has potentiality of providing employment to large number of people.  It will also provide tremendous encouragement to construction material industry and have multiplier effect on the economy by boosting all construction related industries.

10.       It cannot, however, be lost sight of that land as a factor in construction activities is limited in supply and, unless effective steps are taken to release more land for construction purposes, too much money will be chasing limited availability of land resulting in rising prices which will frustrate the basic perceived gain of lower prices to customers.  In this matter State governments have important role to play.  A carefully thought out industry friendly land policy including total scrapping of, or atleast radical modification in, the Urban Land Ceiling Act is, therefore, the need of the hour.

Other Proposals

• Higher Education : It is proposed to make Indian Institute of Science (IISc), Bangalore into a world class university. An additional grant of Rs.100 crore has been proposed for this purpose.
• VAT : All States have agreed to introduce the value added tax (VAT) with effect from April 1, 2005. The Central Government has agreed to compensate the States, according to an agreed formula, in the event of any revenue loss.
• Twelfth Finance Commission : The Twelfth Finance Commission has proposed a generous, but deserving package covering higher devolution of taxes, debt relief and grants.
• Defence Expenditure : The allocation for defense in 2005-06 has been increased to Rs.83,000 crores, including Rs.34,375 crores for capital expenditure.

Fiscal Consolidation

• It is proposed to put in place a mechanism to measure the development outcomes of all major programmes. Schemes will not be allowed to continue from one Plan period to the next without an independent and in-depth evaluation.
• The Ministry of Agriculture intends to make procurement of food grains more cost effective through decentralized procurement, especially in the non-traditional States, without impairing the present MSP-based procurement.
• A Working Group will be constituted by the Department of Fertilizers examining issues for implementing the next stage of the New Pricing Scheme for fertilizers commencing from April 1, 2006.

Indirect Tax Proposals

The Finance Minister has reiterated his intention of bringing the tariff structure in line with that of the ASEAN countries. Accordingly, the peak rate of customs for non-agricultural produced has been reduced to 15 % from 20 %. He has also declared his intention of having a combined Gods and Services Tax in place of the plethora of taxes today ranging from sales tax, purchase tax, turnover tax, etc.