Minister of Finance Budget Speech 2009.

India New Budget 2010-2011

Speech of Pranab Mukherjee

Minister of Finance

February 26, 2010

Madam Speaker,

I rise to present the Union Budget for 2010-11.

In 2009, when I presented the interim Budget in February and the regular Budget
in July in this august House, the Indian economy was facing grave uncertainties.
Growth had started decelerating and the business sentiment was weak. The
economy's capacity to sustain high growth was under serious threat from the
widespread economic slowdown in the developed world.

It was not clear to us, as also to the policy makers in many other countries,
how this crisis would eventually unfold. What would be its impact on the growth
momentum of the Indian economy? How soon will we be able to turnaround the
fortunes of our economy? The short term global outlook was bleak and the
consensus was that year 2009 would face the brunt of this crisis across the
world.
At home, there was added uncertainty on account of the delayed and sub-normal
south-west monsoon, which had undermined the kharif crop in the country. There
were concerns about production and prices of food items and its possible
repercussions on the growth of rural demand.
Today, as I stand before you, I can say with confidence that we have
weathered these crises well. Indian economy now is in a far better position than
it was a year ago. That is not to say that the challenges today are any less
than what they were nine months ago when UPA under the leadership of Mrs Sonia
Gandhi was elected back to power and Prime Minister Dr. Manmohan Singh formed
the Government for the second term.
The three challenges and the medium term perspective that I had outlined in
my last Budget Speech remain relevant, even today. These would continue to
engage the Indian policy-planners for the next few years.
The first challenge before us is to quickly revert to the high GDP growth
path of 9 per cent and then find the means to cross the 'double digit growth
barrier'. This calls for imparting a fresh momentum to the impressive recovery
in growth witnessed in the past few months. In this endeavour, I seek Lord
Indra's help to make the recovery more broad-based in the coming months.
Growth is only as important as what it enables us to do and be. Therefore,
the second challenge is to harness economic growth to consolidate the recent
gains in making development more inclusive. The thrust imparted to the
development of infrastructure in rural areas has to be pursued to achieve the
desired objectives within a fixed time frame.
We have to strengthen food security, improve education opportunities and
provide health facilities at the level of households, both in rural and urban
areas. These are issues that require significant resources, and we have to find
those resources.
The third challenge relates to the weaknesses in government systems,
structures and institutions at different levels of governance. Indeed, in the
coming years, if there is one factor that can hold us back in realising our
potential as a modern nation, it is the bottleneck of our public delivery
mechanisms. There have been many initiatives in this regard, in different
sectors, at different points of time. Some of them have been effective in
reforming the way the Government works in those areas. But we have a long way to
go before we can rest on this count.
The Union Budget cannot be a mere statement of Government accounts. It has
to reflect the Government's vision and signal the policies to come in future.
With development and economic reforms, the focus of economic activity has
shifted towards the non-governmental actors, bringing into sharper focus the
role of Government as an enabler.
An enabling Government does not try to deliver directly to the citizens
everything that they need. Instead it creates an enabling ethos so that
individual enterprise and creativity can flourish. Government concentrates on
supporting and delivering services to the disadvantaged sections of the society.
It is this broad conceptualisation of the Budget that informs my speech
today. I would now begin by presenting a brief overview of the economy.

Overview of the Economy
Yesterday, I laid on the table of the House the Economic Survey, which gives
a detailed analysis of the economic situation of the country over the past
twelve months. I intend to highlight only a few salient features that form the
backdrop of this Budget.
The fiscal year 2009-10 was a challenging year for the Indian economy. The
significant deceleration in the second half of 2008-09, brought the real GDP
growth down to 6.7 per cent, from an average of over 9 per cent in the preceding
three years. We were among the first few countries in the world to implement a
broad-based counter-cyclic policy package to respond to the negative fallout of
the global slowdown. It included a substantial fiscal expansion along with
liberal monetary policy support.
The effectiveness of these policy measures became evident with fast paced
recovery. The economy stabilised in the first quarter of 2009-10 itself, when it
clocked a GDP growth of 6.1 per cent, as against 5.8 per cent in the fourth
quarter of the preceding year. It registered a strong rebound in the second
quarter, when the growth rate rose to 7.9 per cent. With the Advance Estimates
placing the likely growth for 2009-10 at 7.2 per cent, we are indeed vindicated
in our policy stand. The final figure may well turn out to be higher when the
third and fourth quarter GDP estimates for 2009-10 become available.
This recovery is very encouraging for it has come about despite a negative
growth in the agriculture sector. More importantly, it is the result of a
renewed momentum in the manufacturing sector and marks the rise of this sector
as the growth driver of the economy. The growth rate in manufacturing in
December 2009 was 18.5 per cent— the highest in the past two decades. There are
also signs of a turnaround in the merchandise exports with a positive growth in
November and December 2009 after a decline of about twelve successive months.
Export figures for January are also encouraging. Significant private investment
can now be expected to provide the engine for sustaining a growth of 9 per cent
per annum. With some luck, I hope to breach the 10 per cent mark in
not-too-distant a future.
A major concern during the second half of 2009-10 has been the emergence of
double digit food inflation. There was a momentum in food prices since the
flare-up of global commodity prices preceding the financial crisis in 2008, but
it was expected that the agriculture season beginning June 2009 would help in
moderating the food inflation. However, the erratic monsoons and drought like
conditions in large parts of the country reinforced the supply side bottlenecks
in some of the essential commodities. This set in motion inflationary
expectations. Since December 2009, there have been indications of these high
food prices, together with the gradual hardening of the fuel product prices,
getting transmitted to other non-food items as well. The inflation data for
January seems to have confirmed this trend.
Government is acutely conscious of this situation and has set in motion
steps, in consultation with the State chief ministers, which should bring down
the inflation in the next few months and ensure that there is better management
of food security in the country.

CONSOLIDATING GROWTH
Managing a complex economy is a difficult task, more so when it is a growing
economy in a globalised world. And yet, choices have to be made and they have to
be well-timed.
After successfully managing the effects of the global slowdown, we need to
strengthen the domestic macroeconomic environment to help consolidate the
rebound in growth and sustain it over the medium term. We need to review the
stimulus imparted to the economy and move towards the preferred path of fiscal
consolidation that facilitated the remarkable growth in the pre-crisis five year
period. We need to make growth more broad-based and ensure that supply-demand
imbalances are better managed.

Fiscal Consolidation
The success of the fiscal stimulus in supporting domestic demand could be
traced to its composition. The approach of the Government was to increase the
disposable income in the hands of the people by effecting reductions in indirect
taxes and by expanding public expenditure on programmes like the Mahatma Gandhi
National Rural Employment Guarantee Scheme and rural infrastructure. Now that
the recovery has taken root, there is a need to review public spending, mobilise
resources and gear them towards building the productivity of the economy.
In shaping the fiscal policy for 2010-11, I have acted on the
recommendations of the Thirteenth Finance Commission. It has recommended a
calibrated exit strategy from the expansionary fiscal stance of last two years.
The Commission has recommended a capping of the combined debt of the Centre and
the States at 68 per cent of the GDP to be achieved by 2014-15.
As a part of the fiscal consolidation process, it would be for the first
time that the Government would target an explicit reduction in its domestic
public debt-GDP ratio. I intend to bring out, within six months, a status paper
giving a detailed analysis of the situation and a road map for curtailing the
overall public debt. This would be followed by an annual report on the subject.

Tax reforms
I am happy to inform the Honourable Members that the process for building a
simple tax system with minimum exemptions and low rates designed to promote
voluntary compliance, is now nearing completion. On the Direct Tax Code the
wide-ranging discussions with stakeholders have been concluded. I am confident
that the Government will be in a position to implement the Direct Tax Code from
April 1, 2011.
On Goods and Services Tax, we have been focusing on generating a wide
consensus on its design. In November, 2009 the Empowered Committee of the State
Finance Ministers placed the first discussion paper on GST in the public domain.
The Thirteenth Finance Commission has also made a number of significant
recommendations relating to GST, which will contribute to the ongoing
discussions. We are actively engaged with the Empowered Committee to finalise
the structure of GST as well as the modalities of its expeditious
implementation. It will be my earnest endeavour to introduce GST along with the
DTC in April, 2011.

People's ownership of PSUs
While presenting the Budget for 2009-10, I invited people to participate in
Government's disinvestment programme to share in the wealth and prosperity of
the Central Public Sector Undertakings.
Since then, ownership has been broad based in Oil India Limited, NHPC, NTPC
and Rural Electrification Corporation while the process is on for National
Mineral Development Corporation and Satluj Jal Vidyut Nigam. The Government will
raise about Rs.25,000 crore during the current year. Through this process, I
propose to raise a higher amount during the year 2010-11. The proceeds will be
utilised to meet the capital expenditure requirements of social sector schemes
for creating new assets.
Listing of Central Public Sector Undertakings improves corporate governance,
besides unlocking the value for all stakeholders—the government, the company and
the shareholders. Market capitalization of five companies which have been listed
since October, 2004 has increased by 3.8 times from the book value of Rs.78,841 crore to Rs.2,98,929 crore.
The effective management of public expenditure by bringing it in line with
the Government's objectives is a part of the fiscal consolidation process. This
calls for proper targeting of subsidies and expenditure adjustment.

Fertiliser subsidy
I had announced the intent of the Government for the fertiliser sector in my
Budget Speech of 2009. A Nutrient Based Subsidy policy for the fertiliser sector
has since been approved by the Government and will become effective from April
1, 2010. This policy is expected to promote balanced fertilization through new
fortified products and focus on extension services by the fertiliser industry.
This will lead to an increase in agricultural productivity and consequently
better returns for the farmers. Over time, the policy is expected to reduce
volatility in the demand for fertiliser subsidy in addition to containing the
subsidy bill. Government will ensure that nutrient based fertiliser prices for
transition year 2010-11, will remain around MRPs currently prevailing. The new
system will move towards direct transfer of subsidies to the farmers.

Petroleum and Diesel pricing policy
In the last Budget, the constitution of an Expert Group, to advise the
Government on a viable and sustainable system of pricing of petroleum products,
was announced. The Group headed by Shri Kirit Parikh has submitted its
recommendations to the Government. Decision on these recommendations will be
taken by my colleague, the Minister of Petroleum & Natural Gas, in due course.
I am very happy to inform the Honourable Members that we have not only
adhered to the fiscal roadmap that I had presented as a part of the Budget
documents last year, but we have improved upon it. Except for meeting the
liabilities of the year 2008-09, we have not issued oil or fertiliser bonds. I
shall come to the numbers when I refer to the budget estimates a little later.

Improving Investment Environment

Foreign Direct Investment
Foreign Direct Investment (FDI) inflows during the year have been steady in
spite of the decline in global capital flows. India received FDI equity inflows
of US$ 20.9 billion during April-December, 2009 compared to US$ 21.1 billion
during the same period last year.
Government has taken a number of steps to simplify the FDI regime to make it
easily comprehensible to foreign investors. For the first time, both ownership
and control have been recognised as central to the FDI policy, and methodology
for calculation of indirect foreign investment in Indian companies has been
clearly defined. A consistent policy on downstream investment has also been
formulated. Another major initiative has been the complete liberalization of
pricing and payment of technology transfer fee, trademark, brand name and
royalty payments. These payments can now be made under the automatic route.
Government also intends to make the FDI policy user-friendly by
consolidating all prior regulations and guidelines into one comprehensive
document. This would enhance clarity and predictability of our FDI policy to
foreign investors.

Financial Stability and Development Council
The financial crisis of 2008-09 has fundamentally changed the structure of
banking and financial markets the world over. With a view to strengthen and institutionalise the mechanism for maintaining financial stability, Government
has decided to setup an apex-level Financial Stability and Development Council.
Without prejudice to the autonomy of regulators, this Council would monitor
macro prudential supervision of the economy, including the functioning of large
financial conglomerates, and address inter-regulatory coordination issues. It
will also focus on financial literacy and financial inclusion.

Banking Licences
The Indian banking system has emerged unscathed from the crisis. We need to
ensure that the banking system grows in size and sophistication to meet the
needs of a modern economy. Besides, there is a need to extend the geographic
coverage of banks and improve access to banking services. In this context, I am
happy to inform the Honourable Members that the RBI is considering giving some
additional banking licenses to private sector players. Non Banking Financial
Companies could also be considered, if they meet the RBI's eligibility criteria.

Public Sector Bank Capitalisation
During 2008-09, the Government infused Rs.1900 crore as Tier-I capital in
four public sector banks to maintain a comfortable level of Capital to Risk
Weighted Asset Ratio. An additional sum of Rs.1200 crore is being infused now.
For the year 2010-11, I propose to provide a sum of Rs.16,500 crore to ensure
that the Public Sector Banks are able to attain a minimum 8 per cent Tier-I
capital by March 31, 2011.

Recapitalisation of Regional Rural Banks
Regional Rural Banks (RRBs) play an important role in providing credit to
rural economy. The capital of these banks is shared by the Central Government,
sponsor banks and State Governments. The banks were last capitalised in

2006-07. I propose to provide further capital to strengthen the RRBs so that
they have adequate capital base to support increased lending to the rural
economy.

Corporate Governance
Improvement in corporate governance and regulation is an important part of
the overall investment environment in the country. Government has introduced the
Companies Bill, 2009 in the Parliament, which will replace the existing
Companies Act, 1956. The proposed new bill will address issues related to
regulation in corporate sector in the context of the changing business
environment.

Exports
Government has provided interest subvention of 2 per cent on pre-shipment
export credit up to March 31, 2010 for exports in certain sectors. I propose to
extend the interest subvention of 2 per cent for one more year for exports
covering handicrafts, carpets, handlooms and small and medium enterprises.

Special Economic Zones (SEZs)
The SEZs have attracted significant flows of domestic and foreign
investments. In first three quarters of 2009-10 exports from SEZs recorded a
growth of 127 per cent over the corresponding period last year. Government is
committed to ensuring continued growth of SEZs to draw investments and boost
exports and employment.

Agriculture Growth
The agriculture sector occupies centre-stage in our resolve to promote
inclusive growth, enhance rural incomes and sustain food security. To spur the
growth in this sector, the Government intends to follow a four-pronged strategy
covering (a) agricultural production; (b) reduction in wastage of produce;

(c) credit support to farmers; and (d) a thrust to the food processing sector.
The first element of the strategy is to extend the green revolution to the
eastern region of the country comprising Bihar, Chattisgarh, Jharkhand, Eastern
UP, West Bengal and Orissa, with the active involvement of Gram Sabhas and the
farming families. For the year 2010-11, I propose to provide Rs.400 crore for
this initiative.
In the 60th year of the Republic, it is proposed to organise 60,000 "pulses
and oil seed villages" in rain-fed areas during 2010-11 and provide an
integrated intervention for water harvesting, watershed management and soil
health, to enhance the productivity of the dry land farming areas. I propose to
provide Rs.300 crore for this purpose. This initiative will be an integral part
of the Rashtriya Krishi Vikas Yojana.
The gains already made in the green revolution areas have to be sustained
through conservation farming, which involves concurrent attention to soil
health, water conservation and preservation of biodiversity. I propose an
allocation of Rs.200 crore for launching this climate resilient agriculture
initiative.
The second element of the strategy relates to reduction of significant
wastages in storage as well as in the operations of the existing food supply
chains in the country. This needs to be addressed. As the Prime Minister has
said recently, "We need greater competition and therefore need to take a firm
view on opening up of the retail trade." It will help in bringing down the
considerable difference between the farm gate prices, wholesale prices and
retail prices.
There is wastage of grain procured for buffer stocks and public distribution
system due to acute shortage of storage capacity in the Food Corporation of
India. This deficit in the storage capacity is met through an ongoing scheme for
private sector participation where the FCI has been hiring godowns from private
parties for a guaranteed period of 5 years. This period is now being extended to
7 years.
The third element of the strategy relates to improving the availability of
credit to farmers. I am happy to inform the honourable Members that banks have
been consistently meeting the targets set for agriculture credit flow in the
past few years. For the year 2010-11, the target has been raised to Rs.3,75,000
crore from Rs.3,25,000 crore in the current year.
The Debt Waiver and Debt Relief Scheme for Farmers was a major initiative of
the UPA Government. In view of the recent drought in some States and the severe
floods in some other parts of the country, I propose to extend by six months the
period for repayment of the loan amount by farmers from December 31, 2009 to
June 30, 2010.
In the last budget, I had provided an additional one per cent interest
subvention as an incentive to those farmers who repay their short-term crop
loans as per schedule. I propose to raise this subvention for timely repayment
of crop loans from one per cent to two per cent for 2010-11. Thus, the effective
rate of interest for such farmers will now be five per cent per annum. Necessary
provision in the Budget has been made.
The fourth element of the strategy aims at lending a further impetus to the
development of food processing sector by providing state-of-the art
infrastructure. In addition to the ten mega food park projects already being set
up, the Government has decided to set up five more such parks.
As a part of the farm to market initiative, External Commercial Borrowings
will henceforth be available for cold storage or cold room facility, including
for farm level pre-cooling, for preservation or storage of agricultural and
allied produce, marine products and meat. Changes in the definition of
infrastructure under the ECB policy are being made.

Infrastructure
Accelerated development of high quality physical infrastructure, such as
roads, ports, airports and railways is essential to sustain economic growth.
While addressing the policy gaps in this sector, I propose to maintain the
thrust for upgrading infrastructure in both rural and urban areas. In the Budget
for

2010-11, I have provided Rs.1,73,552 crore, which accounts for over 46 per cent
of the total plan allocations, for infrastructure development in the country.
To make a visible impact in the road sector, Government has targeted
construction of national highways (NHs) at the pace of 20 km per day. To push
the pace of implementation, changes have been made in the policy framework,
especially in respect of projects being executed through public private
partnerships (PPPs). For the year 2010-11, I propose to raise the allocation of
road transport by over 13 per cent from Rs.17,520 crore to Rs.19,894 crore.
Honourable Members have already heard from the Railway Minister about the
large investments required to modernise and expand the network. I have provided
Rs.16,752 crore in the Budget for 2010-11 for Railways to lend her a helping
hand. This is about Rs.950 crore more than last year, when a substantial
increase was made in the budgetary support for Railways.
To complement the dedicated freight corridor, the Delhi-Mumbai Industrial
Corridor project has been taken up for integrated regional development.
Preparatory activities have been completed for creation of six industrial
investment nodes with eco-friendly world class infrastructure.

India Infrastructure Finance Company Limited
Government established the India Infrastructure Finance Company Limited
(IIFCL) to provide long term financial assistance to infrastructure projects.
Its disbursements are expected to touch Rs.9,000 crore by end March 2010 and
reach around Rs.20,000 crore by March 2011. IIFCL has also been authorised to
refinance bank lending to infrastructure projects. It has refinanced Rs.3,000
crore during the current year and is expected to more than double that amount in
2010-11. The take-out financing scheme announced in the last Budget is expected
to initially provide finance for about Rs.25,000 crore in the next three years.

Energy
Government accords the highest priority to capacity addition in the power
sector. The framework for induction of super critical technology in large
capacity power plants of National Thermal Power Corporation is now in place. The
Mega Power Policy has been modified and is now consistent with the National
Electricity Policy, 2005 and Tariff Policy, 2006. It will help in lowering the
cost of generation and the cost of power purchased by distribution utilities. I
have more than doubled the plan allocation for power sector from Rs.2,230 crore
in 2009-10 to Rs.5,130 crore in 2010-11. This does not include allocations for
RGGVY, which is a part of Bharat Nirman.
Coal is the mainstay of India's energy sector and 75 per cent of the power
generation is currently coal based. It is proposed to introduce a competitive
bidding process for allocating coal blocks for captive mining to ensure greater
transparency and increased participation in production from these blocks.
Government proposes to take steps to set up a "Coal Regulatory Authority" to
create a level playing field in the coal sector. This would facilitate
resolution of issues like economic pricing of coal and benchmarking of standards
of performance.
The Jawaharlal Nehru National Solar Mission envisages establishing India as
a global leader in solar energy. An ambitious target of 20,000 MW of solar power
by the year 2022 has been set under the mission. I propose to increase the plan
outlay for the Ministry of New and Renewable Energy by 61 per cent from Rs.620 crore in 2009-10 to Rs.1,000 crore in 2010-11.
The Ladakh region of Jammu and Kashmir faces an extremely harsh climate and
suffers from energy deficiency. To address this problem, it is proposed to set
up solar, small hydro and micro power projects at a cost of about Rs.500 crore.

Environment and Climate change
To ameliorate the negative environmental consequences and increased
pollution levels associated with industrialisation and urbanisation, I propose
to take a number of proactive steps in the Budget 2010-11.

National Clean Energy Fund (NCEF)
There are many areas of the country where pollution levels have reached
alarming proportions. While we must ensure that the principle of "polluter pays"
remains the basic guiding criteria for pollution management, we must also give a
positive thrust to development of clean energy. I propose to establish a
National Clean Energy Fund for funding research and innovative projects in clean
energy technologies. I shall outline the mode of funding for this initiative in
Part B of my speech.

Effluent Treatment Plant, Tirupur
The textile cluster for knitwear in Tirupur in Tamil Nadu is a major
contributor to the country's hosiery exports. I propose to provide a one-time
grant of Rs.200 crore to the Government of Tamil Nadu towards the cost of
installation of a zero liquid discharge system at Tirupur to sustain this
industry, which provides livelihood to lakhs of persons, without undermining the
environment.

Special Golden Jubilee Package for Goa
I propose to provide a sum of Rs.200 crore as a Special Golden Jubilee
package for Goa to preserve the natural resources of the State by restoring
Goa's beaches which are prone to erosion, and increasing its green cover through
sustainable forestry.

National Ganga River Basin Authority (NGRBA)
The "Mission Clean Ganga 2020" under the National Ganga River Basin
Authority (NGRBA) with the objective that no untreated municipal sewage or
industrial effluent will be discharged into the national river has already been
initiated. I propose to double the allocation for NGRBA in 2010-11 to Rs.500
crore.
I am happy to inform the Honourable Members that schemes on bank protection
works along river Bhagirathi and river Ganga-Padma in parts of Murshidabad and
Nadia district of West Bengal have been included in the Centrally Sponsored
Flood Management Programme. I also propose to provide budgetary support for
drainage scheme of Kaliaghai-Kapaleswari Baghai basin in the district of Purba
and Paschim Midnapore, and Master Plan of Kandi sub-division in Murshidabad,
West Bengal.
Recognising the need for developing an alternate port facility in West
Bengal, it is proposed to develop a project at Sagar Island. Necessary funds
will be provided in due course.

INCLUSIVE DEVELOPMENT
For the UPA Government, inclusive development is an act of faith. In the
last five years, our Government has created entitlements backed by legal
guarantees for an individual's right to information and her right to work. This
has been followed-up with the enactment of the right to education in 2009-10. As
the next step, we are now ready with the draft Food Security Bill which will be
placed in the public domain very soon. To fulfil these commitments the spending
on social sector has been gradually increased to Rs.1,37,674 crore which now
stands at 37 per cent of the total plan outlay in 2010-11. Another 25 per cent
of the plan allocations are devoted to the development of rural infrastructure.
With growth and the opportunities that it generates, we hope to further
strengthen the process of inclusive development.

Education
The Right of Children to Free and Compulsory Education Act, 2009 creates a
framework for legal entitlements for all children in the age group of 6 to 14
years to education of good quality, based on principles of equity and

non-discrimination. In recent years, Sarva Shiksha Abhiyan (SSA) has made
significant contribution in improving enrolment and infrastructure for
elementary education. About 98 per cent of habitations are now covered by
primary schools. I propose to increase the plan allocation for school education
from Rs.26,800 crore in 2009-10 to Rs.31,036 crore in 2010-11. In addition,
States will have access to Rs.3,675 crore for elementary education under the
Thirteenth Finance Commission grants for 2010-11.

Health
An Annual Health Survey to prepare the District Health Profile of all
Districts shall be conducted in 2010-11. The findings of the Survey should be of
immense benefit to major public health initiatives particularly the National
Rural Health Mission, which has successfully addressed the gaps in the delivery
of critical health services in rural areas.
I propose to increase the plan allocation for the Ministry of Health and
Family Welfare, from Rs.19,534 crore to Rs.22,300 crore for 2010-11.

Financial Inclusion
To reach the benefits of banking services to the 'Aam Aadmi', the Reserve
Bank of India had set up a High Level Committee on the Lead Bank Scheme. After
careful assessment of the recommendations of this Committee, and in further
consultation with the RBI, it has been decided to provide appropriate Banking
facilities to habitations having population in excess of 2000 by March, 2012. It
is also proposed to extend insurance and other services to the targeted
beneficiaries. These services will be provided using the Business Correspondent
and other models with appropriate technology back up. By this arrangement, it is
proposed to cover 60,000 habitations.

Financial Inclusion Fund (FIF) and the Financial Inclusion Technology Fund
In 2007-08 the Government had set up a Financial Inclusion Fund and a
Financial Inclusion Technology Fund in NABARD, to reach banking services to the unbanked areas. To give momentum to the pace of financial inclusion, I propose
an augmentation of Rs.100 crore for each of these funds, which shall be
contributed by Government of India, RBI and NABARD.

Rural Development
In the words of Mahatma Gandhi "Just as the universe is contained in the
self, so is India contained in the villages". For UPA Government, development of
rural infrastructure remains a high priority area. For the year 2010-11, I
propose to provide Rs.66,100 crore for Rural Development.
Mahatma Gandhi National Rural Employment Guarantee Scheme has completed four
years of implementation during which it has been extended to all districts
covering more than 4.5 crore households. The allocation for NREGA has been
stepped up to Rs.40,100 crore in 2010-11. Bharat Nirman has made a substantial
contribution to the upgradation of rural infrastructure through its various
programmes. For the year 2010-11, I propose to allocate an amount of Rs.48,000
crore for these programmes.
Indira Awas Yojana is a popular rural housing scheme for weaker sections.
Taking note of the increase in the cost of construction, I propose to raise the
unit cost under this scheme to Rs.45,000 in the plain areas and to Rs.48,500 in
the hilly areas. For the year 2010-11, the allocation for this scheme is being
increased to Rs.10,000 crore.
As a part of the strategy to bridge the infrastructure gap in backward
districts of the country, the Backward Region Grant Fund has proved to be an
effective instrument. I propose to enhance the allocation to this fund by 26 per
cent from Rs.5,800 crore in 2009-10 to Rs.7,300 crore in 2010-11. I have also
provided an additional central assistance of Rs.1,200 crore for drought
mitigation in the Bundelkhand region in the Budget.

Urban Development and Housing
"Swarna Jayanti Shahari Rozgar Yojana" designed to provide employment
opportunities in urban areas, has been strengthened with focus on community
participation, skill development and self employment support structures. For the
year 2010-11, I propose to increase the allocation for urban development by more
than 75 per cent from Rs.3,060 crore to Rs.5,400 crore. In addition, the
allocation for Housing and Urban Poverty Alleviation is also being raised from
Rs.850 crore to Rs.1,000 crore in 2010-11.
While presenting the Union Budget for the year 2009-10, I had announced a
Scheme of one per cent interest subvention on housing loans up to Rs.10 lakhs
where the cost of the house does not exceed Rs.20 lakhs. I propose to extend
this Scheme up to March 31, 2011. Accordingly, I propose to provide a sum of
Rs.700 crore for this Scheme for the year 2010-11.
The Rajiv Awas Yojana (RAY) for slum dwellers and urban poor was announced
last year to extend support to States that are willing to provide property
rights to slum dwellers. This scheme is now ready to take off. I propose to
allocate Rs.1,270 crore for 2010-11 as compared to Rs.150 crore last year. This
marks an increase of over 700 per cent. The Government's efforts in the
implementation of RAY would be to encourage the States to create a slum free
India at the earliest.

Micro, Small & Medium Enterprises
Micro, Small and Medium Enterprises (MSMEs) contribute 8 per cent of the
country's GDP, 45 per cent of the manufactured output and 40 per cent of our
exports. They provide employment to about 6 crore persons through 2.6 crore
enterprises. To resolve a number of issues which affect the growth of this
sector, Prime Minister constituted a High-Level Task Force which held detailed
discussions with all stake holders and drew up an agenda for action. A High
Level Council on Micro and Small Enterprises will monitor the implementation of
the recommendations and the agenda for action. I propose to raise the allocation
for this sector from Rs.1,794 crore to Rs.2,400 crore for the year 2010-11.
A loan agreement for US $ 150 million has been signed between the Government
of India and the Asian Development Bank on 22nd December, 2009 for implementing
the comprehensive Khadi Reforms Programme. This programme will cover 300
selected Khadi institutions.

Micro Finance
The programme for linking Self Help Groups (SHGs) with the banking system
has emerged as the major micro-finance initiative in the country. It was
re-designated as the 'Micro-Finance Development and Equity Fund' in 2005-06 with
a corpus of Rs.200 crore. The fund corpus is being doubled to Rs.400 crore in
2010-11.

Unorganised Sector

National Social Security Fund for unorganised sector workers
Recognising the need for providing social security to the workers in the
unorganised sector, and as a follow up to the Unorganised Sector Workers Social
Security Act, 2008, it has been decided to set up a National Social Security
Fund for unorganised sector workers with an initial allocation of Rs.1,000
crore. This fund will support schemes for weavers, toddy tappers, rickshaw
pullers, bidi workers etc.
The Government had launched Rashtriya Swasthya Bima Yojana on October 1,
2007 to provide health insurance cover to below poverty line workers and their
families. It became operational on April 1, 2008 and so far more than 1 crore
smart cards have been issued under this scheme. In view of the success of the
scheme, it is now proposed to extend its benefits to all such Mahatma Gandhi
NREGA beneficiaries who have worked for more than 15 days during the preceding
financial year.
To encourage the people from the unorganised sector to voluntarily save for
their retirement and to lower the cost of operations of the New Pension Scheme
(NPS) for such subscribers, Government will contribute Rs.1,000 per year to each
NPS account opened in the year 2010-11. This initiative, "Swavalamban" will be
available for persons who join NPS, with a minimum contribution of Rs.1,000 and
a maximum contribution of Rs.12,000 per annum during the financial year 2010-11.
The scheme will be available for another three years. Accordingly, I am making
an allocation of Rs.100 crore for the year 2010-11. It will benefit about 10
lakh NPS subscribers of the unorganised sector. The scheme will be managed by
the interim Pension Fund Regulatory and Development Authority.
I also appeal to the State Governments to contribute a similar amount to the
scheme and participate in providing social security to the vulnerable sections
of the society.

Skill development
Prime Minister's Council on National Skill Development has laid down the
core governing principles for operating strategies for skill development. The
Council has a mission of creating 50 crore skilled people by 2022. Of these, the
target for the National Skill Development Corporation, which has started
functioning from October, 2009, is 15 crore. It has completed a comprehensive
skill gap study of 21 high growth sectors and approved three projects worth
about Rs.45 crore to create 10 lakh skilled manpower at the rate of one lakh per
annum. Other projects are in advanced stages of consideration.
It is proposed to launch an extensive skill development programme in the
textile and garment sector by leveraging the strength of existing institutions
and instruments of the Textile Ministry. The resources of the private sector
will also be harnessed by incentivising training through an outcome - based
approach. Through these instruments, the Ministry of Textiles has set an
ambitious target of training 30 lakh persons over 5 years.

Social Welfare
I propose to step up the plan outlay for Women and Child Development by
almost 50 per cent. Several new initiatives that were launched in 2009-10 are
now ready for implementation. A mission for empowerment of women is being set
up. The ICDS platform is being expanded for effective implementation of the Rajiv Gandhi Scheme for Adolescent Girls.
To further improve female literacy rate, the Government has recast the
earlier National Literacy Mission as a new programme "Saakshar Bharat". It was
launched in September, 2009 with a target of 7 crore non-literate adults which
includes 6 crore women.
A Mahila Kisan Sashaktikaran Pariyojana to meet the specific needs of women
farmers is being launched. I have provided Rs.100 crore for this initiative as a
sub-component of the National Rural Livelihood Mission.
I am happy to inform the Honourable Members that I propose to enhance the
plan outlay of the Ministry of Social Justice and Empowerment to Rs.4500 crore.
This amounts to an increase of 80 per cent as compared to 2009-10. This will
support the programmes being implemented for the target population groups
covering the Scheduled Castes, Other Backward Classes, persons with
disabilities, senior citizens and victims of alcoholism and substance abuse.
With this enhancement, the Ministry will be able to revise rates of scholarship
under its post-matric scholarship schemes for SCs and OBC students, which is
long overdue.
The allocation will also assist in establishing an Indian Sign Language
Research and Training Centre for the benefit of the hearing impaired. District
Disability Rehabilitation Centres are being set up in 50 additional districts
along with two composite regional centres for persons with disabilities.
I also propose to raise the plan allocation for the Ministry of Minority
Affairs from Rs.1,740 crore to Rs.2,600 crore for the year 2010-11. This marks
an increase of nearly 50 per cent. I am happy to inform the Honourable Members
that we are close to achieving the target of 15 per cent priority sector lending
to minorities in the current year. This will be maintained for the next three
years.

STRENGTHENING TRANSPARENCY & PUBLIC ACCOUNTABILTY
The UPA Government has made a serious attempt to create an environment that
supports transparency and accountability in the working of the public
institutions in the country. As Honourable Members are aware, a number of
legislative and administrative measures have been taken in this regard.

Financial Sector Legislative Reforms Commission
Most of our legislations governing the financial sector are very old. Large
number of amendments to these Acts made at different points of time has also
increased ambiguity and complexity. The Government proposes to set up a
Financial Sector Legislative Reforms Commission to rewrite and clean up the
financial sector laws to bring them in line with the requirements of the sector.

Administrative Reforms Commission
The Administrative Reforms Commission constituted by the UPA Government in
its first term has submitted 15 reports, of which 10 reports have been examined
by the Government. Out of the 800 identified recommendations for implementation
so far, 350 recommendations have been implemented and 450 are under
implementation.

Unique Identification Authority of India (UIDAI)
In my last Budget Speech, I had announced the constitution of the Unique
Identification Authority of India, its broad working principles and the
timelines for delivery of the first UID numbers. I am happy to report that the
Authority has been constituted and it will be able to meet its commitments of
issuing the first set of UID numbers in the coming year. It would provide an
effective platform for financial inclusion and targeted subsidy payments. Since
the UIDAI will now get into the operational phase, I am allocating Rs.1,900 crore to the Authority for 2010-11.

Technology Advisory Group for Unique Projects (TAGUP)
An effective tax administration and financial governance system calls for
creation of IT projects which are reliable, secure and efficient. IT projects
like Tax Information Network, New Pension Scheme, National Treasury Management
Agency, Expenditure Information Network, Goods and Service Tax, are in different
stages of roll out. To look into various technological and systemic issues, I
propose to set up a Technology Advisory Group for Unique Projects under the
Chairmanship of Shri Nandan Nilekani.

Independent Evaluation Office (IEO)
The Government had announced the setting-up of an Independent Evaluation
Office to undertake impartial and objective assessments of the various public programmes and improve the effectiveness of the public interventions. It has
been decided that it would be an independent entity under a Governing board
chaired by the Deputy Chairman, Planning Commission. The IEO would evaluate the
impact of flagship programmes and place the findings in the public domain. It
would be funded by the Planning Commission.

Symbol for Indian Rupee
In the ensuing year, we intend to formalise a symbol for the Indian Rupee,
which reflects and captures the Indian ethos and culture. With this, Indian
Rupee will join the select club of currencies such as the US Dollar, British
Pound Sterling, Euro and Japanese Yen that have a clear distinguishing identity.

Security and Justice
Secure borders and security of life and property fosters development. I
propose to increase the allocation for Defence to Rs.1,47,344 crore. This would
include Rs.60,000 crore for capital expenditure. Needless to say, any additional
requirement for the security of the nation will be provided for.
In 2009-10, the overall internal security and law and order situation in
the country remained largely under control. Several new measures were taken by
the Government to strengthen the security apparatus of the country. These
include operationalisation of the National Investigation Agency (NIA),
establishment of four NSG Hubs, augmentation of the Intelligence Bureau and its
Multi-Agency Centre.
There was decline in violence in Jammu and Kashmir in the year 2009. We
have taken a number of confidence building measures. As one more such measure,
Government proposes to recruit about 2,000 youth as constables in five Central
Para Military Forces in the year 2010.
To address the development problems of the thirty three left wing extremism
affected districts, a Task Force headed by the Cabinet Secretary was formed for
promoting coordinated efforts across a range of development and security
measures. It has been decided that Planning Commission will prepare an
integrated action plan for the affected areas. Adequate funds will be made
available to support the action plan. I appeal to the misguided elements to
eschew violence and join the development process.

National Mission for Delivery of Justice and Legal Reforms
To provide timely delivery of justice to all, the Government has approved
the setting up of the National Mission for Delivery of Justice and Legal
Reforms. The objective of the mission is to help reduce legal backlog in courts
from an average of 15 years at present to 3 years by 2012. It would also help in
improving the legal environment for business. The Thirteenth Finance Commission
has provided grants amounting to Rs.5,000 crore for the States to improve the
delivery of justice, including strengthening of alternate dispute resolution
mechanisms.

Budget Estimates 2010-11

I now turn to the Budget Estimates for 2010-11.
The Gross Tax Receipts are estimated at Rs.7,46,651 crore. The Non Tax
Revenue Receipts are estimated at Rs.1,48,118 crore. The net tax revenue to the
Centre as well as the expenditure provisions in 2010-11 have been estimated with
reference to the recommendations of the Thirteenth Finance Commission.
The total expenditure proposed in the Budget Estimates for 2010-11 is
Rs.11,08,749 crore, which is an increase of 8.6 per cent over the total
expenditure in BE 2009-10. The Plan and Non Plan expenditures in BE 2010-11 are
estimated at Rs.3,73,092 crore and Rs.7,35,657 crore, respectively. While there
is a 15 per cent increase in Plan expenditure, the increase in Non Plan
expenditure is only 6 per cent over the BE of previous year. With this level of
Plan expenditure, I am confident that the total Plan expenditure would be very
close to 100 per cent of the expenditure envisaged in the Eleventh Five Year
Plan.
Honourable Members will agree that fiscal policy has to be guided by the
required framework for fiscal prudence. In the Medium Term Fiscal Policy
Statement presented along with Budget 2009-10, I had laid down a road map for
fiscal deficit. I am happy to report that in keeping with my commitment, I have
been able to present the Budget for 2010-11 with a fiscal deficit of 5.5 per
cent. In the Medium Term Fiscal Policy Statement being presented to the House
today, along with other Budget documents, the rolling targets for fiscal deficit
are pegged at 4.8 per cent and 4.1 per cent for 2011-12 and 2012-13,
respectively. These projections improve upon the recommendations of the
Thirteenth Finance Commission.
While presenting the Budget for 2009-10, I had expressed my concern about
the high level of fiscal deficit. I had also stated that the Government will
address this issue in right earnest to come back to the path of fiscal
consolidation at the earliest. I am happy to report that against a fiscal
deficit of 7.8 per cent in 2008-09, inclusive of oil and fertiliser bonds, the
comparable fiscal deficit is 6.9 per cent as per the Revised Estimates for
2009-10. Both these deficit figures are based on the revised GDP numbers
published by the Central Statistical Organisation and include what were earlier
referred to as below the line items. This marks an improvement of about one per
cent in fiscal deficit during the current year. I have made a conscious effort
to avoid issuing bonds to oil and fertiliser companies. I would like to continue
with this practice of extending Government subsidy in cash, thereby bringing all
subsidy related liabilities into our fiscal accounting.
The fiscal deficit of 5.5 per cent of GDP in 2010-11 works out to
Rs.3,81,408 crore. Taking into account the various other financing items for
fiscal deficit, the actual net market borrowing of the Government in 2010-11
would be of the order of Rs.3,45,010 crore. There will be enough space to meet
the credit needs of the private sector. The Government will plan the borrowing
programme in consultation with the RBI.

PART - B

Madam Speaker,

I shall now present my tax proposals.
While formulating them, I have been guided by the principles of sound tax
administration as embodied in the following words of Kautilya:

"Thus, a wise Collector General shall conduct the work of revenue collection....
in a manner that production and consumption should not be injuriously
affected.... financial prosperity depends on public prosperity, abundance of
harvest and prosperity of commerce among other things."
I had stated last year that tax reform is a process and not an event. The
process I had outlined in the area of direct taxes was to release a draft Direct
Taxes Code along with a Discussion Paper. In the area of indirect taxes, the
reform initiative was the introduction of a Goods and Services Tax. I have
presented the developments in both reform initiatives in Part 'A' of my Speech.
We have continued on the path of computerisation in core areas of service
delivery in the administration of direct taxes. This will reduce the physical
interface between taxpayers and tax administration and speed up procedures and
processes. The Centralised Processing Centre at Bengaluru is now fully
functional and is processing around 20,000 returns daily. This initiative will
be taken forward by setting up two more Centres during the year.
As a part of Government's initiative to move towards citizen centric
governance, the income tax department has introduced "Sevottam", a pilot project
at Pune, Kochi and Chandigarh through Aayakar Seva Kendras. These provide a
single window system for registration of all applications including those for
redressal of grievances as well as paper returns. This year the scheme will be
extended to four more cities.
To achieve the roll-out of GST by April 2011, the indirect tax
administrations at the Centre and the States need to revamp their internal work
processes based on the use of Information Technology. I am happy to inform
Honorable Members that project ACES - Automation of Central Excise & Service
Tax, has already been rolled out throughout the country this year. This will
impart greater transparency in tax administration and improve the delivery of
taxpayer services. Similarly, a Mission Mode Project for computerisation of
Commercial Taxes in States has been approved recently. With an outlay of Rs.1133
crore of which the Centre's share is Rs.800 crore, the project will lay the
foundation for the launch of GST.
I mentioned last year, that the income tax return forms should be simple
and user friendly. The income tax department is now ready to notify SARAL-II
form for individual salaried taxpayers for the coming assessment year. This form
will enable individuals to enter relevant details in a simple format in only two
pages.
To expeditiously resolve disputes with taxpayers I propose to expand the
scope of cases which may be admitted by the Settlement Commission to include
proceedings related to search and seizure cases pending for assessment. I also
propose to expand the scope of Settlement Commission in respect of Central
Excise and Customs so that certain categories of cases that hitherto fell
outside its jurisdiction may be admitted.
Last year, amendments to the statute enabled Government to enter into tax
treaties with specified territories besides sovereign states. We have commenced
bi-lateral discussions to enhance the exchange of bank related and other
information to effectively track tax evasion and identify undisclosed assets of
resident Indians lying abroad.

Direct Taxes

I shall now deal with direct taxes.
Last year I provided relief to individual taxpayers by enhancing the
exemption limit for all taxpayers and withdrawing the surcharge on personal
income tax. Taxpayers have responded positively to these concessions by
contributing a higher level of taxes. There is a persuasive case for further
relief by broadening the current tax slabs which I propose as follows:

Income upto Rs.1.6 lakh Nil

Income above Rs.1.6 lakh and upto Rs.5 lakh 10 per cent

Income above Rs.5 lakh and upto Rs.8 lakh 20 per cent

Income above Rs.8 lakh 30 per cent
The proposed broadening of tax slabs will provide substantial relief to a
large number of taxpayers.
To promote savings as well as to ensure their utilisation for the thrust
area of infrastructure, I propose to allow a deduction of an additional amount
of Rs.20,000 for investment in long-term infrastructure bonds as notified by the
Central Government. This would be over and above the existing limit of Rs.1 lakh
on tax savings. I am sure that these reliefs will put more money in the hands of
individual taxpayers for both consumption as well as saving.
Besides contributions to health insurance schemes which is currently
allowed as a deduction under the Income-tax Act, I propose to allow
contributions to the Central Government Health Scheme also as a deduction under
the same provision.
Taking forward my initiative of phasing out surcharge, I propose to reduce
the current surcharge of 10 per cent on domestic companies to 7.5 per cent. At
the same time, I propose to increase the rate of Minimum Alternate Tax (MAT)
from the current rate of 15 per cent to 18 per cent of book profits. This will
further promote inter-se equity among corporate taxpayers.
The President, in her address to the Parliament in June 2009, had declared
this decade as the Decade of Innovation. Last year, I extended the scope of
weighted deduction on expenditure incurred on in-house research and development
(R&D) to all manufacturing businesses except for a small negative list. To
further encourage R&D across all sectors of the economy, I now propose to
enhance the weighted deduction on expenditure incurred on in-house R&D from 150
per cent to 200 per cent. I also propose to enhance the weighted deduction on
payments made to National Laboratories, research associations, colleges,
universities and other institutions, for scientific research from 125 per cent
to 175 per cent.
Currently, any payment made to an approved scientific research association
is eligible for weighted deduction. The income of the approved scientific
research association is exempt from tax. I propose that payments made to
approved associations engaged in research in social sciences or statistical
research would be allowed a weighted deduction of 125 per cent. The income of
such approved research associations shall be exempt from tax.
In my Budget Speech last year, I stated that profit linked deductions are
inherently inefficient and liable to misuse. To incentivise businesses in
priority sectors, I introduced investment linked deduction as an alternative to
profit linked deduction. To give a boost to investment in the tourism sector
which has high employment potential, I propose to extend the benefit of
investment linked deduction under the Act to new hotels of two-star category and
above anywhere in India.
To provide one time interim relief to the housing and real estate sector
which was impacted by the global recession, I propose to allow pending projects
to be completed within a period of five years instead of four years for claiming
a deduction on their profits. I also propose to relax the norms for built-up
area of shops and other commercial establishments in housing projects to enable
basic facilities for their residents.
All businesses with a turnover exceeding Rs.40 lakh are currently required
to have their accounts audited. A similar provision also applies to all
professions whose receipts exceed Rs.10 lakh. I, as Finance Minister, had
introduced these limits in my budget of 1984. It is high time to reduce the
compliance burden on small taxpayers. I, therefore, propose to enhance these
limits to Rs.60 lakh in the case of businesses and Rs.15 lakh in the case of
professions.
To facilitate the business operations of small taxpayers, I had extended
the scope of presumptive taxation to all small businesses with a turnover of up
to Rs.40 lakh. To further reduce the compliance burden on small taxpayers, I now
propose to enhance this limit to Rs.60 lakh.
The threshold limits of payments below which tax is not deductible at
source have remained unchanged for a long time. I propose to rationalise these
thresholds.
Relaxing the current provisions on disallowance of expenditure, I propose
to allow deduction of such expenditure, if tax has been deducted at any time
during the financial year and paid before the due date of filing the return.
This will allow most deductors additional time up to September of the next
financial year. At the same time, I propose to increase the interest charged on
tax deducted but not deposited by the specified date, from 12 per cent to 18 per
cent per annum.
Last year, I had provided for the taxation of the newly introduced Limited
Liability Partnership (LLP) on the same lines as exists for a general
partnership firm. To facilitate the conversion of small companies into LLPs, I
propose that this will not be subject to capital gains tax.
Under the current provisions of the Act, "the advancement of any other
object of general public utility" cannot be considered as "charitable purpose"
if it involves carrying on of any activity in the nature of trade, commerce or
business. I have received representations from many organisations seeking some
relaxation in this restriction. I propose that this restriction would not be
applicable if the receipts from such activities do not exceed Rs.10 lakh in the
year.
My proposals on direct taxes are estimated to result in a revenue loss of
Rs.26,000 crore for the year.

Indirect Taxes
The major objectives that have guided me in the formulation of my proposals
on indirect taxes are the need to achieve some degree of fiscal consolidation
without impairing the recovery process and moving forward on the road to GST.
Unlike the time I presented the last Budget, symptoms of economic recovery
are more widespread and clear-cut now. The three fiscal stimulus packages that
the Government introduced in quick succession have helped the process of
recovery significantly. The improvement in our economic performance encourages a
course of fiscal correction even as the global situation warrants caution.
Therefore, I propose to partially roll back the rate reduction in Central Excise
duties and enhance the standard rate on all non-petroleum products from 8 per
cent to 10 per cent ad valorem. The specific rates of duty applicable to
portland cement and cement clinker are also being adjusted upwards
proportionately. Similarly, the ad valorem component of excise duty on large
cars, multi-utility vehicles and sports-utility vehicles which was reduced as
part of the first stimulus package, is being increased by 2 percentage points to
22 per cent.
In the wake of spiralling petroleum prices, Government provided full
exemption from basic customs duty to crude petroleum and proportionately reduced
the basic duty on refined petroleum products in June, 2008. Compared to the
international price of the Indian crude basket of US$ 112 per barrel at that
time, the prices are much softer at present. In view of the pressing need to
move back to a fiscal consolidation path, I propose to restore the basic duty of
5 per cent on crude petroleum; 7.5 per cent on diesel and petrol and 10 per cent
on other refined products. I also propose to enhance the Central Excise duty on
petrol and diesel by Re.1 per litre each.
Since I quit smoking many years ago, I would urge others to also follow
suit, as smoking is injurious to health. To this end, I am making some
structural changes in the excise duty on cigarettes, cigars and cigarillos
coupled with some increase in rates. I also propose to enhance excise duty on
all non-smoking tobacco such as scented tobacco, snuff, chewing tobacco etc. In
addition, I propose to introduce a compounded levy scheme for chewing tobacco
and branded unmanufactured tobacco based on the capacity of pouch packing
machines.
Let me now turn to some much-needed incentives in thrust areas for
sustainable growth and development.

Agriculture & Related Sectors
In supporting the strategy outlined for development of agriculture earlier
in my speech, I propose to address a few key areas that call for focused
attention. These are:

(i) A strong supply chain for perishable farm produce to reach consumption and
processing centres promptly;

(ii) Infrastructure and technology to convert such produce into value-added
products; and

(iii) Infusion of technology to augment agricultural production.
Similar attention needs to be paid to related sectors such as apiary,
horticulture, dairy, poultry, meat, marine and aquaculture.
For achieving these objectives, I propose to provide:

• project import status with a concessional import duty of 5 per cent for the
setting up of mechanised handling systems and pallet racking systems in 'mandis'
or warehouses for food grains and sugar as well as full exemption from service
tax for the installation and commissioning of such equipment.

• project import status at a concessional customs duty of 5 per cent with full
exemption from service tax to the initial setting up and expansion of

» Cold storage, cold room including farm pre-coolers for preservation or storage
of agriculture and related sectors produce ; and

» Processing units for such produce.

• full exemption from customs duty to refrigeration units required for the
manufacture of refrigerated vans or trucks.
I also propose to provide:

• concessional customs duty of 5 per cent to specified agricultural machinery
not manufactured in India;

• central excise exemption to specified equipment for preservation, storage and
processing of agriculture and related sectors and exemption from service tax to
the storage and warehousing of their produce; and

• full exemption from excise duty to trailers and semi-trailers used in
agriculture.
Concessional import duty was provided to specified machinery for use in the
plantation sector in the year 2003. This exemption is to lapse in July 2010. The
modernization of this labour-intensive sector is yet to reach the expected
level. I propose therefore, to extend it up to March 31, 2011 along with a CVD
exemption. I hope this will provide sufficient time for the sector to achieve
the desired objective.
One of the prerequisites for agricultural productivity is access to good
quality and disease-resistant seeds. I propose to exempt the testing and
certification of agricultural seeds from service tax.
I also propose to exempt the transportation by road of cereals and pulses
from service tax. Their transportation by rail would remain exempt.
I propose two measures under the Central Excise law to ease the cash flow
position for small-scale manufacturers hard hit by the economic slowdown. First,
they would be permitted to take full credit of Central Excise duty paid on
capital goods in a single instalment in the year of their receipt. Secondly,
they would be permitted to pay Central Excise duty on a quarterly, rather than
monthly basis. These measures that come into effect on the April 1, 2010 should
provide them considerable relief.

Environment
Harnessing renewable energy sources to reduce dependence on fossil fuels is
now recognised as a credible strategy for combating global warming and climate
change. To build the corpus of the National Clean Energy Fund announced earlier,
I propose to levy a clean energy cess on coal produced in India at a nominal
rate of Rs.50 per tonne. This cess will also apply to imported coal.
In pursuance of Government's resolve to implement the National Solar
Mission, I propose to provide a concessional customs duty of 5 per cent to
machinery, instruments, equipment and appliances etc. required for the initial
setting up of photovoltaic and solar thermal power generating units. I also
propose to exempt them from Central Excise duty. Similarly, ground source heat
pumps used to tap geo-thermal energy would be exempt from basic customs duty and
special additional duty.
Wind energy has shown promising growth in the country in recent years. As a
measure of further relief, I propose to exempt a few more specified inputs
required for the manufacture of rotor blades for wind energy generators from
Central Excise duty.
LED lights are staging a debut as a highly energy-efficient source of
lighting for streets, homes and offices. Central Excise duty on these is being
reduced from 8 per cent to 4 per cent at par with Compact Fluorescent Lamps.
Full exemption from Central Excise duty was provided to electric cars and
vehicles that offer an eco-friendly alternative to petrol or diesel vehicles.
The manufacturers of such vehicles have expressed difficulty in neutralising the
duty paid on their inputs and components. I propose to remedy this by imposing a
nominal duty of 4 per cent on such vehicles. I also propose to exempt some
critical parts or sub-assemblies of such vehicles from basic customs duty and
special additional duty subject to actual user condition. These parts would also
enjoy a concessional CVD of 4 per cent.
The humble cycle rickshaw is now being acclaimed as an environment-friendly
means of transport. CSIR has developed an innovative product called 'soleckshaw'
to replace manually-operated rickshaws. It runs on batteries which are charged
by solar power. I propose to provide a concessional excise duty of 4 per cent to
this product. Its key parts and components are also being exempted from customs
duty.
To encourage the use of bio-degradable materials, I propose to exempt the
import of compostable polymer from basic customs duty.

Infrastructure
Strengthening the public transport system is another means of reducing
dependence on fossil fuels. I propose to grant project import status to
'Monorail projects for urban transport' at a concessional basic duty of 5 per
cent.
Full exemption from import duty is available to specified machinery for
road construction projects on the condition that the machinery shall not be sold
or disposed of for a minimum period of five years. In view of representations
that this leads to idling of machinery, I propose to allow resale of such
machinery on payment of import duty at depreciated value. It is also being
clarified that the importer is free to relocate such machinery to other eligible
road construction projects.
With the subscriber base growing at 14 million per month, India is one of
the fastest growing markets for mobile phone connections in the world. Domestic
production of mobile phones is now picking up in view of exemptions from basic,
CVD and special additional duties granted to their parts, components and
accessories. To encourage the domestic manufacture of accessories, these
exemptions are now being extended to parts of battery chargers and hands-free
headphones. Also, the validity of the exemption from special additional duty is
being extended till March 31, 2011.

Medical Sector
Medical equipment, instruments and appliances are subjected to a very
complex import duty regime based on several long lists that describe individual
items. Multiple rates coupled with descriptions not aligned with tariff lines,
result in disputes and at times prevent state-of-art equipment from getting the
benefit of exemption. I propose to prescribe a uniform, concessional basic duty
of 5 per cent, CVD of 4 per cent with full exemption from special additional
duty on all medical equipment. A concessional basic duty of 5 per cent is being
prescribed on parts and accessories for the manufacture of such equipment while
they would be exempt from CVD and special additional duty. Full exemption
currently available to medical equipment and devices such as assistive devices,
rehabilitation aids etc. is being retained. The concession available to
Government hospitals or hospitals set up under a statute is also being retained.
The manufacturers of orthopaedic implants have represented that their
inputs attract a higher rate of duty than the finished product. I propose to
exempt specified inputs for the manufacture of such implants from import duty.

Infotainment
India is a nation of movie-goers. The film industry has been experiencing
difficulties in importing digital masters of films for duplication or
distribution loaded on electronic medium vis-a-vis those imported on
cinematographic film, owing to a differential customs duty structure. I propose
to rationalise this by charging customs duty only on the value of the carrier
medium. The same dispensation would apply to music and gaming software imported
for duplication. In keeping with the tradition of Indian cinema, however, I
shall provide a surprise ending. In all such cases the value representing the
transfer of intellectual rights would be subjected to service tax.
Cable transmission of infotainment is undergoing a transformation with the
adoption of digital technology. The multi-service operators need to invest in
"Digital Head End" equipment. To enable this, I propose to provide project
import status at a concessional customs duty of 5 per cent with full exemption
from special additional duty to the initial setting up of such projects.

Precious Metals
The prices of precious metals continue to rise. Since the customs duty is
levied on these at specific rates, I propose to index the rates as follows:

• On gold and platinum from Rs.200 per 10 grams to Rs.300 per 10 grams.

• On silver from Rs.1,000 per kg to Rs.1,500 per kg.
Gems and jewellery is a traditional item in our export basket. Rhodium - a
precious metal used for polishing jewellery attracts a basic customs duty of 10
per cent. This is being reduced to 2 per cent.
To encourage domestic refining capacity for gold, I propose to reduce the
basic customs duty on gold ore and concentrates from 2 per cent ad valorem to a
specific duty of Rs.140 per 10 grams of gold content with full exemption from
special additional duty. Further, the excise duty on refined gold made from such
ore or concentrate is being reduced from 8 per cent to a specific duty of Rs.280
per 10 grams.

Other Proposals
Full exemption from import duty is available to specified inputs or raw
materials required for the manufacture of sports goods which are assuming
importance as an item of export. This is being expanded to cover a few more
items.
In order to incentivise the domestic production of microwave ovens, I
propose to reduce the basic customs duty on one of its key components, namely
magnetrons from 10 per cent to 5 per cent.
Presently, there is a value limit of Rs.1 lakh per annum on duty-free
import of commercial samples as personal baggage. I propose to enhance this
limit to Rs.3 lakh per annum.
Industry has represented that the exemption from special additional duty of
4 per cent based on refunds leads to substantial blockage of funds. To ease this
difficulty, I propose to provide an outright exemption from special additional
duty to goods imported in a pre-packaged form for retail sale. This would also
cover mobile phones, watches and ready-made garments even when they are not
imported in pre-packaged form. The refund-based exemption is also being retained
for cases not covered by the new dispensation.
Toy balloons are a source of joy to millions of children. To bring a smile
to their mothers' faces, I propose to fully exempt them from Central Excise
duty.
Some of the other relief measures that I propose are as under:

• Reduction in basic customs duty on long pepper from 70 per cent to 30 per
cent;

• Reduction in basic customs duty on asafoetida from 30 per cent to 20 per cent;

• Reduction in central excise duty on replaceable kits for household type water
filters other than those based on RO technology to 4 per cent;

• Reduction in central excise duty on corrugated boxes and cartons from 8 per
cent to 4 per cent;

• Reduction in central excise duty on latex rubber thread from 8 per cent to 4
per cent; and

• Reduction in excise duty on goods covered under the Medicinal and Toilet
Preparations Act from 16 per cent to 10 per cent.
My proposals relating to customs and central excise are estimated to result
in a net revenue gain of Rs.43,500 crore for the year.

Service Tax
The service sector contributes nearly 60 per cent of the GDP. The service
tax to GDP ratio however, is only around 1 per cent. This sector thus, has
significant potential to augment revenue.
To bridge this gap, I had the option to raise the rate of service tax to 12
per cent as it was before I introduced the third stimulus package. I am not
resorting to this option to maintain the growth momentum and also to bring about
a convergence in the rates of tax on goods and services. I, therefore, propose
to retain the rate of tax on services at 10 per cent to pave the way forward for
GST.
I had another option - to bring all services under service tax. I am not
opting for this either at this stage. I propose, however, to bring certain
services, hitherto untaxed, within the purview of the service tax levy. These
are being notified separately.
I am also proposing certain legislative changes to plug revenue leakages,
to remove distortions and to clarify certain doubts that have arisen over a
period of time. I do not want to waste the precious time of the House
elaborating the details, as they are available in the Finance Bill and other
Budget documents.
Export of services, especially in the area of Information Technology and
Business Process Outsourcing, generates substantial employment and brings in
foreign exchange. I propose to ease the process of refund of accumulated credit
to exporters of services by making necessary changes in the definition of export
of services and procedures.
Accredited news agencies which provide news feed online attract service
tax. Acknowledging the yeoman services of such news agencies in disseminating
news, I propose to exempt such news agencies that meet certain criteria, from
service tax.
My proposals relating to service tax are estimated to result in a net
revenue gain of Rs.3,000 crore for the year.
Copies of notifications giving effect to the changes in customs, central
excise and service tax will be laid on the Table of the House in due course.
My proposals on Direct Taxes are estimated to result in a revenue loss of
Rs.26,000 crore for the year. Proposals relating to Indirect Taxes are estimated
to result in a net revenue gain of Rs.46,500 crore for the year. Taking into
account the concessions being given in my tax proposals and measures taken to
mobilise additional resources, the net revenue gain is estimated to be Rs.20,500
crore for the year.
We have emerged from the global slowdown faster than any other nation. I
did not hesitate in exercising my judgement on the course of action last year
and I have no hesitation in my mind now. Our actions today will determine our
tomorrow.
This Budget belongs to 'Aam Aadmi'. It belongs to the farmer, the
agriculturist, the entrepreneur and the investor. The opportunity is great. The
time is right. I have placed my faith in the hands of the people who, I know,
can be depended upon to rise to any occasion in national interest. I have placed
my faith in the collective conscience of the nation that can be touched to scale
undreamt of heights in the coming years.
Madam Speaker, with these words I commend the Budget to the House.

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Minister of Finance Budget Speech 2009.

India New Budget 2010-2011

Speech of Pranab Mukherjee

New India Budget

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