XI LOK SABHA DEBATES,   Session IV (Budget) 

Friday, February 28, 1997 / Phalguna 9, 1918 (Saka)



Type of Debate: BUDGET (GENERAL)

Title: General Budget for 1997-98.

TEXT :
  The Lok Sabha re-assembled at one minute past Seventeen of the Clock.


 (Mr. Speaker in the Chair)


MR. SPEAKER: Mr. Finance Minister.

THE MINISTER OF FINANCE AND MINISTER OF COMPANY AFFAIRS (SHRI P. CHIDAMBARAM):

TEXT OF BUDGET SPEECH

 Budget Speech - PART A
Introduction

The government headed by Prime Minister Shri Deve Gowda completes 9 
months today. When I stood before this House on July 22, 1996, this House 
received my proposals with a mixture of wonder, curiosity and scepticism. I 
was, after all, the Finance Minister of the first genuine coalition government 
at the Centre. I was also the first Finance Minister who belonged to an avowed 
regional party, albeit with a national outlook.

 Hon'ble Members will indulge me for a few minutes while I reflect on 
those eventful days in May 1996. One national party acknowledged that it had 
lost its claim to form the government. Another tried, but failed. It is in 
that situation that regional parties, and certain parties with a larger 
national presence, came together to form the United Front government. These 
parties long regarded as children of a lesser God have demonstrated that, 
given the opportunity, they can form a government not only at the State level 
but also at the Centre. Inspired by the idea of a truly cooperative federal 
polity, Chief Ministers have assembled, more often than ever before, at the 
Inter-State Council, the National Development Council and at Special 
Conferences to formulate national policies. The formation of the government by 
the United Front and our efforts to take decisions by a national consensus, in 
the fiftieth year of India's independence, have deepened and broadened Indian 
democracy.

 Hon'ble Members will find that there is a strong continuity between my 
first Budget and the present one. The foundation of the Budget remains the 
Common Minimum Programme. The experience of the last eight months has 
demonstrated the enormous strengths of the programme. Drawing on the CMP, my 
first Budget articulated seven broad objectives. These objectives embraced 
vital elements such as growth, basic minimum services, employment, 
macroeconomic stability, investment (particularly in infrastructure), human 
development and a viable balance of payments. I believe these objectives 
remain as valid today as they were eight months ago.
 July 1996 Budget & Current Economic Situation
 On the last occasion, I had made over forty specific promises on policies 
and programmes. I have carefully taken stock of the situation, and Hon'ble 
members will be pleased to know that I have fulfilled all these promises, save 
one, to which I shall refer presently. To recall the more important ones, I am 
happy to state that we have

 Provided an additional sum of Rs.2466 crore to the States for seven Basic 
Minimum Services;
 Funded the Rural Infrastructure Development Fund (RIDF)-II with Rs.2500 
crore;
 Expanded the list of industries eligible for automatic approval for 
foreign equity investment;
 Set up the Disinvestment Commission and the Tariff Commission;
 Introduced the Jeevan Suraksha and the Jan Arogya insurance schemes; and

 Launched the Accelerated Irrigation Benefit Programme.

 The one commitment that I have been unable to keep is to set up an 
Expenditure Management and Reforms Commission. I failed because I wanted an A 
team and I was not content with a B team. Key members of the A team are in 
this House and in the Rajya Sabha, and they still elude me. I shall keep 
trying. Meanwhile, I have not let up on my resolve to keep expenditure within 
the Budget, and I have achieved a fair measure of success.

 Current Economic Situation

 The Economic Survey 1996-97 was laid in Parliament a few days ago. It 
provides a detailed and balanced account of the state of the economy. There is 
indeed much to be done, but there is also much to be proud of. The outstanding 
feature of the economy is that the GDP has been growing during the last three 
years at an average rate of 7%. I salute the farmers, the workers, the 
entrepreneurs and the service providers who have made this possible.

 The positive features of our economic performance in 1996-97 include:

 Continued high economic growth at 6.8%;
 A strong recovery of growth in agriculture and allied sectors to 3.7%, 
after a disappointing minus 0.1% in 1995-96;
 Rebound in foodgrains production to 191 million tonnes;
 Manufacturing sector growth at 10.6%; and
 A sizable build up in our foreign currency reserves from US$ 17.0 billion 
to US$ 19.5 billion as on February 27, 1997.

 I shall not be true to myself or to the country if I did not highlight 
the areas of weakness. Two areas of great concern are the sharp drop in 
domestic crude oil production and the sluggish performance of the power 
sector. Other matters of concern include a deceleration in the growth of 
exports, a rise in the rate of inflation and a volatile capital market. 
Government has addressed these concerns through some far-reaching initiatives 
in the last three months. I have also fresh proposals in this Budget.

 Macroeconomic management involves, inevitably, striking a balance between 
various objectives and considerations. As Hon'ble Members are aware, in 
1995-96, the growth in money supply was reduced sharply to 13.2%. Although 
this helped to contain inflation, it also led to high real interest rates, a 
widespread perception of a liquidity crunch and a slackening of investment 
proposals. Since June 1996, corrective action has been taken which has eased 
the availability of money and brought down the interest rates. The 
long-delayed increase in the prices of petroleum products and supply-side 
problems, arising mainly out of lower production and lower procurement of 
wheat in the last season, exerted pressure on the price level. Government has 
taken a number of steps to maintain price stability. Paddy production and 
procurement in the Kharif season have been satisfactory and we have adequate 
stocks of rice. The Rabi wheat crop is also very promising and steps will be 
taken to maximise procurement. At the same time, I would like to make it clear 
that, if necessary, government will not hesitate to import wheat and other 
essential articles to counter the pressure on prices. Maintaining price 
stability is high on the agenda of this government.

 Apart from supply side management, we have to adopt prudent fiscal and 
monetary policies that will stabilise prices. For the year 1997-98, government 
and the RBI will act in concert towards a further reduction in the fiscal 
deficit, containment of the growth of money supply within 16% and adoption of 
a liberal import policy for essential commodities. Our goal is to break 
inflationary expectations and reduce the rate of inflation from the present 
level.
 Poverty Alleviation Programmes
 Our fight against poverty is not a game in populism. It is a battle at 
the grassroots level. It is a battle in which, I believe, all of us ought to 
be on the side of the poor. Those who are poor are those who do not have land 
or water or education or opportunity. Our programmes, therefore, revolve 
around the concerns of the poor. For example

 The flagship programme of the Prime Minister is the Basic Minimum 
Services plan. As against Rs.2466 crore in the current year, I propose to 
provide Rs.3300 crore for this programme in 1997-98. This will include Rs.330 
crore for slum development.
 The provision for the Accelerated Irrigation Benefit Programme is being 
enhanced from Rs.900 crore to Rs.1300 crore in 1997-98.
 The Ganga Kalyan Yojana is intended to support farmers to take up schemes 
for groundwater and surface water utilisation through a mixture of subsidy, 
maintenance support and credit arrangements. Rs.200 crore is being provided in 
1997-98.
 On August 15, 1997, the Prime Minister will inaugurate the Kasturba 
Gandhi Shiksha Yojana, a programme to establish special schools for girl 
children in the districts which have a particularly low female literacy rate. 
I have placed Rs.250 crore in the Budget for 1997-98.
 All current self-employment schemes, addressed to different target groups 
such as PMRY, IRDP, NRY etc., will be re-orientated to provide skill-based 
training, entrepreneurship development and subsidy-linked bank credit to 1 
million youth to empower them to start viable small businesses.

 Our government believes that poverty alleviation programmes are important 
instruments in the fight against poverty. While maintaining the large outlays 
for these programmes, it is necessary to rationalise their number and make 
them more focussed and effective. The Planning Commission is now engaged in a 
comprehensive exercise and the revised portfolio of poverty alleviation 
programmes will be implemented with effect from April 1, 1997.

 Rural Credit

 Agriculture is the lifeblood of our economy. The CMP calls for a doubling 
of the flow of credit to agriculture and agro-industries within five years. In 
1996-97, the first year of this government, it is estimated that credit flow 
to agriculture will increase from about Rs.22,000 crore to nearly Rs.28,600 
crore an increase of an unprecedented Rs.6,600 crore.

 Hon'ble Members will be glad to know that the Rural Infrastructure 
Development Fund (RIDF) has proved to be popular and successful. Under RIDF-I, 
Rs.2,000 crore was sanctioned for 4,530 projects. By March 1997, disbursements 
will amount to about Rs.1,400 crore. Under RIDF- II, 8,387 projects worth over 
Rs.2,500 crore have been sanctioned. RIDF III will be launched in 1997-98 and 
Rs.2500 crore will be provided. I urge the States to continue to make the best 
use of these funds.

 The policy of recapitalising the Regional Rural Banks (RRBs) will 
continue next year. I am providing Rs.270 crore for this purpose. I also 
intend to allow a greater role to sponsor banks in the ownership and 
management of RRBs.

 NABARD is being strengthened. NABARD has been given Rs.500 crore as 
advance additional share capitalRs.100 crore by government and Rs.400 crore 
by RBI in the current year. The share capital will be augmented by a similar 
allocation in 1997-98. I am also glad to announce that, as promised last year, 
NABARD has promoted and incorporated this month state level agricultural 
development finance institutions in three States as joint ventures. More will 
be incorporated next year.

 Controls on Agriculture

 The CMP said that all controls on agricultural products will be reviewed 
and, wherever found unnecessary, will be abolished. Only some regulations are 
by the Central government, and a beginning is being made by abolishing a few. 
The Rice Milling Industries (Regulation) Act, 1958 and the Ginning and 
Pressing Factories Act, 1925 will be repealed. Licensing, price control and 
requisitioning under the Cold Storage Order, 1964 will removed. The Edible 
Oils and Edible Oil Seeds Storage Control Order, 1977 and the Cotton Control 
Order, 1986 will be invoked only in well-defined emergency situations. 
Domestic futures trading would be resumed in respect of ginned and baled 
cotton, baled raw jute and jute goods. An international Castor Oil Futures 
Exchange will be set up. I urge State governments to follow this lead and 
abolish as many controls as possible.

 Small Scale Industry

 As Hon'ble Members are aware, government has recently enhanced the 
investment ceiling for plant and machinery of small scale industries (SSIs) to 
Rs.3 crore and of tiny units to Rs.25 lakhs. In order to ensure that credit is 
available to all segments of the now-enlarged SSI sector, the RBI is issuing 
instructions that out of the funds normally available to the SSI sector, 40% 
will be reserved for units with investment in plant and machinery upto Rs.5 
lakhs, 20% for units with investment between Rs.5 lakhs and Rs.25 lakhs and 
the remaining 40% for other SSI units.

 Government also announced recently that it will examine carefully the 
other recommendations of the Abid Hussain Committee on the SSI sector. With a 
view to reduce wastage in agricultural commodities, improve quality and 
hygiene and promote exports, the Advisory Committee on reservation and 
dereservation has recommended that 14 items, now reserved for manufacture in 
the SSI sector, may be dereserved. 822 items would still remain reserved for 
production in the SSI sector. Government has accepted these recommendations. 
The dereserved items include rice milling, dal milling, poultry feed, vinegar, 
synthetic syrups, biscuits, ice cream, a variety of automobile parts and 
corrugated paper and boards. It is expected that new investment and improved 
technology will flow into these businesses.
 Housing

 A constraint on adding to the housing stock of the country is the Urban 
Land (Ceiling and Regulation) Act, 1976. It is the intention of the government 
to move a Bill for amending the Act in this session of Parliament.

 Indira Awas Yojana was launched to build houses for the poor in rural 
areas. Housing finance companies provide credit, but the bulk of such credit 
flows into the urban and semi-urban areas. There are some rural housing credit 
programmes but they lend meagre amounts upto Rs.10,000. There is virtually no 
source of credit for the farmer who wishes to build a modest house on his 
freehold land or to improve or add to his old dwelling. This gap must be 
filled. In consultation with the National Housing Bank (NHB) and others, I 
have worked out a plan. Loans, upto Rs.2 lakhs, will be given for building 
houses on freehold land in rural areas at normal rates of interest, subject to 
the borrower putting in one-third of the value of the house. NHB has been 
requested to prepare a scheme in which other organisations will also 
participate. The Prime Minister will launch the scheme on August 15, 1997 and 
it is our goal to sanction 50,000 loans in the first year.
 Employees' Provident Fund & Gratuity

 The Central Board of Trustees of the Employees' Provident Fund (EPF) has 
made specific proposals to make the EPF schemes financially more attractive. 
Government has also looked at the matter from the point of view of augmenting 
savings. I am happy to announce the following decisions:

 The rate of contribution in all industries and establishments will be 
increased from 8.33% to 10% for both employers and employees with effect from 
March 1, 1997.
 In the scheduled industries where the rate of contribution is now 10%, 
the Act will be amended to make the rate 12% for both employers and employees.

 The requirement of keeping 20% of incremental PF amounts in the Special 
Deposit Scheme (SDS) will be withdrawn with effect from April 1, 1997 and the 
Board of Trustees will be free to invest this portion of the funds in any of 
the other three kinds of permitted securities.

 In 1995, the Central government enhanced the ceiling on the amount of 
gratuity payable from Rs.1 lakh to Rs.2.5 lakh for Central government 
employees. I am now pleased to announce that the benefit will be extended to 
all employees covered under the Payment of Gratuity Act, 1972, which will be 
amended for this purpose.

 Public Sector Autonomy

 The CMP promised that "the United Front government will identify 
public sector companies that have comparative advantages and will support them 
in their drive to become global giants." To begin with, nine 
well-performing public sector enterprises, the Navaratnas, have been 
identified. These are IOC, ONGC, HPCL, BPCL, IPCL, VSNL, BHEL, SAIL and NTPC. 
The Industry Minister will shortly unveil a package of measures that will help 
them achieve this objective. He will also make a full statement on managerial 
and commercial autonomy to all PSUs.

 In the meanwhile, government has decided to delegate more monetary powers 
to the Boards of profit-making enterprises. For these PSUs, the existing 
limits for capital expenditure that can be incurred without the prior approval 
of the government is being doubled straight-away, and where the gross block is 
over Rs.500 crore, the limit will be Rs.100 crore.
 Disinvestment

 The Disinvestment Commission was constituted in August, 1996 and 40 PSUs 
were referred to the Commission for advice. The Commission has submitted its 
first report. It has made specific recommendations in respect of three 
companies. We intend to proceed with the disinvestment in these companies 
along the lines suggested by the Commission. While the Commission will make 
further reports every month, a second batch of PSUs has been referred to the 
Commission. As the Commission has observed "The essence of a long-term 
disinvestment strategy should be not only to enhance budgetary receipts, but 
also minimise budgetary support towards unprofitable units while ensuring 
their long-term viability and sustainable levels of employment in them." 
Government agrees with this view and I would appeal to Hon'ble Members to take 
a positive view of disinvestment.

 Oil and Gas

 The country's demand for petroleum products is growing at over 8% per 
annum, which is faster than the growth of domestic supply. We cannot choke 
this growth. At the same time, we must reduce our dependence on imported 
petroleum products. There is no real alternative to increasing the supply. 
Just 6 of the 26 basins that have potential for oil and gas in India have been 
explored, and that too only partially. The Minister of State for Petroleum and 
Natural Gas will be making a detailed statement on the new exploration 
licensing policy (NELP) shortly. The highlights of the policy are the 
following:

 Companies, including ONGC and OIL, will be paid the international price 
of oil for new discoveries made under the NELP;
 Royalty payments will be fixed on an ad valorem basis instead of the 
present system of specific rates;
 Royalty payments for exploration in deep waters will be charged at half 
the rate for offshore areas for the first seven years after commencement of 
commercial production;
 Freedom for marketing crude oil and gas in the domestic market;
 Tax holiday for seven years after commencement of commercial production 
for blocks in the North-East region;
 ONGC and OIL will get the same duty concessions on import of capital 
goods under the NELP as private production sharing contracts;
 Cess levied under the Oil Industry Development Act, 1974 will be 
abolished for the new exploration blocks; and
 A separate petroleum tax code will be put in place as in other countries 
to facilitate new investments.
It is my fervent hope that Indian and foreign companies will respond 
positively to this package of measures.

 In order to ensure that adequate domestic refining capacity is created, I 
propose to allow refineries to import capital goods during the Ninth Plan 
period at a concessional duty on par with the fertiliser sector. Domestic 
capital goods suppliers will also get deemed export status.
 Infrastructure

 The Infrastructure Development Finance Company has been incorporated. 
Section 80IA of the Income Tax Act grants a five year tax holiday for certain 
infrastructure projects. Last month, I announced that telecommunication will 
qualify as infrastructure. I now propose to add Oil Exploration and Industrial 
Parks to this category.

 I am also glad to announce that the vexed question of assignability of 
telecom licences has been resolved and that tripartite agreements are proposed 
to be entered into among the Department of Telecommunications, the licencee 
and the lenders.

 As Commerce Minister, I proposed in the Exim Policy that supply of goods 
to oil, gas and power projects, if the supplies are made under the procedure 
of international competitive bidding, should be given the benefits of 'deemed 
exports'. As Finance Minister, I am glad to accept this wholesome proposal. 
Details are being notified separately.

 The National Highway Authority of India (NHAI) is now geared to implement 
the new policy on roads and highways. I propose to enhance budget support for 
NHAI to Rs.500 crore which is a significant step up from Rs.200 crore provided 
in the current year.



[NEXT PAGE]