<b>XI LOK SABHA DEBATES, <i> Session IV (Budget) </i> </b> XI LOK SABHA DEBATES, Session IV (Budget) Wednesday , May 7, 1997 / Vaisakha 17, 1919 (Saka)
Type of Debate: BUDGET (GENERAL)
Title: The Finance Bill, 1997. (Not Concluded) Motion for Consideration TEXT : 15.24 hrs.MR. CHAIRMAN: The House shall now take up Finance Bill, 1997. Eight hours have been allotted for all the three stages of this Bill. If the House clause-by-clause consideration, and one hour for third reading. Do the Members agree with this?
SEVERAL HON. MEMBERS: Yes.
MR. CHAIRMAN: Shri Chidambaram.
THE FINANCE MINISTER (SHRI P. CHIDAMBARAM): I beg to move:
"That the Bill to give effect to the financial proposals of the Central Government for the financial year 1997-98, be taken into consideration."
Mr. Chairman, Sir, a great deal has happened since the Budget for 1997-98 was presented in this House on February 28, 1997. The past is past. The economy beckons.
I appeal to the hon. Members to look to the future with renewed vigour, confidence and hope.
The foundation of this Budget remains the Common Minimum Programme of the United Front Government and the broad objectives of this Budget are the same as for the United Front's first Budget presented in July, 1996. Among these are to accord priority to fiscal prudence, inflation control and macro -economic stability, to ensure raid growth of employment through broad-based expansion of agriculture, industry and services, to focus on the needs of the poor and ensure provision of basic minimum services under a time-bound programme, to promote higher savings and investment, especially, in infrastructure sectors, to devote special efforts towards promoting human development.
When this Budget was presented in Parliament 69 days ago, it gave a strong boost to confidence in the Indian economy both in India and abroad. In spite of a period of political uncertainty, there have been noteworthy economic gains over the past two months. Let me highlight some of these gains. Foreign currency reserves have risen from U.S. $ 19.7 billion on February 28, 1997 to U.S. $ 22.7 billion on May 6, 1997, that is at the rate of over $ 300 million per week.
The annual rate of inflation has declined from 7.78 per cent in the last week of February, 1997, prior to the Budget to 6.54 per cent in the week ending 19 April, 1997. Inflation has remained in single digit throughout the period of United Front Government and this week is the 106th week it has remained so. The average inflation of 1996-97 was 6.3 per cent well below the average inflation of 7.6 per cent in the previous year.
The rupee has remained remarkably stable against the dollar, during the last nine months, the value has hovered around Rs. 35.80 to the dollar.
Open market prices of wheat which were ruling at unusually high levels at an average of Rs. 730 per quintal (for dara) in the Delhi markets in February, 1997 have since come down to the range of Rs. 510-Rs. 525 per quntal in the first few days of May. Wheat procurement has also picked up and the Miistry of Food expects procurement to exceed last year's level of 8 million tonnes.
The news on food production is good and output in 1996-97 is estimated at a record 192 million tonnes.
On April 15, 1997, the Reserve Bank of India announced a path-breaking credit policy aimed at sweeping away bureaucratic bottlenecks to the growth of credit, reducing the segmentation between domestic credit and foreign exchange markets, reviving the bank rate as an instrument of policy and catalysing a reduction in interest rates something which is already happening.
Stock market prices, as reflected in the Sensex of Mumbai Stock Exchange remained at an average level of about 3450 in February, 1997. After the Budget was presented, the Sensex rose sharply, and despite political vicissitudes has remained at a fairly high level of 3700-3800 in the last two months.
In one area, industrial production, the date that has become available since the presentation of the Budget shows a sluggishness in industrial growth in the months of November and December, 1996. Overall industrial growth in the period April-December, 1996 was 8.3 per cent and the manufacturing sector grew at 10.1 per cenbt. Even so, our sights must be set higher. Industry can and should be growing at a rate of at least 12 per cent. The current slow down has sharpened the urgency to have the kind of pro-growth, pro-investment Budget that was presented on February 28, 1997. I am confident that this Budget, combined with the new Credit Policy, will provide the necessary stimulus and be just the right tonic to restore the momentum of industrial growth and expansion. I would urge industry to invest. This is the time to raise funds in the capital market, borrow from banks and finanicial institutions to invest.
I assure this House that I shall keep investment trends in industry under constant review and would be prepared to take further steps if they are needed to boost investment.
The real constraints to the rapid growth of output and employment in our economy, today, are in key, highly regulated and underfunded infrastructure sectors of power, petroleum, telecommunications, roads and ports. I shall not recount a large number of initiatives taken by the UF Government in these sectors both before the Budget and in the Budget itself. Suffice to us say, our Government is steadily but surely removing bottlenecks that have held back the inflow of investment and technology into sectors like oil, telecom, roads and ports. I do, however, wish to make special reference to the power sector.
The power sector fared poorly in the Eighth Plan period of 1992-97. Against a target of 30,538 M.W., the actual capacity addition was around 18,000 M.W. The Ninth Plan target for capacity addition is 38,000 M.W. Resources to meet this target have to be mobilised.
The Revised Estimate for Plan investment in the nine central public enterprises in the power sector in 1996-97 was Rs.5,508 crore of which Rs.2,068 crore was budgetary support. The 1997-98 plan outlay for these nine enterprises has been fixed at Rs.6818 crore for which I had originally provided Budgetary support amounting to Rs.2,320 crore.
After the presentation of Budget in February, I have had extensive discussions with Ministry of Power with a view to increase public investment in power. Based on these discussions, I am happy to announce two new initiatives that will increase the budgetary support for power in the 1997-98 central plan by about Rs.900 crore.
First, an additional Rs.700 crore will be provided during the course of the year as budgetary support for the central plan to quicken the pace of implementation of selected projects of the National Hydro Electric Corporation, The North East Power Corporation, The Tehri Power Corporation and the Damodar Valley Corporation.
Second, an additional Rs.200 crore will be provided as budgetary support in 1997-98 to the Power Finance Corporation for funding renovation and modernisation schemes of existing power plants run by State Electricity Boards.
These two initiatives that I am announcing today will expedite the commissioning of about 6,000 M.W. of power generating capacity over the next two to three years.
Mr. Chairman, let me, now, say a word about the tax strategy of this Budget. The experience of the 1990s has clearly demonstrated that a strategy which combines lower tax rates with a wider tax base and more effective tax administration leads to good results in respect of both economic productivity and revenue collections. This Budget takes one more bold step in this direction. Our tax proposals are also consciously aimed at making us competitive with the high performing Asian economies.
But there is another side to a lower tax strategy that is often overlooked. It leave more income in the hands of the people who have clearly demonstrated their capacity for high savings and wise investment decisions. I wish to remind the hon. Members that households in India are the best savers and their savings rate has averaged about 19 per cent of GDP in the Eighth Plan period.
Direct tax collections are only projected to increase in 1997-98 by about 15 per cent in line with anticipated growth of nominal GDP. Annual growth in each of the past three years has been higher. Nevertheless, I intend to pay close attention to revenue performance throughout the year and shall take all necessary measures to ensure that the Budget targets are met.
As the hon. Members are aware that over the years, the Budget Speech has become a vehicle for Government to announce certain policy initiatives; my Budget Speech was not an exception. Leaders of all political parties who met me have articulated their views on a number of policy questions, particularly, Budget Support for new investments in public sector enterprises, disinvestment as an instrument of public sector reforms, revival of sick industries, dereservation of the small scale sector and restructuring of the insurance sector.
These are matters on which I, as well as my colleagues--the Ministers concerned--will have an opportunity to state the Government's point of view during the debate as well as on other occasions. So far as new investments in the public sector enterprises are concerned, I may point out that in 1997-98, the Plan investment in public sector enterprises is estimated to be Rs.63,309.52 crore. Out of this, Rs.4,829.94 crore will be budget support as equity and Rs.2,771.21 crore will be budget support as loans. These investments are large and we owe it to the people of India, whose money we either tax or borrow, that public sector enterprises show better returns on these investments.
As regards revival of sick industries, I have already assured the House that funds will be provided to revive all revivable sick industries where revival plans are approved by the BIFR and accepted by the Government. On disinvestment, the Govenment is carrying out the policy outlined in the Common Minimum Programme. On the insurance sector, a Bill to establish the Insurance Regulatory Authority as a statutory body will come up before the House and that will provide an occasion for a debate on the subject.
A coherent strategy has been evolved to widen the tax net. For this purpose, on the direct tax side I have already proposed amendment of Section 139 of the Income Tax Act so as to cast an obligation on those residents of large metropolitan cities who satisfy any two of the four specified economic criteria to file their income tax return.
The new Estimated Income Scheme for retail traders has also been proposed with the same objective in view. The Voluntary Disclosure Scheme announced by me in my Budget speech is expected to bring in a number of new tax payers. I also intend to accelerate computerisation in the Income Tax Department and also tighten the enforcement of legal provisions.
On the indirect tax side, in my Budget proposals I had outlined a number of measures to widen the tax base and improve tax collections, which include legislative measures to charge excise duty on the basis of capacity of production in respect of goods prone to evasion of excise duty; provision for charging excise duty on the basis of retail sale price on select commodities which are subject to MRP; withdrawal of full exemption and imposition of nominal excise duty on a number of commodities; widining of the service tax levy by bringing in a number of services under the tax net; and lowering of customs and excise duties on a number of commodities.
I am confident that the measures outlined above will result in growth of industry, improved tax compliance and increased revenues.
I also wish to assure the House of my resolve to see that nobody who should be inside the tax net would remain out of it.
In the last few days, Sir, I had an extensive consultations and useful discussions with the major political parties. I am told that this is an innovation and it is my hope that post-budget consultation will not only become an accepted convention but will promote greater consensus in the budget-making process. The Congress-I, the parties of the Left Front and the BJP have, during the consultations, supported many of my proposals. At any rate they did not oppose many proposals. They also made many valid suggestions. Many hon. Members have also met me and made useful suggestions. I am deeply grateful to all of them for fully involving themselves in the process of making a budget.
It is not surprising that some of the suggestions are common to all political parties. Naturally, I am more easily persuaded to accept such suggestions. I also acknowledge that each of the three Groups made some exclusive points. I am to happy to state that I have been able to accept some of these suggestions as well. I wish I could have done more but I have to keep in mind the important interest of the revenue.
Sir, I now turn to the changes I propose in the clauses pertaining to direct taxes.
Clause 3 of the Bill, inter alia, proposes to withdraw the tax exemption on income by way of lease rent paid by an operator of aircraft to a foreign enterprise. It is being represented that this will hit the airlines company badly including Indian Airlines and Air India particularly because the existing agreements between them and the foreign lessors have been made taking into account the said income tax exemption. I find merit in the grievance and, therefore, propose to withdraw the exemption only in respect of agreements entered into on or after 1-4-1997. As a measure of rationalisation, I also propose that there will not be a grossing up of income, that is, the tax paid on the lease money under agreements entered into on or after 1-4-197 will be exempt from tax.
Clause 5 of the Bill proposes to allow weighted deduction on expenditure of capital nature incurred by a company on in-house scientific research. The intention was to allow such weighted deduction on capital as well as revenue expenditure. However, this was not correctly reflected in the Finance Bill. I, therefore, propose to rectify this and some other drafting errors.
Clause 6 of the Bill proposes to allow amortisation of expenditure incurred as fee for obtaining licences to operate telecommunication services. This benefit is allowed prospectively with effect from 1st April, 1998. However, representations have been received that the said benefit should be allowed with effect from 1st April, 1996 which is the beginning of the fiscal year when the first telecom licence was issued. There is merit in these representations. Hence I propose to change the date to 1st April, 1996.
Clause 14 of the Bill proposes to introduce special provisions for computing profits and gains of a retail business on presumptive basis. It has been represented that profits of a firm should be computed after excluding salary and interest paid to partners in accordance with the limits laid down in Section 40(b) of the Income-tax Act. It has also been represented that the requirement of maintenance of accounts and audits thereof in the case of an assessee who does not offer income on presumptive basis is sufficient and there is no need for compulsory scrutiny by the Assessing Officer. After careful consideration, I accept both these demands and, accordingly, propose suitable amendments.
Clause 25 of the Bill which proposes amendments to Section 80-IA of the Income-tax Act requires a few further changes. I propose to give effect to the decision to allow tax holiday to production of mineral oil in North-Eastern States. For the purposes of tax holiday to hotels located in a hilly area or a rural area or a place of pilgrimage, I propose to change the date of commencement of business from 1st April 1998 to 1st April 1997.
Clause 30 of the Bill proposes to amend Section 88(2)(xvi) of the Income-tax Act with a view to extending the benefit of additional tax rebate to investment in telecom sector as is available to other infrastructure sectors. It was represented that bonds and shares issued by public financial institutions should also be eligible for this benefit. The omission was unintentional and is being corrected now.
Clause 37 proposes to amend Section 115JA of the Income-tax Act regarding Minimum Alternate Tax so as to exclude the profits derived from the export of goods or merchandise to which Section 80HHC applies from the purview of MAT. I propose to extend the exclusion to profits derived from export of software which are exempt under Section 80HHE of the Income-tax Act.
Clause 38 of the Bill which proposes to provide a mechanism for carry forward of MAT also requires certain clarificatory amendments which are proposed to be made.
Clause 40 of the Bill provides for levy of additional tax on distributed profits of domestic companies. Certain clarificatory amendments which are necessary are proposed to be made including an amendment to Section 32 of the Unit Trust of India Act, 1963 to omit Sub-Section (3) thereof.
Chapter IV of the Bill introduced the Voluntary Disclosure of Income and Wealth Scheme 1997. None of the political parties which met me opposed the scheme. The provisions of this scheme were considered in the light of suggestions received from various quarters and it has been decided that disclosure may be allowed only under the Income-tax Act 1961. It is, therefore, proposed to rename the scheme as `Voluntary Disclosure of Income Scheme, 1997'.
There will, however, be no liability for payment of wealth tax, if any, arising out of such disclosed income for the past period and any liability to wealth tax will be only prospective.
It is also proposed that in a case of disclosure of investment in jewellery made in a year earlier than the Assessment Year 1987-88, the market value of the jewellery may be taken as its value on 1st April, 1987 for the purpose of computation of the amount disclosed.
There are some other minor or consequential amendments which are self-explanatory and I shall not elaborate them.
In my budget proposals presented on 28th February, I had proposed reduction in the peak rate of customs duty from 50 per cent to 40 per cent. I had also proposed reduction in customs duty on chemicals and capital goods. In addition to these I had proposed some reduction in customs duty on coal and coke and on some other goods.
On the excise side, I had made several proposals to further rationalise the duty rates and widen the tax base. I had also proposed to introduce some new services into the tax net.
Many hon. Members have made very useful suggestions. I express my gratitude on this account. In deference to their wishes, I am inclined to make certain changes in my budget proposals relating to customs and excise.
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